Comments on: Mortgage Rates Dip to Low 5’s

By: Kary L. Krismer

Kary L. Krismer — Fri, 05 Dec 2008 20:07:54 +0000

To follow up on #34 above, I did my piece on rent vs. buy, which assumes a cash purchase of owner occupied homes.

http://blog.seattlepi.nwsource.com/realestate/archives/156248.asp

The numbers come out with a return of 3.4-3.5%, which assuming a 25% marginal tax rate would put the return at about 5%–tax free.

This is a much more realistic assumption than buying with a $50,000 gift, although neither is obviously something anyone can do.

By: b

Fri, 05 Dec 2008 18:43:26 +0000

Ardell -

Someone with $50k cash and buying a $230k townhouse is so atypical that you may be right, if they got that money from the sky and didn’t care about possibly losing it then they may be better off buying right now. BTW, that $50k in a 5% FDIC savings account would basically even out the equation again, they’d make about $200/mo in interest. Either way, if I had $50k in cash sitting around I probably wouldnt plow it into a cheap townhouse right now unless I had yet another bundle of cash sitting around for emergencies.

By: Kary L. Krismer

Kary L. Krismer — Fri, 05 Dec 2008 18:24:06 +0000

Ardell, re 37, $50,000 would certainly skew the numbers, but I was going to use an example where the owner uses their own funds.

By: Kary L. Krismer

Kary L. Krismer — Fri, 05 Dec 2008 18:20:46 +0000

Bili, on average prices are 20% off the peak. With the right seller you can easily get below market pricing. That could easily be the additional 10%. But you can do even better than that. The example I emailed to Ardell was 30% off the 2006 prices of a townhouse just a couple of units over.

By: Rhonda Porter

Rhonda Porter — Fri, 05 Dec 2008 17:29:24 +0000

Not to interupt this thread…I’m just popping in to say I have updated rates for this morning at http://budurl.com/ratesDec4am and I’ll be posting rates this afternoon–around lunch time–here at Rain City Guide.

By: cautious buyer

cautious buyer — Fri, 05 Dec 2008 17:27:22 +0000

Can you specify a neighborhood?

A $50,000 one time gift offer would skew the equation much more toward the buy side. I wish I had one of those.

By: ARDELL

ARDELL — Fri, 05 Dec 2008 17:00:56 +0000

Kary,

In my example the client has a one time gift offer of $50,000 at time of purchase. It’s a use it or lose it proposition. So using it works best in that case.

By: ARDELL

ARDELL — Fri, 05 Dec 2008 16:59:54 +0000

Because even at those prices, there aren’t enough selling to reflect in the stats. The best the market has to offer, as in the one you buy, will never be “the norm” reflected in “the stats”.

Sampai’s purchase was 30% under peak pricing. It’s not hypothetical. By the time the stats would say 30% under peak as a median, you wouldn’t want 30% under peak.

Stats are medians…median price is never best possible scenario.

By: biliruben

biliruben — Fri, 05 Dec 2008 16:50:08 +0000

Townhomes are down nearly 30% from peak?!? Why isn’t this reflected in any of the official stats?

By: Kary L. Krismer

Kary L. Krismer — Fri, 05 Dec 2008 16:37:06 +0000

I think the rent vs. buy argument is pretty compelling on the buy side for those with cash. Leverage is actually bad for that calculation. I was planning on doing a piece on that over in P-I Land shortly.