Archive for January, 2008

Speculation or Investment?

Real estate is viewed by many people as a good investment. Realtors often use this idea as part of their sales pitch. As was described in detail in the post What is a Bubble?, this view is fallacious and it is one of the beliefs responsible for creating an asset price bubble. To understand why houses are not a good investment, one needs to understand the difference between investment and speculation.cashflow_positive An investment is an asset purchased to obtain a predictable and consistent cashflow. This would include things such as bonds and rental properties or even cash in a savings account. The value of the asset is based on the cashflow, and this value can be determined in a number of ways. For a "point in time" analysis simple division will[READ MORE]

How Much a House Really Costs

A useful way to look at the total cost of housing is to evaluate the monthly cost of ownership. An ownership cost is any expenditure required for the possession of property. A working definition is important because there are many hidden or forgotten costs people overlook. These costs are borne by owners and not by renters. There are 7 costs to owning a house. Although some of these costs are not paid on a monthly basis, they can be evaluated on a monthly basis with simple math. These costs are:rent_copy

1.Mortgage Payment

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stiflePerhaps the hardest part of the housing bubble was not taking part in the rally. There was pressure from everyone and the lenders were giving away money. It was very difficult to make a conscious choice not to participate, particularly when people want to own. I felt these desires; I wanted to own again. My intellect and my emotions were in conflict. Now that the bubble is bursting and prices are coming down, I see the light at the end of the tunnel, but it is still difficult to wait. Like Archie Bunker said, "Patience is a virgin." I will only buy once at the bottom, and I want the time to be right. For those who participated in the bubble, the hardest part (beyond the financial problems) is yet to come. It will be accepting that everything they thought they[READ MORE]

When I started writing for this blog, I wrote a series of posts culminating in Predictions for the Irvine Housing Market published on March 11, 2007. It seems only fitting to take this opportunity to take a look ahead at 2008 and make some predictions for 2008 based on the events we have witnessed in 2007. original_versus_actual_2013 The first stages of a decline are are always slow to register on the median home price because the low end of the market collapses first leaving only the more desirable, high-end property transactions in the market. We have documented on this blog numerous individual properties sporting 15% to 20% declines, and housingtracker.net has documented a drop in asking prices in Orange County from $651,225 to $569,900 (12.5%). Foreclosures are up almost five-fold since April of[READ MORE]

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