tag:blogger.com,1999:blog-1461700565722278823.post6132709766957021628..comments2024-02-27T14:44:07.868+01:00Comments on Greedy goblin: Home prices ever risingGevlonhttp://www.blogger.com/profile/07072766785893313616noreply@blogger.comBlogger51125tag:blogger.com,1999:blog-1461700565722278823.post-567044869539807652010-01-14T18:00:46.315+01:002010-01-14T18:00:46.315+01:00Some of the comments here are truly cringeworthy. ...Some of the comments here are truly cringeworthy. The idea that renting is always "throwing away money" is completely ludicrous as is the example of renting a place for $1,000 when total owner's housing payment is also $1,000. Of course you should buy the place! You'd be paying only 8 times annual rent for it, about half of Gevlon's golden 15 number. The decision is easy now finding a deal like that would be a lot more difficult (unless you're looking at foreclosed bank property but those aren't really on the renters market now are they?).<br /><br />On the issue of throwing away money, please consider all current and future discounted cashflows involved with both renting and owning before making any conclusions. A renter will have to pay rent but he will receive income from money he has saved on the downpayment. An owner will have to pay a combination of his mortgage payment and maintenance but will receive a tax deduction on those two (in the US at least) and will receive any discounted future price increases or declines in the price of the home. <br /><br />There are many factors to consider so you can't simply say one is worse than the other. Given all the underwater homeowners today, heeding the rent is "throwing away money" advice in the last 3 years would likely have been an awful financial decision. For many regions that still holds true although prices are favorable in some areas. I'm looking at you Miami.Unknownhttps://www.blogger.com/profile/03499033033165630111noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-3216520571929186102010-01-13T16:31:12.448+01:002010-01-13T16:31:12.448+01:00@Flex
I'm intrigued that in your model it is ...@Flex<br /><br />I'm intrigued that in your model it is the "slackers" who do the home maintenance and the "hard working goblins" who sit back and allow it to fall into disrepair.Treenoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-57681243294597526222010-01-12T22:47:13.920+01:002010-01-12T22:47:13.920+01:00Hmm actually thinking about it, the argument that ...Hmm actually thinking about it, the argument that location doesn't matter as much might argue that getting a piece of property has less downside. After all a big downside is that you're tied to that one location, so if a job opportunity arises there's a lot of hassle to sell your property and move. But if, as you say, location is becoming irrelevant for work, then the downside of property ownership is mitigated. Despite being tied to a particular geographic area, your still able to pursue opportunities.csdxhttps://www.blogger.com/profile/00722249862304204690noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-21557872713609559422010-01-12T18:18:39.247+01:002010-01-12T18:18:39.247+01:00There are a lot of things missing in this analysis...There are a lot of things missing in this analysis. While I can readily think on the premise that cities aren't going to grow as rapidly or play as big a role in the world, that doesn't support (alone) the conclusion that renting is superior to buying. <br /><br />Tax breaks (in the US), cost of a mortgage vs rent after 7-10 years (when mortgage payments tend to dip below rent payments), and the ability to recapture some degree of investment are all important factors. <br /><br />Even more important are convenience factors. There is a value to knowing that as long as you pay your payment, you will not have to move. As a renter, where leases are typically for 1 year, rarely for more than 5, you have to renegotiate cost every year and risk that the owner of the property is unwilling to rent to you again. Even as a perfect tenant, the owner may decide to put the land to more economic use. Being able to use the property as you see fit is also an advantage. You can improve it, use it, or not use it in any manner you see fit without risk of losing the value of the improvement. <br /><br />While I agree that "buying is better because land prices always go up" is far too simplistic an analysis, and maybe even wrong, the analysis needs to be more in depth than what you proposed as well. Both renting and buying have economic value for an individual based on their occupation, future plans, and individual needs. While you give us something to think about, it's not an answer.Nathanhttps://www.blogger.com/profile/02746167924889094460noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-49051459280735891872010-01-12T13:03:04.844+01:002010-01-12T13:03:04.844+01:00@Gevlon
Know your market! As a number of posters ...@Gevlon<br /><br />Know your market! As a number of posters have already pointed out, Britain as opposed to virtually all other EU countries will grow enormously in population over the next 60 years cf Annonymous who quoted the NSO data or http://www.telegraph.co.uk/news/uknews/6395813/Britains-population-to-hit-70-million-by-2029.html<br /><br />The result is part of the calculation that property in Britain is a very sound investment. <br /><br />Even if you are correct that a home purchase in your own country is not a sound investment, as a goblin you should be calculating exchange rate, rental return (as you wouldn't want the property abroad standing empty), upkeep, and capital growth of making a property purchase in another country and renting it out. It's a fairly complex calculation, but can be finacially advantageous.<br /><br />I choose to buy a property in another country (as well as the ones I own in my home country) in an attempt to spread my portfolio (aka wow I went into another market in the AH). It's still in the EU. I bought it not on my own but with a bunch of others, so as to spread my risk (admittedly I get less profit, but it was my first venture abroad so I was feeling conservative with my investing).<br /><br />So far over the nine year period the value of the foreign property has risen above inflation, and better than money invested in the stock markets, the rental income has covered not only the general up keep but also some improvements (as Cheesewiz commented improvements should be aimed at increasing value, and not anything to do with personal taste). Thus after careful research of another market = profit.<br /><br />I dare you to re-think and buy a property somewhere in the EU and see if you can make a profit on it, even if it's not a property you live in.Senlacnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-66340690806768292852010-01-12T11:45:52.078+01:002010-01-12T11:45:52.078+01:00Blogger Gevlon said...
