Interest only home loans?

[dlb]

The tax "savings" only help to offset a portion of the costs. So, the cost would be (PITI + maintenance) - TaxDeduction. That number will be substantially greater than zero.

[Nocahoma]

Honestly, I can't think of anything nerdier than grown men arguing on the Internet about the definitions of "average annual return," "interest load," etc.

If you guys are just trying to win an argument at all costs, could you take it off in a corner somewhere?

The cliché "pick your battles" springs to mind here.

[dlb]

Do you mean some corner other than this one?

[gilesfan]

Good call Noc!

[frenchman]

noc

If you guys are just trying to win an argument at all costs, could you take it off in a corner somewhere?

...I agree, amn...nothing worse than being forced to defend yourself from someone attacking and off subject point. The idea of "housing traditionally being a lousy investment" was a rather small bricj in my caution to the original poster about buying a property that needed an IO for him to afford.
My main oint...dont let the ast 14 yrs of unreal, unprecidented returns cloud you. As they say..."past performance is no guarentee of future results"

I hate to take up space defending a position from an obsessed poster.

And I stand by my comment

gilesfan

Good call Noc!

...now you are just being a weasel who was unable to back himself up challenging me, and has run under skirts to avoid the fact he mis-spoke

[SpartacusII]

Originally Posted by Nocahoma

Honestly, I can't think of anything nerdier than grown men arguing on the Internet about the definitions of "average annual return," "interest load," etc.

Maybe worrying about the "nerdiness" of someone's argument on an internet message board wherein one frequently posts pictures of "hot chicks", drools over others and posts pictures of themselves doing "exciting" things (including cooking) after discussing baseball statistics with another grown man? I think nerdiness may very well be in the eye of the beholder. Just sayin' ...

[SpartacusII]

Originally Posted by frenchman

Lets sum up.

3% annual returns for roughly 90% of the last 115 years, 6 % financiang costs, 2% annual property tax, 2% annual maintenance costs, and a 6% surrender charge.

6% financing without tax considerations, perhaps. Or after-tax if you are taking a higher interest IO (in which case the leveraged return is even greater, of course).

90% of the last 115 years isn't 100%.

2% annual property tax is not a norm. Living in a Boston suburb on the South Shore, where housing costs are outrageous compared to the great majority of the rest of the country (and nearly on par with NYC's surrounding areas ... in fact, in some places, higher), you can cut that in half and then some. So it's obviously not a a valid figure for general analysis.

2% annual maintenance costs is also not a valid figure.

It must also be remembered that the alternative to housing is taking most of that money and spending it on nothing except living space, with nothing to show after.

When discussing the attractiveness of an investment, it only makes sense in the context of comparing to other alternatives of spending that money ... which you seem to be trying to distance yourself from when convenient, yet utilizing entirely when convenient, as well.

It also only makes sense when considering the entire portfolio of investments. Something that may not bring the largest return or the largest return per unit of risk may very well be an extremely attractive addition to an investment portfolio. What's the covariance of real estate with the stock market? Until you can get a grasp of general theories of finance, I won't even breach actual application of risk and relational data.

Have you ever even utilized a valuation model in assessing real estate investments? Do you even know what the options are? Of course not ... you will rely on some cheesy articles and some misinterpreted graphs without context.

The reality is, real estate can be an extremely advantageous investment if utilized properly, historically, presently and likely in the future. It was still, in many cases, a VERY good investment when it was pulling in 3% "average annual returns", even if no one in investment analysis would utilize that figure. If anyone in my employ ever utilized such terminology, they would at least be mocked ... and a red flag would be waived that such person needs to be monitored very closely for competency.

Honestly, you have not shown anything other than you're some blue collar type of guy who has read Newsweek "business" articles and thinks you understand investments as a result. You certainly haven't presented yourself in the manner one would expect from a financial professional. Honestly, the declaration that "traditionally housing is a lousy investment" coming from someone who alledges to be bound by the duties and skills necessary to be a financial professional is shocking at best ... malpractice/malfeasance at worst. The fact that you stubbornly "stick by your statements" only compounds the problem, rather than excusing it.

