My Q&A
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per's Questions (2)
per's Answers (3)
per answered:
My apologies. I reacted in haste and misread. Thanks for clarifying and for the support. :D
NBW,
I think you are confusing me with someone else. I'm not the one that works for the real estate industry. I'm just a private investor, monitoring the real estate market, looking for a low risk entry point. I think an apology is in order!
Best
I think you are confusing me with someone else. I'm not the one that works for the real estate industry. I'm just a private investor, monitoring the real estate market, looking for a low risk entry point. I think an apology is in order!
Best
"Me",
I'm just sharing my opinion and the supporting data that investing or *flipping* real estate in the current economic conditions is a very bad idea. Regular people are being told that you cannot time the market, that you have to buy-and-hold and that real estate is always a good long-term investment. That is simply not true.
The current bubble was created by very loose lending standard, a herd mentality driven on by the realtor organizations and a government + fed (low rates) with the mission of increasing homeownership. Now that house of cards, just like the tech bubble in the 90s, savings and loans in the 80s et cetera, is coming down.
Bubbles bursts and the smartest thing is to stay on the sidelines and wait until all the dust has cleared. That means that it's unlikely that you'll be able to pick the bottom, but it guarantees that you won't be in the red for several years risking your solvency.
Example: Let's say you buy a house today cause you'd like to get into the market. If the market keeps going down (which has the best odds at this time) you have to follow the market down and then up just to get to break-even. 10% down in SF would probably take another year which means that with a historic appreciation it would take 2 years to get back to that price level and another 1-3 years to break-even (including taxes, payments, real estate commissions, alternative cost et cetera). It would take you 5 years to just get your money back. That is about what real estate agents recommend you to hold your property to make money.
The alternative is to wait until we have a confirmed bottom by buying once the prices have proven to appreciate again for 3-6 months. It's very hard to forecast when that will happen so why gamble? Wait until we are out of the woods. The counter argument to this is that you'll have to pay more than at the bottom and that is true. That problem is that we don't know when the real estate prices will find a bottom so why gamble. If you are off with 10% on the downside that will, as per my example, be very, very expensive and take a long time to recover.
I think people have been taught that the dollar, market and the real estate prices will always appreciate and now learning the tough lesson that what goes up will eventually come down. I feel for all the millions of household in foreclosure and in mortgage debt and the only thing I can do to help is learning from their mistakes. The quicker the market resets and flushes out the excess the better for everyone.
Good luck!
I'm just sharing my opinion and the supporting data that investing or *flipping* real estate in the current economic conditions is a very bad idea. Regular people are being told that you cannot time the market, that you have to buy-and-hold and that real estate is always a good long-term investment. That is simply not true.
The current bubble was created by very loose lending standard, a herd mentality driven on by the realtor organizations and a government + fed (low rates) with the mission of increasing homeownership. Now that house of cards, just like the tech bubble in the 90s, savings and loans in the 80s et cetera, is coming down.
Bubbles bursts and the smartest thing is to stay on the sidelines and wait until all the dust has cleared. That means that it's unlikely that you'll be able to pick the bottom, but it guarantees that you won't be in the red for several years risking your solvency.
Example: Let's say you buy a house today cause you'd like to get into the market. If the market keeps going down (which has the best odds at this time) you have to follow the market down and then up just to get to break-even. 10% down in SF would probably take another year which means that with a historic appreciation it would take 2 years to get back to that price level and another 1-3 years to break-even (including taxes, payments, real estate commissions, alternative cost et cetera). It would take you 5 years to just get your money back. That is about what real estate agents recommend you to hold your property to make money.
The alternative is to wait until we have a confirmed bottom by buying once the prices have proven to appreciate again for 3-6 months. It's very hard to forecast when that will happen so why gamble? Wait until we are out of the woods. The counter argument to this is that you'll have to pay more than at the bottom and that is true. That problem is that we don't know when the real estate prices will find a bottom so why gamble. If you are off with 10% on the downside that will, as per my example, be very, very expensive and take a long time to recover.
I think people have been taught that the dollar, market and the real estate prices will always appreciate and now learning the tough lesson that what goes up will eventually come down. I feel for all the millions of household in foreclosure and in mortgage debt and the only thing I can do to help is learning from their mistakes. The quicker the market resets and flushes out the excess the better for everyone.
Good luck!
Steve - I could not agree more. It took 7-year to create this bubble and we are just 2 years into the real estate bear market.
