Irvine Housing Blog

I like that you can play with the interest deduction. Works well with your neighbo(u)rs, if you know what I mean.

Hey, I fooled around with the calculator a tiny bit, I love it!  Need those positive affirmations to keep me on the sidelines renting for a while. 

Per your calculator, assuming all else remains the same (I know, not a good assumption), prices need to come down another 10% before I’m even up.  For me there is a premium for owning because it provides more stability and flexibility, which is necessary when you have kids.  I’m sitting tight….better make sure I still have a job next year, too, in addition to waiting for that price decrease.

Thing that was and continues to be funny about this was the large number of people and the media that kept saying 50% was impossible, it just couldn’t happen.  Well, we’ve hit 40% and 50% isn’t far off.  In some areas it’s worse and in some, few, it’s better, for now.

Have prices come down 40% in Irvine?

There is a subtlety with the maintenance cost.  When I have previously seen maintenance cost calculations, they used the same % of price regardless of when you purchased the house.  That can’t be right.  The house doesn’t “know” that it was sold during 2000 for $200,000 and 2006 for $600,000, and therefore it should have three times as much maintenace expense after being resold.  Nor will the house know that it should have fewer problems after being sold yet again for $350,000 as a bank REO in 2008.  All of those changes could happen without any remodeling.  The price differences were primarily caused by the value of the land.

For maintenance, I have a feeling that it could be priced per square foot and in consideration of the age of the house.

Oh, and the cost of insurance has a similar problem to maintenance.  It’s not the cost of the house+land that determines the insurance, it’s the cost of reconstruction.  Having a cost estimator that uses square feet, and perhaps whether it is basic, typical, or deluxe would help.  If you wanted, you could also put in region to help estimate reconstruction costs.

These types of estimates could work with the RS Means Cost Per Square Foot estimates.  That way you would have a third party estimate that is regularly updated for various parts of the US. 

Otherwise, insurance prices will be overestimated for people buying overpriced homes, or homes in neighborhoods with more expensive land.

IR,
Your timing on this is perfect, I just got an email last night from a cousin in Sacramento asking if he should continue to rent or buy.  The one thing I think you’re missing is the Mortgage Insurance Premium.  Is that already built into the payment, I didn’t see a separate line for it.

Did you factor in the cost that the downpayment could have been invested over the holding period to earn more money, but instead, was sunk in a house?

What is that estimated ownership costs at the bottom under montly rent?

How did you come to the defaul of 18%?  What is the range of what could be? 

I like being able to both work and put in the rent first, then I know what would be a comparable house.

maybe it would be worthwhile to put an information area so when you float the mouse over it..it describes the field. just an idea.

IR,

Very good tool. While my calc to own showed me that the monthly bill on my house would be $2300, which would in fact be $100 more than what my rent would be, I will be moving in a bigger house (say, 400 sf more). Ideally should I calcuate it against the rent for a comparable property, or just check my current rent against the mortagage to establish rental parity?
It’s agenuine question- not trying ot chew yuour brains off:-)

My would-be buy is justified with rental parity when it’s comes to a rental it’s own size, and not so with my current rent.

A.G. knew the day will come, but the year will be 2010, not 2008.

Back to 2001, in order to stay as Fed chair one more term he made a deal with Bush to create this bubble, and thought he can get away will clean hand. It would have been a prefect plan, should he leave the interest rate to 3.25% not 4%, when he left the office.  But he wanted to have a perfect period.

With globalization and information technology revolution, the world is much smaller than he acknowledge. AG misjudges that the meltdown will come so fast. After all, he belongs to last century.

For many reasons, Bernanke intentionally raises the rates to the level that will accelerate the crashed, but he did not image that this lead the financial crisis like a tsunami.

did you figure in the cost if you have to move because of a job?

The video is “no longer available”.  Not that I was hankering for Weird Al or anything….

Wow! I must be Amish! I thought I was Jewish and Mooish.

Understanding Bushonomics - How we got into this mess in the first place
http://www.americanprogress.org/issues/2008/08/pdf/bushonomics.pdf

Thank you, IR.

One small suggestion for improvement…

Should the line item for “Special Taxes and Levies” be a flat value and not a percentage-based amount? 

thx again.

You’re right…I’m renting for half price and am 70% in cash….er, maybe 75% now that my stocks are down!    I feel great. Cash is king…and I am on the throne!

The calculator is great.  I think you should include private mortgage insurance for those people who have less than 20% down.  Otherwise, the calculator underestimates the cost of owning.

One other reminder for the calculator.  A large portion of homeowners don’t itemize.  They don’t get an additional interest or property tax deduction. 

I am trying to come up with a way to make that a simple calculation.  Part of it is easy, “Would you itemize (rather than taking the standard deduction) even if you were not a homeowner?”  If the answer is yes, the marginal tax rate does the correct calculation.

However, if someone has almost no itemized deductions (e.g., living in a state with no income tax), they might not be able use much of the interest and property tax deduction.  In fact, if they bought a $150,000 condo or house, they might not get any tax benefit. 

Even in the highest income brackets, 22% of homeowners still don’t itemize.  Many of those might not have a mortgage.  However, for homeowners near median income, much less than half itemize.  http://www.owlnet.rice.edu/~econ461/papers/w9284.pdf

IR, I assume “new worth” was meant to be “net worth”?  (The former could make sense too, so had to ask.)

Turns out, I am a “mooselim”. Oh well. Not a bad thing, I guess. I could never understand doing anything with a house (your primary, anyway) but buying what you can afford, and then paying for it as quickly as possible. And keep it payed for, excepting an emergency. You would be surprised how easy that is if you put your mind to it, and your luck is good. And when you do own it, you now have something to lose, which tends to make you conservative in financial decisions.
The absurdity of the entire real estate fiasco is that almost everyone ruined by it was in a position, had they not succumbed to temptation, to house themselves adequately and securely.
In my case, it was, to be honest, sheer laziness. To much effort and hassle to get a loan, and you have to sign your name a zillion times, which I hate doing.

For the tax savings, if you itemize you lose the standard deduction.  For most people, all their itemized deductions other than their mortgage insurance will be much less than the standard deduction, so most of the standard deduction value should be counted against your mortgage interest tax deduction.

I hope that made sense.

While we are currently currently seeing a significant dip in the market, it’s important to remember that property prices do tend to increase over time. This has the effect of significantly reducing the cost of ownership.

The 20%/year appreciation of recent years was clearly unsustainable. However the more recent plunge in values is also unsustainable - this too shall pass. It is reasonable to anticipate a moderate, but compounding, appreciation of the property over time.

Let’s say that property tends to appreciate at a conservative rate of 3% per year. For the $500,000 default case, this translates into a $1,250/month equity gain. Subtracting this equity gain from the “Total Cost of Ownership” value significantly alters the balance in favor of owning.

Real estate is a long term investment. Buyers should anticipate a 7 to 10 year horizon. The days of flipping are gone, but with a realistic time frame it’s very realistic to anticipate moderate appreciation.

“but it is good enough to put on the main site. We hope to add some formatting and create a stand-alone version for people to download and use.”

I can not find a download link anywhere on the website—is there a place we can download the calculator?