bostonbubble.com

Former Arlingtonian · Joined: 23 Oct 2013 Posts: 141

mpr,

"
I understand the desire to own, but the idea that you can't make a 'home' while renting is a uniquely American one. Only in the US is owning a home regarded as a mark of superior moral character. "

Bingo! You and I are in complete agreement regarding you can have a life without owning. To be honest there are sacrifices that one needs to make to keep the family financially secure by not owning at this time.

"I think that's kind of a one eyed view, and its better to be realistic about the risks. Buying a leveraged asset like a house is never risk free. I'm trying to explain to you why I think, right now the risks are balanced. You might get slow steady price growth with a recovering economy and somewhat higher interest rates. I personally think that's the best case, and probably most likely outcome. I don't see big declines in the market without some kind of external shock. But external shocks do happen."

What is your data to support that now the risks are balanced? Did you observe all the stocks I listed that have experienced MAJOR declines and they are all in either Tech or Bio-tech!
Isn't the bulk of the job strength for Greater Boston high tech or the bullet proof Bio-tech space? If tech and biotech are in a secular decline what will happen to hiring in these fields?

A basket of biotech stocks is iShares Nasdaq Biotechnology (IBB) and it peaked in February at $275 per share and is now trading at $215. Eighteen percent decline in 6-8 weeks.

Talk of the Federal Reserve tapering and the tapering of Quantitative Easing/ the bond buying program is causing a sell in the stock market. The recovering economy is an illusion that is created when people can borrow to buy a home at the low 4% or buy a car for zero interest rate for five years or when companies like Waypoint can borrow hundreds of millions of dollars from Citi Bank to get into the home to rent business.

If the economy is recovering why is U6 unemployment stuck ar 12% and have you spoken to many families with recent college graduates?

What data are you looking at that can lead you to believe the risks are balances? You do realize this bond buying program by the Federal Reserve is unprecedented or can you tell me of another period of time when the central bank was buying $55-$85 Billion worth of bonds from banks every month - I can assume you aren't well read on the Feds acitivities in the last few years?

Richthofen · Joined: 02 Apr 2014 Posts: 69

Former Arlingtonian · Joined: 23 Oct 2013 Posts: 141

My affirmative response to renting and having a life I should have qualified with it is a find shorter time solution.

I'm in agreement the ultimately best bet financial solution is to buy when the buying frenzy/overly bullish perspective dominates the world.

The ultimate for me would be to find my family in an area we like and be paying off a mortgage.

Regards.

mpr · Joined: 06 Jun 2009 Posts: 344

Interesting article in NYT on the subject of this thread.

http://www.nytimes.com/2014/04/15/business/more-renters-find-30-affordability-ratio-unattainable.html?ref=us

@Richtofen. It seems that you simultaneously believe that a) home prices are too high and can only go lower b) if you don't buy soon you're screwed because you won't have somewhere to live when you're old.

b) is an interesting rationalization of the US obsession with owning, but I don't believe it remotely accounts for it. Most people are not primarily thinking about that when they want to buy for 'stability'. For one thing Americans don't plan that far ahead, as evidenced by the low rate of retirement savings.

Anyway, this argument doesn't make buying a no brainer. In theory you could take the money you save by renting, invest it, and use that to support your rent when you are older. Of course it may happen that rents will rise too fast, and you won't have saved enough. That's one of the risks you face. The point is to understand that you face a choice of risks, and to make a considered choice.

For example, you should do the following calculation. Is the cost of renting in your area more or less than the true cost of buying ? I would calculate true cost as follows: take you monthly payment (P&I, Taxes, maintenance), subtract P (that isn't a sunk cost, you're building equity), and subtract the expected appreciation (again built equity). You seem to think this last number is 0. I think 2% which is about the rate of inflation is conservative. Then you can factor in tax deductions on I & T.

During the bubble in most places the cost of buying was much more than renting. (This reflected the fact that people thought the expected appreciation was large). If the true cost of buying is below the cost of renting this also tells you that the market is not overpriced whatever you think.

