--- In FairfieldLife@yahoogroups.com, akasha_108 <[EMAIL PROTECTED]> 
> "jim_flanegin" <[EMAIL PROTECTED]> wrote:
> >
> > I was just looking at housing prices in my neighborhood in Santa 
> > Clara, Cal. which is a middle-class neighborhood, but nothing 
> > Many retired folks, some families and couples. Houses are 
> > single story, about 50 years old, 1200 to 1500 square feet. 
> > prices are 750 to 900K. You won't find a house for less, 
although I 
> > did see a 2/1, 900 square feet, for 720K...
> > 
> > The proposed mortgage deduction would hurt a lot of people here, 
> > even if prices softened somewhat. 
> Well the rent to mortgage cost (after tax) in many parts of the bay
> area, and other high price areas are quite low, like 50% and less.
> They are hurt only if they feel the need to buy. Pay 2000 in rent 
> 4000 in a mortgage. Rentals in sme areas a great deals -- and a 
> way to ride out the bubble.
> Some will say, "but I don't want to throw my money away in rent. At
> least with a house I amd building equity." False on so many levels.
> First, everyone is a renter. They either rent property, or the rent
> money to to buy housing. A million dollar home costs a lot of rent 
> money. Just as wasted as property rent. 
> Second, the only thing that makes owning more attractive, 
> than renting when the rent to mortgage ratios are so low, is the
> expectation of appreciation. But that train has left. Prices
> everywhere are leveling off or beginning to fall. And when the
> expectations for apprecation are no longer there, it becomes a 
> whammy: no appreciation, and demand for housing falls thus bringing
> pressure for lower prices -- starting a depreciation expectation
> cycle. Thats when everyone tries to unload and prices plummet. 
> Third, if you are paying 2000 in rent instead of 4000 in mortgage 
> the same property, you are saving 2000 a month which can be saved,
> invested etc. Thats your rent equity building up and if there is 
no or
> little price appreciation, it will far outstrip any equity build 
up in
> property. 
> Fourth, if one is paying interest only, they are not building up 
> equity -- nothing is going to repay principal. And they may 
> be building up negative equity, which gets tacked onto the loan in
> later years. The only equity build up is if prices keep 
> -- it becomes a game of the greater fool. Hold risky properties now
> with the hope someone will be foolish enough to buy at an 
> price in a flat or declining market in years hence.
> Fifth, international investors may be holding up the market now, 
> maybe suffering from information lags -- being sold on price 
trends of
> past years and not understanding the dynamics of the local market. 
> after a year or two of flat and declining prices, the bloom will be
> off the rose, and hot international money could flood out of the 
> By definition, international investors are renting their 
> 50% rent to mortgage ratios may be bearable when prices are
> appreciating 20-40% a year. But when that stops, for a couple of
> years, bam, many investors will try to unload. Thus putting more
> pressure on downward prices. 
> > The trend here, just to buy a 
> > house, is to take out an interest-only loan. So many homeowners 
> > counting on that large mortgage interest deduction to be able to 
> > afford the house.
> And in 2-5 years they may count their blessings the loss of 
> deductions prevented them from buying at the peak of the market.
> > For the last twenty years at least, through good times and bad, 
> > people have been predicting housing prices to go down here. 
There is 
> > about a 15% affordability rate in this area, with lots and lots 
> > overseas investor money mostly from Asia keeping prices high, 
> > through recessions. 
> But there has never been sustained 15% affordability and 50% rent 
> mortgage ratios. So the past is not a good predictor.
> And many parts of california had definite flattening and declines
> 1985-95 or so. Certainly in San Diego and parts of LA/OC. 
> I thought the bay area had such too -- maybe not.
> > 
> > So the SF Bay Area is not purely a domestic real estate market.
> > If the mortgage deduction is adjusted to the 350K range, all 
> > will happen here is that local people will be forced to sell, 
> Well, many owners have morgages in the 500 or less range, having
> obtained them 5-20 years ago. Who will be initially "hurt" are new
> buyers. But they can rent for half the price. I can't feel too 
> for them.
> > the 
> > properties will be snatched up by investors and we'll have more 
> > renters.
> Not for too much longer, IMO.

Actually per your above, an interest-only mortgage is actually 
cheaper many times than renting is, and you have the possiblity of 
building equity. Also, I don't know of anyone with a $500 per month 
mortgage who has purchased here in the last 20 years. And you make 
the assumption that if one is renting, there are investments that 
deliver equal returns over time to real estate. What are they?

So we are looking at the same situation two different ways. The 
larger question is the reason for this mortgage interest deduction 
modification being proposed, and gaining interest. 

Basically the feds are broke. Better to fix that hole in the pocket 
than finding creative ways of leaving us citizens with yet less net 

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