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Friday, September 15, 2006

Drive By Commenting

I just love it when random people drop by this blog and get the feeling that they need to set me straight. Here's a recent example of this phenomenon that I found particularly amusing.

The discssion (sic) is really lame for those who have a choice between buying a home or renting a home. For many there is no choice, they will rent all their lives as my mother did because she was far too poor to buy anything. For those with a choice the decision is to pay-off the landlord's mortgage or to pay-off your own. Millions of old people have some security because they own their own home free and clear. As for prices, they will go up, supply and demand ditcate (sic) this. No they will not come down. Population grows geometrically and land does not grow, there is a finite amount. People need to be in cities, that's where the jobs are and they by their numbers will drive up the price of homes.

If you can buy without overextending you should. If you think you will make more money in the future and you are wiating (sic) to buy consider housing has gone up consistantly (sic) at about 7% per year. That is 7% of the average priced home today of $350,000 or $24,500/year. Wait long enough and you will not be able to buy. I should say no one can guarantee that homes will continue to go up, but baring (sic) a nuclear war and major distruction (sic), I think we have to go with the numbers.

Have a great day...
Let's see how many of the boilerplate pro-real estate, anti-bubble arguments Mr./Ms. anonymous managed to cram in there:
  • paying the landlord's mortgage
  • home ownership = security
  • population growth
  • not making any more land
  • job creation
  • home prices never go down
  • buy now or be priced out forever!
Excellent work anonymous—seven real estate truisms in just two short paragraphs. I also really enjoyed the declaration that "If you can buy without overextending you should." Because you just know that nobody that's been buying lately has been overextending.

At any rate, I hate to disappoint you anonymous, but I'm going to go ahead and continue this "really lame discssion" for a while longer. Maybe we'll see you again in about a year.

(anonymous comment, About the Blogger, 09.12.2006)

Update: An anonymous commenter below brings up a very good point:
The thing is, most of those arguments are ORDINARILY true. That's what makes the bubble so dangerous, people understand that homeownership is usually better than renting. What they don't understand is that there are some situations where buying is suicide.
I totally agree that under ordinary circumstances, some of the above sentiments are true. I suppose that would make it conventional wisdom. The problem is that people are blindly accepting conventional wisdom in a very unconventional time, when critical thinking is called for.

55 comments:

john_law_the_II said...

citing job growth or wage growth doesnt impress me. this unprecedented boom has happened in the face of terrible job growth coming out of the recession and meager income growth, at best.

Anonymous said...

The thing is, most of those arguments are ORDINARILY true. That's what makes the bubble so dangerous, people understand that homeownership is usually better than renting. What they don't understand is that there are some situations where buying is suicide. It's like stocks, buy and hold is not a bad proposition, unless you're buying JDS in Oct 1999. Just because an asset averages "X" over time, doesn't mean that any time is a good time to buy. There are some times when a normally good asset is poison.

Dukes said...

Too funny! People will always try to make rational the irrational when money and personal interests are involved.

The hard truth is NOW being learned in many regions, ours will be no different, and that is how is SHOULD be.

Peter Taylor said...

I also like the "they're not making any more land" argument. Apparently the commenter has never heard of land reclamation. Now, I know what you're thinking. Hey, they can't possibly reclaim enough land to feed the hungry RE monster!

Well, if you believe the NASB, urban and built-up land currently account for only 3 percent of the 1.9 billion acres in the contiguous 48 states. So, RE currently takes up 3% of the total area of the U.S.A. Certainly not all of that 1.9 billion acres is inhabitable, but there is still plenty of "land" left folks.

Dukes said...

Sorry..."it" not "is"

john_law_the_II said...

people have pointed out that you are practically getting paid by the landlord to rent.

you save about $700/month in seattle by renting.

Wanderer said...

Spelling mistakes never help your arguement, but I HATE it when people use "increasing geometrically" or "changing exponentially." Finding anything that really grows in that manner is pretty rare... and very few things applicable to the RE market do so.

richard said...

You missed the "priced out forever" tucked in there...

Wait long enough and you will not be able to buy.

(Unless he was referring to death, in which case the point is moot)

Anonymous said...

