Come and get it--127 Central Avenue, Alameda, CA

Boring? Are you kidding me? You think $400K in your pocket is boring? This shows that your perspective is warped. This is the perfect 30 year example of why real estate in Alameda has been such a good investment.

In 1977 they put their $10K into this house as a down payment and you put your $10K in the stock market when the DOW was around 1000. Thirty years later you have $85,000. Thirty tears later, these folks own their house and even after subtracting for sales commission, upkeep and property tax, they have $400K in the bank when they sell.

But wait, there's more. You had to live somewhere for 30 years. So you paid rent on the house next door at an average of $800/month x 360 months = $288,000 down the drain.

These folks' mortgage at 9% for $40K, tax and insurance after their mortgage interest income tax deduction was about $400/month so they spent half of what you did for housing.

That means you ended up a $200K debt and they had a $250K profit after thirty years.

Boring!

Once again you're making a marginally valid but largely irrelevant point. What's boring is the house, not whatever money they get after they sell. Let me quote myself:

"The location is boring. The specs are boring. The property looks boring."

Where does it say "Their possible profit is boring"? You fail at basic reading comprehension.

Your math and logic are faulty. First off, it's hard to assume a $800 rent over 30 years--I'm pretty sure it was significantly less than that in the 1970s and early 1980s. Then, if you invested $10K in some safe vehicle that averaged 6% annual return and added $1,000 a year, you'd have $140,000 in the bank.

You also conveniently forgot to subtract the $80K-$100K out of pocket they had to pay towards their mortgage. If you're charging me rent, it's only fair I should charge you mortgage.

So I'm up $60K, and they're down well over $100K (what with insurance, property tax and maintenance), from your estimate.

Another element to keep in mind is that this house is only "worth" close to $500K because of the insane, sui generis, anomalous runup in prices in the early 2000s. If prices had gone up at historically normal rates, the property would be about $300,000. Poof goes your "profit."

Sure, prices DID go up like crazy in the past few years, and the owners have an opportunity to make money--but generalizing that one historical anomaly to your blanket conclusion that homeownership is a great investment is intellectually dishonest and illogical. By the same token, I do not advocate renting as the be-all and end-all of money management--if owning makes sense, own. If renting makes sense, rent. Buying real estate has not made sense in Alameda since 2002, and it still doesn't. Anyone who buys that boring crackerbox for anywhere near $500K is an idiot. This doesn't impugn the sellers' ability to make a pile of money--in fact it's completely orthogonal to it.

I DID subtract $150K for the mortgage payments- did you read all the way to the end? That's why their profit is $250K not $400K on the house sale.

Thirty years is a long term period to sample all the anomalies of both up and down market conditions -there were two significant downturns in that period.

My rent for a studio apartment in Alameda in 1978 was $190 so the house was around $400. it's certainly rentable for $1200 now so the $800 average is reasonable.

You introduced an additional savings account of $1000 per year that doesn't have anything to do with the comparrison of investing $10K in the stock market in 1977 vs purchasing this home.

I am sure that you are aware that since you have to live somewhere, then owning your home makes sense - that's what these figures prove and that's why you are shopping for a house. You are smart to look for a deal but don't forget that the train will leave the station again so don't forget to get on board.

"I am sure that you are aware that since you have to live somewhere, then owning your home makes sense- that's what these figures prove and that's why you are shopping for a house."

That's fallacious logic AND a faulty deduction based on a faulty premise.

Fallacious logic: You can't generalize ONE data point (this one) to "owning your home makes sense." You can say "owning your home for many years, given the right circumstances allowing one to buy low and sell high, and assuming one's life does not require one to move a lot, makes sense." Which is not particularly enlightening. I can point to over 200 properties on this blog alone that would "prove" the exact opposite of your point.

"That's why you're shopping for house": I am not shopping for a house, and when I resume shopping, that's now why I'll be shopping for a house. The financial aspect of owning a home, assuming it starts making sense again in the future, is a side benefit, not the primary reason for owning a home. The reasons I might want to own include the ability to do all sorts of things to the house or yard without having to answer to anyone other than my bank account, and not having to pay for housing once it's paid off (other than maintenance and taxes) so I can be without substantial income for extended periods of time without having to worry about my rent or mortgage payment.

That's a lot of faulty logic in your short career commenting on this blog, wouldn't you say?

