The Bubble Isn't Bursting Here!
Yesterday afternoon I received the following friendly mass e-mail from our resident ziprealty.com representative and real estate expert, Jennifer Fisser.
This PDF was attached to the e-mail.
Hi Chad:Pick any complete sentence out of that PDF, google it, and you'll see that this article is being circulated all over the place.
The bubble isn't bursting here!
Please see this breakdown of renting vs owning.
I thought you might find it of value.
Hope things are well.
:)
Jen
Jennifer Fisser
REALTOR (R)
ZipRealty, Inc.
Licensed in California
Licensed in Washington
jennifer.fisser@zipRealty.com
Toll Free: 1.800 CALL ZIP x4824
Cell: 206.890.0131
Fax: 206.508.0848
My Profile: http://www.ziprealty.com/agent/jfisser
Can you smell the desperation?
"Nearly a full third of households are still renting...but if you are one of them, you could be paying a hefty price. Additionally, the children of the baby boomer generation are close to or at the home buying age, but these "echo boomers" could mistakenly decide to put off the purchase of a home because of all the noise about a "bubble" in home prices."Another Darren Meade quote, from his website
"No one should ever have to lose there [sic] home and live on the street, especially when you have already spent half your life building your career"Irony at its finest.
(Darren Meade, American Chronicle, 08.19.2006)
12 comments:
Heheheheh [/Pee-Wee Herman chuckle]
So with the currently low levels of unemployment and the beefy gains in job creations, it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains that much of the country has seen, price declines are highly unlikely.
For starters this Meade joker wrote this in August '06, secondly, his notion of vibrant housing market is that of a dimming 40 Watt bulb, especailly with tales of spiralling RE prices all around the country.
That and I'm not sure what 'beefy' gains really means, beefy? Sorry my friend we're barely even with where we were after the tech-bust. No we've replaced two-bit dot-com CEO wages with McJobs, beefy indeed. That and a good chunk of job growth was started by the Greenspan housing-bubble anyway...
Therefore, any 'breakdown' of Daren Meade's rent vs. buy calculator is tainted with the same ole' industry propaganda we've been seeing time eternal...
That and this boner...
If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.
Hahhahah! Nice one Daren, you know what I'd do? Move!! Yeah, I know, its a bizarre notion to the house-poor but renters can just pack up and move if they feel they're getting jacked. Ca-razy! I realize.
What a howler!
"a mortgage of $300,000 could be obtained with a total monthly mortgage payment - including property taxes and insurance - of around $2,200."
Maybe he hasn't seen the prices in the Puget Sound area.
I have looked over this .pdf that Synthetik brought to our attention, and in the off-chance that anyone was waiting for my official pronouncement, here it is:
Complete Bullshit.
I think our overeager Realtor is guilty of a logical fallacy wherein she starts with her conclusion and works backwards to arrive at her assumptions.
This has no limit to the amount of fun you can have. Perhaps I can do the same thing.
For those of you that like spreadsheets, I have cobbled together a primitive analysis of renting -vs- owning, but I used some different assumptions.
Rather than assume that real estate only goes up-Up-UP, I looked at it from the other end of the spectrum, and see what renting looks like if we are poised for a mild Japanese style downturn. This would have an initial speculative pop in the first year, and then a slow leak to a soft landing and recovery over the next decade.
This is LIGHT YEARS away from what I am expecting, but I thought I would split the difference.
Realtors like the "If" game. IF prices go up... Well, what "if" prices go down, and maintenance goes up? What "if" you are not getting the tax break you think you are getting?
Read 'em and weep.
I'll look into it.
Thanks,
E
flopfolder,
So correct. I did factor in the ownership costs twice.
The "Ownership Benefit" now is the deficit from renting + equity. I get the same number you do.
Regarding cumulative savings...I'll have to look at this tonight between innings in the ALCS.
flopfolder,
Great analysis. I just hope that those who have cashed out (or never cashed in) don't find themselves an indirect victim of this madness when the value of the US dollar packs up and goes home. I just don't have the guts yet to move most of it to precious metals or other similar assets, although the voices in my head tell me I should. Those same voices once told me to buy the Flowbee, so they can't always be trusted.
As a footnote, I have to say that reading the well-written and well-researched posts and comments in this blog is quite refreshing.
ctc,
I didn't feel like looking up the IRS tables for the standard deductions, so I just ballparked it by assuming a marginal tax rate of 20% on the final dollars.
In reality, for the vast majority of us, it will be less than that. After the employees of my company bailed out the morons that run it, we were left making substantially less than we had just a few years ago. Add in three kids, and my cumulative tax rate went under 5% for a few years.
The tax benefit is greatly overstated for the vast majority of us.
In reality, the assumptions are just educated guesses, so the necessity of getting everything down to the gnat's ass is pointless.
When I worked for NASA, we used to say: measure with micrometer, mark with chalk, cut with axe.
flopfolder,
I updated the spreadsheet to reflect cumulative savings and the savings on the savings. I also reduced the interest for money saved in a given year by half, in order to reflect the monthly contributions, rather than an annual contribution in January.
Great catch on both of those. I guess I should not blog/Excel while distracted by other things.
Either way, the ownership path needs quite a few things to go the owner's way for it to work. Right now, given the historic run that we have had, I just can think that ownership is the way to go.
I wonder if Jen would like to see this, or if she would be offended. I'll leave that up to Synthetik, as he has the relationship with her.
According to Rain City Guide, I can be quite vitriolic, so I'll stay close to home.
revision: I just CAN'T think that ownership is the way to go.
WOW! For a moment, I was recommending people buy a home.
END FLYING MONKEY ALERT!
I'll send it to Jen and see what she thinks. My guess is her response will go along the "well, that is your opinion, and real estate just doesn't have that history, so we shall see" line of Bravo-Sierra boilerplate.
Here is the text of my letter to Jen:
Hi, Jen,
My name is (E) and I received a nice rent -vs- ownership analysis that you did. It was very nice and informative. I did notice that your assumptions virtually guaranteed the outcome. I was wondering if you considered what the outcome would be if the market was poised for a mild, Japanese style selloff.
Feel free to look over the counter argument at
http://anon688.googlepages.com/OwnershipAnalysis.xls
I would be curious if anyone in your professional circles has given any consideration to what would happen if an equally anomalous bust followed this historic boom.
I wish you well in the upcoming years.
All the best,
(E) from Poulsbo
We know that RE agents can multiply by .06.
It's worth noting that whenever realtors (TM) talk about "historical" housing price appreciation they: 1) don't adjust for inflation, and 2) include the huge run-up of the last few years in calculating the average. (OK, to be fair, most of them probably never calculated the appreciation; they just parrot what some other "expert" told them it was.)
Using housing price data from Robert Shiller, I took 1950 as a baseline to calculate historical appreciation. The total appreciation through 2005 equates to about 5% per year (not 6-7%), but most of that is inflation. Adjusted for inflation, the 1950-2005 appreciation is about 1.1% per year. If you take out the unusual increases of the last few years and use 1950-2001, it is closer to 4.6% unadjusted/0.4% adjusted.
So much for "historical appreciation" of 6-7%.
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