There is enough evidence available that shows that housing prices will keep going down. The relative strength we have seen in Manhattan and San Francisco will turn into weakness very soon. The bubble is still bursting!
There is enough evidence available that shows that housing prices will keep going down. The relative strength we have seen in Manhattan and San Francisco will turn into weakness very soon. The bubble is still bursting!
Most professionals agree that we are 12-18 months away from a bottom in the housing market. And as the dollar strengthens it becomes more expensive for foreigners to buy US real estate. The reality is that we'll soon enter another leg down as sellers are forced to decrease their prices to increase transactions. Very basic economics that seems to have escaped the city college educated real estate pumpers! :p
"U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says"
"U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says"
The real estate market is acting as forecasted:
- S&P/Case-Schiller is down again across the US an all major cities: http://biz.yahoo.com/ap/080826/home_prices.html
- Existing home-sales grew due to seasonality and foreclosures but prices fell
The bottom is about 9-18 months away at this point - ceteris paribus. Smart buyers are on the sidelines, saving equity (as opposed to losing it in the real estate market) to feast once the prices are down another leg. G/L!
- S&P/Case-Schiller is down again across the US an all major cities: http://biz.yahoo.com/ap/080826/home_prices.html
- Existing home-sales grew due to seasonality and foreclosures but prices fell
The bottom is about 9-18 months away at this point - ceteris paribus. Smart buyers are on the sidelines, saving equity (as opposed to losing it in the real estate market) to feast once the prices are down another leg. G/L!
Ouch...
"The value of existing U.S. single-family homes in metro areas fell 7.6 percent in the second quarter compared with the same period in 2007 with homes in the West tumbling 17.4 percent, the National Association of Realtors said on Thursday."
"The value of existing U.S. single-family homes in metro areas fell 7.6 percent in the second quarter compared with the same period in 2007 with homes in the West tumbling 17.4 percent, the National Association of Realtors said on Thursday."
I don't think anyone is arguing that over the long-term real estate has been a profitable investment. The question is when it's safe to get back into the market and most experts agree that it will take another 12-18 months until we see some positive price / volume movements.
The sellers of this condo started out above $1MM about 3-6 months ago, then lowered to $950K and is now trying to sell it for $875... I feel for them!
The sellers of this condo started out above $1MM about 3-6 months ago, then lowered to $950K and is now trying to sell it for $875... I feel for them!
C&S keeps dropping in May '08: http://news.yahoo.com/s/ap/20080729/ap_on_bi_ge/home_prices. The community seems to agree that a bottom for the housing crises will take at least 12-18 months...
Peter - good post!
My investment approach has always been to look at the general conditions before I look at the local or micro conditions. Case-Schiller and the renting vs buying ratio are excellent data points to understand the general trend. Once these are aligned it's relevant to dig deeper. Until that happens I can build equity faster via a savings account than the residential real estate market in the shorter term.
Thoughts:
1. I think it will take another 12-18 months before we see a bottom in the Case-Schiller index. The $300BN credit loss is just the tip of the iceberg. Roubini argues that it could end up costing us $1-2 trillion dollars. The rental versus buying ratios needs to come down as well. The SF peak was at 35 and we are now down to 26 compared to historical averages of 10-14. I'd say 20 is a fair SF target given the markets premium.
2. If 70% of all americans own a home how can we have so many buyers on the sidelines? I have one friend out of 50 that is renting. If you bought during the past 2-3 years you are in the red and cannot afford to move. We won't see market capitulation until all of the optimists are worn down and the fear is high. A year ago everyone said that the July/Aug stock market plunge was only a *healthy* pullback...
The real estate market is going through the same process as the tech bubble (or any other bubble for that matter) in 2000: re-pricing of assets, flushing out excess, more transparency et cetera. It's going to take time before we see a bottom and we are never going to see yearly double-digit appreciation again. That's not to say that I won't be a great investment in the longer term (5+ years).
I'm looking forward to this fall to see how buyers and sellers are interacting. My take is that the sellers will be lining up to get out but the buyers will hold off which will eventually push down the prices further. Paying more than 20X yearly rental is insanity and not sustainable in this economy.
Every investor knows that the smartest deals are the ones you never make... ;)
My investment approach has always been to look at the general conditions before I look at the local or micro conditions. Case-Schiller and the renting vs buying ratio are excellent data points to understand the general trend. Once these are aligned it's relevant to dig deeper. Until that happens I can build equity faster via a savings account than the residential real estate market in the shorter term.
