Owning a house can be deeply emotionally satisfying, but as financial investments, the rewards do not justify the risks.
Irvine Home Address … 2233 MARTIN #215 Irvine, CA 92612
Resale Home Price …… $239,900
Hey know,hey now
hey now, hey now
Have you ever seen such a beautiful night?
I could almost kiss the stars, for shining so bright!
Hey now
Hey now
This is what dreams are made of
Hilary Duff — What Dreams Are Made Of
Since I began writing for the IHB, I have believed part of my task has been to dispel the myths surrounding California real estate. During the real estate bubble people came to believe houses had mystical powers. The kool aid intoxication was very strong because so many people obtained so much free money from incredibly stupid lenders. As the housing bubble continues to deflate, people are finally starting to let go of their most cherished housing myths, but they don't give up easily.
A Home Is a Lousy Investment
Today's young people would be foolish to imitate their parents and view ownership as the cornerstone of personal finance.
By ROBERT BRIDGES — July 11, 2011
At the risk of heaping more misery on the struggling residential property market, an analysis of home-price and ownership data for the last 30 years in California—the Golden State with notoriously golden property prices—indicates that the average single family house has never been a particularly stellar investment.
In a society increasingly concerned with providing for retirement security and housing affordability, this finding has large implications. It means that we have put excessive emphasis on owner-occupied housing for social objectives, mistakenly relied on homebuilding for economic stimulus, and fostered misconceptions about homeownership and financial independence. We've diverted capital from more productive investments and misallocated scarce public resources.
Yes, that is exactly what we have done. We developed an economy inexorably linked to rising house prices. We encouraged everyone to take on copious amounts of debt to acquire real estate under the false pretense of nearly unlimited free spending money simply for signing some loan documents. This false perception about the true value of real estate caused an enormous price increase which in turn gave a false signal to homebuilders that we needed thousands of McMansions in areas where people had to commute an hour or more to their jobs. The response to the fake demand caused resources to be diverted away from productive uses and into non-productive single-family homes. These wasted resources are gathering dust in empty homes all over California.
Between 1980 and 2010, the value of a median-price, single-family house in California rose by an average of 3.6% per year—to $296,820 from $99,550, according to data from the California Association of Realtors, Freddie Mac and the U.S. Census. Even if that house was sold at the most recent market peak in 2007, the average annual price growth was just 6.61%.
So a dollar used to purchase a median-price, single-family California home in 1980 would have grown to $5.63 in 2007, and to $2.98 in 2010. The same dollar invested in the Dow Jones Industrial Index would have been worth $14.41 in 2007, and $11.49 in 2010.
This example is not fair for a couple of reasons. First, it assumes an all-cash comparison. Leverage on real estate is generally 80%, and during the housing bubble it was 100%. The best leverage in stocks is merely 50%. When prices rise, the leverage makes the returns much larger. Of course, when prices fall, the leverage wipes people out. Also, people generally can't get cash from a stock investment without liquidation. With houses, people were given access to their unrealized gains through cash-out refinancing. Those two advantages made real estate much more attractive when prices were rising and leverage was cheap.
Here's another way of looking at the situation. If a disciplined investor who might have considered purchasing that median-price house in 1980 had opted instead to invest the 20% down payment of $19,910 and the normal homeownership expenses (above the cost of renting) over the years in the Dow Jones Industrial Index, the value of his portfolio in 2010 would have been $1,800,016. The stocks would have been worth more than the house by $1,503,196. If the analysis is based on 2007, the stock portfolio would have been worth $2,186,120, exceeding the house value by $1,625,850.
In light of this lackluster investment performance, and in the aftermath of the recent housing-market collapse, why is there such rapt attention to the revival of the homebuilding industry and residential property markets? The answer is that for policy makers whose survival depends on economic recovery, few activities have such direct, intense and immediate positive economic impact as new home construction.
California's economy is overly dependent upon homebuilding. With 38% unemployment locally, it shouldn't be surprising that the economy is sputtering.
These positive effects are transitory, however, when local economies have insufficient permanent employment to justify a constant level of demand for new housing stock. Existing housing does little to create new employment beyond limited levels of service employment. By contrast, a business investment in the amount of the several hundred thousand dollars represented in the value of a house would likely create many permanent jobs and produce income, profits and competition. As with most things, the benefits of building new homes come with a sobering caveat: What becomes of the work force once the party is over?
