More charts on housing from The Economist

[rmitz]

Nothing wrong , my brother is renting. I may rent if I sold my condo.... But just that i would rather pay down mortgage in a low rate environment, and with the prospect of free capital gain.... Vs. renting (building landlord's equity)....

 

a great investor is always "wealthier" if he rents. I heard a story (may not be true) that Buffett never wanted to buy a house when he was younger. Having said that, buying a house may keep your wife happy. it may provide a more suitable lifestyle, roots etc. but economically, if you are a great investor, investing the down payment at high rates is what makes you way richer if you rent. Not saying one is better than the other. the thing is great investors can do both and still be extraordinary wealthy. if I was young and also someone who could compound at 20+ rates over long term, I would wait to buy.

+1 most people on this board are worse of buying. Especially if what you put down is a large % of your networth. If you have like 5 million then it matters a lot less.

 

I don’t measure wealth only in $$.

[Phaceliacapital]

FYI http://investingsidekick.com/house-buying-vs-renting/?utm_source=rss&utm_medium=rss&utm_campaign=house-buying-vs-renting

[rkbabang]

I realize that not everyone on this thread is in the US, but here not only are 30 year fix rate loans very cheap right now, but you get to pay all of the interest with pre-tax income.  In my town for example there are rentals for a decent size home (~3500 sqft) for about $4000/month.  You could buy the same home for about $600K, put 20% down and pay about $3800/month (loan of $480K  = $2500/mo, property taxes = ~$14K/yr, and insurance = ~$1200/yr) and you get to deduct all of the interest reducing the real price you pay even further.  In 20 years you are still paying $2500/mo for the loan + taxes/insurance, and in 30 years you are paying only taxes and insurance. What are you paying for rent in 20-30 years? You don't want to buy at the top of the market, but otherwise renters get screwed in the US.

 

I know that the argument goes that you could grow that $120K down payment fast enough that you could still come out ahead, but if that $120K came from equity in a previous home you sold then it wouldn't be $120K, because you would own capital gains taxes on it if you did not roll it over into another home.  Again the tax situation in the US has tremendous benefits to ownership and penalizes anyone who sells a home and starts renting.  Rather than sell a home, rent and invest the equity, you'd be better off refinancing the home at 4% to take out your equity and invest that.

 

[Liberty]

If I was in the US I'd definitely be looking into buying a house. In fact, I'd probably have bought one a couple years ago.

 

In Canada, mortgage interest isn't deductible, most people get 5 year fixed rates at most, and our average house costs almost double your average house, so the situation is different..

[rkbabang]

If I was in the US I'd definitely be looking into buying a house. In fact, I'd probably have bought one a couple years ago.

 

In Canada, mortgage interest isn't deductible, most people get 5 year fixed rates at most, and our average house costs almost double your average house, so the situation is different..

 

Yes, completely different.  I understand why mortgage isn't deductible (tax code) and why houses are expensive (bubble that hasn't burst yet), but why do banks not offer 30 year fixed loans?

 

(EDIT) A quick google search answered my question. Like most questions about why something in a market doesn't make sense the answer is usually some government law or regulation. 

 

Why can't Canadians get 30 year mortgages (but Americans can)?

 

[Ghost]

Duncan hood editor-in-Chief of MoneySense magazine described it best for our situation in Canada. 

 

http://www.moneysense.ca/columns/did-i-just-make-a-big-mistake-by-buying-a-house

 

It really comes down to is the original poster buying a house or a home?

[Ham Hockers]

If I was in the US I'd definitely be looking into buying a house. In fact, I'd probably have bought one a couple years ago.

 

In Canada, mortgage interest isn't deductible, most people get 5 year fixed rates at most, and our average house costs almost double your average house, so the situation is different..

 

Yes, completely different.  I understand why mortgage isn't deductible (tax code) and why houses are expensive (bubble that hasn't burst yet), but why do banks not offer 30 year fixed loans?

 

(EDIT) A quick google search answered my question. Like most questions about why something in a market doesn't make sense the answer is usually some government law or regulation. 

 

Why can't Canadians get 30 year mortgages (but Americans can)?

 

Nick Rowe is the best.

[Liberty]

Duncan hood editor-in-Chief of MoneySense magazine described it best for our situation in Canada. 

