tag:blogger.com,1999:blog-11719208.post112235334469019758..comments2023-11-05T04:36:14.223-08:00Comments on The Mess That Greenspan Made: Money Magazine on "Cashing Out"Timhttp://www.blogger.com/profile/16530974968126497397noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-11719208.post-1122476167320155022005-07-27T07:56:00.000-07:002005-07-27T07:56:00.000-07:00I didn't know this table existed, but I think it c...I didn't know this <A HREF="http://www.laalmanac.com/economy/ec37.htm" REL="nofollow">table</A> existed, but I think it clarifies this discussion. While there are certainly exceptions to the rule, it is fair to say that Southern California home prices have about tripled since 1995, and from 1990 (the previous peak) to 1995 there was a noticeable decline.Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1122475230118780042005-07-27T07:40:00.000-07:002005-07-27T07:40:00.000-07:00>>What's ironic is that the example uses a time pe...<I>>>What's ironic is that the example uses a time period of 15 years, which puts the purchase back in 1990 - the peak of the last real estate boom in many parts of the country. Also, a purchase price of $125K and a sale price of $800K is well beyond even the California craziness, which I think generally has prices about tripling since 1995. You'd have to go back 20 years or more to find something that then sold for $125K, but which today sells for $800K.</I><BR/><BR/>I think the example is realistic, albeit not "typical" (whatever that means).<BR/><BR/>We bought our house in So Cal in June of 1989 for 242 and spent about 350 to rebuild it into something habitable. It is now worth somewhere north of 1.4, at least if you believe the LA Times.<BR/><BR/>You can do the math.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1122426676179344652005-07-26T18:11:00.000-07:002005-07-26T18:11:00.000-07:00My understanding is that the going rate is 5%, but...My understanding is that the going rate is 5%, but all you have to do is threaten to use a discount broker and you can get 4%. If you use a discount broker it's a flat fee ($4000?) for the seller's agent, then your choice about what to pay the buyer's agent (2.5% typical?). Add it up and it can be much less than 6%.<BR/><BR/>Taxes are the bigger issue - a married couple can take $500K tax free. The case they cited was for a single guy with a gain of $675K. Even in California, I'd bet that married couples with gains of less than $500K are much more the norm than singles with gains as large as the one used in the example.<BR/><BR/>What's ironic is that the example uses a time period of 15 years, which puts the purchase back in 1990 - the peak of the last real estate boom in many parts of the country. Also, a purchase price of $125K and a sale price of $800K is well beyond even the California craziness, which I think generally has prices about tripling since 1995. You'd have to go back 20 years or more to find something that then sold for $125K, but which today sells for $800K.Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1122406280919313622005-07-26T12:31:00.000-07:002005-07-26T12:31:00.000-07:00>>I was thinking of doing another version of this ...<I>>>I was thinking of doing another version of this table using more realistic assumptions to see what a more realistic break even number would be.</I><BR/><BR/>I'd be curious to see what your idea of "realistic" is. Since I haven't bought or sold in years, I have no idea what realtors' normal commissions are any more, but 6% used to be the standard, going rate, and your claim that, in "most" (50% + 1?) cases, people will not pay capital gains taxes suggests you are not thinking of California. In addition, please be sure to factor in the cost of renting a replacement (which varies from market to market) and the opportunity cost of home ownership (something which *no one* talks about much, especially the RE bulls).<BR/><BR/>My personal view is in line with the Money article: Even though cashing out sounds superficially appealing, by the time you add up all the costs and assess what the market has to do in order for you to come out ahead, it's not worth it. <BR/><BR/>I realize that means I stand to lose a lot of money, but, hey, what can I say? Asset prices go up, and asset prices go down, as anyone who bought Yahoo in the '90's can attest. Being a "housing millionaire" was fun while it lasted.<BR/><BR/>As an aside, there is a very interesting article in today's WSJ regarding the continuing relaxation of mortgage and HELOC lending standards by banks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1122387119911015062005-07-26T07:11:00.000-07:002005-07-26T07:11:00.000-07:00There is another article here where specific detai...There is another article <A HREF="http://money.cnn.com/2005/07/22/pf/cash_out_0508/" REL="nofollow">here</A> where specific details for one "cash out" example are provided (including taxes). Not surprisingly, certain assumptions were made to make the selling expenses come out very high - whoever's paying 6% for Realtor's commission is a fool, and in most cases there will be no capital gains taxes.<BR/><BR/>I was thinking of doing another version of this table using more realistic assumptions to see what a more realistic break even number would be.Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1122386154795312262005-07-26T06:55:00.000-07:002005-07-26T06:55:00.000-07:00Your summary leaves out the article's admittedly s...Your summary leaves out the article's admittedly superficial discussion of taxes and commissions:<BR/><BR/>"Unlike stocks, which are cheap to trade, there are high costs involved with buying and selling houses. You have to deduct real estate commissions, attorney's fees, moving expenses, rent, closing fees, and other expenses before you can even start to make money. <BR/><BR/>"The market would have to drop a good 10 percent for you just to break even. <BR/><BR/>"That's not even taking into consideration the tax implications. As housing prices have soared to seven figures and more in many housing markets, it has pushed more homeowners up into the price levels where they would have to pay capital gains taxes when they sell. <BR/><BR/>"The first $500,000 of profits ($250,000 for a single person) are exempt from this tax if they've lived in the house for at least two out of the last five years. Most others will pay 15 percent on any profits above that."Anonymousnoreply@blogger.com