Housing Market Bubble: No Way Out?

[Mark Leavy]

And to continue that thought...

You have the same issue when trying to select a place to own property. A lot can change in 20 years. Imagine if you had bought a house in Portland.

You sell it and move.
I think you guys are rationalizing something deeper.

That plan worked

[Mark Leavy]

And to continue that thought...

You have the same issue when trying to select a place to own property. A lot can change in 20 years. Imagine if you had bought a house in Portland.

Imagine I bought a house in Portland for $80k, twenty years ago and it was worth $1.2M now. Okay, you got me excited.

$270K and $750K

[glennds]

And to continue that thought...

You have the same issue when trying to select a place to own property. A lot can change in 20 years. Imagine if you had bought a house in Portland.

Imagine I bought a house in Portland for $80k, twenty years ago and it was worth $1.2M now. Okay, you got me excited.

$270K and $750K

Tempted to do a little rough math on the $270k to $750k scenario.

Assuming 5% selling costs and say $5k/year for property taxes, repairs, insurance, renovations and maintenance that would not required if renting, I come up with an annualized return of about 4.5% if the house was purchased all cash.
If the house were financed, the return would drop considerably to reflect mortgage interest net of tax deduction. It would depend on LTV and rate, but a net 3% annualized return (nominal) would not surprise me.

In comparison the S&P 500, dividends reinvested, returned nominal 7% CAGR for the same period, so more than double, if the investor had the stomach to stay the course.

The $80k and $1.2M home example would probably be closer to 9-12%, so yes, exciting.

PP, annually rebalanced would be about 6.5% (real return 4.8%), relatively low volatility and basically zero time. Maybe the best of all worlds? Maybe the reason many of us are here?

[SomeDude]

And to continue that thought...

You have the same issue when trying to select a place to own property. A lot can change in 20 years. Imagine if you had bought a house in Portland.

Imagine I bought a house in Portland for $80k, twenty years ago and it was worth $1.2M now. Okay, you got me excited.

$270K and $750K

Tempted to do a little rough math on the $270k to $750k scenario.

Assuming 5% selling costs and say $5k/year for property taxes, repairs, insurance, renovations and maintenance that would not required if renting, I come up with an annualized return of about 4.5% if the house was purchased all cash.
If the house were financed, the return would drop considerably to reflect mortgage interest net of tax deduction. It would depend on LTV and rate, but a net 3% annualized return (nominal) would not surprise me.

In comparison the S&P 500, dividends reinvested, returned nominal 7% CAGR for the same period, so more than double, if the investor had the stomach to stay the course.

The $80k and $1.2M home example would probably be closer to 9-12%, so yes, exciting.

PP, annually rebalanced would be about 6.5% (real return 4.8%), relatively low volatility and basically zero time. Maybe the best of all worlds? Maybe the reason many of us are here?

That's actually not correct, in fact, it's the opposite. If you finance, you put down 20% (or less if lucky) and the CAGR is multiplied because the purchase price is irrelevant. Only the amount invested (down payment) and the profit over time when you sell.

What about the mortgage payments and all the other costs lol

[SomeDude]

What about the mortgage payments and all the other costs lol

Presumably, you would otherwise be paying rent, which has 'the other costs' built in. You can't live free anywhere.

Good point! I miss mom and dad.

[SomeDude]

What about the mortgage payments and all the other costs lol

Presumably, you would otherwise be paying rent, which has 'the other costs' built in. You can't live free anywhere.

Good point! I miss mom and dad.

Forgot about the parents' basement. I stand corrected; you can live for free.

Live free or die hard!