Monday, July 29, 2013

Market Has Peaked!

The summer of 2013 is here and like clockwork, it has peaked again exactly like it did  6 years ago. On the Westside in 2007, it happened almost overnight during the last week of July. If escrows weren't closed immediately they began blowing up. Perception of the market can change that fast, and as soon as the urgency to buy is gone, the market will react. Inventory starts to climb, bidding wars begin to subside, more properties come "back on the market", Wall Street is in full exit mode, loans begin opening up to marginal buyers, building starts come to a screeching halt, mortgage applications dry up and all of a sudden, greed is replaced by fear. Sound familiar? It should, all of the signs are here. Those jumping into the market now, better plan on staying at least for 10 years, have stable jobs, not be concerned with rising interest rates and love their new  neighborhood. Unfortunately that is not the norm for most. Putting your money into housing right now has much more downside risk than upside. Renting and putting your capital elsewhere is probably a better idea.
Obviously, I do not have a crystal ball and every one's situation is different, but I will go on the record saying that housing will flatten or decline from today forward over the next couple years. Looking at all the factors including lost opportunity cost, your housing investment dollars will be better spent in other segments of the financial arena.
For example, I believe investing in precious metals such as silver over the next 2 years, opposed to buying a home today. Here is a home picked at random that just closed escrow in West LA at 2108 Balsam Avenue on July 23, 2013 for $930,000. Click the link for all the details. Let's see how the numbers pencil out on buying versus renting this home.


PURCHASE
Down Payment : $200,000

Monthly Nut:
Principal & Interest :$3,869
Property Taxes : $969
Insurance : $167
Maintenance $2,325
Income Tax Savings -$1,119

Total = $6,211 x 12(months) = $74,532(year) x 2 = $149,064
(not including closing costs)


RENTAL
Silver Investment: $200,000
(9,478 ounces x $21.10)

Monthly Nut:
Rent : $3,500
Insurance $50

Total = $3,550 x 12(months) = $42,600(year) x 2 = $85,200

2 year savings in living expenses
$149,064 - $85,200 = $63,864


So, that's almost  $64,000 saved in 2 years of housing payments, but the big wild card is what your $200,000 will do over the next 2 years. Will your equity position in your home be better than if you invested your money somewhere else? I guess time will tell.



11 comments:

Anonymous said...

$2300 per month for maintenance? Based on what exactly?

Anonymous said...

wouldn't it be 3550*12*2, for a total of $85,200?

Latesummer2009s@gmail.com said...

Maintenance fees are generally calculated at 3% of the purchase price per year. Not to mention what people buy in regards to remodeling expenses, furniture, etc., when buying a house.

Latesummer2009s@gmail.com said...

Anon 5:56 You are right, the correction has been made. Thanks!

Anonymous said...

Latesummer2009s@gmail.com said...
Maintenance fees are generally calculated at 3% of the purchase price per year.

Respectfully, that generalization doesnt work in areas with large land costs (such as the westside).

For example, my 1200 square foot home, located on 1/20th acre costs 700,000

Yet, this identical 1200 sf home in my hometown of Wetumpka, Al would cost about 170,000

Yet in each case, the cost of my Carrier HVAC is (roughly).

Pella windows are (roughly) the same.

Cost of asphalt singles is (roughly) the same.

You get the idea...

Now granted, labor costs are much higher here than they are in Wetumpka, but they are not 1/4th to explain the difference in cost.

Thus, the main difference is the land. 1/20th of an acre here would be worth 450K, while that same 1/20th in prime Wetumpka would be about 10K.

In either case, the cost to "maintain" the land is essentially $0. Thus, it is improper to use that 3% maintenance mark in areas like the westisde where so much of the value is in the land.

Latesummer2009s@gmail.com said...

Silver Spot price is up 18% since this original post.....

Latesummer2009s@gmail.com said...

Silver Buy Price is up to $25.60 from $21.10 or 21.3% in less than 4 weeks since this post was written. Can you say Breakout!

Latesummer2009s@gmail.com said...

Silver Buy price after 1 month is $25.05. That's an 18.72% gain in the first month.

18.72% x 12 = 224.64% Annually.

Throw in the printing presses are still going full bore, and now the probability of war in Syria, silver more than likely continues to increase.

Chelsey said...

Awesome!

Anonymous said...

Speaking of "how things will do in two years", here is what I said exactly 2 years ago:


speaking of Case Shiller, here are a few facts:

LA once hit a value of 159. This was in May 2009.

It is now 26 months later. 26 months of your life, as well as (what another 50K in rent??) down the toilet.

Today, LA has a value of over 170.

You could have bought at 159. You didnt. Now, values are at 170. Sorry you missed it....


http://westsideremeltdown.blogspot.com/2011/09/25-off-prices-where-do-we-go-from-here.html?showComment=1317180403698#c8712687937933391793

Another 2 years later, and Case Shiller LA has gone from 170 to 202

http://us.spindices.com/indices/real-estate/sp-case-shiller-ca-los-angeles-home-price-index

Personally, I don't think this 202 will last. Likely it will drop back into the 180-190 range. Still, since all I care about is the bottom, I will say it again, updated for today:


LA once hit a value of 159. This was in May 2009.

It is now 50 months later. 50 months of your life, as well as (what another 100K in rent??) down the toilet.

Today, LA has a value of over 202.

You could have bought at 159. You didnt. Now, values are at 202. Sorry you missed it....

TheeLynnChase said...

And silver is below 20.00 today Nov. 29, 2013. The problem is EVERYTHING is manipulated so investing in anything today is like going to a rigged casino. You now have better odds with legit gambling as opposed to just handing money over to thieves on Wall Street. Or buying a house based on manipulated inventory, programs only for institutional investors, and manipulated monetary policies by the Fed. All commodity and equity markets are rigged.