Thoughts:
1. I think it will take another 12-18 months before we see a bottom in the Case-Schiller index. The $300BN credit loss is just the tip of the iceberg. Roubini argues that it could end up costing us $1-2 trillion dollars. The rental versus buying ratios needs to come down as well. The SF peak was at 35 and we are now down to 26 compared to historical averages of 10-14. I'd say 20 is a fair SF target given the markets premium.
2. If 70% of all americans own a home how can we have so many buyers on the sidelines? I have one friend out of 50 that is renting. If you bought during the past 2-3 years you are in the red and cannot afford to move. We won't see market capitulation until all of the optimists are worn down and the fear is high. A year ago everyone said that the July/Aug stock market plunge was only a *healthy* pullback...
The real estate market is going through the same process as the tech bubble (or any other bubble for that matter) in 2000: re-pricing of assets, flushing out excess, more transparency et cetera. It's going to take time before we see a bottom and we are never going to see yearly double-digit appreciation again. That's not to say that I won't be a great investment in the longer term (5+ years).
I'm looking forward to this fall to see how buyers and sellers are interacting. My take is that the sellers will be lining up to get out but the buyers will hold off which will eventually push down the prices further. Paying more than 20X yearly rental is insanity and not sustainable in this economy.
Every investor knows that the smartest deals are the ones you never make... ;)
Mark - both renting and owning carries a cost. In the case of renting it's simple, it's just the rent. For ownership it's either the monthly net payment or the opportunity cost (if you paid in cash). The latter means that if you are putting down $1MM to buy a place you'll forgo 3.3% or $33K (E*Trade) in interest every year compared to renting.
The only way to make money on ownership is to have asset appreciation which the RE market hasn't seen since 2006.
The only way to make money on ownership is to have asset appreciation which the RE market hasn't seen since 2006.
Jed - I withdraw. You are the smartest guy in the room, a genius, a God's gift to home buyers! lol
Jed - this is an open forum to discuss the RE market and share perspectives. Every time I share data you show up, bash my perspective and insult me. That cannot be good for business and is not in accordance with the community guidelines: "The community is made up of many types of people, with different backgrounds, knowledge and beliefs; please be considerate of others and do not attack other community members. Be respectful at all times. "
Cheryl - you are confirming my point. A real estate agent will always advice you to buy or sell independently of market conditions by using the tactic of fear (hope you are not too late, timing the market is impossible) and emotion (no evil landlord to argue with). I still remember NAR's Q206 newspaper campaign "It's a great time to buy or sell a home". Do you think I could get that printed on a t-shirt?
http://www.realtor.org/home_buyers_and_sellers/buy_now_ad
But I agree, everyone is not so fortunate that they can time the market (i.e. have the advanced knowledge, just forced to switch to ownership due to a family situation or lack of rental properties). That's when you start running the numbers and in my mind you should put 20%+ down and not using more than 25% of your disposable income for monthly net payment. There is no reason to go house broke just to satisfy the emotion that is ownership.
The fact is that the RE market is in a reprising process after the burst of the bubble. This takes time, both to descend, bottom out and start the ascend. There will be lots of time for anyone to get into the market once the bottom is confirmed. Remember when the bubble burst last time in 1989? It took 5-7 years to get back to break-even.
John - I think we'll see capitulation within the next 12 months, ceteris paribus.
SF is a fantastic place and I'm looking forward to re-enter the RE market once the excess has been properly flushed out! Right now we live in a rent controlled pad in SF and I cannot tell you how glad I am to have the lowest burn-rate in the universe. People are saying that owning your own house is freedom. Well I disagree - having a strong positive cash-flow and a long runway beats anything. :D
Cheryl - you are confirming my point. A real estate agent will always advice you to buy or sell independently of market conditions by using the tactic of fear (hope you are not too late, timing the market is impossible) and emotion (no evil landlord to argue with). I still remember NAR's Q206 newspaper campaign "It's a great time to buy or sell a home". Do you think I could get that printed on a t-shirt?
http://www.realtor.org/home_buyers_and_sellers/buy_now_ad
But I agree, everyone is not so fortunate that they can time the market (i.e. have the advanced knowledge, just forced to switch to ownership due to a family situation or lack of rental properties). That's when you start running the numbers and in my mind you should put 20%+ down and not using more than 25% of your disposable income for monthly net payment. There is no reason to go house broke just to satisfy the emotion that is ownership.