-------------

When Mr. Dreamer mentioned that he would have to get an IO to even afford a place, rather than falling back on the drunken arm-chair QB answer of "housing sucks", we should have instead been giving him an accurate reflection of the economic consequences and persuading him that one very viable solution (though not the only one) would be to utilize an IO loan, but look for "less house" or a house in a different area, which was more affordable.

Personally, I utilized 100% financing with a small chunk of it being "IO" and the rest being an ARM. I bought 1/3 the home I could afford, came out paying less than 5% more in total costs per year than I did while renting and have already more than covered any losses I may have suffered in the real estate bubble bursting in tax savings ... and that was while buying at the height of the market. We are now about to buy a second/vacation home, while being in the beginning stages of planning the "final" family home (whether or not to maintain this home as a rental is TBD). Real estate has helped balance our portfolio quite well, despite the fact that our main objective is to have a roof over our head (as housing should be thought of first and foremost).

---------------

And on a more "grandiose" level, it's a bit ironic that you keep harping on the "traditional" returns of real estate while then commenting on the "fact" that the past is behind us and the future is what matters. In and of itself it begets a chuckle, but I feel it can hit on a very important possibility/probability in the realm of real estate ... that it is in the beginnings stages of a fairly large-scale change - the bubble build-up and the subsequent bursting being a harbinger of such an occurence. Yes, there will be blowback that will effect all interested parties in the short-term (lenders, buyers, builders), but it is a general indication (along with a number of other indicators) that real estate is in the infancy of being the basis for a more complex realm of investment strategies and tools (of course, there's already been headway in that area thanks to the proliferation of REITs, MBSs and securitization in general), but it's likely to extend even further, to affect those who aren't able/interested in purchasing "common stock facsimiles". But this discussion is a bit too deep for the "traditionally housing is a lousy investment" crowd.

Good luck, frenchie. Ignorance may be bliss, but it isn't accuracy.

[frenchman]

I must be wrong then...if you can make money in real estate, then any moron can.

Last effort, to see if I can prod an ignorant mule to understand a simple concept...

First, my original graph, which is all the defense I need to mount, appears to be over your head...you dont understand its methodology.
Here goes.

The graph excludes new houses...counts only existing houses.
Why?
Because, a new house can be built for any amount of money, but should not be included in measuring house price appreciation.
Example: Imagine a world with 5 houses only, each costing $200k. I come in and build a $500K house.
The average cost of housing in that world just went from $200k/house to $250K/house, IF you include the new house. But I would counter that the other 5 houses did not change in price because I built a bigger and more expensive house.
The NYTimes graph would correctly exclude that new house, and only count later appreciation.

It should be intuitive that housing would follow a price appreciation path that closely follows peoples' ability to buy housing. This would be influenced by real wages and interest rates mostly. It would be difficult for housing to appreciate faster than people's ability to buy housing in the long run.
That is not to say there would not be periods of faster, or slower, housing growth...but over the long term...housing will follow a predictable path of growth.

A period like we have just witnessed will have a correction and we are seeing it now. The last buyers were stretched and obtained financing they really could not afford. Now Home builders are losing money, mortage delinquancy is much higher, and sub prime lenders are about to go belly up. People are walking away from houses they have no equity in and cannot afford.
Home prices are falling back to their mean level.

Contrary to gilesfan's poorly concieved idea, population growth has little correlation to housing prices. Why? Because supply is not fixed. You can build more houses if more are needed.

The conditions of the last 12 yrs, and particularly the last 5-6 are unlikely to be duplicated in our lifetime.
What happened?
Stocks appreciated hugely in the 90s, creating much paper wealth, along with a booming economy. The subsequent minor recession and deflation threat, brought interest rates to their lowest levels in 50 yrs, easing financing and making housing affordability cheaper. The stock market bubble burst created a strong desire by investors to hold hard assets...real estate, metals. Money poured into housing.
This all combined, along with a great speculative factor, to boost housing well above its long term affordabilty.
Its headed back.

