Originally posted by Bags:Is that something like secretaries day?
annual appreciation as well….
(Oh Bags, I have missed you.)
(Oh Bags, I have missed you.)
Why my life in 1 bedroom NWDC apt is more meaningful th
(Oh Bags, I have missed you.)
oh bags, i am sure the property value in Falls Church is tripling every year!!!! people are flocking to be closer to Frednecksburg.
Originally posted by Bags:yeah, it's even beter than the stock market circa 1999. ;)
Originally posted by Celeste:Yeah, I hate the 20-50% annual appreciation as well….
I agree that DC is not somewhere I would BUY
Originally posted by Bags:That's hardly limited to the city. Homes in my outside-the-beltway suburbsn neighborhood have appreciated by more than 50% in the last 12 months.
Originally posted by Celeste:Yeah, I hate the 20-50% annual appreciation as well….
I agree that DC is not somewhere I would BUY
Originally posted by Bags:My house in Fairfax county has appreciated by at least 20% as well, so calm down. I just said *I* would not buy in DC. I plan to have a child and will feel more comfortable sending him or her to a public school in Fairfax County. I also feel my local tax dollars are better spent in Fairfax county than in the District. That's just my opinion. DC living has its nice points, too, but those are not the points that have the most weight for my decision.
Originally posted by Celeste:Yeah, I hate the 20-50% annual appreciation as well….
I agree that DC is not somewhere I would BUY
The way its going there is hardly going worthwhile buying anything as property taxes are almost the same as rent….
Originally posted by ggwâ?¢:surely only because you moved there, we can't expect ALL suburban communities to do the same, especially ones with Rhett sitting nude on his deck!!!!! ugh!
Homes in my outside-the-beltway suburbsn neighborhood have appreciated by more than 50% in the last 12 months.
Originally posted by sonickteam:Actually, they are just trying to get further away from Baltimore.
people are flocking to be closer to Frednecksburg.
Originally posted by Celeste:a friend of mine bought her Fell Point row home in 2002 from her landlord for $48k. and sold it in December for $290k. cities are cool for that sorta shit.
My house in Fairfax county has appreciated by at least 20% as well, so calm down.
From The Economist (March 3)
America's housing bubble continues to inflate. Although the rate of increase slowed in the fourth quarter, prices were still up by 11.2% over the year. In California and Washington, DC, housing prices rose by more than 20%. Alan Greenspan, the Fed's chairman, recently admitted in congressional testimony that there may be property bubbles in â??certain areasâ? and a risk that prices could decline. There is certainly evidence that prices are being driven by speculative demand: a new study by the National Association of Realtors shows that one-quarter of all houses bought in 2004 were for investment, not owner-occupation.
Punishing prices, puny yields
The main reason why housing markets have cooled in Australia and Britain is that first-time buyers have been priced out and demand from buy-to-let investors has slumped. While house prices have soared, rents have risen modestly or even fallen in some cities. In America, Britain, Spain New Zealand and Australia, average net rental yields (allowing for management fees, maintenance and empty periods) have fallen to 3.5% or less, well below mortgage rates. Shane Oliver, the chief economist at AMP Capital Investors, estimates that net rental yields on houses in Sydney are only 1%. Landlords are nowhere near covering their true costs, but many still hope to make their profit from capital gains. That sounds ominously similar to the days of the dotcom bubble, when it was argued that the link between share prices and profits no longer mattered.
According to calculations by The Economist (with the help of Julian Callow of Barclays Capital), house prices are at record levels in relation to rents (ie, yields are at record lows) in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. America's ratio of prices to rents is 32% above its average level during 1975-2000. By the same gauge, property is â??overvaluedâ? by 60% or more in Britain, Australia and Spain, and by 46% in France (see chart).
The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall. Yet central banks cannot allow rents to surge as this would feed into inflation. Rents directly or indirectly account for 29% of America's consumer-price index, so rising inflation would force the Fed to raise interest rates more swiftly, which could trigger a fall in house prices. Alternatively, if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall.
Lower real interest rates might justify a higher p/e ratio. For example, real interest rates in Ireland and Spain were reduced significantly when these countries joined Europe's single currencyâ??though not by enough to explain the whole rise in house prices. In Britain, where tax relief on interest payments has been scrapped, real after-tax rates are close to their average over the past 30 years, and so do not justify a higher price/rent ratio. In America, too, real post-tax interest rates are not historically low, in part because mortgage-interest tax relief is worth less at lower rates of inflation. For instance, if interest rates are 10%, tax relief is 30% and inflation is 7%, the real after-tax interest rate is 0%. If interest rates are 6% and inflation is 3% (ie, the same gap as before), and tax rates stays the same, the real interest rate is 1.2%.