The fact is that the RE market is in a reprising process after the burst of the bubble. This takes time, both to descend, bottom out and start the ascend. There will be lots of time for anyone to get into the market once the bottom is confirmed. Remember when the bubble burst last time in 1989? It took 5-7 years to get back to break-even.
John - I think we'll see capitulation within the next 12 months, ceteris paribus.
SF is a fantastic place and I'm looking forward to re-enter the RE market once the excess has been properly flushed out! Right now we live in a rent controlled pad in SF and I cannot tell you how glad I am to have the lowest burn-rate in the universe. People are saying that owning your own house is freedom. Well I disagree - having a strong positive cash-flow and a long runway beats anything. :D
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/07/17/… (trulia might truncate)
It's humorous that I'm getting the same response from all real estate agents: dissect the data better, find other data, learn how to *read* the data... It's actually really insulting and bloody arrogant. I understand the methodology and that's why I'm staying on the sidelines. So far all key data points for the SF real estate market is pointing to a continuous decline. Many of my friends who are residential and commercial real estate investors are saying the same. Mind you, these are professionals!
I don't know how fluent you are in making sound investments but there are two key rules: don't catch a falling knife and only go for the meat of the run. I don't *care* if I miss the bottom. A *confirmed * bottom tells me it's safe to get back into the waters again. Until then I'm building equity through other asset categories (crude has been very good to me, tech is weathering the storm really well).
It's humorous that I'm getting the same response from all real estate agents: dissect the data better, find other data, learn how to *read* the data... It's actually really insulting and bloody arrogant. I understand the methodology and that's why I'm staying on the sidelines. So far all key data points for the SF real estate market is pointing to a continuous decline. Many of my friends who are residential and commercial real estate investors are saying the same. Mind you, these are professionals!
I don't know how fluent you are in making sound investments but there are two key rules: don't catch a falling knife and only go for the meat of the run. I don't *care* if I miss the bottom. A *confirmed * bottom tells me it's safe to get back into the waters again. Until then I'm building equity through other asset categories (crude has been very good to me, tech is weathering the storm really well).
per answered:
As per the April '08 Case-Schiller Index (published on June 24) the Bay Area real estate market has declined over 24.6% since May '08. And according to a research firm, SF real estate prices are down 27% Y-o-Y to the lowest levels since 2004: http://biz.yahoo.com/ap/080717/ca_california_homes.html. In theory, that means that anyone that bought over the past 4 years are now in the red.
I'm looking to buy within the next 12-24 months but want some real data showing a confirmed bottom before I spend my hard earned money. Right now I'm saving 50% per month (net tax deductions) renting compared with owning at a 0% yearly appreciation (which is very conservative since we have negative growth). My monthly gross rental payment is 1/3 compared to owning. So while the market is declining I'm building equity fast at zero risk. Life is good!
I'm looking to buy within the next 12-24 months but want some real data showing a confirmed bottom before I spend my hard earned money. Right now I'm saving 50% per month (net tax deductions) renting compared with owning at a 0% yearly appreciation (which is very conservative since we have negative growth). My monthly gross rental payment is 1/3 compared to owning. So while the market is declining I'm building equity fast at zero risk. Life is good!
The Chronicle is garbage but they might have a point: "Many real estate experts consider the S&P/Case-Shiller indexes and others like them more accurate gauges of real estate trends than the median price approach used by other groups. Because they track the value only of homes that have traded hands at least twice, the indexes chart the actual increase or decrease in specific homes. Median surveys compare prices for homes sold in one month to an entirely different set sold in the next, meaning they can be artificially distorted when a higher proportion of homes sell in the lower- or higher-priced tier in a given period."
And let me follow suit and correct you, young man: I think you are referring to a one-dollar bill and not a piece of paper. Dollar bills are valuable because they are accepted as payment. But real estate is not a currency. The car I bought dropped in value as soon as I left the car shop but the price I paid stayed the same.
I'm a very successful investor and here are some advice:
1) Never chase bottoms or tops - go for the meat of the run
-- I sold the asset I bought in '95 in '99 (not the SF market) with a 300% return (FANTASTIC!)