In short...their will always be periods when one can speculate in housing, in the short term...but longer term it will follow a very steady path with little "real" appreciation, especially after costs.

Owning a house...has interest costs, property taxes, maintenance...including heat/electricty/water...cutting the grass, painting, replacement of appliances, repairs.

I just sold my house...and its incredible to go back, for tax purposes, and calculate how much money you put into this "investment" over the years.

My house proved to be a great investment...the sheer luck of timing, I bought in 1993 and on the water. It appreciated 3.4 times what I paid...but I doubt that will happened again in my lifetime. I have instead downsized my housing...trading in the water premium.

Go back to the original graph...you can't argue with it. You can throw a hissy fit, refuse to accept it, and call me "ignorant" some more...but you are not fooling anyone here.

You are pretty transparent...very stubborn...and possess one huge ego.

[Nocahoma]

Gee, that went well.

dlb,
Actually, I was thinking e-mail or PM's.

Ah, Sparty, I knew I could count on you. Thank you for bringing back fond memories of the "Random Hot Chick" thread. No, I don't see anything necessarily nerdy about that. Drooling obsessively over said hot chicks would be, however. I do think that discussing baseball (yes, even basic baseball stats) is somewhat less nerdy than what's gone on here. Start debating Babe Ruth vs. Ted Williams in a bar somewhere, and I guarantee a lesser chance of nerd-dom than when arguing financial minutiae.

Ah, Hell, people -- I just tried to get you to stop acting like freakin' children. Feel free to continue, then -- at risk of your own reputation.

[gilesfan]

Noc, I'm still waiting for Frenchman to answer the questions about how he overestimated housing costs.

He'd rather bash people because he thinks that makes him look "right."

[SpartacusII]

Originally Posted by Nocahoma

Ah, Sparty, I knew I could count on you. Thank you for bringing back fond memories of the "Random Hot Chick" thread. No, I don't see anything necessarily nerdy about that.

Hence the "eye of the beholder" comment.

I do think that discussing baseball (yes, even basic baseball stats) is somewhat less nerdy than what's gone on here. Start debating Babe Ruth vs. Ted Williams in a bar somewhere, and I guarantee a lesser chance of nerd-dom than when arguing financial minutiae.

Eye of the beholder. You seem to have no hesitation discussing the minutiae of being a drug-dealer, and if another fellow drug-dealer came on here and started questioning your knowledge, you'd go nutty, as well.

And in most bars, if you start mentioning anything OTHER than basic stats in talking baseball, you will be called names far worse than "nerd" ... and, yes, I have no issues with it ... but, again, eye of the beholder.

Ah, Hell, people -- I just tried to get you to stop acting like freakin' children. Feel free to continue, then -- at risk of your own reputation.

One more time ... popping into various threads on various topics and inputting Cliff Clavin-esque factoids that are oft times tangential to the actual topic and more just a chance to prove you have something in your noggin ... that might be considered a bit immature. Eye of the ... what? (Not tiger). Glass houses, even. Lots of applicable cliches.

[SpartacusII]

Frenchie, if all of that basic information is all you've been claiming, then I've been wasting time trying to teach you far more advanced lines of thinking, as you're either not capable, or willing to think like an analyst.

So be it. It's not shocking, disappointing that all he has presented is what is given to everyone through mainstream publications aimed at the consumer masses.

By the way, housing can be a very good investment, without speculative windfalls. No matter how hard you try, you can't seem to get past "capital appreciation" in and of itself (and in and of itself, "capital apprecation" is irrelevant/misleading ... but we can't get to that because you aren't able).