This is the question California has been consistently unwilling to face. Houses produce nothing. They are not factories producing widgets saleable to other parts of the world. Houses are pure consumption, and as the Romans showed us, a society based on consumption is ultimately doomed.
Home values may gain value over time, but home equity is locked-in until the house is sold.
It should be, but this author obviously hasn't been reading the IHB. The liberation and spending of home equity is a staple of the California economy.
The profits may then be reinvested or spent, creating significant stimulative effects, but usually this happens when market conditions are strong, exacerbating unsustainable market booms. When troubled assets are dumped, or when defaults occur during weak market conditions, the trough is deepened.
Housing markets may be forever doomed to cyclicality for many reasons, but public policies that stimulate new construction or home purchases by tax and financing subsidies, reduction of qualifying incomes, buyer credits, mortgage backstopping, and preferential zoning and permitting, only intensify these cycles.
These policies are also an admission of California's dependence upon artificial stimulus and Ponzi borrowing.
Efforts to reduce loan balances and to create special rescue programs have reduced the security of loans, challenged the enforceability of contracts, and driven up real borrowing costs.
Actually, no. Loan modifications and other government meddling in the private contracts between lender and borrower should have those impacts, but since the entire mortgage market is government backed, we have not seen these inevitable problems yet. We will. Wait until the conforming limit drops and jumbo financing becomes the only game in town.
Nearly a third of our states do not allow lenders the recourse provisions necessary to go after a borrower's personal assets in case of default on a residential mortgage. The sanctity of mortgage obligations has become the rough moral equivalent of the 55-mile-per-hour speed limit.
There is also a misconception that paying off a home mortgage is a path to financial or retirement security. The reality is that tapping the equity is expensive: Home-equity loans or lines of credit made with low qualifying incomes often command high interest rates and costs. If an emergency occurs—the loss of a job, or a business setback—it's likely that the same conditions creating the problem will lower the value and impede the marketability of the home and curtail the availability of financing for a buyer. Funds set aside for emergencies should always be liquid assets.
In this instance, the professor has drawn a bad conclusion from the need for liquid assets. Yes, people should have liquid assets and reserves for emergencies — unless they are borrowing with an FHA loan when they will be given a year of squatting — however, once sufficient reserves are in place, nothing provides peace of mind more than having a house paid in full.
Is it wise for coming generations to continue to view ownership as the cornerstone of personal finance? Young people planning for retirement increasingly face a choice between house payments and contributions to retirement accounts. They simply can't afford both. With the specter of looming cuts in Social Security and other entitlement programs, or even possible systemic insolvency, the challenge for tomorrow's retirees is income self-sufficiency.
It is always unwise to put all your eggs in one basket. During the bubble everyone put as much money as possible toward buying real estate. Think about it, with prices back at 2003 levels, anyone who bought in the last eight years is likely underwater. If that is their cornerstone of personal finance, the foundation is crumbling. They're screwed.
A nation of house buyers becomes captive to the economic cyclicality caused by bursts of construction activity, and it is not lifted or sustained by the limited levels of service employment related to existing housing. By contrast, a nation of business startups and investors supports our capital markets and creates long-term employment, income, exports and the myriad technological advancements desperately needed by an expanding American society.
New home construction and the markets for existing homes should be recognized as activities secondary to, and dependent on, employment. Healthy job markets create healthy property markets, not the reverse.
I have been making the same case for months. The economy will not improve by building more homes. It will take job growth and stimulus from outside of homebuilding and real estate to ignite the real estate market. Homebuilding and real estate sales follow an economic expansion, they do not lead it.
Housing demand driven by job growth creates conditions capable of sustaining a stable level of construction employment, attracting private equity investment, sustaining competitive private debt markets, encouraging capital growth, and ensuring the lowest possible housing prices.
Owner-occupied homes will always be the basis for healthy and stable neighborhoods. But coming generations need to realize that while houses are possessions and part of a good life, they are not always good investments on the road to financial independence.
Mr. Bridges is professor of clinical finance and business economics at the University of Southern California's Marshall School of Business.
I have my doubts Californians will ever give up their dreams about real estate riches. The lure of free money is too strong. Who wouldn't want to quit their job and just own a nice house that provides all their needs? It beats working for a living.