Former Arlingtonian · Joined: 23 Oct 2013 Posts: 141

MPR,

Do you read any of the economic data or finance data that I present?

Do a background check on the author of the Times article she is not any sort of expert on money, real estate, or economies.

Shaila Dewan is focused on writing about inequality where ever she goes - and this means that her observations of the economy are based on data and certainly is not actionable information.

Check out:
http://www.c-spanvideo.org/shailadewan

Rents are high in part because there are lots of people sitting in homes not paying their mortgage or there are lots of vacant properties that banks are slow to process for lots of reasons.

You or I have absolutely no idea where rents will be in 2015.

I think you miss the point @Richtofen is waiting for the right moment to buy and he is bright enough to know that currently inventory is artificially tight and anyone with a pulse can borrow money at rates last seen in the 1960s.

mpr · Joined: 06 Jun 2009 Posts: 344

Former Arlingtonian · Joined: 23 Oct 2013 Posts: 141

MPR,

LOL you think the NYTimes activitist/writer is worth listening to!

LOL Wink

Best of luck.

Dionysian · Guest

We are in the same boat. We have the income, credit, and down payment saved. 32 with a baby on the way. We want to buy and settle down and give our baby the same childhood we had, but the prices people are asking for are just ridiculous. That, and almost every seller we encounter is a Baby Boomer who is downsizing. There are no move up buyers in this market. And I don't blame them. Who would sell their house after refinancing at 3.5% to buy something more expensive on a 4.5% mortgage?

We are coming to the conclusion to just rent in the near future and wait for this madness to end, but at the same time we don't want to put our life on hold.

Guest · Guest

Activist writer = a writer you don't agree with.

another guest · Guest

Dionysian · Guest

That's a good point, and it has been bothering me quite a bit. It seems that there are no good options out there. I can hold my cash and let it waste away with inflation, or put it into assets that I know are artificially high like stocks and real estate. Investing in PM is always an option, but the value of gold coins is just as arbitrary as cash. This upside down economy almost forces you to be irresponsible and take on the debt. There is value to having cash handy to buy low if prices do fall, but it takes a beating just sitting there in a savings account collecting no interest. Who knows when a true correction is going to come around the corner with all of the market manipulation out there.

Former Arlingtonian · Joined: 23 Oct 2013 Posts: 141

Dion...

First, someone commented "
Activist writer = a writer you don't agree with."

MPR offered an article written by a writer who does not delve into housing/economic issues in a way that is useful. I prefer to ride opinion of people who manage money/investments vs writer paid to move newspapers and attract readers.

MPR and others want you to believe that today's housing market is sustainable and its logical. When the central bank is buying billions of dollars in bonds to drive down interest rates how is that normal or logical.

There is no historical precedent for what the Fed is doing today and no one know how this will end.

My main point buying during a buying frenzy is just dumb and you end up over paying for the asset. Yes , you will spend a lot of money on rent, but you won't end up in foreclosure court because you signed a lease if you lose your job. In the future there will be a buying opportunity for those who haven't gone all in on real estate.

If anyone disagrees with my point please provide evidence that there was another time in history where the Fed was buying one half to one trillion dollars worth of bonds from banks annually (this means the cash reserves for banks has risen in the last 3-4 years by $3-$4 trillion (that trillion with a T).

Assets that are down or flat currently are all related to gold investments. Read up on owning a small portion of gold when inflation appears your gold holding or gold related mutual fund will rise as an offset to the falling purchasing power of cash.

mpr · Joined: 06 Jun 2009 Posts: 344

Former Arlingtonian · Joined: 23 Oct 2013 Posts: 141

I haven't changed my tune on buying.

Look at the secondary mortgage market since 2009 its all been government agencies/GSE who are the market makers for mortgages (meaning mortgages get sold off are aren't held by many banks).

the ultra low rates are the result of an economic emergency. We have not seen this level of crisis since the 1930s and there were lots of asset rallies during the 1930s.

Where this all ends won't be known until the history books are written many years from now.

kind regards.

Guest · Guest

[quote="mpr"][quote="another guest"]