This is downtown Smellvue. A small part of it. There are about a dozen cranes and budding skyscrapers scattered around a square mile. I suspect it's part of the reason I get weekly offers from developers and real-estate agents to buy my house, which is NOT FOR SALE! A shame as I don't even like it here. I lifted this pic from a Skyscraper forum.

http://forums.pelicanparts.com/uploa...1179404094.jpg

I've said it before and I'll say it again - a market that effectively shuts out first-time buyers can't sustain itself. It's like a jet engine. If there's suddenly nothing getting sucked in the front end, it won't be long before there's no ability to create thrust out the back end. The only people in the RE market now making any sort of money are (1) extremely lucky and (2) those that already have been in for a long period of time.

Every time I look at the possibility of buying, I keep reaching the same conclusions:

1. What's the point of tying up so much of my $$$ every month into a non-equity-building "asset"? In order to get into a home now, most people (including me) would have to resort to unconventional methods.

2. What's the point of tying up so much of my $$$ into a potential rate of return of MAYBE 5% (if I'm lucky) when I can easily do double that rate of return in stocks/options/futures?

3. The prices are still HUGELY out-of-whack with actual values. I base my assessments (right or wrong) and consequently what I'd be willing to pay based on MY perceptions of what a property is worth - not what a bunch of less-than-objective "experts" like sellers, realtors and mortgage brokers tell me it's worth.

4. I'm beginning to think the smart play is to aggressively pay down all my debt and pump as much into REAL wealth-building assets right now (stocks, mutuals, futures, etc.) That way in about 5-7 years I can cash the hell out of this sinking ship called Southern California, leave it's congestion and illegal aliens behind and go someplace where values and prices are more commisurate with reality.

5. Possibly nuts, but I'm seriously looking at buying a sailboat. The local marina is a 10-minute walk from my place now. For the price difference between renting my current place and what it would cost on a mortgage to buy it, I can easily afford a 36-foot sailboat and slip fees. It'd be like a bank account and would be the cheapest waterfront property I could ever own, especially if I pursued a liveaboard permit. It's crazy when one can seriously consider a boat to be an equal or better play than real estate. But that's the state of reality in this market. When I start running numbers, I find (repeatedly) that this idea it isn't as nuts as one might initially be inclined to think. . . And when I'm ready to cash out, I sell for basically no loss (you really only lose lots of $$$ on depreciation of new boats - used ones actually hold value reasonably well). It'd be a sort of floating bank account.

6. For DECADES, the incentives regarding homeownership have been (1) tax write-off and (2) equity building. The reality of the current market is that any federal tax savings are eaten up by local property taxes and upkeep costs and that there is little, if any meaningful equity-building potential for first-time buyers. This is an intermediate-term to long-term problem because it will ripple through the housing sector. There will be a stratification in pricing between "entry level" places (that are just out of reach of potential first-time buyers) and "upgrade" places, which are just out of reach of entry-level owners. No longer can/will an entry-level owner sell and generate enough profit to establish equity in a larger, more valuable place. Even if they could, it seems like many of them can't trade up because there's nobody to buy their entry-level place now, so many potential deals fail on the "buy" end. The only way I see these deals working is if the owner transfers their problems (no-equity mortgages) into a bigger place and another sucker is willing to assume a no-equity position to "own" the entry-level place. They only magnify their problems. . .

Long story short, RE is a bad call and will be for quite a while until this shakes out.

Jeff,

Renting or leasing is only paying the house payment for another person. If you are happy with that then so be it, but I would rather pay myself.

My house will end up being a large part of my retirement and when I decide to head out of this area will find a lot smaller place with a large garage and be happy all the way to the bank...

I don't disagree with you. The problem is for virtually all first-time buyers right now, a "purchase" is nothing more than paying rent to a bank. There's no equity-building potential when one has to resort to interest-only or other types of unconventional financing in order to get in to a place because the prices are 5x to 10x their gross household income (conventional wisdom says to never buy a place more than 3x one's gross household income).

If things correct to the point where first-time buyers can LEGITIMATELY become owners (REAL owners, not just "name only" owners) with conventional down payments, expected rates of return and appreciation, and tax write-offs that aren't swallowed up by other greedy government agencies in a "paper shuffle", it'll be for my generation what it was for yours. Sadly, this is no longer the case.

