bostonbubble.com

[unreal estate]

could you afford to?

i read that only 11% of population in San Diego can afford the median house with traditional 30 yr terms). although i don't always believe what i read, from what i gather elsewhere, that's probably not that far off. (some of these 'exotic loans' should be rated "X"!!).

[den111]

No! I couldn't.

Should I sell my home now then?

I understand one should always own there own home.

[admin]

From a strictly financial standpoint, it doesn't necessarily make sense to own one's home. Renting is currently cheaper than buying a new property in many areas even if you consider the long term and factor in the tax benefits, equity accumulation, and appreciation. For more information, see http://www.economist.com/finance/displayStory.cfm?story_id=3722894 and http://www.bostonbubble.com/forums/viewtopic.php?t=29

If you already own a place, renting versus selling is an entirely different calculation. Your monthly mortgage payments should theoretically be lower if you have owned for awhile since you probably bought at a much lower price. On the other hand, if you don't sell there is the opportunity cost of the money that you could have made by selling now and putting the money into safe investments to wait out the bubble. Unfortunately, the renting versus buying calculators that I've seen assume that you are currently renting and considering buying, so that wouldn't work for your situation. I'd suggest making a spreadsheet with a handful of different scenarios to see what gives you the best financial difference. Then if renting comes out ahead, you can decide if the difference is large enough to override any personal preferences you may have for the non-monetary benefits that owning brings over renting (assuming that you prefer owning - some people prefer the non-monetary benefits of renting).

I've been toying around with the idea of creating a buying versus owning versus hedging simulator as opposed to just a calculator. Two of the blue-sky items that I'm thinking of including would be recommendations of when to buy and sell as well as allowing you to start the simulation in an ownership position. For instance, you would be able to run the simulator using the scenario of the bubble deflating by nominal prices staying flat for the next fifteen years (so inflation would reduce the real prices) and the simulator might tell you to sell now to take your gains and then buy again in six years once it would be cheaper than renting again (that's just an example, not a prediction). I'm not sure if or when I'll get around to creating this - my work is doing a good job of eating up the time I have to put into this. I'd like such a tool for my own use, though.

- admin