 

http://www.moneysense.ca/columns/did-i-just-make-a-big-mistake-by-buying-a-house

 

It really comes down to is the original poster buying a house or a home?

 

"The reason is simple: I want to eventually retire with a paid-off house, and I was running out of time. "

 

That doesn't make any sense. Just put money aside while renting, then when you do buy a house, put that money on the house. Who's forcing you to spend it all in the meantime? As if buying a house is the only way to put money aside. And renting is so much cheaper than buying in Canada right now + you can invest the money in the meantime + you wait to buy when prices are cheaper = you'll likely have a fully paid house faster and for less money.

 

Sounds like that guy capitulated near the top, like so many do, and is just rationalizing his decision after the fact.

[racemize]

I know that the argument goes that you could grow that $120K down payment fast enough that you could still come out ahead, but if that $120K came from equity in a previous home you sold then it wouldn't be $120K, because you would own capital gains taxes on it if you did not roll it over into another home.  Again the tax situation in the US has tremendous benefits to ownership and penalizes anyone who sells a home and starts renting.  Rather than sell a home, rent and invest the equity, you'd be better off refinancing the home at 4% to take out your equity and invest that.

 

That is not my understanding, at least for your main home:

http://www.irs.gov/taxtopics/tc701.html

[rkbabang]

I know that the argument goes that you could grow that $120K down payment fast enough that you could still come out ahead, but if that $120K came from equity in a previous home you sold then it wouldn't be $120K, because you would own capital gains taxes on it if you did not roll it over into another home.  Again the tax situation in the US has tremendous benefits to ownership and penalizes anyone who sells a home and starts renting.  Rather than sell a home, rent and invest the equity, you'd be better off refinancing the home at 4% to take out your equity and invest that.

 

That is not my understanding, at least for your main home:

http://www.irs.gov/taxtopics/tc701.html

 

I stand corrected.  I wasn't aware of that.  I thought the only way to exclude it from taxes was to use it to buy another home.

 

[ERICOPOLY]

I know that the argument goes that you could grow that $120K down payment fast enough that you could still come out ahead, but if that $120K came from equity in a previous home you sold then it wouldn't be $120K, because you would own capital gains taxes on it if you did not roll it over into another home.  Again the tax situation in the US has tremendous benefits to ownership and penalizes anyone who sells a home and starts renting.  Rather than sell a home, rent and invest the equity, you'd be better off refinancing the home at 4% to take out your equity and invest that.

 

That is not my understanding, at least for your main home:

http://www.irs.gov/taxtopics/tc701.html

 

I stand corrected.  I wasn't aware of that.  I thought the only way to exclude it from taxes was to use it to buy another home.

 

You can do that for all the rest of your (non-owner occupied) real estate transactions.  It's called a "1031 exchange".

 

Enables you to start with a small property with a lot of leverage, then after lots of appreciation you trade up to a larger property with a lot of leverage, then on and on and on.  Then you're Donald Trump one day... all without paying one iota of capital gains taxes.  You then die and your cost basis is bumped up to present market value.

 

Now compare that to investing in stocks... every transaction is taxed along the way.  WTF?

[SharperDingaan]

As disclosed in early 2010 we took our proceeds from SFK, & invested it in a London property.

In our 3+years of holding, the price of similar properties in the area has risen 65%+, & in many cases - because of the shared ownership scheme. With deals this good, it is beyond stupid to not take advantage. https://www.gov.uk/affordable-home-ownership-schemes/shared-ownership-schemes

 

It is a basic wealth management tenet to start retirement with fully paid off shelter.

Renting comes with eviction risk, most landlords will routinely discriminate in favour of younger renters (more flexible when elevators are down), & most elderly do not suffer abrupt change too well. Doesn't mean you have to have a fully paid off shelter, but either have the ability to buy it outright - or accept that you are reacting to a failure; & have severely reduced options, at a time when you have materially less ability to tolerate risk.

 

Press ranting that retiring boomers will secularly depress markets by continuous disinvestment (stocks, houses, etc.) is bull. As old folks don't buy anything, most corporates will elect to raise EPS by buying back stock versus investing in new net production. Mac Mansions just get sold to middle-agers (who need the space) & new immigrants seeking safety. No real decline in value - so long as your country/neighbourhood remains a viable & desirable place to live.