2) Take profits and wait for next opportunity to reinvest
3) Never listen to the so called professionals (brokers, analysts et cetera - info to biased... ;)
Time will tell but I'm on the sidelines, waiting to get in when I either see a market capitulation (increased volume and much lower prices selling on ask) or that there is a confirmed bottom. As I've said, I'm not afraid of paying more, I just don't want to buy on the way down... Until then I'm making a great risk free return while everyone that bought over the past 24 months are either under water or in foreclosure with a very high burn-rate.
Let's revisit this discussion in 12-24 months and see if S&P/Case-Schiller is either up, flat or down... Since I don't have a mortgage I can afford to treat to a coffee. lol
And let me follow suit and correct you, young man: I think you are referring to a one-dollar bill and not a piece of paper. Dollar bills are valuable because they are accepted as payment. But real estate is not a currency. The car I bought dropped in value as soon as I left the car shop but the price I paid stayed the same.
I'm a very successful investor and here are some advice:
1) Never chase bottoms or tops - go for the meat of the run
-- I sold the asset I bought in '95 in '99 (not the SF market) with a 300% return (FANTASTIC!)
2) Take profits and wait for next opportunity to reinvest
3) Never listen to the so called professionals (brokers, analysts et cetera - info to biased... ;)
Time will tell but I'm on the sidelines, waiting to get in when I either see a market capitulation (increased volume and much lower prices selling on ask) or that there is a confirmed bottom. As I've said, I'm not afraid of paying more, I just don't want to buy on the way down... Until then I'm making a great risk free return while everyone that bought over the past 24 months are either under water or in foreclosure with a very high burn-rate.
Let's revisit this discussion in 12-24 months and see if S&P/Case-Schiller is either up, flat or down... Since I don't have a mortgage I can afford to treat to a coffee. lol
The S&P/Case-Schiller has nothing to do with the San Francisco real estate prices? You are seriously arguing in a public forum that one of the most established economists and great business cycle analysts is wrong? Good for you!
I love the fact that you keep telling me that I'm not capable of digesting and analyzing data or interpret economic patterns. Maybe I should listen to NARs Lawrence Yun? He's probably the most honest and unbiased guy on the planet since Nixon. lol
The real problem for you might be decreasing commissions but the real problems for real people are the unethical and fraudulent activities in the real estate and mortgage industry that got us here. This reprising process will take time, it's a natural part of a business cycle. Especially a cycle that has been artificially supported by loose lending standards, historically low interest rates and heavy marketing to own at any cost.
Prices *always* reverse to the mean and so will real estate. Sellers in San Francisco are still holding onto the idea that their home is *worth* as much as a year ago or at least what they bought it for. They confuse price and value. And if we are looking at historic patterns: the last real estate crisis lasted for almost 5 years (1989-94). I know since I bought in March 1995 after a few months of stabilization and paid 10% above the lowest price and was therefore never under water.
This is a great discussion! :)
I love the fact that you keep telling me that I'm not capable of digesting and analyzing data or interpret economic patterns. Maybe I should listen to NARs Lawrence Yun? He's probably the most honest and unbiased guy on the planet since Nixon. lol
The real problem for you might be decreasing commissions but the real problems for real people are the unethical and fraudulent activities in the real estate and mortgage industry that got us here. This reprising process will take time, it's a natural part of a business cycle. Especially a cycle that has been artificially supported by loose lending standards, historically low interest rates and heavy marketing to own at any cost.
Prices *always* reverse to the mean and so will real estate. Sellers in San Francisco are still holding onto the idea that their home is *worth* as much as a year ago or at least what they bought it for. They confuse price and value. And if we are looking at historic patterns: the last real estate crisis lasted for almost 5 years (1989-94). I know since I bought in March 1995 after a few months of stabilization and paid 10% above the lowest price and was therefore never under water.
This is a great discussion! :)
Thanks for your answers.
I live in Pac Heights and we have several foreclosures on my street and several of the multi-million mansions up for sale. That is telling me that the stupid money is getting screwed and the smart money is getting out. It's never wrong to take a profit and there are always several opportunities to get back in the market.
I agree that we are seeing relative strength in San Francisco due to the unique micro markets. But I'm not sure if the relative strength is going to turn into strength or weakness, that all depends on the general market conditions. I'm not short-term *bargain hunting* so I don't mind if I miss the bottom and have to pay *more*. Staying on the sideline at this time is perfect: no risk, growing savings and lots of choice.
Few people succeed in buying low and selling high since hardly anyone can predict tops or bottoms. The key is to get the meat of the run, i.e. enter the market when there are clear indications that the market has bottomed and exit when it's getting to frothy and real estate becomes first page news.