Happiness through regular cash infusions
It may take a decade or more, but the lifestyle choice to borrow and spend home equity must come to an end. The housing ATM has been turned off for almost six years now, but the memory of that life remains sitting dormant waiting for another housing bubble to germinate and take root.
- The owner of todays featured property paid $258,000 on 10/17/2002, which makes this a 2002 rollback. We now stand at nine years of zero appreciation. She used a $232,200 first mortgage and a $25,800 down payment.
- On 5/27/2004 she refinanced with a $238,000 first mortgage.
- On 1/6/2005 she refinanced with a $276,000 first mortgage.
- On 2/7/2006 she refinanced with a $296,000 Option ARM with a 1.25% teaser rate and obtained a $40,000 HELOC.
- Total mortgage debt is $336,000.
- Total mortgage equity withdrawal is a paltry $103,800, a lightweight by Irvine standards.
This form of HELOC abuse is characteristic of someone who irresponsibly ran up credit card bills each year living beyond her means then went to the housing ATM to pay it off. The yearly refinances reflect a serious degree of HELOC addiction.
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599
sales@idealhomebrokers.com
Irvine House Address … 2233 MARTIN #215 Irvine, CA 92612
Resale House Price …… $239,900
Beds: 1
Baths: 1
Sq. Ft.: 934
$257/SF
Property Type: Residential, Condominium
Style: One Level, High or Mid-Rise Condo
View: City
Year Built: 1991
Community: Airport Area
County: Orange
MLS#: P773847
Source: SoCalMLS
Status: Active
——————————————————————————
THE METROPOLITAN IS THE PIONEER OF EXECUTIVE LUXURY CONDOS IN IRVINE. GREAT Location! Min. to Fwys, OC Airport, Shopping and Beaches! Marble Tile Floors in Kitchen, Entry Way and Bathroom. Off-White Textured Carpet, White Moldings & Doors all Neutral Colors.
——————————————————————————————————————————————-
Proprietary IHB commentary and analysis 
The Metropolitan was the bleeding edge of luxury condos in Irvine. Just like the condos built during the bubble, they were the wrong product built in the wrong place at the wrong time.
Resale Home Price …… $239,900
House Purchase Price … $258,000
House Purchase Date …. 10/17/2002
Net Gain (Loss) ………. ($32,494)
Percent Change ………. -12.6%
Annual Appreciation … -0.8%
Cost of Home Ownership
————————————————-
$239,900 ………. Asking Price
$8,396 ………. 3.5% Down FHA Financing
4.59% …………… Mortgage Interest Rate
$231,504 ………. 30-Year Mortgage
$50,803 ………. Income Requirement
$1,185 ………. Monthly Mortgage Payment
$208 ………. Property Tax (@1.04%)
$0 ………. Special Taxes and Levies (Mello Roos)
$50 ………. Homeowners Insurance (@ 0.25%)
$266 ………. Private Mortgage Insurance
$392 ………. Homeowners Association Fees
============================================
$2,102 ………. Monthly Cash Outlays
-$109 ………. Tax Savings (% of Interest and Property Tax)
-$300 ………. Equity Hidden in Payment (Amortization)
$14 ………. Lost Income to Down Payment (net of taxes)
$50 ………. Maintenance and Replacement Reserves
============================================
$1,757 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$2,399 ………. Furnishing and Move In @1%
$2,399 ………. Closing Costs @1%
$2,315 ………… Interest Points @1% of Loan
$8,396 ………. Down Payment
============================================
$15,510 ………. Total Cash Costs
$26,900 ………… Emergency Cash Reserves
============================================
$42,410 ………. Total Savings Needed
——————————————————————————————————————————————————-
BTW, the appreciation outlook for housing is not good:
I was at a party last night with a dozen Irvine women, so I have some anecdotal evidence to back the blue pill argument. One lady offered up that her brother bought in Las Vegas because he could get so much house for the money. I said, “Well, if he bought this year, he could easily get a decent home for under $100K because of all of the foreclosure activity.” To which she said, “Oh, this was a few years ago.” A friend of mine (who works in the securities industry) looked over at me with some alarm, so I had a feeling she knew about Vegas. So, I gave a brief description of what I knew about the foreclosures and prices, and a little more about squatting.”