It's very hard to look at a home as an asset these days - it seems a lot more of a liability, unless one's particular situation is very atypical or they're extremely fortunate. I wish it were different (or that I was born 20 years sooner!) but it's not.

I think you'd find a 36 foot sailboat a bit small. It's a great size for a few days or weeks aboard, but you might find it cramped year round.

If you watch carefully, you can often get fantastic deals on boats that have outstanding debts at marinas. They have often sat unused for a couple years, so will require a throrough cleaning. There are folks who buy these up and flip them, so you'd need to get in the loop with marinas and boatyards

yup. I'm staying a renter. $1600/mo renting vs $4K/mo (if I'm lucky). And the possibility of being upside down on the house/condo in a year or two. I'll keep my money in the bank for now...

Your home is an asset for your bank. For you , it's a liability.

The only people who "profit" from your house are your kids after you die. OR if you decide to sell it and downsize. but it will be a smaller home or in a less desirable neighborhood.
Your home is not a "business", it's just a place to live and pay along the way.

Can't agree with you Jeff:

1) Paid 190K for my house in 1992 - Today it worth 600
2) Paid 45K for cabin overlooking the lake in 1987 - Today it's approaching 300K
3) The retirement I haven't even finished building is worth 150K more than I have in it......

I have other money with my broker and a sizable 401K.....Neither have increased like real estate....

+1 Everybody has to "be" somewhere. Beyond that? The only real estate I'm interested in is what I live in/on. Beyond that? There are better investments. Tell me again folks, about how a 1972 911S is an"investment". No,.like any other toy..it's just a toy others want. Ditto houses. Other than we all need a roof over our heads.

'92 was a LONG time ago...

190,000 invested into the DJIA in 1992 would be ~750,000 today.

Maybe its the broker thats the problem. ;) :D

People talk/write about different situations as if they're the same. Jeff, like a lot of Pelicanites, is in SoCal. He doesn't own--he rents. So, if you were in that position Lake, what would you do? No going back to 1992 or 1987 to buy something. What would you do today? Rent or buy? Apples and oranges.

Not begruding you your prosperity. Full congratulations to you on that. But what would your helpful advice be to someone in Jeff's position, because there are a lot of us (me soon-to-be-included) in that boat? That boat being: SoCal, no property, but ready to jump in if prudent.

No, it's you has the problem. Why do you pay broker's fees in order to buy the DJIA???

Who said anything about broker's fees to buy into the DJIA?

If someone simply bought into & held the DJIA with 190,000 in 1992 it would have easily outperformed the $410,000 gain on the house. Of course thats not figuring in dividends, or maintenance & taxes on real estate.

Well, factor in broker fees, and 15 year of paying rent - I think I'm still ahead.....Like I said, all my money is not in real estate; but it is probably a sizeable 65% of my assets...

What would I do today if I was young? Hard to say, but knowing me, I'd buy a as cheap as I could in a decent area and put some sweat into it. Build equity and move up over the years.....The past does not always predict the future. I don't know how you folks come up the the down payment now????

Well, if you want to have a reasonable commute time, you're looking at $750K for a fixer in a so-so neighborhood. Palmdale is pretty soft now and you can get in the game for $400K but will have a 3-4hr round trip commute.

Are we having fun yet?

Guess I should be very happy with my $400k house (2200 sq ft, 4 bedrooms) and a monthly payment of $1100. Its gone from being worth $205k to at least $400k right now in five years.

Another reason not to live in SoCal...

I understand not everyone has a choice about which part of the country to live in. Housing costs and congestion are 2 reasons I'd you'd never find me moving to So Cal...Again, I don't know how the young do it......Rents can't be a cheap way to go either...

I hear what you are saying Wayne, and you are absolutely right, but... I'm old school I guess, I just don't like owing money to anyone for anything (if I don't have to). While not "leveraged", it's a nice place to be and having the cash flow from investment properties into your own pocket doesn't suck either. Never gonna be a Trump this way, but I don't want to be..."chump" is close enough for me :)

How many of us can go bankrupt buying real estate and get the chance to start over? Trump can. Peons like us cannot without a drawn-out rebuilding phase.