After reading the introductory information to this blog, the reason this blog was started was that the creator in 2004 began looking at real estate prices and thought buying was not the best idea. That means if renting saves $700 a month, he's already saved a good $17,500 just by renting. Since this blog has actually started, all of the renters on this board must have saved at least $9,000. Dumb home buyers during those times, throwing their money away!

meshugy said...

Since this blog has actually started, all of the renters on this board must have saved at least $9,000. Dumb home buyers during those times, throwing their money away!

That's a fairly simple analysis that doesn't take into account:

1) It wasn't really cheaper to rent until around mid-2005. At least in Ballard.

2) Quality of life is almost always lower in a SFH rental. They're usually the worst houses, no updates, bad locations. Very rarely *nice*. Condo rentals can be nicer...but I don't want that.

3) Rents are going up fast right now.

4) Appreciation for owners over the same time has far exceeded $9,000. From 2004 till now, most homes appreciated well over $150K.

5) By not buying earlier you missed much lower prices and interest rates. It's now much more expensive to buy...and with rents going up you're getting squeezed either way. If you bought in the last few years with a fixed rate, your payments don't change.

Now I think it may be too late...I would only buy something now if you can afford it with a fixed rate 30 yr. Over the long term you'll probably still be OK...but there may be some market turbulence in the next few years.

Anonymous said...

I was completely kidding by the way. The median pending price in King County in August of 2004 was $294,950 and in August of this year was $425,000. That's a difference of $130,050 or 44.1%. I also believe in desirable neighborhoods, these numbers are way higher, and the difference is probably $200,000k+. Even if prices stabilize or downturn a bit, the rental argument is a tough one.

Anonymous said...

It wasn't really cheaper to rent until around mid-2005. At least in Ballard.

That's funny...I've been living in Ballard since 2003, very happily, as a renter. I pay far less for my apartment than even the most "creative" mortgage would have allowed on the same space.

Anonymous said...

I would argue that people who rented from early 2004 expecting a sooner downturn got a bit unlucky in that the bubble ran a bit further than sane people would expect, but people who bought post June 2005 are the ones who really were foolish. Any time past that point and you'd have to be a bigger and bigger fool to buy over renting. If you had to make the choice today, it's a complete no-brainer, renting is so far ahead of buying it's just no contest. I'm not sure where the whole "cost of renting is going up" is coming from, from everything I've seen it's stable and should soon drop with the glut of inventory out there.

dash_point said...

"Wait long enough and you will not be able to buy."

Hmm...what if we could do a Back to the Future, schtick to c. 1965, and run around Seattle, shouting like a raving Christopher Lloyd to "buy before you poor losers are priced out forever"?

Lock that assumption in a padded room and throw away the key.

Nolaguy said...

2) Quality of life is almost always lower in a SFH rental. They're usually the worst houses, no updates, bad locations. Very rarely *nice*. Condo rentals can be nicer...but I don't want that.

Where do you come up with this stuff, Meshugy?

My buddy rents a very nice house in Magnolia with a view for $2000/mo. The house is probably worth close to a million. He doesn't mow the lawn or do any maintenance on the home. His quality of life is great.

I live in Belltown - renting a condo (with a view) that is a block from Pike Place Market. Rent is $1550 for 2bd/1ba - 1100 square feet. Yes, it's a little small. but I'm incredibly happy with my "quality of life". At current bubble-inflated prices, this condo would be $500k+.

There are great rentals out there that smart people are happily living in.

Are you saying you're happier because you're a home owner, and therefore non-homeowners aren't as happy? How smug of you.

To say that the quality of life "is almost always lower" is very debatable, IMO.

Anonymous said...

The guy down the street from you in Ballard just sold his house for $180,000 more than he bought it for in 2003, and has just now decided to rent for the next couple of years, just like you may be planning to do. I think his choice may have been better.?

The Tim said...

Good point Richard. I'll add that to the list.

meshugy said...

My buddy rents a very nice house in Magnolia with a view for $2000/mo.

How big? What street?

We checked out the renting situation before buying...it was very clear that most SFH rentals were dumps. In Ballard, most of them are located south of 65th, which isn't nearly as nice as loyal Heights (n. of 65th). The house we bought had everything updated: new kitchen, roof, deck, new basement, gas grill in back, 10K worth of landscaping. 3bdr,2ba 1,800 sq.ft Views of Mt.Ranier and the Olympics. We are on a great street in a nice area. Our mortgage is $2,400 a month...equivalent rentals are hard to even find. Most are outdated and crummy...sometimes as low as $1800 but you have to live on an arterial. Most similar rentals are above 2,500K a month....so we are defintly getting our $ worth.