The unusual divergence between house prices and rents does not just affect investors; it also undermines the conventional wisdom that it is always better to buy a house, because â??rent is money down the drainâ?. Today in many countries it is much cheaper to rent than to buy.
Rent asunder
Take a two-bedroom flat in London, which you could buy for £450,000 ($865,000). To rent the same flat would currently cost £1,700 a month. In addition to a 6% mortgage rate, a buyer would face annual maintenance and insurance costs of, say, 1.25%. In the first year, the rent of £20,400 compares with total mortgage interest and maintenance payments of £33,000, a saving of £12,600. Interest payments would be less if a large deposit were paid, but in that case the income lost from not investing that money elsewhere has to be taken into account.
Assume that rents rise by 3% a year, in line with wages, while house prices from now on rise in line with inflation of 2%. At the end of seven years (the average time before the typical homeowner moves), you would be almost £35,000 better off renting, taking account of the capital appreciation and buying and selling costs. In other words, even without a fall in real house pricesâ??which many believe to be likelyâ??buying a house in Britain today seems a poor investment.
The figures look even more striking in the San Francisco Bay Area, where it is possible to rent an $800,000 house for $2,000 a month. Making the same assumptions about rents and house prices, but also deducting tax relief on a fixed-rate mortgage and adding property taxes, a buyer would pay $120,000 more over seven years than if he had rented. House prices in San Francisco would need to rise by at least 4% a year (2% in real terms) for it to prove cheaper to buy a house. Since 1950 American house prices in real terms have risen by an annual average of just over 1%. To expect them to rise faster from their current dizzy heights smacks of irrational exuberance, to say the least.
America's housing bubble continues to inflate. Although the rate of increase slowed in the fourth quarter, prices were still up by 11.2% over the year. In California and Washington, DC, housing prices rose by more than 20%. Alan Greenspan, the Fed's chairman, recently admitted in congressional testimony that there may be property bubbles in â??certain areasâ? and a risk that prices could decline. There is certainly evidence that prices are being driven by speculative demand: a new study by the National Association of Realtors shows that one-quarter of all houses bought in 2004 were for investment, not owner-occupation.
Punishing prices, puny yields
The main reason why housing markets have cooled in Australia and Britain is that first-time buyers have been priced out and demand from buy-to-let investors has slumped. While house prices have soared, rents have risen modestly or even fallen in some cities. In America, Britain, Spain New Zealand and Australia, average net rental yields (allowing for management fees, maintenance and empty periods) have fallen to 3.5% or less, well below mortgage rates. Shane Oliver, the chief economist at AMP Capital Investors, estimates that net rental yields on houses in Sydney are only 1%. Landlords are nowhere near covering their true costs, but many still hope to make their profit from capital gains. That sounds ominously similar to the days of the dotcom bubble, when it was argued that the link between share prices and profits no longer mattered.
According to calculations by The Economist (with the help of Julian Callow of Barclays Capital), house prices are at record levels in relation to rents (ie, yields are at record lows) in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. America's ratio of prices to rents is 32% above its average level during 1975-2000. By the same gauge, property is â??overvaluedâ? by 60% or more in Britain, Australia and Spain, and by 46% in France (see chart).
The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall. Yet central banks cannot allow rents to surge as this would feed into inflation. Rents directly or indirectly account for 29% of America's consumer-price index, so rising inflation would force the Fed to raise interest rates more swiftly, which could trigger a fall in house prices. Alternatively, if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall.
Lower real interest rates might justify a higher p/e ratio. For example, real interest rates in Ireland and Spain were reduced significantly when these countries joined Europe's single currencyâ??though not by enough to explain the whole rise in house prices. In Britain, where tax relief on interest payments has been scrapped, real after-tax rates are close to their average over the past 30 years, and so do not justify a higher price/rent ratio. In America, too, real post-tax interest rates are not historically low, in part because mortgage-interest tax relief is worth less at lower rates of inflation. For instance, if interest rates are 10%, tax relief is 30% and inflation is 7%, the real after-tax interest rate is 0%. If interest rates are 6% and inflation is 3% (ie, the same gap as before), and tax rates stays the same, the real interest rate is 1.2%.
The unusual divergence between house prices and rents does not just affect investors; it also undermines the conventional wisdom that it is always better to buy a house, because â??rent is money down the drainâ?. Today in many countries it is much cheaper to rent than to buy.
