Sobering Housing Analysis

[ncdad1]

http://advisorperspectives.com/dshort/g ... s-Gone.php

[ncdad1]

Conclusion

Those desperate homeowners opting to rent out their house rather than selling at a loss have no idea what headwinds await them. You do.

With listings soaring and prices now weakening around the country, the number of underwater homeowners will be increasing rather than falling. Here is my advice to you and to your clients in this situation:

Disregard the optimistic pundits and do not assume that your underwater house will regain its equity in the foreseeable future.
If you are thinking of moving, put your house on the market now at a realistic price and take your lumps before the market deteriorates further.
If you have clients with underwater investment properties, my analysis also applies to them. They should seriously consider liquidating their investment real estate holdings while markets are still liquid.

[George the original one]

I'm not sure that selling is the correct action given that there is a lack of available rentals. Rentals are seeing levels of occupancy not seen since 2006.

[jacob]

The buying/selling decision is very local when it comes to RE.

The supply and demand curves certainly are intricate and potentially predictable surprises await away from equilibrium. Around here (Chicago), list prices are way up, sales prices are stable/slightly up, and sales are down. That's not a recipe for increasing sales prices, yet I also notice that there are far fewer foreclosures online than was the case in the spring.

In any case rents are still superhigh compared to owning at 1.5% of asset cost(*) in monthly rent(**). Which is why we bought.

(*) As far as I understand the rule of thumb for the norm is 1%.

(**) IOW, I'm guessing a lot of people who couldn't afford to buy now have to rent because lending standards normalized to realistic norms---there are too many homes for sale and not enough rentals.

[ncdad1]

It is a much tougher decision now than when I started 40 years ago and any house anywhere would make you rich. I think the analysis points out that many folks are underwater, waiting for the price to raise which may not occur for many, many years. Plus, the report says many who have to move rent out their home and are silly enough to buy another one. If they can keep a job for 20 more years, it might all work out with housing eventually coming around. I rent in a house now that the owner bought for $300k in 2008 and Zillow has it at $200k now so assuming keeping up with inflation, it will be a long time until the owner gets back to their original price they paid. If you own your home, retired and not going anywhere, who cares what others say it is worth or if you are going to be in one place for 30 years what is happening now has little affect. All that means is one has to make sure the area one buys has lots of jobs and jobs grow so you never need to move again.

[tylerrr]

Not sure I ever have the guts to buy again after I got caught in the housing crash when I bought a condo once in the Bay Area. Renting is just fine right now for me. Although, I do want a house one day. I may just rent a small house somewhere.

[ncdad1]

Ditto ... I was lucky not to have been caught but saw all the pain my friend went through or are going through ... Doing my life over ... I would not fall in love with my investment (house) and do a better job of detaching like I do stock ... when you are in love you make stupid decisions ...

[JamesR]

Remember.. you make your profit on the house when you *buy*.