@Thril: The population...Blogger Gevlon said...<br /><br /> @Thril: The population of the UK citizens is decreasing with time. The average British woman has less than 2.1 children. So If less and less people will live there, the demand shall drop.<br /><br />To Gevlon.<br />This is true. However, the UK continues to have an influx of people from the open borders policy in Europe. We have far more people entering the country than we have leaving or dying. Each one of these people need somewhere to live.<br /><br />House prices continue to rise. And will continue to rise. The house my parents bought for £15,000 is now worth £250,000. My brother bought at £60k and sold 3 years later at £100k. I bought at £100k and sold during the recession for £120k 3 years later. Even during the recession and housing price slump recently, many people didnt have negative equity.<br /><br />I continue to enjoy your thoughts and as always they spark debate.<br /><br />Thril.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-56182201585847132492010-01-12T10:07:44.669+01:002010-01-12T10:07:44.669+01:00@gibbex - great example of when you should buy. if...@gibbex - great example of when you should buy. if rent on a 100k home is 12k a year then buying IS the better option.<br /><br />the decision line is at about $555 pcm on a 100k property. (value / 15 per year)<br /><br />if rents are less than this then renting is the better option.Antinoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-17784686706855624892010-01-12T07:07:27.780+01:002010-01-12T07:07:27.780+01:00I must be a M&S, i only made 50k on my condo, ...I must be a M&S, i only made 50k on my condo, about double the investment price, in 10 years. Also the idea that renting is cheaper is not usually the case, its often more expensive; not only do you not pay the principle but you don't get the tax deduction of the interest. This adds up. <br /><br />Owning a home is more about an investment in your life and community, it says you have roots and have a stable life. If you don't have enough money to buy a house, then rent. But I really can't see renting being at all better than buying, after all the newer construction in this country tends to be worse than 10-20 year old houses..the lot sizes are way smaller, the landscaping is very primative or absent, the homes are all cookie cutter. There is really alot about owning a house. Now that my wife and I at the age of 35 finally own a house, we are never renting again. This is heads and tails SOOO much better than renting. No landlords, no loud neighbors, no high crime in the apartment complex, actual landscaping, you can do improvements, you are actually generating money from your investment. So many things. <br /><br />Lastly consider an example.<br /><br />You buy a house for 100k ten years ago. You sell it for 100k today. You make no profit. However, every month you are paying say $1000, and some of that is principle. If you are smart and got a 15 year loan, you would have paid off more than half of the loan, so $50k in your pocket, and you had a place to live for 10 years.<br /><br />Now if you rent, you have paid the landlord $1000 a month for ten years. At the end of ten years, you get up and walk away. You get nothing for it, not a dime. <br /><br />So $50k and a place to live for 10 years, or a landlord. Take your pick.Rob Dejournetthttps://www.blogger.com/profile/11451389128538898818noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-15319292357638337542010-01-12T06:47:58.611+01:002010-01-12T06:47:58.611+01:00Even with technology allowing for a more dispersed...Even with technology allowing for a more dispersed population, city land prices will continue to climb with increasing population. Centralisation and specialisation of services in cities will always make urbanisation an appealing option for a large proportion of the population.<br /><br />What's more interesting however is house prices, and here is where I think you have missed an opportunity in your article: Houses are a liability.<br /><br />Yep, they're not an asset, they're a liability. They go down in price. Land goes up in price. If you're lucky, land goes up in value faster than the house loses it. You've got tenants for your house? Great, but if you're pouring money into maintaining it, the income isn't quite so significant, no? And if you don't maintain it, they vote with their feet and you've no rental income.<br /><br />The only tenant who won't demand you keep the house maintained is you. So I figure if you buy a house on a block of land, let that sucker fall apart over the years with only the bare minimum of maintenance, then land prices go up, house price bottoms out, and the value of your home (the package of both) remains positive.