Here’s the amazing part: Some of the other women said, “At least that isn’t happening here.”
I said that it was happening here. There were squatters in Irvine, Newport, etc…that hadn’t paid their mortgage/RET/HOA in years. My securities friend added that in her neighborhood a few blocks away hadn’t paid in two years and had finally lost her home a month ago. The look on these women’s faces told me that many people still don’t know. It takes time to educate yourself on this topic. I have made the time over the past 18 months to do so. Thank God!
Wow! Please excuse the typos. I really should finish my coffee before I post.
Not for ca specifically, but for us housing in general …
I’m sure those people who had their thirty year fixed rates locked in before the 1970’s inflation did very well off their houses. Could happen again … Rates are low at the moment and the Fed yesterday hinted that more inflationary money printing/easing is a possibility should the economy start tanking again. Meanwhile Europe is looking debt shaky a bit. While Moody’s has been busy downgrading various government debts I. Europe and the us, investors running to traditional hedges like gold, stocks, or whatever as they try to avoid holding money and bonds. Meanwhile Obama considering making Fannie and Freddie make it easier for investors to mop up excess property. Could be an inflation/housing bubble in the making …
Should be
Moody’s downgrading various European govt debts and stating it’s reviewing US govt debt for a possible downgrade
Totally agree, the coming inflation will drive cash into hard assets such as real estate and drive prices up. For me personally, the alternative to buying was keeping $250k cash in the bank (which I now used as a down payment) and see it disappear over the years through 1% interest rates and 3% inflation. No thanks, I am not letting the Fed dilute my hard earned savings through inflation I rather invest it in hard assets.
Housing is a good investment when you are buying at or below rental parity with a 20% down payment and see inflation of 3% per year.
With the leverage you are getting a 12% per year return. You are paying down the debt at or below rental parity, and the rental parity calculation includes maintenance. You are not dealing with the large rental increases that have occurred in socal.
The thing is in Orange County housing over the past 40+ years, housing has inflated 4.5% per year. You can take any 15 year period you choose and see this, outside of buying in the obvious bubble.
At 4.5% per year that’s a 18% per year return. Housing has definitely been a good investment in Coastal southern California.
Let me add that in past orange county bubbles a peak purchase still sees around a 4.5% yoy return 15 years later.
It’s hard to believe that will happen this time, unless inflation gears up 1970s style.
Coastal CA renter here. You’re correct, but the problem I run into is the rental parity equation. There’s a townhouse next to me (identical floorplan) that is currently for sale. I crunched the numbers and determined that even with a 20% downpayment my rent is half of what just the mortgage would be, not factoring in insurance, taxes, and HOA dues. I’ve looked at other places in the neighborhood and it’s very similar; 2BR townhomes/condos rent for about half of what the monthly carrying costs would be.
If I had the cash I would most definitely buy one of them, despite this rental parity discrepancy, and that’s exactly what’s happening. $250K wasted on a hard asset is better than $250K stored as a numbers in a bank computer that will lose value for the foreseeable future due to inflation.
Just to clarify, I’m not saying the selling price is $250K. I’m making the assumption that I have $250K cash on hand to invest (which I most certainly do not have right now, maybe next year if my business picks up).
If I had the cash I would most definitely buy one of them, despite this rental parity discrepancy, and that’s exactly what’s happening. $250K wasted on a hard asset is better than $250K stored as a numbers in a bank computer that will lose value for the foreseeable future due to inflation.
That makes no sense whatsoever. You admit that you would be “wasting” at least a portion of your $250K down payment (presumably because you understand that prices are still falling), and yet you somehow think that wasting less of it in the bank (“due to inflation”) would be even worse?
Uhhh….was your statement supposed to be sarcasm? Because taken at face value, it’s just plain wrong.
-Darth
Minus all the maintenance and taxes you sank into it over that 15 years. How does that play with your numbers, PR?
Miantenance and taxes are included in the rental parity comparison as well as the tax benefit.
For me however, my payment was fixed 15 years ago and refinanced lower. My monthly cost of ownership including maintenance is about 30% of what it would cost to rent. I save more than a few thousand dollars a month owning versus current rental cost
An excellent investment indeed.
People who bought even just 10 years ago can see a significant savings over rents today.