Yes, let's say it again, these owners made a HALF MILLION more in 30 years than they would have if they invested their down payment in the stock market and rented the same house.

This is not an isolated case. If you hold on to your real estate investment in the Bay Area for at least ten years, you will come out ahead. Anyone who sells after only a few years is likely to lose - that's always been the case.

Sometime in the near future we will hit the bottom of this current downturn. Then prices will start moving up again like they always have. Do you think you can calculate the bottom of the market? I bet you can't. And then as we turn the corner and things begin to rebound, you'll be out there in a multiple offer situation competing with the crowd. Make an aggressive offer now and avoid the rush.

There's a huge difference betweeen:

"I am sure that you are aware that since you have to live somewhere, then owning your home makes sense - that's what these figures prove"

and:

"If you hold on to your real estate investment in the Bay Area for at least ten years, you will come out ahead."

The former is a blanket statement that's logically fallacious and provably false; the latter is most likely true, but substantially different from the claims you made previously.

"Do you think you can calculate the bottom of the market? I bet you can't."

Anybody with an internet connection and a couple of brain cells can, within a few percentage points. The real estate market, being illiquid, moves much more slowly than stock prices, and the inflection point when prices pick back up again will be very easy to spot.

"Make an aggressive offer now and avoid the rush."

I've made financially reasonable offers and subsequently been laughed out of houses whose owners or agents had to eat a $50,000-$150,000 price drop to sell months afterwards, when they didn't take their overpriced house off the market altogether.

Why are you so intent on getting people to buy houses? This is *not* a great time to buy, and real estate does *not* always go up, even over 10-year periods. Only if you have a 30-to-40-year horizon can you reliably say that real estate values go up, but even that statement is seriously tempered by inflation and the performance of investments in cash, the stock market and other vehicles, as is very well known and has been discussed at length here and on other blogs.

One more thing--the only way your "investment" is actually worth money is if you sell it. So those sellers might stand to make $250,000 or whatever, but they haven't yet. And as you point out yourself, you have to live somewhere, so they'll have to dump a big chunk of that "profit", if not all of it, into a down payment on another house with a large mortgage balance (you can't buy much of a house for $250,000 here), which they haven't had for years, if ever.

Of course they'll probably make a profit if they hold on to their new house and sell it in 2038, but by then they'll be too old to enjoy much of it and they'll blow it all on hip replacements anyway.

Sure, they could buy a cheap shack in Kentucky for $20,000 and live large on their remaining $230,000--although that doesn't really go very far, especially at their age, which I assume is over 50--but where's the quality of life? It's not much of a profit if $250,000 costs you the friends, home, shops, etc. you're used to and you have to move to a strange, cheap new place.

Alternatively, they can invest that profit and (gasp!) do the unthinkable--"throw away" $1,500 a month in rent (which is 50%-100% paid for by the interest they can earn on $250,000 invested in a combination of CDs and fairly safe non-cash investments, so their living expenses are essentially zero) for a nice condo with a pool and a rec center and a gym, and never have to worry about roofing, dry rot, plumbing repairs, or property taxes.

I fail to see how anyone can deny that the last option is the only sensible course to take these days.

Any owner or agent who laughs at any offer these days is foolish. If that happened then I can understand why you are a little sharp with some of your opinions of the sellers.

Hey, it looks like the Feds want to lower rates to stimulate the housing market.
http://www.usatoday.com/money/economy/housing/2008-12-03-mortgage-rate-lowered_N.htm

Maybe this was what you were waiting for.

No! PRICES need to come in line with incomes, not interest rates. You're better off with a high rate and lower price than the reverse, for a given monthly payment. The tax deduction is better (you mentioned tax advantages to owning yourself) and you can usually refi into a lower rate, especially if your principal is reasonable.
You're much more impatient for me to buy than I am. Incredible.

Prices need to come down in line with wages? They have already.
http://www.car.org/newsstand/newsreleases/Q3housingaffordability/

You are running out of things to complain about.

Prices have come down in line with wages
http://www.car.org/newsstand/newsreleases/Q3housingaffordability/

In California as a whole. Not in Alameda. All real estate is local, remember? Places like Lancaster have seen 45% price drops from the peak, so yes, they're affordable. If you look at Alameda County, which includes a LOT of highly distressed areas, the index is still in the 30s.

If quoting CAR figures is the best you can do to refute me on this blog, you might want to have your head examined.