<br /><br />But of course this doesn't appeal to the average M&S homeowner, who wants the latest mod cons so as to keep up with the Jones's. It's their loss, though. <br /><br />My house may not be the shiniest one on our street, but then again, when I talk to our neighbours they mention there's been drama with some sort of financial crisis this past year. I'm not sure exactly what they're talking about.Flexnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-40346429851483674392010-01-12T03:50:42.425+01:002010-01-12T03:50:42.425+01:00While the total land area of the world is pretty m...While the total land area of the world is pretty much stable (except for a little land winning here and there or the loss of some islands due to rising sea levels), world population is going to increase from around 6.8 billion now until close to 10 billion in 2050. Increasing demand + stable supply = higher prices. It's as simple as that. The actual situation can be different in some areas, like in Europe, we are pretty much capped, population wise, but for most areas in the world, investing in real estate is a safe long term bet.Marvinhttps://www.blogger.com/profile/10628695029408463681noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-30816652827092076492010-01-12T00:42:11.254+01:002010-01-12T00:42:11.254+01:00Gevlon,
Ah, but someone has to own the houses for...Gevlon,<br /><br />Ah, but someone has to own the houses for people to rent. Who do you suggest fills this role?Chrisnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-83171511553227544052010-01-12T00:10:06.932+01:002010-01-12T00:10:06.932+01:00I mostly agree. However:
1) There is a consider...I mostly agree. However: <br /><br />1) There is a considerable difference between the returns/soundness of owner-occupied housing and buying real-estate as an investment ( i.e. the # of "investors" buying Miami condominiums at the peak ) Especially since Governments and tax policies can effect the "rational" decision with tax policies that encourage home ownership. In particular, all the interest on a home loan or home equity loan is deductible, none of the interest on a car or credit card loan is. Not that car or credit card loans are good ideas, just that government policies encourage home ownership.<br /><br />2) Also note that housing demand is also affected by birth rates and legal and illegal immigration. There will need to be many millions of additional housing units desired in the US in 2030 than 2010. <br /><br />3) Like buying any long term asset, it is also a bet on inflation. If all the stimulus money now results in "Jimmy Carter" inflation like in the 70s, then many real assets will out perform financial assets, be they houses or gold coins or whatever. It works the other way also, something real estate people tend to not mention.<br /><br />4) Unless the changes are far more dramatic than in the past, it is many decades before it is cost effective to "scrape" a house and totally rebuild it. So even though your house does not use the current state of the arr 2030 techniques, it will still be built the same as all the nearby competitor who aren't rebuilt either. Location matters.<br /><br />5) For historical reasons, there are some minor benefits to "owning" - if you owned rather than rented the exact same house, then your credit score would be higher and you would probably pay a lower rate on not only your home insurance but probably car, life or health insurance. Car loan rates would be lower for the owner.<br /> <br />6) America [used to be?] a mobile society, and a IIRC, the mean/median time people own a home is about 5 years. Building technologies won't change much in the 5-10 year time scale. Government regulation moves slowly. <br /><br />7) There is far more people resisting doing the rational change in housing than you suspect. Government building and zoning codes gives way for both the populists and powerful to resist change. E.g., the previous Californina governor coincidentally received a $260,000 campaign contribution a few days before deciding on keeping California as one of two states where it is illegal to use the easier to install and cheaper plastic pipe.<br /><br />BTW, If you can do your job in a bucolic, rural area using the internet, then why can't the job be done in another country with dramatically lower labor costs? <br /><br />But yes, real estate, especially non-occupied, tends to be overrated and certainly over-recommended.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-71319203197235117972010-01-11T23:51:23.866+01:002010-01-11T23:51:23.866+01:00Quite a thoughtful and thought provoking article.
