Why do articles like this come out just before I buy a big house?

[Strickly Bidness]

Renting is often better. Let me clarify my post, because I'm not really interested in comparing renting to buying. I am buying this house for 3 simple reasons:

1. My company is subsidizing the purchase with around 100K in incentives

2. My wife REALLY wants this house

3. I think I will be in the bay area for awhile

Take any one of the above 3 reasons away and I would likely not buy. Actually, if I were single I'd just live in an RV in the parking lot of a cardroom So my big concern is whether or not I may be making a HUGE mistake with this purchase or not. I dont think that I am , but i get nervous with articles like these and lots of people walking around talking about the market cooling off.

[otctrader]

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So my big concern is whether or not I may be making a HUGE mistake with this purchase or not.

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Highly unlikely unless you're hell-bent on catching the bottom tick in the real estate market.

I see too many monkeys run around trying to time the real estate market these days instead of settling into a primary residence they truly enjoy. If you and your spouse love the home and location, then there's an intangible but very important benefit you receive which can't be quantified.

[squiffy]

I saw that article when it came out.

Some of his statements are just plain absurd. Like houses are really not good investments. Peter Lynch devotes several pages in his stock investing books explaining why real estate is a better investment than stock and that the average investor should buy a home before he buys stock.

It's true that like any investment, if you buy a home in the wrong place at the wrong time, it can lose market value. If you buy in an overpriced market just before a major recession hits, you could lose 20%.

But if you can afford to hold on for 10 years, you will likely recover.

Real estate is a get rich slow technique. Over 20 years, in a market like SFO you will be fine.

Over any 1-3 year period all bets are off.

But that's true of any investment.

He presents specific examples of how a real estate investment can go wrong. That doesn't mean that buying a home is generally a bad investment.

Any purchase can turn out to be a lousy short term investment. That doesn't mean that real estate, in general, is a lousy investment.

Historically, real estate is a great investment. But that doesn't mean that 100% of real estate purchases turn a profit.

Buy the wrong house, at the wrong time, for the wrong price, in the wrong location, and you can kiss your money good bye. So what else is new.

[squiffy]

Anyway, his charts show that SFO real estate was clearly more profitable than the national average. So what's the problem?

If you buy and hold real estate in SFO for 100 years, 50 years, 20 years, 10 years, it's a good bet. Positive EV based on historical data.

But you can pick 1-3 year periods where that's not the case.

This is old news.

It's a continuum. It's hard to predict with any degree of accuracy or reliability what a stock or home price will be in the next minute, hour, day, week, month, year.

But over 5-10-15-20 years, the historical data suggest an upward trend.

This is why buy and hold investing seems to work and helps you get rich slow.

This is why day trading and flipping are much riskier. You can make money. But it's not clear that a lot of people can reliably do this for a living, without a huge percentage of them losing their ass. That's gambling, not investing.

[Shoe]

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I am buying it to live in as my primary residence. My hope is that I can get some appreciation from it and make some bank in <5 years. The home is in the best area of the Bay (San Mateo) and I'm paying like 1.35 million. I would like to be able to turn around and sell it in <5 years for at least 1.5 million but these damn articles get me a little scared. It is possible that I will live there longer, but I'd like to keep the option open to make a decent short-term profit.

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1.35 million will be worth over 1.7 million in 5 years just by putting in a savings account paying 5% interest per year. If your buying the house as an investment and only want it to appreciate to 1.5 million you are missing out.

[Strickly Bidness]

squiffy,

Thanks for your responses. Here's another question. This article just came out (I've no idea why Yahoo and the media want so badly to spread discontent w/ the housing market every day):

http://promo.realestate.yahoo.com/Mo...er_Buyers.html

Now, if subprime lenders cut back does this really hurt the 1 million plus housing market? I dont think people with crappy credit even buy 1 million plus homes do they? Should I even be worried at all about this type of media?

[captZEEbo]

squiffy,

I'm not the best at reading comprehension, but I don't think the article's main point was that long-term real estate investment was a bad idea. I think he was just saying that it's not as great as you might think. He was saying that real estate often makes for bad investments due to people's propensity to:
1) buy a house too big for their needs
2) move within 7 years
3) take out home equity loans to pay for trips, cars, etc.

[Girchuck]

The rent of the same house is probably 0.12M in 5 years, so if one rents, one makes only about 1.6M on the 1.3M investment, not 1.7M, but still better than 1.5M.

[Girchuck]

[ QUOTE ]
squiffy,

Thanks for your responses. Here's another question. This article just came out (I've no idea why Yahoo and the media want so badly to spread discontent w/ the housing market every day):

http://promo.realestate.yahoo.com/Mo...er_Buyers.html

Now, if subprime lenders cut back does this really hurt the 1 million plus housing market? I dont think people with crappy credit even buy 1 million plus homes do they? Should I even be worried at all about this type of media?

[/ QUOTE ]

That depends on who is buying. A 1.35 Million house is not a starter home for most people, it is an upgrade. In order to upgrade they have to sell their own starter home first. So they'll need a buyer for it. The home ownership in US is already at 69%, and the buyers for starter homes are people who don't have any house. Who are these people? With 69% home ownership, people who do not own a house yet are likely broke, or too young to work yet or both. The only way for broke people to buy a house is through some kind of subprime loan deal. If the subprime loan issuers stop doing business, lots of potential buyers will be priced out. In order for them to buy, the prices will have to become lower.
This is the logic of these articles.

[prohornblower]

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The last major eathquote in SF was in 1906, and it was hell there.

[/ QUOTE ]

1989 was horrible. Am I missing something?