A re-pricing process takes time - both on the way up and the way down - and in my mind I think we'll have more downside before we can see the light in the tunnel. Once the S&P/Case-Schiller has shown 3 consecutive months of positive growth I'd consider buying again. That could be in 3 months or 3 years - lots of time to find a great place to live in without overpaying or gamble.
I live in Pac Heights and we have several foreclosures on my street and several of the multi-million mansions up for sale. That is telling me that the stupid money is getting screwed and the smart money is getting out. It's never wrong to take a profit and there are always several opportunities to get back in the market.
I agree that we are seeing relative strength in San Francisco due to the unique micro markets. But I'm not sure if the relative strength is going to turn into strength or weakness, that all depends on the general market conditions. I'm not short-term *bargain hunting* so I don't mind if I miss the bottom and have to pay *more*. Staying on the sideline at this time is perfect: no risk, growing savings and lots of choice.
Few people succeed in buying low and selling high since hardly anyone can predict tops or bottoms. The key is to get the meat of the run, i.e. enter the market when there are clear indications that the market has bottomed and exit when it's getting to frothy and real estate becomes first page news.
A re-pricing process takes time - both on the way up and the way down - and in my mind I think we'll have more downside before we can see the light in the tunnel. Once the S&P/Case-Schiller has shown 3 consecutive months of positive growth I'd consider buying again. That could be in 3 months or 3 years - lots of time to find a great place to live in without overpaying or gamble.
Thanks for telling me that I'm not capable of analyzing market data. My question still stands unanswered but I'm glad your promotional blurb got published.
Are there any serious professionals in this forum that can give an honest answer? I'm interested in understanding if there are any market signs (and what those are) pointing to a possible bottoming process? What general market metrics / indicators should I look at to determine if the prospects are shifting from negative to positive?
Are there any serious professionals in this forum that can give an honest answer? I'm interested in understanding if there are any market signs (and what those are) pointing to a possible bottoming process? What general market metrics / indicators should I look at to determine if the prospects are shifting from negative to positive?
per answered:
Sam - I've been looking at buying real estate in San Francisco myself but decided to stay on the sidelines to get some clarity. Personally I think we might see a bottom in the next 12-24 months but it's foolish to try to catch a "falling knife". SF real estate is down 20% since May '06 according to the S&P/Case-Schiller index and there are no signs that the decline will reverse anytime soon.
A lot of real estate brokers on this site are arguing that real estate is always a good "investment". I think millions of people that lost their homes would disagree. The brokers fail to add their commissions, closing costs, maintenance, HOA, insurance, taxes and cost of interest in their P&L calculations. Plus the extra risk added by using leveraged debt. They also fail to add that just holding onto a property that is in the red (over 5-10 years?) when you have to move is very costly and added high risk.
Real estate should not be a gamble so therefor I've come up with the following: more then 20% down and less then 40% of the net yearly cash-flow in payments (i.e. if you or your wife lose your jobs you should still be able to keep the house). The interest deduction on the taxes only matters if you have an income, if you loose that your cost increases with 50% overnight. In addition to this, you should have a buffer of 25-50% of down payment for unexpected expenses.
I know that this is a very conservative approach but I prefer that than the recklessness that the real estate and mortgage industry have shown over the past decade. The last real estate broker I spoke to told me to max out my mortgage and get the biggest house I could find. That was in end of '05. I told her to go and... lol
A lot of real estate brokers on this site are arguing that real estate is always a good "investment". I think millions of people that lost their homes would disagree. The brokers fail to add their commissions, closing costs, maintenance, HOA, insurance, taxes and cost of interest in their P&L calculations. Plus the extra risk added by using leveraged debt. They also fail to add that just holding onto a property that is in the red (over 5-10 years?) when you have to move is very costly and added high risk.
Real estate should not be a gamble so therefor I've come up with the following: more then 20% down and less then 40% of the net yearly cash-flow in payments (i.e. if you or your wife lose your jobs you should still be able to keep the house). The interest deduction on the taxes only matters if you have an income, if you loose that your cost increases with 50% overnight. In addition to this, you should have a buffer of 25-50% of down payment for unexpected expenses.
I know that this is a very conservative approach but I prefer that than the recklessness that the real estate and mortgage industry have shown over the past decade. The last real estate broker I spoke to told me to max out my mortgage and get the biggest house I could find. That was in end of '05. I told her to go and... lol
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