...Quite a thoughtful and thought provoking article.<br /><br />I am thinking land prices won't ever drop, especially in the city. Rent is pretty much same or dearer than loan repayment. Why throw money away when after 20-30 years you can wave goodbye to rent and own your own place.Jujeehttps://www.blogger.com/profile/11075945120950670714noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-69049639667554785822010-01-11T21:50:57.156+01:002010-01-11T21:50:57.156+01:00Like any financial decision, there are times that ...Like any financial decision, there are times that real estate is an excellent option, and times when renting is the rational choice. <br /><br />I bought my house in the middle of a local economic slump in the late '90s. Although it's old, and needed quite a few repairs, it was still cheap enough that I paid it off in 10 years. The economy has since heated up red hot, and now has slowed again. The place is not worth as much as it was last year, but it's still worth five times what I paid. <br /><br />I'm no longer paying rent, or a mortgage, which has increased my feeling of security even though the economy is not good.<br /><br />Local economies matter a great deal. Plus, someone has to own all that rental property.<br /><br />On the other hand, home ownership means I can't just take a job in another city without thinking about how quickly I can sell my place. Mobility means opportunity. If I were entering the real estate market right now, I don't think I could find the same deal I did back then.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-10319621073703932242010-01-11T21:29:30.671+01:002010-01-11T21:29:30.671+01:00Ultimately real property (like most investments) i...Ultimately real property (like most investments) is not an asset that should be assessed on a categorical basis. Some property investments are ultimately dubious, whilst others are far more secure. It depends very much on the location. <br /><br />For example, Sydney is a rapidly growing city which has largely sprawled rather than increased in density. The city CBD is crammed up against the coastline and consists of buildings which are either already large or heritage listed and unlikely to be bulldozed to make room for more. Transport infrastructure has fallen woefully behind and travel from the outer suburbs to the CBD is excrutiating. It is not uncommon for a worker who lives in the outer suburbs to have a 12-hour round trip every work day. The situation is now so bad that even a concerted effort by the state government to fix the problem would take decades, if it were (politically) possible at all.<br /><br />In that context, residential real estate in or near the CBD translates into a massive time saving and corresponding improvement in quality of life. Over the forseeable future, the value of such property is relatively secure, even taking into account the long-term nature of the investment.<br /><br />Of course, there are plenty of bad places to invest in property too. It follows the old rule that life does not boil down into simple categories, and all investments need to be assessed on their merits. The moment you rule something out without looking at the detail, you exclude yourself from an opportunity for profit.Treenoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-5567537075861140622010-01-11T21:28:32.924+01:002010-01-11T21:28:32.924+01:00I rent my home and I would never buy a house or fl...I rent my home and I would never buy a house or flat to live in. <br /><br />That said buying property to rent to others is a great investment. <br /><br />I own several properties and over half of my personal income comes from rents. Overall the value of property does increase over time. It always has. Plus you have tenants who are paying the mortgage for you so apart from the initial investment you can even skim a little profit off each property every month. But to be a successful you have to treat the property AS an investment not a home. <br /><br />People spend money on ‘improving’ their home all the time. These improvements may make the property more suited to their tastes but they rarely increase the property value (or if they do the increase is less than the money spent on improving it). <br /><br />That’s why I don’t own my own home it makes it easier to be business like about the whole thing. <br /><br />Plus the UK is a great place to buy property as the entire country is changing from a nation of homeowners to home renters. Good goblins should want to be landlords!cheesewhiznoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-20458818552939377672010-01-11T20:27:03.963+01:002010-01-11T20:27:03.963+01:00@Gevlon actually although the birth rate might be ...@Gevlon actually although the birth rate might be low in UK, there is quite a bit of immigration, so overall population is still increasing, and predicted to continue to rise.csdxhttps://www.blogger.com/profile/00722249862304204690noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-67668344786393281582010-01-11T20:15:37.360+01:002010-01-11T20:15:37.360+01:00Even with the digital revolution there is still a ...Even with the digital revolution there is still a higher value in Even with the digital revolution there is still a higher value in urbanized areas over rural. A good (more expensive) area may have, trash picked up, nearby shopping malls, good school districts (even if you don't have kids those who do want to live where the good ones are). So for the good places, there's more demand, but still limited supply, therefore prices go up. <br /><br />As others have commented, in the US at least, rent and mortgage payments (the interest portion at least) are about equivalent (especially considering tax breaks). Also recall that rent prices generally rise, but once your mortgage is set, the interest amount your paying actually decreases. So you're basically trading you ability to move easily (with renting) for money in the long term. <br /><br />A house to live in is more like investing in a college degree than buying into the stock market. You're giving up quite a bit of opportunity cost for a future payoff. Also you can't switch fields easily, so you're 'locked in' by your degree choice. Now of course if you manage to get a higher paying job with just a high school degree, then it might not be worth it to go to college (e.g. you have cheap rent compared to house prices). Also there is the same kind of 'ape-subroutine' factor of thinking that you're 'better' because you went to college/own a home.csdxhttps://www.blogger.com/profile/00722249862304204690noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-65181359645327835422010-01-11T20:12:03.671+01:002010-01-11T20:12:03.671+01:00Gevlon,
The population of the UK is not decreasin...Gevlon,<br /><br />The population of the UK is not decreasing. <br /><br />http://www.statistics.gov.uk/cci/nugget.asp?id=1352Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-79712360770272520782010-01-11T20:07:11.791+01:002010-01-11T20:07:11.791+01:00@Honor's code: the problem is that the average...@Honor's code: the problem is that the average baby boomer has less than 2 children. If 2 baby boomer gives his home to his daughter and his son, and the mentioned children marry, they will have 2 homes. They will sell one. <br /><br />I'm thinking of my own situation as the married child of a BabyBoomer parent. First the assets will be Willed, but ultimately those assets will be sold.Honors Codehttps://www.blogger.com/profile/10603644804340531952noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-62585646980492772612010-01-11T20:02:33.395+01:002010-01-11T20:02:33.395+01:00Your analysis doesn't apply to the USA. The c...Your analysis doesn't apply to the USA. The cost of my home per month, including upkeep and the opportunity cost associated with the down payment, is actually less than rent. I pay less per month for a 2,400 square foot home that I would pay for a 1,500 square foot apartment BEFORE the tax subsidy on home interest. If you have good credit in US Midwest or South, buy a home. If you have bad credit, rent!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-29163720221875632352010-01-11T19:26:10.537+01:002010-01-11T19:26:10.537+01:00I agree with Samus.
