akasha_108 <[EMAIL PROTECTED]>wrote:
> "jim_flanegin" <[EMAIL PROTECTED]> wrote:
> 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
or 4000 in a mortgage. Rentals in sme areas a great deals -- and a
great 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
on money. Just as wasted as property rent.
> Second, the only thing that makes owning more attractive,
financially, 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
double 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
for 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
any equity -- nothing is going to repay principal. And they may
actually 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,
and maybe suffering from information lags -- being sold on price
trends of past years and not understanding the dynamics of the local
market. But 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 area.

> By definition, international investors are renting their
properties. 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.
> > 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 of overseas investor money mostly from Asia keeping prices high,
even through recessions.
> But there has never been sustained 15% affordability and 50% rent
to 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.


> Actually per your above, an interest-only mortgage is actually
cheaper many times than renting is, 

The interest only phase payments can be near current rents. But the IO
phase only lasts 3-5 years. 10 Max.
And interest rates are rising. So payments could rise substantially --
particularly if we get into the 8% range.
And once regular ARM payments start in 3-5 years, the payments will
jump up again. I have seen reports where a 2k payment now could ballon
into a 5k + payment within a few years. If someone is just barely
qualifying for a IO loan now, at 30% of income, they might be faced
with payments in a few years of 60-70% of income. Its a disaster
waiting to happen.

> and you have the possibnable. lity of
building equity. 

Not during the interest only phase. Except for appreciation which is
becoming non-existant or negative.

>Also, I don't know of anyone with a $500 per month
mortgage who has purchased here in the last 20 years.

Of course not. The point was a 500k total mortgage -- which a lot of
people who got mortgages in the past 5-15 years have mortgages under
this level and thus will not be hit by the proposed mortgage deduction
in the bay area -- (I think the proposed cap there is 450k.)

> 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?

Well you are making the huge assumtion, that RE will continue
appreciating in the Bay Area. The main point of my prior post is that
there are strong reasons in the fundamentals to beleive that the days
of appreciation are over for a long time. But in addition to that,
look at the current markets in california. San Diego. OC and LA are
seeing decling prices. IN Norcal, Sacramento, Sonoma county, the east
bay, silicon vally and even Santa Clara county are seeing declining
prices, lower sales increased days on market. And this is just the
beginning of the long adjustment period to get prices in synch with
incomes (afordability) and rents in line with mortgages.

And alternative nvestments? Well, many may not equal the last five
years of Bay Area real estate. All good things come to and end. But
there are lots of opportunies. One from your neckof the woods: Google
has gone from 100 to 400 in about a year. Beats Bay Area real estate
hands down. I doubt it will continue at that rate. But lots of stocks
are doing well. But returns of 20-40% a year -- sometimes more, many
got used to such in the internet boom, then the housing boom. Its not
sustainable. If you are looking for such for 30 years, good luck.

> 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.

Its purpose, and only economic justification is to encourage first
time buyers. Its long term effect has been to price new buyers out of
the market. It is poor economic policy. 

> 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

The proposals are revenue neutral, not a new way to raise revenue. For
example the mortgage deduction scale down -- only for the top third or
so of tax payers,  is ofset by the elimination of AMT. 

But if you think BA housing prices are going to go up 20-30% fo the
next 10 years, best of luck to you.


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