 

There is also nothing to prevent the use of a reverse mortgage against the property (via government program: CHIP, or otherwise) near the end of life. Families are not automatically entitled to large estates upon inheritance.

 

SD

 

 

[Liberty]

In our 3+years of our holding, the price of similar properties in the area has risen 65%+

 

You don't think that prices going up over 65% in 3 years from an already pretty elevated level is worrying? How much did incomes go up during that period? Housing has historically tracked inflation. How can this possibly continue? The trend lines of incomes and housing are diverging, with the area in between being filled by debt, and those two lines can't keep getting farther from each other forever...

 

This reminds me of how people were talking about gold a few years ago. It's always worth more than the current price, and it'll keep going up for sure, because who wouldn't want to own gold? How do you value it? Well, it's a good deal now because it'll be worth more later, that's what you need to know. It's all about sentiment, and sentiment never stays the same forever.

 

Maybe your neighbourhood will be fine and is a great spot, but on average, Canada's RE has disconnected from any fundamentals.

[SharperDingaan]

Its Knightsbridge (London, UK). Lux neighbourhood, lot of mistresses, convenient location, favoured foreign investment area. We bought it artificially cheap, & at the time - depression was clearly visible in the faces of most of those who work in the city. The only thing that will drop prices is either a material increase in domestic interest rates (extremely unlikely for a very long time), or a very sharp appreciation in the pound (again unlikely).

 

We're also very aware that traumatic growth almost always follows traumatic collapse (Great Recession II)

When it eventually occurs, central London RE should rocket. With our cost base, a 4 bagger (15% compound return) 10 years out - is not out of the question.

 

SD

[Liberty]

Sounds good. It's certainly possible to find good deals in any market, as long as you do the work bottoms up and know what you're doing. I certainly wish you the best, SD!

 

I don't know jack about the UK RE market, so I can't comment further. Because you have a Canadian flag next to your name, I thought you meant London Ontario.

[Ian L]

Its Knightsbridge (London, UK). Lux neighbourhood, lot of mistresses, convenient location, favoured foreign investment area. We bought it artificially cheap, & at the time - depression was clearly visible in the faces of most of those who work in the city. The only thing that will drop prices is either a material increase in domestic interest rates (extremely unlikely for a very long time), or a very sharp appreciation in the pound (again unlikely).

 

Im sure there are other risks. With the bulk of the buyers in Knightsbridge now being foreigners, the safe haven for their money might not be so safe. Prices have already rocketed from 10 years ago, so further appreciation lies at the hands of the international rich. Prices in London as a whole are very expensive now compared to outside London (typically the ratio was 1.2 - 1.5 times in London to the rest of England, now the ratio is 2 times), so this might mean revert. The next government is looking likely to be Labour, and led by Ed Miliband, who politically is left of any Prime Minister in the Uk since 1979. He has said that he wants to bring in a mansion tax, which will bring much higher housing taxes and should bring about some sellers.

I agree there is potential there if the rich keep getting richer and prime central london is a place where the ultra rich want to live, but just wanted to point out that although it seems like prices in London can only go up, that has been said about many other bubbles in the past.

[SharperDingaan]

Agreed, but we take a multi-tier long term view.

 

Lux markets are the most resilient, recover first, & rise furthest. Owners can & will change, but Knightsbridge property is highly likely to remain a trophy bauble for the newly rich - & the more gauche the owner, the higher the price for 'acceptance'. Lux markets can & do periodically go down, but its usually very temporary.

 

Pretty sure much of the anticipated price rise will be purely because of QE inflation, accumulating first, in the hands of the 1%. Basic economics dictate that one purchase hard assets, pay with funny money wherever possible, & acquire as early as possible. We don't see QE vanishing any time soon.

 

We've heard the drumming for domestic ownership, have structured accordingly, & have the place leased out for 10yrs. Ultimately we don't expect much real change in these lux neighbourhoods; very different story for other neighbourhoods.

 

For us it is a straight forward value investment, bought cheap, using an inflated CAD/GBP FX rate. We think upside materially exceeds downside, we have no carry cost, got the appreciation option for almost nothing, & view the whole thing as being pretty anti-fragile. We could have bought a UK bank (IRE), but simply chose bricks & mortar instead.

 

SD