Comments on: When Should You Buy Real Estate — And When Is It Better to Rent? http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/ Erica Douglass, "temporarily retired" after selling a successful business at age 26, writes thought-provoking blog entries challenging you to change your life and daring you to become more successful. Thu, 20 Nov 2008 15:15:42 +0000 http://wordpress.org/?v=2.6.3 By: ericabiz http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-132338 ericabiz Tue, 21 Oct 2008 03:41:59 +0000 http://www.erica.biz/?p=269#comment-132338 @Sharon: You wrote "...typically Property Values double every five years since the 50’s." Cite needed! (I'll help you out. You won't find one, because this simply isn't true.) For the real data, take a look at this "history of home values" graph: http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html Over the long term, housing has barely beat out inflation, growing in real terms at less than 1% a year...making it a bad investment. Let me guess...you're a real estate agent? :) -Erica @Sharon: You wrote “…typically Property Values double every five years since the 50’s.”

Cite needed! (I’ll help you out. You won’t find one, because this simply isn’t true.)

For the real data, take a look at this “history of home values” graph:

http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html

Over the long term, housing has barely beat out inflation, growing in real terms at less than 1% a year…making it a bad investment.

Let me guess…you’re a real estate agent? :)

-Erica

]]> By: Sharon http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-132284 Sharon Mon, 20 Oct 2008 05:32:09 +0000 http://www.erica.biz/?p=269#comment-132284 Erica, Interesting point of view. I think your research is flawed. I am in the Alberta Market Place where average Property Values are 5-8x our average income levels of 50-70K per year and property values are 90-250x the rent paid(depending upon the type of unit.) I do agree with a 15 year cycle for bubbles, booms and busts. But what you fail to point out is typically Property Values double every five years since the 50's. This is information is easy to gather from local real estate boards that track these stats. With this in mind I would advise that people consider each of thier real estate investments and put them on 2,5 and 10 year plans. You must also consider that while you own a property and are making the mortgage payments the debt is being paid down. (When you rent you constantly have the same or worse an ever increasing debt load (Landlords increase rent as the markets will tolerate) that you gain no equity from.)) I feel that most people are better to own vs. renting provided they do not take loans that exceed the properties values. Erica, Interesting point of view. I think your research is flawed. I am in the Alberta Market Place where average Property Values are 5-8x our average income levels of 50-70K per year and property values are 90-250x the rent paid(depending upon the type of unit.)

I do agree with a 15 year cycle for bubbles, booms and busts. But what you fail to point out is typically Property Values double every five years since the 50’s. This is information is easy to gather from local real estate boards that track these stats. With this in mind I would advise that people consider each of thier real estate investments and put them on 2,5 and 10 year plans.

You must also consider that while you own a property and are making the mortgage payments the debt is being paid down. (When you rent you constantly have the same or worse an ever increasing debt load (Landlords increase rent as the markets will tolerate) that you gain no equity from.))

I feel that most people are better to own vs. renting provided they do not take loans that exceed the properties values.

]]> By: Lynn http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-130522 Lynn Thu, 25 Sep 2008 05:34:29 +0000 http://www.erica.biz/?p=269#comment-130522 So, if we bought 2 yrs ago, and prices in our neighborhood are still ticking up (but slowly)...should be bail and rent or stick it out? AND...we have 2 young kids. Looking up rental rates for houses close to work and the schools we are open to, rents are about the same as our current mortgage payment (even for smaller houses). So, if we bought 2 yrs ago, and prices in our neighborhood are still ticking up (but slowly)…should be bail and rent or stick it out? AND…we have 2 young kids. Looking up rental rates for houses close to work and the schools we are open to, rents are about the same as our current mortgage payment (even for smaller houses).

]]> By: madhaus http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-124410 madhaus Mon, 21 Jul 2008 17:15:36 +0000 http://www.erica.biz/?p=269#comment-124410 Erica, I was interested in your comment about 16 year cycles, but you seem to have misunderstood the difference between number of sales vs median prices. Your quote above about sales being down 26% refers to number of homes sold, not the price they sold for. Go reread the article, the median price was only down 6 percent, both month over month (a stat that only dishonest agents use since real estate is so strongly seasonal) and year over year. So when you mention 30-40% price drops, can you show the equivalent <b>price drop</b> (not sales drop) in the last cycle? I'm not seeing that much of a correction either in the 1990 peak to mid-90s, or the 2001 correction. Yes, there was a price correction but I believe it was 15-20% in Santa Clara County. Outlying areas have had huge corrections already, $4.60 gas is contributing to this. But doesn't that make close-in areas to jobs worth MORE? Erica, I was interested in your comment about 16 year cycles, but you seem to have misunderstood the difference between number of sales vs median prices. Your quote above about sales being down 26% refers to number of homes sold, not the price they sold for. Go reread the article, the median price was only down 6 percent, both month over month (a stat that only dishonest agents use since real estate is so strongly seasonal) and year over year.

