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mpr
Joined: 06 Jun 2009
Posts: 344
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 Posted: Wed Jun 10, 2009 4:07 pm GMT Post subject: |
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| balor123 wrote: | That 17% analysis assumed interest rates stay at 2007 levels of 6.32% by the way so if you bought a house when interest rates were at 4.75% then you would gotten a 16% discount, still not quite 17%.
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I think we're a little below 1980 levels at this point, because Case-Schiller
says we're down about 15% since then, plus you get the discount in interest rates.
However there are at least two other factors I can think of which make the
comparison with 1980 even more flattering:
1) Its a general trend that people spend a higher percentage of their real
income on housing. This is reflected in the fact that the quality of housing
is much higehr now than in 1980. This is not irrational since growth
in real wages has far outpaced growth in the costs of staples like
consumer goods, food etc.
2) I think the effect of interest rates may be more pronounced than
a straightforward affordability analysis would indicate, since
there are opportunity cost issues involved. Think
of the extreme situation where rates where 100%. You'd probably
just decide to save and buy with cash rather than buy at any price.
Indeed in 1980 savings rates were much higher. We saw the flip
side of this with ultra low rates where people were jumping
into housing at any price. (I dont claim that was completely rational
of course !). |
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BostonObserver
Joined: 09 May 2009
Posts: 8
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| Posted: Wed Jun 10, 2009 5:53 pm GMT Post subject: |
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We rent and don't really worry much about what others think. Yeah, we would love to own a home, but we rent a nice place and would rather wait until we are absolutely sure we can afford to buy before we do so. The way the market is behaving, I can't see much risk in waiting another year or two (or even three).
And I'll admit, having a cash cushion is comforting in times like these. Remember the quote from Dickens - "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery." |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Thu Jun 11, 2009 2:31 am GMT Post subject: |
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| john p wrote: | | Baylor, that post was awesome |
Thanks. I was surprised by the results. I expected 1980 to look a lot more affordable.
| john p wrote: |
Two other points I'd add are that one: you compared per capita income, we know that there is a much higher percentage of women working now so dual incomes is becoming the norm, and women are making a lot more than in 1980 (remember the movie Tootsie?). In fact, aren't fewer women unemployed than men right now? |
I compared per capita income because I think people will do what it takes to live. You can have two income families in any city but you only find them on the coasts because that's the only place it's needed to make a living.
| john p wrote: |
This made the housing stock fatigue because people weren't maintaining the properties. Rent control and government protection of deadbeats made rental units unattractive so we didn't build more units. Snob zoning limited growth/supply in suburbs. Boston becoming a college town increased demand on rental units, and the higher educated population led us to becoming more of a white collar area and we started to pump a lot of wealth from other areas of the world. |
Actually, a lot of the housing was in better shape then. There was a big housing boom in the 70s in the Boston suburbs. We're still living in those houses today with only surface renovations if any at all.
| john p wrote: |
Lots of people seem to think that the party is over in Boston and areas like Texas and Virginia are entering that sweet spot where you have a low cost of living and a growing educated workforce. |
Businesses simply can't afford to operate here anymore. Even if a DEC wanted to start up, the cities won't allow enough housing to be built to accommodate them. Attempts at displacing the existing homeowners with higher wages results in more affordable housing squeezing out the middle class, the same people they're trying to bring in. The deal we seem to get instead is to squeeze more out of what we have. We don't get paid proportionally to the cost of living so we cram more people into houses (by subdividing or cramming a family of 3-4 into 2-3 bedrooms). |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Thu Jun 11, 2009 2:41 am GMT Post subject: |
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| mpr wrote: |
I think we're a little below 1980 levels at this point, because Case-Schiller
says we're down about 15% since then, plus you get the discount in interest rates. |
Interest rates were factored in and we're a little above, though it's entirely possible that my data is noisy. Prices need to drop 17% but with the recent uptick in mortgage rates we're only at about 14%.
| mpr wrote: |
However there are at least two other factors I can think of which make the
comparison with 1980 even more flattering: |
It's the year that I was born so it's a great way to compare my parent's and me. Except my parents were living in Texas. My parents' peers then.
