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More on Housing

I don't know the answers, but here are my thoughts. House prices now in major metro areas are where they were in 2003, so will they get cheaper? I don't know. In terms of house prices in major metro areas, prior to the announcement of the $8k tax credit, I would expect a 14% fall in 2009 and a 3% fall in 2010. Then 2011 to 2014 would move in a negative 2% to positive 2% range. But the tax credit will make the 2009 fall only like 10% and the 2010 fall more like 7% when it expires and people don't buy then. This is combined with a growing number of homes dumped on the market by those that can't wait for a housing bottom any longer. So, the tax credit doesn't help potentially buyers since it only spreads out and prolongs the house price fall. In a way it artifically pumps up prices from negative 14% to only negative 10%. One reason, among many, I think house prices will fall in 2010 is because interest rates will start rising in late 2009 and through 2010.

You are willing to pay $2,000 a month towards housing. Let's say with low interest rates now (say 5%), you can buy a house that costs $480k. [($480,000/12)*.05 = $2,000] Then in 2010 or 2011 when interest rates are higher (say 6%) and you go to sell it to someone else who can afford $2,000 per month like you (I don't expect much wage growth in the US for the next few years), well $2,000 a month would only pay for a $400,000 house [($400,000/12)*.06 = $2,000] at a higher interest rate. So if you need to sell the house, you would have to sell it a lower price because the potential buyer won't have the low interest rate you got. In summary, low interest rates are temporary and when they go back up, it will be harder to sell a house and your original price.

I would only even consider buying now if you see yourself staying in your home for 7 years or more. The transaction costs are high or mortgage and more importantly and the short and medium term house prices will fall, so keeping your money in a CD or bonds is safer. Rents are expected to fall in 2009 so, you have to consider lifestyle, kids, etc... Would you buy in your current city and then what if you decide to move across the street to a bigger place or across the city or the state? Okay, so let's say you see yourself in one specific home for 7 or more years, should you rent it or buy it? Find two similar homes, one for rent and one for purchase.

My thinking is that if the mortgage payment per month is less than the rent, then buy. If the rent is lower, then rent. Why? Well, when you buy you pay property tax and more insurance, but the mortgage interest deduction cancels that out. When you buy you have home owner association or condo fees or maintenance costs, but the principal payments in your mortgage cancel out with that. So, what is left is just comparing the rent vs purchase.

When you pay a mortgage, for the first twenty years most of it goes to interest payments, which like rent in that it is the right to live somewhere you don't own. A little bit of your mortgage payment goes towards paying principal, which is towards owning the house. After 7 years on a normal 30 yr fixed rate mortgage, you own 10.3% of the house and owe 89.7% of the borrowed amount to the bank. (google amortization for more details) As the average American spends between 1% and 2% of the value of the home on regular maintenance per year (i.e. buying a new boiler, mowing the lawn, new frig, new roof, but this doesn't count building an extension or swimming pool), then after 7 years you have paid 7% to 14% of the value of the home in maintenance. So, the principal payments roughly cancels out with that. You own a 10.3% of the house, but it has cost you around that amount just to keep up the home to the level would have been included in your rental cost.

Example:
Rent = right to live there with maintenance provided = 2000
Mortgage = right to live there + the maintenance cost + equity gained = 2000 + 400 - 400 = 2000

You have to think about mobility. If you buy a home and house prices fall and then you want to move for whatever reason, for a job or for a marriage or kids or race riots or whatever you can't! You are stuck! That is a real danger of buying in this environment. Since when house prices do go positive, say in 2011, I expect to growth to be in the very very low single digits, so missing the bottom in house prices won't be a problem, since they will float at the bottom for a while.

Also consider how house price falls are different from stock market falls. Say you have $20,000 in savings. If you buy a $400k house with 5% down, so you use your $20k in savings and then house prices fall to 10%, so your house is only worth $360,000 then you have lost all your savings and you also are under water (aka negative equity) another $20k. But if you put it in the stock market and the stock market falls 50%, you still have $10k in savings and no debt.

In conclusion, to be an informed consumer you must weigh all these factors. At least that is my opinion.

Oily food makes me sick

So, I have noticed that oily food is making me sick. Sometimes I am full, but then I crave oily food, then I eat the food, and then I feel sick. So now, when I see oily food, especially when I am full, it disgusts me. That is all i have to say. I don't like feeling bloated or oily...

Outline of interests

I find I am quite interested in the following topics

I. Sustainable Living
A. Housing Location
--1. Transportation/Commuting
---- a. Cycling
---- b. Walking
---- c. Running
---- d. Bus
---- e. Train
---- f. Multiple Passenger vehicle
-------- i. car pool
-------- ii. slugging
-------- iii. Car sharing (i.e. Zip Car)
--- g. Single Passenger vehicle

2. Diversity/Homogeneity
----a. Schools
----b. Athletics
----c. Arts



B. Housing Tenure Choice (i.e. Rent or Borrow)
--1. Financial considerations
--2. Labor Mobility considerations
--3. Foreclosure/negative externality considerations


C. Consumption
-- 1. A TV-free home
-- 2. A low materialistic life style

Politics
A. Marriage Rights
B. National Sovereignty
--1. Example: The Gun - Drugs trade between the US and Mexico
----a. Should Mexico bomb US assault weapon factories in the US?
----b. Should USA bomb cocaine "refining" factories in Mexico?

Pirates

Some ships off the coast of Somalia commit crimes. Some illegally dump toxic waste. Some illegally poach for fish. Some illegally travel without paying transit fees. Some dump nuclear waste. These criminals should be arrested and brought to justice. Somalis arresting these criminals for these crimes I believe is appropriate and I believe the US government should support bring the rule of law to this environment, as it will make our ships safer.

However, if the US and other nations do not support a stronger law enforcement approach in this area, then the current solution to fighting crime off the Somali coasts with Somalis arresting Western ships indiscriminately will continue, as it happened to the Maersk Alabama last week. If the Somalis do not have the capabilities to target these criminals, then we are complicit in these inappropriate arrests, which are no more than kidnapping and the arresters are no more than pirates, as the media has correctly labeled them.

http://www.timesonline.co.uk/tol/news/world/article418665.ece
http://www.chicagotribune.com/news/chi-somalia-pirates_salopek1oct10,0,6155016.story

5 Question History Quiz

Trying your history skills without looking any of this up?
The history quiz is based on things I learned listening to NPR this week.

1) When did Newfoundland become a Canadian province?
a) 1789
b) 1849
c) 1889
d) 1949

2) In the Middle East, when were Bronze tools first used?
a) 20000 years ago
b) 16000 years ago
c) 12000 years ago
d) 8000 years ago

3) Which of the following areas was not involved in the Spanish-American war?
a) Guam
b) Panama
c) The Philippines
d) Cuba

4) Prime Minister Mohammed Mosaddeq was ousted by the CIA's Operation Ajax in what country?
a) Tunisia
b) Malaysia
c) Iran
d) Libya

5) Personal savings rate in 1975 and 2007 in the US was
a) 10.6% and 0.6%, respectively
b) 16.6% and 6.6%, respectively
c) 20.1% and 10.1%, respectively
d) 5.1% and 0.1%, respectively

Ilene and I in the press

In the Jewish Tuscon

In the New York Blueprint

On JRetro