I live in Belltown - renting a condo

I'd say the condo situation is different....probably better renting.

john_law_the_II said...

3) Rents are going up fast right now.

as much as people's resetting ARMs are?

"Over the long term you'll probably still be OK...but there may be some market turbulence in the next few years."

and if the turbulence is a 5 year slide, what happens when your house is worth less than the loan and you have to sell?

meshugy said...

Apartment rents rise across U.S.

Mike Gain, the co-owner of a property management firm in Seattle, took a step this spring that he had avoided for years: He raised rents.

"We had been afraid to do that," Gain said. "Over the years, we were actually reducing rents. But we increased rents by 3 to 5 percent and there were absolutely zero repercussions."

"Everybody in our region," Gain, the Seattle apartment owner, said, "is feeling we are going to be able to ride an up market for three to five years."

Nolaguy said...

How big? What street?

It's 2 blocks off of Magnolia Boulevard. But that doesn't really matter.

Do you really think that a rental home in Magnolia couldn't be a better quality of life than owning a home in Ballard?

In fact, for myself, and a number of people I know - we rent precisely *because* the quality of life is better than buying right now.

People are selling there homes and renting. Why do you think that is?

Peter Taylor said...

From Michael's Dallas Times article on rents:

According to government data, in both June and July average rents across the country were 3.5 percent higher than a year earlier, the steepest gains in almost four years. And it is feeding into a broader rise in inflation.

And so, what will the Fed to control inflation? That's right, raise interest rates. And what will happen to RE prices as interest rates rise? If people want to sell RE, RE prices will have to fall because there will be a smaller pool of qualified buyers and therefore less demand.

I'm not sure what you think this article proves, Michael, but what it does indicate to me is that there is going to be a lot of pain all around before this bubble sorts itself out.

john_law_the_II said...

meshugy- 3-5% is nothing, especially if you ARM reset makes your payment double, which I've heard is some worst case scenarios. if you cashed out at the top, you've got more than enough $ to ride out a tiny increase in rents.

in areas where rents are half of what it would cost to service a mortage, it would take 14 consecutive years of 5% hikes for your rent to equal your mortgage payment. 24 years at 3% rent hikes.

also, they say you pay something like $5,000 in your first year on furnishing your home. a 5% hike in rent on a $2,000/month SFH would only be $1,200 a year more. you'd need a rent hike of almost 25% just to lose that $5,000 you saved that first year of not furnishng.

we haven't even gotten to unexpected expenses you may incur from buying a house. that's not to say that buying a house is a bad thing, it's that it's very costly right now.

Anonymous said...

Why doesn't anyone quote the median prices of Thurston County homes? Just because areas close in to employment centers are expensive, does not mean the prices in these areas HAS to drop. As far as income levels and first time buyers are concerned...Thurston County looks pretty affordable. Hence growing traffic in our region. Either that or rent.

Anonymous said...

Trying to argue economic fundamentals to people who have NO FREAKIN clue about wage growth (or lack thereof), asset bubbles, rececessions, inflation, deflation, staglfation, etc is impossible.

Let the lambs be led to slaughter.

richard said...

Thurston County looks pretty affordable.

And inventory there is up 100% since last year, so it's likely to stay affordable.

Anonymous said...

perfect, there's the first time buyer's option for years to come!

meshugy said...

Rental housing turns in landlords' favor

The vacancy rate for buildings with 20 or more units in King County dropped from 6.7 percent in March 2005 to 4.7 percent this March, according to Dupre + Scott Apartment Advisors. The company's latest estimate is about 4.4 percent, Mike Scott said. The average rent for a one-bedroom Seattle apartment has risen from $829 a month in spring 2005 to $861 this spring and a projected $895 this fall.

A rebounding economy has heated up demand for all housing, while rising interest rates have made it harder for people to buy, Scott said.

