Wednesday, November 7, 2007

Rolling Back the Clock?

Anyone who regularly reads the HBBs has seen the projections in terms of what the "right" price level is for the Sacramento housing market. In fact this was the subject of one of my first posts. (I've learned a lot since then.) Many studies have been done (see my favorite here).....but we all have our own idea. Some feel its as early as 1997, and others think it is 2004 (more or less where we are at now).

While this is a nice overall guideline, it doesn't provide much guidance on a personal level. If someone sees a home at $125 a square foot, it that a good deal? Hard to say...it really depends on the location and the condition of the home.

This is why I continually go back to my rent versus buy spreadsheet (which I have promised some of you...but haven't gotten around to sprucing up yet). This spreadsheet tells me, on a very specific level, if it makes sense to take on the monthly costs of ownership. This is not an investment approach, but a cash flow approach. It also helps answer questions like....How much less house can I afford if my monthly HOA is $150? Of course this assumes you know how much the rent is for a comparable home.

If you want an investment approach....the e-loan calculator is rather comprehensive, but some of their default assumptions need some serious revision....below are my suggestions:

Income Tax Rate: Way too high for most of us.....however they do have a guide: Not sure?
Annual Home Maintenance: This depends on age & condition of the house and should be adjusted since it can have a big impact.
Monthly Renter Insurance: I consider this a bit of a wash, since you have to pay homeowners (although I am basing this off my insurance rates from when I lived in D.C.)
Annual Rental Increases: Of course this depends on your personal situation, but I would say 1-2% for places here in Sacrament (if that)
Yearly Appreciation on the Home: Depends on your actual zip...but I would say zero over the next 7 years (7 years is their default time horizon)
Your Savings or Investment Rate: 5.5% (based on earlier comments)

Caveat: Their spreadsheet doesn't really include a separate section for HOA (add in the home maintenance section) and Mello-Roos (add in the properly tax section).

6 comments:

srcerer said...

One option for posting that spreadsheet is to use Google Documents.
Assuming you have a google account.
Which you do if you signed up for blogger.com after google bought them, or if you have a gmail address.

If you're logged into gmail you'll see a link called Documents in the top left.
You can upload a spreadsheet.
Then you can set it up to be shared.

You can even edit it online through your browser ;)

Buying Time said...

Thanks for the tip srcerer....will give it a whirl.

Patient Renter said...

Aside from gwyn's recommendation of the rent/buy calculator at CEPR, the one at eloan.com is pretty good, and is the basis for my rent/buy "spreadsheet".

Cmyst said...

You really have to compare apples to apples, too.
Age, neighborhood, ft2, etc. of rental home to bought home.
I'm not giving up living in EDH, with it's virtual zero crime rate, clean and safe shopping, and low traffic to buy a house in an area with less stellar statistics without a very significant drop in cost.

Buying Time said...

srcerer:

Unfortunately Google wouldn't let me post it under my pen name. But thanks for the tip...it might come in handy later.

Anonymous said...

Do you consider $/sf only on house size or lot size?

I think both are important when deciding whether or not to purchase. I am seeing some good deals on new homes with larger home sizes but built on such small lots that I can't decide how much privacy to give up in order to live in a larger home. There are so few new home subdivisions (if any) that are all built as single story (my preference) or on a lot with side yards wide enough that I don't have to hear every conversation my neighbor's have if we're both in the side facing rooms. Heh, maybe I should check to see if the "all" dual pane windows is really true in my current home which has a distance of at least 18 feet between house walls. We can't hear them in the master bedroom, but good God, if you're in the adjacent master bath you can't help but hear them (and they are a really nice family)! Sometimes it seems like we might as well buy a condo since there doesn't seem to be as much privacy as expected in a SFH as I thought we'd get. But, condo fees? Aiyee!

HOA fees in a gated community are similar (in my opinion only) to condo association fees. You can't depend on the cost today to remain constant or even rise in relation to inflation. I've read some NY/SF blogs on RE and am astonished at how quickly they can rise in the hands of some boards.

I'm not trolling, I swear. These are all questions that I struggle with and can't find the answers to by myself.

I guess we need to buy 10 acres in Montana and get used to being remote. : )