Rent asunder
Take a two-bedroom flat in London, which you could buy for £450,000 ($865,000). To rent the same flat would currently cost £1,700 a month. In addition to a 6% mortgage rate, a buyer would face annual maintenance and insurance costs of, say, 1.25%. In the first year, the rent of £20,400 compares with total mortgage interest and maintenance payments of £33,000, a saving of £12,600. Interest payments would be less if a large deposit were paid, but in that case the income lost from not investing that money elsewhere has to be taken into account.
Assume that rents rise by 3% a year, in line with wages, while house prices from now on rise in line with inflation of 2%. At the end of seven years (the average time before the typical homeowner moves), you would be almost £35,000 better off renting, taking account of the capital appreciation and buying and selling costs. In other words, even without a fall in real house pricesâ??which many believe to be likelyâ??buying a house in Britain today seems a poor investment.
The figures look even more striking in the San Francisco Bay Area, where it is possible to rent an $800,000 house for $2,000 a month. Making the same assumptions about rents and house prices, but also deducting tax relief on a fixed-rate mortgage and adding property taxes, a buyer would pay $120,000 more over seven years than if he had rented. House prices in San Francisco would need to rise by at least 4% a year (2% in real terms) for it to prove cheaper to buy a house. Since 1950 American house prices in real terms have risen by an annual average of just over 1%. To expect them to rise faster from their current dizzy heights smacks of irrational exuberance, to say the least.
Originally posted by Miss MaRpIe:not exactly…theoretically you could say that they're like the same thing, but the costs aren't even close
The way its going there is hardly going worthwhile buying anything as property taxes are almost the same as rent….
Originally posted by ggwâ?¢:I NEVER said it was limited to the city…
Originally posted by Bags:That's hardly limited to the city. Homes in my outside-the-beltway suburbsn neighborhood have appreciated by more than 50% in the last 12 months.
Originally posted by Celeste:Yeah, I hate the 20-50% annual appreciation as well….
I agree that DC is not somewhere I would BUY
Originally posted by Celeste:i think either way you look at it, renting is pissing your money away. and you can deduct your interest paid on your mortgage, no?
not exactly…theoretically you could say that they're like the same thing, but the costs aren't even close
i just dont see paying a landlord all that money just so he can kick your ass out one day………
Originally posted by ggwâ?¢:Thanks. Nice article. I could not afford to buy the place we rent…
From The Economist (March 3)
Originally posted by sonickteam:well, technically, if your house is paid for but you can't pay your property taxes, the county can take your house…so you're never truly safer…though that may be a highly unlikely sceanrio for most homeowners…
Originally posted by Celeste:i think either way you look at it, renting is pissing your money away. and you can deduct your interest paid on your mortgage, no?
not exactly…theoretically you could say that they're like the same thing, but the costs aren't even close
i just dont see paying a landlord all that money just so he can kick your ass out one day………
Originally posted by Bags:No kidding. It sucks that my house is now worth 150% more than it was in 2001.
Originally posted by Celeste:Yeah, I hate the 20-50% annual appreciation as well….
I agree that DC is not somewhere I would BUY
Originally posted by Celeste:My house in Falls Church has doubled in value from the time I bought it 3 years ago. Celeste I again agree with you.
Originally posted by Bags:My house in Fairfax county has appreciated by at least 20% as well, so calm down. I just said *I* would not buy in DC. I plan to have a child and will feel more comfortable sending him or her to a public school in Fairfax County. I also feel my local tax dollars are better spent in Fairfax county than in the District. That's just my opinion. DC living has its nice points, too, but those are not the points that have the most weight for my decision.
Originally posted by Celeste:Yeah, I hate the 20-50% annual appreciation as well….
I agree that DC is not somewhere I would BUY
my, my, we're all in a self-congratulatory mood today aren't we!!
if all people can talk about is their equity gains then I think a bubble popping can't be too far away
I just found a bunch of perfectly preserved newspapers from 1941 in my attic…now THATS cool…
if all people can talk about is their equity gains then I think a bubble popping can't be too far away
I just found a bunch of perfectly preserved newspapers from 1941 in my attic…now THATS cool…
heh… the Bible states that the Lord will SMITE those with ill-gotten gains, and cast them into a lake of brimstone…..
I don't know about a bubble popping, but things have got to plateau soon. I mean, I love my house, but I can't see the value of it going up and up and up…it just doesn't make sense to me.
What determines these values other than what people are willing to pay or not? I know there are a lot of jobs here in the DC metro area and that there are a good amount of amenities, or whatever, but what justifies these places going for what they go for? It's crazy! And who can afford them?
What determines these values other than what people are willing to pay or not? I know there are a lot of jobs here in the DC metro area and that there are a good amount of amenities, or whatever, but what justifies these places going for what they go for? It's crazy! And who can afford them?