So when you mention 30-40% price drops, can you show the equivalent price drop (not sales drop) in the last cycle? I’m not seeing that much of a correction either in the 1990 peak to mid-90s, or the 2001 correction. Yes, there was a price correction but I believe it was 15-20% in Santa Clara County.

Outlying areas have had huge corrections already, $4.60 gas is contributing to this. But doesn’t that make close-in areas to jobs worth MORE?

]]> By: ericabiz http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-122989 ericabiz Thu, 03 Jul 2008 00:40:00 +0000 http://www.erica.biz/?p=269#comment-122989 Hi Gerard, I don't know about Sydney specifically, but I can say that 100x rent is a pretty good indicator of a good investment no matter where you go. Thank you, -Erica Hi Gerard,

I don’t know about Sydney specifically, but I can say that 100x rent is a pretty good indicator of a good investment no matter where you go.

Thank you,
-Erica

]]> By: Gerard http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-122977 Gerard Wed, 02 Jul 2008 23:47:37 +0000 http://www.erica.biz/?p=269#comment-122977 Hmm... I wonder how well this analysis holds up for Sydney (do you remember where you got the data for Melb?). House prices here have historically been much higher the 3-5x median income range. However, prices tend to stay within the 100x-150x rent bracket though and with rents increasing and house prices falling, houses are finally looking more affordable... Hmm… I wonder how well this analysis holds up for Sydney (do you remember where you got the data for Melb?). House prices here have historically been much higher the 3-5x median income range. However, prices tend to stay within the 100x-150x rent bracket though and with rents increasing and house prices falling, houses are finally looking more affordable…

]]> By: Miss Rachel http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-122483 Miss Rachel Tue, 24 Jun 2008 16:19:55 +0000 http://www.erica.biz/?p=269#comment-122483 Thank you for your submission for the Homesteading Carnival. Here is the link for the Carnival. http://homesteadblogger.com/RachelsReasoning/102220/ Come take a look! Love, Rachel Thank you for your submission for the Homesteading Carnival.
Here is the link for the Carnival.
http://homesteadblogger.com/RachelsReasoning/102220/
Come take a look!
Love,
Rachel

]]> By: ericabiz http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-122431 ericabiz Mon, 23 Jun 2008 15:09:19 +0000 http://www.erica.biz/?p=269#comment-122431 @Yosemite: Don't give up hope. Sales may be going up in absolute terms, but there are more foreclosures coming onto the market than sales going off the market at this point. Wait a couple years and prices will be way down. A house is a long-term investment and, in a down market, you won't regret renting for a couple of years! @sanfrantim: Nah, <a href="http://www.erica.biz/2006/ticktick/" rel="nofollow">2010.</a> ;) @oded: I've run the numbers in other countries and they always seem to be about the same. Since they're based on median income and rent prices, they're applicable everywhere (I ran them in Vancouver, BC and Melbourne, Aus. and they came out the same there.) Just don't forget to use as local an area as possible -- county or postal code are the best, not state/province/country. Good luck! -Erica @Yosemite: Don’t give up hope. Sales may be going up in absolute terms, but there are more foreclosures coming onto the market than sales going off the market at this point. Wait a couple years and prices will be way down. A house is a long-term investment and, in a down market, you won’t regret renting for a couple of years!

@sanfrantim: Nah, 2010. ;)

@oded: I’ve run the numbers in other countries and they always seem to be about the same. Since they’re based on median income and rent prices, they’re applicable everywhere (I ran them in Vancouver, BC and Melbourne, Aus. and they came out the same there.) Just don’t forget to use as local an area as possible — county or postal code are the best, not state/province/country.

Good luck!
-Erica

]]> By: oded http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-122315 oded Sat, 21 Jun 2008 11:51:25 +0000 http://www.erica.biz/?p=269#comment-122315 As I don't live in the states, I was wondering how applicable are your figures (3-5 * median annual income and 100-150 * rental costs) to other countries? I live in London England, but am also interested in property prices in Israel. As I don’t live in the states, I was wondering how applicable are your figures (3-5 * median annual income and 100-150 * rental costs) to other countries?

I live in London England, but am also interested in property prices in Israel.

]]> By: sanfrantim http://www.erica.biz/2008/when-should-you-buy-real-estate-and-when-is-it-better-to-rent/#comment-122235 sanfrantim Thu, 19 Jun 2008 23:00:54 +0000 http://www.erica.biz/?p=269#comment-122235 Translating Erica's advice on "When to buy a house": "Never." Translating Erica’s advice on “When to buy a house”: “Never.”

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