Housing Softening: MPLS Leads the Way in Price Cuts. (Minneapolis: wood floors, for sale)

[nick is rulz]

Pointing out the cost of a house 30+ years ago as an example of appreciation is kind of ridiculous considering it doesnt take into account inflation or anything else. Its like saying milk was 10 cents a gallon, but overlooking that people made $20 a week.

[west336]

1. Name another type of investment that is tangible and you use (or depreciate) that appreciates in value over time.

2. Does this formula make you two feel better: $400,000*[1+(5%-3%)]^30 = $724,544. This accounts for adjustments for inflation (3%).

It's still better than the initial investment and it's a large asset to own when you're older and want to retire. Those little extra savings add up over time.

[west336]

People don't buy homes for one reason (if they are intelligent): they can't afford to make the mortgage payments. That's it. That's all there is to it, and it's not more complicated than that. If you can afford a $1,500/mo. home payment and you have a choice to rent or own, you'll earn principal on an appreciating home or you'll pay rent and reinvest that money elsewhere. The difference with rent is that you pay a premium to the landlord so they can run their business and make a living, that premium should be considered deducted from the difference in rent and a mortgage and the money you invest elsewhere is reduced by that amount. Plus, name an investment vehicle that you are confident can earn over 5% annually over 30 years.

[nick is rulz]

Or they dont want to throw away money on interest, tax, insurance, and upkeep

[west336]

You pay all of those things in rent, you know...

[MN-Born-n-Raised]

Originally Posted by west336

Plus, name an investment vehicle that you are confident can earn over 5% annually over 30 years.

I have a home in Andover. It’s a 4000 sq ft w/o rambler (2K up and 2K down) kept up and done right. Travertine and wood floors, open floor plan w/ 10 foot ceilings, stucco and brick exterior, granite tops in 2005, 3 car oversized garage, sprinklers, home theater, wet bar multizone audio, cameras, on 2 wooded acres in a nice neighborhood. I have a in-ground pool that I paid $50K in 2003. I have kept up on it top to bottom with new landscaping (2005), stamped concrete patio, new floors (2007-2009), oversized cedar deck, etc. What’s it worth????? $365K and it peaked at about $500K. It’s as clean as can be and it feels a lot newer than 1991.

Now. I bought the land for $19K. The lots go for about $85K now for 2 acres and peaked at about $110K-$120K.

I paid $160K with the lot in 1991 and put in $40K in the lower level (doing it myself) as well as about another $40K in upgrades (cameras, sprinklers, curb pavers, boulder walls etc). So I have $240K into it in 1991 $$’s (and $70K in re-done updates).


So what was that math again??? $240K*1.05^19 or $607K. hum…… I fell short a bit. I didn’t add in the $50K pool to the total.. I'm not so confident about that 5%.

You didn't answer west366. Why does nearly every other purchase go down over time while housing goes up??

[west336]

I don't know.....because you reinvest in housing? Is that your stupid little riddle?

[west336]

You do understand that 5% is a rough estimate for how the average home appreciates, don't you? It's not a number I just pulled out of my a$$. And what is your point exactly -- that it's better to rent?

[trackstar13]

This is my first post and I have felt compelled to reply to MN Born and Raised because I think you putting some false information out there about the real estate market and the basic concepts of real estate. You apparently live in Andover, which is approximately 25-30 miles from the Twin Cities depending on your location and if you are commuting to Minneapolis or St. Paul. So in essence, you live in an exurb of the Twin Cities and based on all of the information I have seen these areas have suffered the most in this real estate "collapse." I put collapse in quotes because I am not sure the Twin Cities have really suffered a real estate collapse. Many areas of the country, i.e Florida, California, etc. have experienced a collapse, but not the Twin Cities. Decreasing values due to market conditions are a little different than a total collapse. My advice to potential homebuyers is to consider that every area is different and suburbs are different than cities and certain parts of the city are different than others.

For example, my wife and I have some friends that purchased a townhouse in Eden Prairie for $210,000 in 2005 and they recently had a child and hoped to sell to upgrade to a house and have more space. They contacted an agent and after a CMA, the agent mentioned they should list the property for $90,000 since the most recent comparable sale she could find was an end unit (they have a middle unit) with the same floor plan sold for $105,000. Well needless to say they decided not to sell since they still have $140,000 on the mortgage. Now here is another example to show how different things can be in the real estate market. A coworker of mine purchased a house in the Mac-Groveland neighborhood of St. Paul in April of 2008 (the peak of the "collapse") and since she secured a job in Rhode Island she recently sold this summer (June). Well she paid $280,000 for the house and after a paint job inside and out and re-finishing the hardwood floors she sold for $370,000. She was very worried about selling her house since she had an FHA mortgage and only put 3.5% down, but her worries were for not since she now has close to 20% down for her new condo in Providence. So my point is simple even in this terrible economy and supposed real estate collapse every area is different and making broad generalizations is not very wise.

With all that being said, I don't want to say that all exurbs or suburbs are experiencing more real estate trouble than the cities, but the nature of suburban of exurban areas sometimes makes it tougher to sell since you are often competing against new construction. On a final note, a swimming pool has been well documented as the worst investment for a potential seller so I am glad you did not include that in the total. There will be no quick fix for the real estate market, but certain areas will recover faster and buying a house right now for the right price is not a bad investment.

[MN-Born-n-Raised]

Originally Posted by west336

I don't know.....because you reinvest in housing? Is that your stupid little riddle?

It's not a riddle. I wanted to see what your guess was. It wasn't meant to be taken personal.

The answer has a lot to do with the value of the land. Note: that my land value went up a lot while the home portion of it went up just a little (land from $19K to $85K today; home portion ). If I didn't update it would have depreciated like every other item that I bought.

So the reason why home values have done much better in Eden Prairie and Edina is because there is no more ideal land to build on. Given the option, most people will prefer new over used unless there is a massive price difference like could be the case today with short sales.

So your 5% model is flawed in areas with a lot of land remaining. That's why their is teardowns in lake MTKA (the land is the biggest value). If a home is newer or completely remodeled, then it's value is a lot close to new. Of course all kinds of variables play into this like school districts, commute times, infrastructure etc.

So there is a lesson in all of this. I could have bought some land in Plymouth in 1990 by the McDonalds on 55. A lot in a culdesac was $42K. For just a little more, I would be $150K higher in value. But still short of the 5% 'return". In general, used homes never keep up with inflation but the land usually does.

The day that Andover is full and houses stretch out to East Bethel I'll be in good shape. I'll be long gone by then.