Meanwhile, increasing condo conversion and sluggish apartment construction combined for a net loss of 1,300 apartments in King, Pierce and Snohomish counties last year, according to Dupre + Scott. The company predicts that the loss will top 2,000 this year. One caveat is that close to 20 percent of condos go back on the rental market, Scott said.

Anonymous said...

I see the reversal of the whole condo conversion craze causing rents to drop steeply from mid-2007 through 2010.

Anonymous said...

I bought a condo 3.5 years ago and if I wanted to buy it today, there's no way I could afford it. I'm happy I own it and I am glad I didn't wait. Of course the situation is changed from 3.5 years ago.

john_law_the_II said...

" The average rent for a one-bedroom Seattle apartment has risen from $829 a month in spring 2005 to $861 this spring and a projected $895 this fall."

a whole $66 dollars a month more? what will the landlords spend all that windfall money on? I bet that doesn't cover their rising property taxes.

"One caveat is that close to 20 percent of condos go back on the rental market, Scott said."

and if the market stalls, people will put them back onto the market to try not to lose so much money per month.

Snoho_Renter said...

"2) Quality of life is almost always lower in a SFH rental. They're usually the worst houses, no updates, bad locations."

- I couldn't let this ridiculous assertion slip past. Last month I decided against taking a 2-year lease on a 2800 sf newly built house (granite and stainless everything) that was renting for $1800. And this price was reduced after the owner was unable to rent it out for $2000. The house sold 3 months before for $550,000.

Also, it is not difficult to find "updated" granite & stainless flips competing for renters on Craigslist. Right now it is basically impossible to purchase those kinds of ammenities for the same monthly nut as you can get by renting.

Anonymous said...

Also, keep in mind that a building "with 20 or more units" is freaking HUGE, by Seattle standards.

I don't know if you've bothered looking, Meshugy, but most rental properties in Seattle have fewer than 20 units. The only in-city places I can think of with mega-rentals are in Belltown and Captiol Hill -- Official Neighborhoods of the Gouging Landlord (tm).

matt said...

Quality of life is almost always lower in a SFH rental. They're usually the worst houses, no updates, bad locations.

Dude, whatever... I rent a SFH in Ballard up along Phinney and I'll bet you dollars to donuts its a nicer spread with a better view than wherever you've found yourself in Ballard... how do I know that? because the price/rent ratio is blown wide, that and I'm not renting from a looney flipper? The rental market's totally skewed due to flippers suffering to cover toxic loans and the squeeze of condo-conversion. Wash that insanity out of the mix and we're back to the bubble rent/price disparity we saw over the last four years... The true rental market's camoflauged at the moment.

Appreciation for owners over the same time has far exceeded $9,000. From 2004 till now, most homes appreciated well over $150K.

Yeah? Sell it then? See this is the logical fallacy in Meshugy's median-price to liquid wealth mathematical transform. What a house is worth and what it sells for are two completely different things! Just like that ridiculous oxymoronic statement you hear spewed from real estate shills "Its priced to sell! Won't last long!"... priced to sell eh? Are things "priced NOT to sell?"

Again, any investment that you're paying interest on is not an investement in the classic sense. For starters, housing does not pay dividends, its illiquid, and you pay a premium just to have your name on it, also there's maintance fees and property taxes. The only tax you have to pay on investments are capital gains taxes if you decide to sell... I've got a 12 month CD banging away at 5.20%, in a year its cash...

Housing is an asset class, not a portfolio stock...

matt said...

BTW, Its of my personal belief that the rash of drive-by blogging's probably a canard of the Seattle Real-estate cheerleading cult in this fair city, if not a phantom menace of the 'industry' itself. Why not leave a 'name' at least? I've seen a lot fo what I'd consider 'faux dialog', e.g.

Anon 1:
"Say, this bubble talk's really got me down, I was thinking of buying a reasonably price Townhome Ghetto off of market with an i.o/neg-am loan, new granite countertops, psuedo-sub Z's, the works!"

Anon 2: "Really anon, as much hype as there is on this blog, these guy's are all bitter-renters (TM). Prices never go down, etcetera... Most hate Seattle anyway. Too bad!"

whatever...

seattleMoose said...

At this point both the regular bears and bulls on this blog have drawn their lines in the sand.

"Drive bys" are just "static".

Now we just sit patiently, watch the bubble pop, and bear right.

Anonymous said...

