New home sales slowest in at least 50 years

peilthetraveler · Mar 25, 2011

Quote from misterno:

You have to put %20 down

and hard to get mortgage with tons of paperwork

and there is huge downside potential in house prices

No thanks, I don't want to buy a house now, prices will come down another 50%

I just randomly looked in my local newspaper and saw a 3 bed 2 bath 2 car garage home for rent for $1,295 per month. A quick check on zillow sees the homes in the area selling for about $150k. PITI on the house would be about $831 with 20% down at todays rates leaving a cash flow of $464 per month or $5,568 per year or about 18.5% annual return on investment. Increasing rents by 4% per year gives another $621 per year in profit. By year 5 you are bringing in $1,575 per month in rent giving you $744 per month in cash flow on your original $30k or almost 30% per annum. In 5 years you've made back your original investment, and now you are collecting free money for life.

All I am saying is thats its NEVER a bad idea to buy real estate if it is cash flow positive.

thriftybob · Mar 26, 2011

You're too early.

You need to budget for taxes, maint and depreciation, vacant time, cost to get and keep rented, etc.

Another 15 or 20% and you'll be correct

peilthetraveler · Mar 26, 2011

Quote from thriftybob:

You're too early.

You need to budget for taxes, maint and depreciation, vacant time, cost to get and keep rented, etc.

Another 15 or 20% and you'll be correct

Taxes are included in PITI (payments interest taxes insurance).
Real estate is complex...I didnt want to plug in all the numbers or my post would be way way long. But to make it balance (and keep it short at the same time) The mortgage balance would be paid down by about $2,000 per year which I think you will find is about 15% of gross rents.

thriftybob · Mar 26, 2011

Quote from peilthetraveler:

Taxes are included in PITI (payments interest taxes insurance).
Real estate is complex...I didnt want to plug in all the numbers or my post would be way way long. But to make it balance (and keep it short at the same time) The mortgage balance would be paid down by about $2,000 per year which I think you will find is about 15% of gross rents.

I still think its not good enough to justify the risk in a depressionary environment, as a second leg down could easily put you 20% underwater. If rates are allowed to rise, as was stated by the fed's Plosser yesterday, any meager recovery that anyone might have dreamt might be starting will be quashed, and almost nobody will be able to qualify for, much less WANT a loan or a house. 20% of homes are VACANT, and 50% are "underwater". Lenders are hiding homes on their books with non payers in them that are in arrears 3 and 4 years, now. I say wait till the lenders start PUKING THEM UP.

Butterball · Mar 26, 2011

Quote from peilthetraveler:

All I am saying is thats its NEVER a bad idea to buy real estate if it is cash flow positive.

Future cash flow is dynamic, not static. It can go up and down with unemployment or an improvement/deterioration of the neighborhood.

A number of investors went bankrupt buying up rental real estate in the initial drop in 1930. They planned to keep renting units out just to see one tenant after another become unemployed and go broke. Absurd repossessions occurred when owners were unable to come up with property taxes as they couldn't collect on their rents.

thriftybob · Mar 26, 2011

Quote from Butterball:

Future cash flow is dynamic, not static. It can go up and down with unemployment or an improvement/deterioration of the neighborhood.

A number of investors went bankrupt buying up rental real estate in the initial drop in 1930. They planned to keep renting units out just to see one tenant after another become unemployed and go broke. Absurd repossessions occurred when owners were unable to come up with property taxes as they couldn't collect on their rents.

Exactly my point. In depressions, many, many people lose income or jobs, and even if they want to, can't pay the rent, and it takes time and money to evict them, fix the place up again, and find another renter, who might just as likely do the same thing. I think if the Fed makes any attempt to tighten or slow/stop the QE presses, that we quickly will find ourselves in another 2nd leg down like we had in the 30's.

Random.Capital · Mar 26, 2011

Prices are still too high. Median home price needs to be well under $100k before this can all stabilize.

Alternately, incomes could double with no inflation, but that seems exceedingly unlikely.

SomeYoungGuy · Mar 26, 2011

If you can remain solvent long enough, inflation will solve all those problems. And it has already started; gold, oil, commodities, all up. Sustained inflation is coming because it has to. We ain't gonna be able to pay our bills without devaluing the greenback.

the1 · Mar 26, 2011

Yes there are! You can get an excellent home in Florida for a song. Now is definitely the time to buy.

Quote from ElCubano:

there are some excellent deals out there though.

the1 · Mar 26, 2011

It's almost 3 years past the top. That's about the time the economy bottemed during the Great Depression and The Great Recession isn't as severe. It's time to buy. <b>Right Now!</b>

Quote from thriftybob:

I still think its not good enough to justify the risk in a depressionary environment, as a second leg down could easily put you 20% underwater. If rates are allowed to rise, as was stated by the fed's Plosser yesterday, any meager recovery that anyone might have dreamt might be starting will be quashed, and almost nobody will be able to qualify for, much less WANT a loan or a house. 20% of homes are VACANT, and 50% are "underwater". Lenders are hiding homes on their books with non payers in them that are in arrears 3 and 4 years, now. I say wait till the lenders start PUKING THEM UP.