Heck… even if someone bought a $900k house in 2005 with 20% down (loan of $720k), if they were prudent enough, their carrying costs today with a refi would probably be less than renting a similar home now in Irvine.
Correct, and 10 years from now rents in Irvine will probably be 50% higher. Maybe more if 1970s style inflation kicks in.
You can’t get 70s style inflation without powerful unions. Now you can get 201x style inflation, the result of massive money supply growth, but I am not sure that will have the same positive impact on real estate. I imagine a scenario where commodities price increases outpace wage increase, extending the trend we have seen over the LAST 10 years.
A 50% increase in rents over the next 10 years would be 4% per year. Though not ludicrous, that level of increase seems unlikely.
My rental costs have declined over that past 4 years.
Once again, if you want to rent, there’s no point in “renting a similar home now.”
Most people who want to rent can find an apt. for a fraction of the rental of a SFR rental.
And buying a 900k tract house isn’t “prudent.”
Typo, should be “various government debts in Europe and the US”.
Also, with the showdown over the US debt looming – if you can’t cut benefit and you can’t raise ya see, then you pay for stuff by printing money anyway and sending it out as benefits, to pay debtors etc. Which is inflationary but avoids voters fingering you as they unelectable party…
Should be “can’t raise taxes”.
Typo correction should be
Should be
Moody’s downgrading various European govt debts and stating it’s reviewing US govt debt for a possible downgrade
Someone posted a great Realtor ad on reddit this morning and I just had to share it:
Woah, sorry about the size. I didn’t realize it was so large. Hopefully IR can remove that. Here’s the link: http://i.imgur.com/pNqs1.jpg
i have a copy of that one. I am going to use it next realtor post I do.
Walking distance to John Wayne airport baby, sign me up!!!!!
do we get panoramic views of south coast plaza?
Runway View?
Even at nominally more money… owning (or 30-year borrowing) is better to me than renting.
You can’t live in stock investments.
And I disagree that “anyone who bought in the last eight years is likely underwater”. There are many people who bought in Irvine from 2003 on with 20% down or more and their homes are still worth more than their loans, probably more in number than the Ponzi HELOCers profiled here the last few years.
There are two sides to the coin.
It’s true that many are not underwater, particularly in certain neighborhoods which have defied gravity.
I would say that few who purchased in 2003-2006 got the outcome they were expecting.
People beleive what they want to beleive. It doesn’t matter what the facts are. Remember all the 60’s and 70’s people that denied the existing of gravity because their truth doesn’t need to agree with your truth. They could spend the truth of gravity because they it was not a part of their reality.
The allure of unlimited personal wealth and benefit to society by ever increasing house price is hard to break. Everybody a winner when gambling in Las Vegas. “I always win in ___ ….” The beat goes on ….
I agree that owner occupied homes are a poor investment right now.
I bought an SFH in September. If Zillow “Zestimates” are anything to go by (and I haven’t looked at many local comps), then in just 9 months my home is worth 10% less already than what I paid for it.
Except I didn’t buy the house as a short term investment or looked at it as an investment at all really.
After renting for 6 years in OC, I wanted a roof over my family’s heads and to start getting slightly less destroyed every April 15th.
Meanwhile, since of course I’m not “paying attention” to my home value at all :), it’s mid 2011 and my lender keeps sending me tons of junk mail egging me on to Refi my mortgage for cash!!!
So the stupid stuff has not stopped and there’s no shortage of rope out there.
“After renting for 6 years in OC, I wanted a roof over my family’s heads and to start getting slightly less destroyed every April 15th.”
Those are legitimate reasons to buy. Since you were not expecting double-digit appreciation and didn’t view your home purchase as an investment, you are calm and happy despite any short-term fluctuations in value. The key to home ownership success right now is managing expectations.
to start getting slightly less destroyed every April 15th.
2 things that are a tax on people who didn’t pay attention in H.S. match class: the state lottery and the federal home mortgage interest deduction.
I’ve actually heard people argue that you should never pay off your mortgage, because then you won’t get the interest deduction on your taxes! Talk about the tail wagging the dog!
The home mortgage interest deduction reduces your taxable income. It is NOT a credit (which directly reduces your tax burden 1:1). If someone is in the 25-28% tax brackets, then they get those percentages back on the home mortgage interest that they pay. Meaning, for every $100 you pay in mortgage interest, the gov’t gives you $25-28 back. Your total expenses are still $75-72 dollars higher than they would be without a mortgage!!!