>2) Quality of life is almost always lower in a SFH rental. They're usually the worst houses, no updates, bad locations. Very rarely *nice*. Condo rentals can be nicer...but I don't want that.

Shug, from the bird's eye view on local.live, it looks like you live in an apartment or townhome.

Anonymous said...

What a house is worth and what it sells for are two completely different things!

Not true. A property is worth exactly as much as someone is willing to pay and not a penny more or less! This gets to an issue that I see clouding the thinking of bulls and bears alike. There is this notion of an ephemeral “real value” that bulls say is higher and bears say is lower than current prices. Sometimes this clouds the debate here, I think.

So, as far as the bubble goes, property x is worth whatever exorbitant amount flipper y is willing to pay using a toxic loan today. However, in a year, the property might not be worth X + 15% because non-flipper z is not willing to pay that. Therefore, the value either fails to appreciate or actually depreciates.

Anonymous said...

looks like you ARE full of crap. Those buildings are apartments. At least it must be nice living near the hospital.

meshugy said...

Also, it is not difficult to find "updated" granite & stainless flips competing for renters on Craigslist. Right now it is basically impossible to purchase those kinds of ammenities for the same monthly nut as you can get by renting.

Maybe in snoho....but in Seattle you won't find that in a SFH detached house for cheap.

matt said...

Semantics anon 06:31...

e.g. "That guy totally lowballed me, my house is worth way more than that! I'm willing to hold forever until I get the price I'm entitled to!"

... meanwhile six months go buy, property unsold.

'Worth' is just a matter of opinion, its nebulous...

Anonymous said...

But the whole point is, you can rent SFH's with all those ammenities much cheaper than you can buy them. Period. You can live in a better neighborhood if you rent. Period. And you still come out way ahead, with no risk.

meshugy said...

But the whole point is, you can rent SFH's with all those ammenities much cheaper than you can buy them.

That's probably true now....but in 2005 and before it wasn't. And with rents rising quickly the difference could be made up in a few years.

Overall, it's still hard to find good SFH to rent. Most are outdated and shabby.

Dukes said...

Meshugy said: "Maybe in snoho....but in Seattle you won't find that in a SFH detached house for cheap."

Bzzzzttttt! Wrong answer Meshugy, those houses are all over the place. Since you are such a happy homeowner just how many rental homes have you been checking out lately? I mean...how do you know?

I am a happy, proud renter in Queen Anne, I pay a fraction of what people with the housing noose around their necks pay. I love life, I have plenty of liquid money to invest and enjoy and my lifestyle is incredibly good.

To say that the "Quality of life is almost always lower in a SFH rental." as Meshugy said above is simply a DISGUSTING comment by a scared individual who really can't help making himself sound foolish at this point.

Anonymous said...

"Meshugana" means crazy in Yiddish. Meshugy, was this an intentional choice of screen names, or just a coincidental irony?

ctcbelieve said...

Don't buy the "rents are rising fast" argument, at least for Seattle. Rents rose over the past year but have peaked over the summer and now are coming down. In searching for SFH to rent over the past month, my experience has been that there are more landlords than tenants. The last landlord I dealt offered us a $100 discount to rent right away, without us even asking for it. We have dealt with a lot of investors and speculators who have decided that real estate will make them rich and are desperate to find good tenants.

A search for "house" on Craigslist reveals over 1000 listings.

Renting is the better route, for now and for the next 5-10 years. I strongly encourage all reader-owners to sell their homes and become renters.

Anonymous said...

lol, meshugy is NOT a homeowner, he rents an apartment.

Heavy Shtetl!

Spokes said...

Yeah, my rent just went up $40 (5%), but that is the first increase since 2000. So, I don't feel that my rent is skyrocketing. I live in a so-called desirable neighborhood near the UVillage "lifestyle center" (per the Seattle Times). I bank the difference between owning and renting. My buying power is going up even inside this bubble, so the fear-factor 'buy now' scare tactics don't phase me.

As for the whole SFH rental discussion -Seriously, most in-city Seattle neighborhoods are rental quality (Ballard included). So whether you are renting from a bank or a landlord, you're living in the same low-end rental neighborhood. Why not rent? Oh, yeah, you can paint the walls. Woo. I'll look at my Emigrant Direct statement instead.