| mpr wrote: |
1) Its a general trend that people spend a higher percentage of their real
income on housing. This is reflected in the fact that the quality of housing
is much higehr now than in 1980. This is not irrational since growth
in real wages has far outpaced growth in the costs of staples like
consumer goods, food etc. |
I would dispute that. Houses were newer back then and we don't know much about how much space people were getting back then versus now. Certainly the construction costs have come down. You are correct that wages have far outstripped prices of commodities which actually explains why houses would have deteriorated: there was no need to improve them to sell them. All the extra income was tapped by rising land prices.
| mpr wrote: |
2) I think the effect of interest rates may be more pronounced than
a straightforward affordability analysis would indicate, since
there are opportunity cost issues involved. Think
of the extreme situation where rates where 100%. You'd probably
just decide to save and buy with cash rather than buy at any price. |
I factored interest rates into my analysis. With 100% interest rates, affordability would have been considered very low. If home prices and rental rates remained constant, then in theory you'd be sinking all of your money into rent preventing you from saving. In this world only existing owners do well.
| mpr wrote: |
Indeed in 1980 savings rates were much higher. We saw the flip
side of this with ultra low rates where people were jumping
into housing at any price. (I dont claim that was completely rational
of course !). |
I think this factor is the most significant change. Back then you had to decide whether you wanted to save 20% income or 15% and get a nicer house. Now it's save 20% and don't buy or spend 5% more than you make to compete with others (we've built a system where the financially dumbest buyers determine the prices for everyone and then are rewarded for their dumbness with handouts). |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Thu Jun 11, 2009 2:44 am GMT Post subject: |
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| balor123 wrote: | | (we've built a system where the financially dumbest buyers determine the prices for everyone and then are rewarded for their dumbness with handouts) |
This is one of the disadvantages of creating a supply constrained housing market. By ensuring that housing needs can always be met through new construction, we give the responsible buyers and out. |
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john p
Joined: 10 Mar 2006
Posts: 1820
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Fri Jun 12, 2009 3:46 am GMT Post subject: |
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| That's what they get for protecting "home pri..." I mean "the environment" |
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Guesty
Guest
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| Posted: Mon Jun 15, 2009 12:13 pm GMT Post subject: |
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I revisit the topic of buying regularly as I'm surrounded by home (condo) owners at work and in my social circle. Most are simply starting off but the slightly more established ones do buy into 'building equity' party line. As of late their main argument has been how the equity market has tanked and therefore the opportunity cost of the money spent on housing isn't as great since everyone took a bath with the stock market slide.
I have been window shopping the listings on Ziprealty but each time I turn up a listing for a property that gives me more than I already have as a renter with respect to housing amenities, the mortgage alone pushes my monthly fixed housing cost well beyond what I currently pay.
So I keep paying my 13% of gross annual income for a 1b/1b, save aggressively, and keep looking for at the market of 2-3b/2b with the same in-unit laundry, 2 parking spaces and proximity to the T/work that I currently have. |
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Guest
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| Posted: Mon Jun 15, 2009 5:19 pm GMT Post subject: |
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| Quote: | | So I keep paying my 13% of gross annual income for a 1b/1b, save aggressively, and keep looking for at the market of 2-3b/2b with the same in-unit laundry, 2 parking spaces and proximity to the T/work that I currently have. |
See, there is no magic to it, rent and save and have a better life. It is so easy and everyone can do. But the money you saved is losing value fast. I have been doing rental and saving for 7 years now, I still feel like losing in this game, as the buying power of dollar is going way down domesticly and internationally.
The problem of most Americans is, we get spoiled and spend beyond what they made. Yet it is not totally cosumer's problem. The shitting FED is encourging spending by flooding the market with easy credit in 2003 and 2009. Deligent money savors get punished as minority by inflation before, now by stagflation. The government want us to be in debt.
Once China and Russia and japan stop buying debt from us, the mortgage interest rate will get jacked back up to 8% or higher. What then? hyperinflation or another wave of economic downturn? |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Mon Jun 15, 2009 6:59 pm GMT Post subject: |
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| Your dollars may be worth less overseas but they are worth more here. You can buy more house now with that money than you could in 2005. When stagflation hits, you'll be able to buy even more. Don't forget there's also an efficiency issue when it comes to renting. You are renting a 1b/1b but would buy a 3b/2b, presumably because you figure you'll need the space in the timeframe needed to own a house. I'd rather forgo building a small amount of principal on a 1b/1b (maybe $100/mo to start?) than pay all that interest on a bigger more expensive place (maybe $1500/mo in interest?). Don't forget that once you itemize you also lose the standard deduction! |
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