One of the most secure ways t...I agree with Samus.<br /><br />One of the most secure ways to retire over here in the USA is to be a land lord. When you get to your 50's buy a 3-5 cheaper houses/trailers. Today $70-130 range. 3bedroom min with a yard and garage if possible. Mind you homes not townhouses. Rent them for $900-$1300 using a managing firm, so you don’t have to worry about calls at 3am about something being broken. You break even while your paying on the mortgages but by the time you are 65 they will be paid off and you have pretty much $4000 a month in income. If you ever get in a pinch, and need money fast just sell a property. The people you rent to are people with no credit, and or a criminal background. Most decent apartment complexes do credit check or criminal background checks, and require proof of income; since your renters will fail these they are willing to pay. Since their rent is >= your monthly mortgage payment you aren’t investing your money, but theirs. They are pretty much buying you a house. Only danger is if you lose a tenet and can’t replace them for a couple of months, something serious goes wrong with the property, or the property is being use for illegal activities (in numerous states the land owner can be charged for criminal offences that take place in their property even if they don’t live there).<br /><br />If this didn’t work, people would never build apartment complexes for the sole purpose of renting. When some developer builds a brand new apartment complex it probably takes them a good 10+ years to pay off their loans, anyone living there is effectively paying that mortgage off for them. How many abandon apartment complexes do you see? Not many, because not many fail to be profit turning. Even if the developer goes bankrupt someone tends to buy the property and take over. The private home owner has a lot less rules and regulations to worry about if they want to rent.Steven Rinikerhttps://www.blogger.com/profile/06529667372042185650noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-71927459141983761082010-01-11T17:58:44.351+01:002010-01-11T17:58:44.351+01:00@Thril: The population of the UK citizens is decre...@Thril: The population of the UK citizens is decreasing with time. The average British woman has less than 2.1 children. So If less and less people will live there, the demand shall drop.<br /><br />@Honor's code: the problem is that the average baby boomer has less than 2 children. If 2 baby boomer gives his home to his daughter and his son, and the mentioned children marry, they will have 2 homes. They will sell one.Gevlonhttps://www.blogger.com/profile/07072766785893313616noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-35573795973232147382010-01-11T16:37:29.309+01:002010-01-11T16:37:29.309+01:00"I can more or less guarantee that your 20 ye..."I can more or less guarantee that your 20 years old home in 2030 will be much-much less attractive to buyers than a brand new next to it"<br /><br />The fallacy here is not correctly identifying what your house is in competition with. There isn't an open lot in my subdivision for this 'brand new home' to be built on. Most of the houses in my neighborhood are of similar age and style so when/if I sell it'll be up against similar homes.<br /><br />Also, I'm guaranteed a relatively fixed cost for my house thanks to the Fix Interest Rate Loan I got. Your land lord can increase your rent every year. The bank can never increase my mortgage payment.Honors Codehttps://www.blogger.com/profile/10603644804340531952noreply@blogger.comtag:blogger.com,1999:blog-1461700565722278823.post-5836195644857055612010-01-11T16:34:12.803+01:002010-01-11T16:34:12.803+01:00Most of the Baby Boomers assets won't be sold,...Most of the Baby Boomers assets won't be sold, they will be willed to the Baby Boomers kids and grandkids.Honors Codehttps://www.blogger.com/profile/10603644804340531952noreply@blogger.com