If you are above the 28% tax bracket, then it gets even worse! People at those incomes are getting murdered by the AMT, so they likely don’t get any mortgage interest deduction at all. They’re paying their mortgage interest AND paying FULL taxes on the income that paid that interest.
If having taxes due on April 15th bothers you so much, just adjust your W-4 so that you pay more taxes through the year! Personally, I prefer not to give the gov’t any more interest-free loans than I have to, so I always underpay as much as possible and make up for it on tax day.
-Darth
correction: that’s math* class, not ‘match’ class…
-Darth
No kidding about the math. Pay off your mortgage asap and you will be in much better shape. The idea of giving the bank $1 in interest to get 30 cents from Unlce Sam is not quite the deal it’s cracked up to be.
I will only purchase my next home with a 15 year loan and hopefully pay it off in half that time.
Real estate is one of the few assets classes in which “regular people” can still leverage debt to build assets/wealth. Debt can work to your advantage since you can invest your money for example in rental apartments instead of paying down your initial loan faster (if you get a good price the rent should pay for the mortgage and othe rcosts and once they are paid off after 30 years you get the rental income, or you refinance at some time and buy even more apartments…). So a reasonable amount of leverage makes sense from my point of view if your goal is to grow your assets.
Or if your goal is to be underwater on a mortgage.
Leverage is a great thing if prices are going up. Not so great if prices tank. As we saw from the bubble, many people were overleveraged with multiple properties and lost big time.
Rentals are one thing. If it’s your own home, pay it off!
@Darth:
While I understand that you should pay your mortgage off as opposed to keeping it for the tax writeoff, I don’t think that’s what Mark was alluding to.
When we rented for a short period of time, our tax bill was much higher because we no longer had the mortgage deductions. And while it’s not a credit, for some people, reducing your taxable income could mean the difference between tax brackets and getting taxed at a lower rate which does result in reducing the taxes you have to pay.
At least that’s what the tax software tells me when I compare the scenarios with the same income but one has the owner deductions and the other doesn’t.
And this is just my opinion, but I would rather put the extra dollars into my loan/home than Uncle Sam.
Simple question:
Would you rather pay:
a) Rent + more taxes
b) Mortage + less taxes
… if those were the same total amount?
If those were the same amount?
Bwa-ha-ha-ha-ha!
Yeah, it is a simple question; for simpletons.
a) Rent + more taxes
b) Mortage + less taxes
… if those were the same total amount?
a) they aren’t
b) he wasn’t saying that they were
… if you weren’t such an RE shill?
-Darth
@Darth:
RE shill?
I’m amazed at how much people think they know about someone just by their comments on a blog.
And I never said your whole income is taxed at the higher percentage, I’m just saying your tax burden does get reduced by deductions even if they are not credits, and staying at a lower bracket also reduces your taxes. Do you pay more taxes when “bumped to a higher bracket”, yes or no?
Do you own or rent? Do you realize tax savings as an owner, yes or no? My previous simple question above is basically the premise of what rental parity is about and isn’t that one of the methods IrvineRenter uses to determine reasonable real estate pricing. Are you arguing against his premise now? Is he an RE shill or “simpleton” (as awgee points out)?
And yes, I let the professionals take care of the heavy lifting, but thanks for the advice.
IHO: “And while it’s not a credit, for some people, reducing your taxable income could mean the difference between tax brackets and getting taxed at a lower rate which does result in reducing the taxes you have to pay.”
You are certainly determined to display your gross lack of understanding about the tax code.
“bumped us up into a higher tax bracket” is a common complaint used by people that don’t understand the tax code. Your entire income doesn’t move together from one tax rate to the next. That’s why they call it a graduated income tax scale: different segments of your income are taxed at different rates.
Suppose that the cutoff for the 25% tax rate to the 28% tax rate was $100,000. (It’s not, but let’s stick to that ’cause it’s a nice round number for our demonstration.) If that were the case, and you had taxable income of $105,000, your entire taxable income would NOT be taxed at 28%. Only that last $5,000 would be taxed at 28%. Even single billionaires pay ZERO tax on the first ~$5,800 of income due to the standard deduction (not that any billionaires would actually select the standard deduction).
http://www.irs.gov/newsroom/article/0,,id=233465,00.html
http://www.bargaineering.com/articles/federal-income-irs-tax-brackets.html
I strongly recommend that you let a trained professional guide you on any future financial decisions based on the tax implications. You clearly have an inadequate understanding of the tax code to be making these decisions on your own.