Oh yeah, you own "free and clear". That whole myth is what gets us the "grandma taxed out of her home" pull on your heart strings during elections. If it was "free and clear" wouldn't she be set for life? A home that I own "free and clear" in Seattle will cost me more than my current rent (taxes, insurance, operating expenses, maintenance...). Factor in the cost to make a lateral move (commission and excise tax) and amortize that over the time you own the home too to get the whole "free and clear" picture. Whatever.

Anonymous said...

Yeah, I have to say the whole "rents are up", "apartments are tight" argument just isn't borne out by what's happening in the streets. I sold in August and am renting now, had tons of choices, all well below my mortgage payment, all with stainless/granite, etc. I now have a better view, closer to work, and pay about 25% less than I did when I owned (and I had quite a bit of equity in my old place).

synthetik said...

>rents are going up

I admit I could be totally wrong here, but isn't this simply a supply/demand issue?

I just looked on CL in San Diego and a unit that has 75 sq ft more than the condo we were renting is going for $1695. We were paying $1800 in 2005. Distressed flipper raised us to $2000 to get us out.

The point is...

More distressed properties that do not sell will equal more rentals on the market increasing supply and lowering rents.

Happened in Sunny San Diego, why not here?

This discussion is totally moot either way.

As far as quality of life... I think the best "quality" at the moment for me is that I don't have to worry about a $4500 mortgage payment.

I have so many more choices right now. If I need to lower my bills a bit, I just move into Ballard and rent a house. Yeah, it'll suck but I'll drown my sorrow by stuffing my face with cupcakes all day.

Spokes said...

To add to Synthetik's post...

There are many condo conversion projects that are just on the market or still nearing completion. Many of these will likely return as rentals following the "re-partment" trend that is being seen elsewhere (of course only after the "we're different" sugar coating has faded away).

Anonymous said...

@ SPOKES
"There are many condo conversion projects that are just on the market or still nearing completion. Many of these will likely return as rentals following the "re-partment" trend that is being seen elsewhere "

This brings up another condo ownership issue.

Sweat to build downpayment, and stretch to make monthly mortgage, taxes, and HOA dues, to live in a building full of renters.

Lets face it, the ownership mentality does not exist in a rent relationship. Almost always, you can pick out the rental homes on a block, and I'm sure you can equally identify the rental units in a condo or condo conversion.

Not to disparage the renters, as I did that for a decade, but there is a different mindset toward the property when one rents.

Also not advocating property purchase in this toxic environment
.
There are buildings full of overpriced, in city units coming on the market. There is a boatload of overpriced homes currently available. Add to the mix all the zero lot line and party wall rowhouses being plopped on backyards all over town. (With their 15 year roofs and 12 year vinyl windows, IMO they are slums in the making.)

A price break is inevitable.

Seattle has always been a boom town, too bad so few understand this.

Spokes said...

Re: Anon 08:39

Totally!

When I looked at The Greenlake a few years ago, they tried to sell me on all the "investors" that were "in". My response was that these investors would either flood the market at the first sign of trouble (drive prices down) or rent the units (what I was supposedly getting away from). On top of that, they couldn't give me any specifics about square footage or even parking stall location. Typical baffle them with BS. Next!

As for zero lot line townhouses, I agree that these "No dues" (maintain themselves?) homes will reflect the fact that there is not a maintenance strategy - esp. for FBs. I am always amazed that condos get such a bad rep because they force you to plan/acknowledge some of the expenses of ownership. Sure, there is some overhead built in, but I would also imagine that there are some economies of scale WRT water, sewer, garbage, and other utilities. So, it is closer to a wash than most people realize. It is just that you are more aware of it and that goes against the training to ignore expenses.

Anonymous said...

There are NO good reasons to buy RE ever. Not one. Anyone who buys RE ever is a complete fool. I can't wait to see all the homeowners 6 months from now, like rats on a sinking ship! Hahaha!!

seattle price drop said...

Anon-

Well, I'm pretty sure there are hundreds of great reasons to buy RE, and I myself have enjoyed the benefits of owning and being a cash flow positive LL.

However, at this point in time there are NO good reasons to buy.

Maybe next year. Or the year after that. Or the year after that.

We'll just have to wait and see how this thing plays out.