Housing v. Renting Again!

Both synopses from the last post were very good and I will use both here even though it will make this a long post.

Part of the comment (unfortunately the links didn't stick) which our first anonymous at 9:04 AM said was:

There is also the advantage of *leverage*. If you make a downpayment of $100,000 and buy a $1,000,000 home, and if that home appreciates by 10% in one year, it looks like you've now got $200,000 where you used to have $100,000. It feels like you've doubled your money!

You made some mortgage payments, insurance payments, tax payments, not to mention some points and fees in addition to the first $100,000, however, which pro-home ownership folks tend to overlook.

A group of contrarians tried to take all those nuisance expenses into account, and the end up questioning the financial wisdom of home ownership. They've written about it at MSN, at get rich slowly, the Wall Street Journal, the Motley Fool, and and the housing crash blog.

They point out that you don't pay yourself when you buy a house, you pay a huge amount of mortgage interest to the bank, you pay the prior owner, you pay taxes, you pay insurance and maintenance and upkeep. And if you sell, you pay a whopping great commission - 5 to 7% on the full price of the house - to a real estate agent.

Usually you end up paying three times the value of the house over 30 years!

Whether or not you come out ahead depends on how fast the prices of houses rise, and what you might do with the money you saved by renting. Nationally over the 100 years from 1895-1995 homes did not appreciate at all relative to inflation. But Santa Barbara is different, and an unresolved question is... does Santa Barbara real estate rise at about 7% per year, or 10% per year?

real estate guru doing his or her best to be objective enumerated a few things -- all of which could be discussed more.

1. One conclusion can be drawn from all this it's that buying a house or renting and saving 10% each payday and investing it in the stock market both come out about the same and both make one financially secure after 30 years. And that BOTH buying a house or renting, saving, and investing in the stock market are the best investment that one can ever make in their life.

2. We all learned that the average person does not have the discipline or will power to save much more than 1% of their income and so buying a house is a forced way of saving and investing.

3. We have all learned about the power of leverage and it's existence in the investment of buying a house.

4. We learned that the monthly payments of a buyer are not a part of the investment but are allocated as his cost of providing shelter and are an expense equal to rent over 30 years.

5. we learned that rent increases 5% compound each year and that both stock investments and a house investment appreciate an average.
between 7% and 10% a year

6. We learned that neither buying a house or a stock investment is a sure thing and that both have risks.

7. We learned that both have bubbles and corrections but that history always repeats itself and so both the stock and the house go right back to appreciating mode after the correction is over.

8. We learned the the bottom of this housing correction may be an opportunity of a lifetime for anyone who wants to buy a house and that the prices of houses will never be lower over the next 100 years than they will be at this coming bottom.

9. We learned that the coming housing bottom is going not going to occur for at least one year and most likely will occur somewhere between 1 and 3 years from now.

10. We have all learned about the wonderful power of leaving an investment in for a very long time like 30 years.

11.We all learned about the rule of 72. ( one can find out how many years it takes for something to double by dividing the number 72 by the annual rate of compound growth. ( compound growth is where one leaves the annual increase in to grow the following year along with the principal.)

12. We learned that there is much more to life than money. and that money alone will not make you happy. But it is sure nice to have.

13. We learned how buying a house can provide for retirement by providing a paid for house with no monthly payments. and can provide a nice estate to leave your kids, or a way to refinance and help your kids buy their own house.

14. We learned how buying a house gives one the security of knowing your landlord can't evict you, and the freedom to have a dg or to paint a wall purple or even to knock it out.

15. But the most important thing we leaned is that our american free enterprise system has powerful and wonderful opportunities for ANYONE ( and i do mean anyone) to get ahead by investing and to do that one needs to SAVE. And using that savings to either invest in a house or invest in Stock market.

16. so everyone of you: Start saving a full 10% of your paycheck starting next paycheck. make a budget to live on 905 of your pay. do without some materialistic luxuries and live more frugally and invest your savings in EITHER a house or the stock market and you too are on the road to building SIGNIFICANT WEALTH.

After 99 comments, let's start again....

I am amazed at the back and forth as to what it takes to buy a house in Santa Barbara. Almost 100 comments later -- let's continue here with several questions:

1) Going away and coming back is argued as a good and bad move. Which is it?
2) Renting versus Owning Your Home is argued as a good and bad move as well. Which is it here versus elsewhere?
3) Will the national mortage collapse mean we all buy homes in Santa Maria and Oxnard but not SB because we are THE corner case of what is going on around everyone else in the country? I say those of us without homes have six months to get our act, and a down payment, together for our perceived family good. What say you?

Clearly, BlogaBarbara is not just about the state of a certain newspaper housed at De la Guerra Plaza...thanks for the conversation, advice and big picture on real estate in our hometown.