And as to your comments about housing prices not being correlated with population growth ... that's such a broad-sweeping statement as to be necessarily false. Obvious evidence of this exists in or near any of the major cities, where supply certainly isn't infinite, due to space and commuting restraints, among other things. An issue which will only compound itself and spread to "mid-major" cities on an exponential scale, especially in certain housing segments.

But, really ... none of this matters ... you want to have a low-level conversation, have at it. If you want to have an accurate, knowledgable conversation, let me know and we'll start talking on my level. One where lies and half-truths are not the "only evidence you need". You can even try to convince yourself you've made a cogent argument.

[Nocahoma]

Sparty, I read most, if not all, of the threads on this board. There's no "popping in," except maybe to try and ease people back off of their toes a bit (as was done here).

I'm afraid you'll have to refresh my memory on the drug dealer bit. I've never dealt drugs, nor do I condone it.

[frenchman]

gilesfan: I'm still waiting for Frenchman to answer the questions about how he overestimated housing costs.[/quote]

...how have I done that?

sparty: Frenchie, ...you're either not capable, or willing to think like an analyst.

By the way, housing can be a very good investment, without speculative windfalls. No matter how hard you try, you can't seem to get past "capital appreciation" in and of itself (and in and of itself, "capital apprecation" is irrelevant/misleading ... but we can't get to that because you aren't able).
blah,blah,blah

...you still have your pompous ego flared I see.

You know one trouble with housing as an investment, is that the majority of buyers cannot trade in and out of the class, because when he sells...he still has to live somewhere. He is at the mercy of the mkt.

Now...how great to open todays Wall Street Journal and find them take on this very subject...and low and behold, they crush for Sparty.
Forget gilesfan...he has yet to make sense...but Sparty got crushed.
Perhaps you dont read the WSJ you fraud.

Why Your Home Isn't the Investment You Think It Is

Planning your retirement? Don't bet the house on it.

As a result, houses have become substitute credit cards, as profligate owners borrow their equity to finance everything from cars to vacations. Among thriftier owners, the equity they have built up in the family home has become a vital part of retirement planning -- a "fourth leg" of the now-unstable "company pension/personal savings/Social Security" stool that was long the model for a financially secure old age.

Unfortunately for both groups, however, houses are not very good investments. For the grasshoppers, there's nothing quite as stupid as paying off your 2002 trip to Orlando in 2032, when you finally settle up your refinanced "cash out" 30-year mortgage. And for the ants, economic studies have demonstrated over and over that houses (1) cost more than most people make when they sell and (2) rarely match the long-term returns of stocks or other investments.

houses are not very good investments

...whats that??

Food for thought:

• If you bought a house in Los Angeles in 1990, just as the real-estate market turned downward, you would have had to wait a decade for your home's value to return to what you paid.

• If you bought in Rochester, N.Y., in 1980, you would have seen only a mediocre 4% annual growth for the next 25 years.

• If you bought in Dallas in 1986, as the oil boom went bust, your home wouldn't have appreciated at all before 1998.


this part is for gilesfan



Q: So how much does a house really cost?

A: You can easily end up spending three times the purchase price of a house. Today's buyer of a typical $300,000 single-family home who takes out a 30-year loan will end up paying the price of the house again just in interest. Add 30 years of property taxes, homeowner's insurance, regular maintenance and a couple of big-ticket repairs or improvements, and the total cost of buying the home could easily top out at well over $1 million.



[quote]

WSJ.com - Login

here you go Sparty...you may not accept my more experienced view...so are you going to say the WSJ is wrong as well?

But the typical buy vs. rent argument clouds the more important point: A house is an inefficient way of building wealth.


But they didn't. That's because the costs of owning a home -- buying it with a long-term mortgage and then paying taxes on it, insuring it, repairing it, renovating it -- sap most of what most homeowners think they make in price appreciation.

...taken to the woodshed...my work is done

[Nighthawk]

Thankfully, I finally have the power on this board to end this house-waving contest.

If you can't play nice, don't play.

-Hawk