-Darth
Anyone making good money (those $250K+ jet owners) gets murdered by AMT, which means mortgage + more taxes. People continually gloss over that topic, which leads me to believe most here have never seen a W2 that would subject them to AMT.
Actually… I believe AMT can kick in for people making less than $250k (but as pointed out, I’m not a tax expert). Where it was intended for high-income earners who were using shelters to avoid taxes, it has been reformed so that it can affect people with high enough income and common itemized deductions like mortgage deductions.
But I agree, AMT does get glossed over because it shouldn’t affect a median income family which I assume the majority is here (unless everyone earns $250k+ here). Although, at $250k+, you should be more worried about the UHC not the AMT (another topic for another blog).
Agreed. It’s “my home” so I’m going to forgo other things and pay off the mortgage ASAP.
But I’d also like to save for my kids’ college education, but 18% tuition increases across the UC-system puts a mushroom cloud over that well-intentioned happy party.
FWIW I’ve heard financial advisors in OC (PRUDENTIAL!) telling people not to pay off their mortgage so fast, but rather to shovel more and more savings into 529s and investments because of the massive run up (overvaluation) of undergraduate education prices right now.
I continue to save, but I’m not doing this.
I’m kind of hoping for a market correction on education prices. When it comes, may it occur faster, more thoroughly and decisively than this OC housing correction did!
Even with 18% increases UC is an incredible bargain. You should worry more about whether your kid will get in. It takes a 4.0 to get into just Cal St. these days.
If your kid can get in, then they’ll have the academic chops to also compete for merit scholarships at the UCs and non-Ivy/Stanford privates (Ivy/Stanford only give need based aid).
I agree.
For any parents who send their children to preschool/pre-primary daycare or private school, $1k per month (the approximate new yearly cost of a UC) isn’t a shock.
You should be glad if your kid only wants to go to a UC and not an Ivy.
IHO – got some resonant frequency going on tonight.
Up here we have some amazing private schools that don’t exist in OC. We are very fortunate to have that option. There is one in particular, The Harker School, that I can’t quite stomach the tuition for but is a pretty direct path to Stanford.
I’m in the same boat as you. Wanted a place that I could live long-term and no longer wanted to deal with renting from IAC. So I’ve bought also in Sept 2010 and have ignored zillow since then.
I thought that IR featured this story recently, but I couldn’t find it in the recent posts. So, here’s a good article on the bank’s delay tactics, and my apologies if it’s already been posted:
Foreclosure Roulette Revisited
The truth is that the larger the loan balance you have, the more upside down you are in the home, and the bigger the loss for the lender, the better your chances are of not being foreclosed on for a very long time.
http://www.foreclosuretruth.com/blog/sean/foreclosure-roulette-revisited/
-Darth
I had not seen that one. Thank you. I may use that next week.
Some of this stuff is just beyond belief. I don’t think I could have thought up most of this stuff if I tried. Fact truly is stranger than fiction!
-Darth
The comparison of home value appreciation to stock market gains is very bad statistics. There are several things wrong with it, but one of the most obvious is that the median CA home in 1980 is likely worth more today than the median CA home in 2011. Homes built 30 years ago were built closer to city centers and desirable areas, with shorter commutes. Those that weren’t are often in areas like Irvine that are more desired today in 2011 than they were in 1980. The statewide numbers include many places with hour plus commutes to areas that may have been hour plus commutes in 1980 but are no longer.
To get a fair comparison you’d need to calculate the gains exclusively on homes that actually existed in 1980.
There are other mathematical problems with calculating average gain by comparing medians to medians, but this one isn’t even comparing apples to apples.
spam removed
Hello spammer,
Actually, IR generally points out the DANGERS of “leverag[ing] property into a steady source of income”. Since you’re just a pathetic spammer, you didn’t catch onto that. Assuming that your window cleaning is as competent and thorough as your reading abilities, I’m sure that no one that reads your post above will hire you. Well done!
-Darth