Quote from Sparohok:
Did anyone look through my spreadsheet? There are people here with much more experience in real estate and I'd like your feedback.
I can't help but notice that the real estate bulls got mighty quiet!
Martin
I looked through your spread sheet. Just thought I'd mention though that it would be a mistake to categorize me as a "real estate bull". A more accurate description of me would be to say I'm not a "real estate bear".
Now my comments. I was unable to get your spreadsheet to work. Admittedly, I didn't try very hard so maybe it does in fact work. But I gave up fairly quickly because it was clear that it applies to an area of California most likely. And though it may be belaboring a point, California does not represent most of the US. Therefore, your numbers and assumptions are invalid to start with.
You know, you remind me of some of the guys that I knew when I was younger. These guys could tell me why you were a "sucker" to save money in a savings account or money market fund when it was obvious to all that you could make better returns doing all sorts of other things. The funny thing is to now look back in hindsight to see how many of these guys don't have a dime. They failed to save, and their "better mousetraps" did not work out. Now, I don't mean to put you down for your opinion. You are obviously a smart guy. And they were too. But sometimes just taking a simple approach gets you ahead in the long run. It's the old story of "Would you rather be lucky or smart?".
Let me give you an example. You dismiss principal payments as "paying money to yourself" and therefore don't count it in your analysis. Frankly, I believe you're correct...you're paying yourself. But don't ever forget that it's the method by which you pay the house off. So that in year 30, the house is free and clear. The only payments expended at that point are taxes, insurance and repairs. Now make some comparisons to see how the renter comes out. How much rent are you paying in year 30? Now compare this to 0. How does it look to you?
Then you discount appreciation. Yet I have posted several times on this board statistics that show in the last 50 years or so that statistics of this type have been kept, that there has never been a nationwide decline in the median house price. Further, I suspect that if we had the data, we would discover that California may have surpassed all of the other states in terms of appreciation. Now personally I don't care how California did, but you live there. I used to live there at one time. I can tell you that prices relative to rent have never made any sense in California. That a small percentage of the average income earners could afford the median house. Yet over time you were nuts not to buy a house....even at the peak of the last bull market in 1989 (in California).
While principal repayment may be paying yourself, it still gives a huge equity at the end of a period of time, even assuming no appreciation. Would a renter have this equity? History says no. People don't save in this country, at least up to now. Therefore, the forced "savings" of their home is one of the few sources of savings that the average guy has. It's about the only way the average guy "pays himself".
You assume that rent, house prices, etc etc all rise at the same rate. But of course we know that is not true. Each of these markets has it's own set of market dynamics. Let me give you just one scenario: interest rates rise, and house prices fall (this is your scenario), except that they don't fall very far relative to the amount that interest rates rise. If this is the case the new buyer may not be able to buy for a payment level then that he could buy at today. And because of this, the pool of renters increases, putting upward pressure on rents. In a scenario such as this would a renter have benefitted?
Either way, even if I could prove without question that it was better to rent than to own, I could not get my wife to go along with that type of proposal. And frankly, I doubt that you could get most homeowners to go that direction either. We prefer to be owners versus renters.
OldTrader
