Reply to s/o How far will prices drop in MoCO?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]We are in Bethesda and aren't seeing prices drop. MoCo is a big place - where are you looking?[/quote]

I've seen houses sitting for forever in areas like SS and R'ville.  Everyone talks a big game about how awesome home ownership is and how it'll lead you to a path towards wealth.  The one house I just got done looking at near King Farm has been sitting on the market for almost 365 days and is priced around $720k now down from $930k they were asking for originally.  Poor saps.  They bought at $825k back in 2008.  What a terrible investment.  Losing $100k over 11 years.  S and P 500 alone could have probably tripled your money over that time. Real estate in MoCo is no longer a guarantee for financial gains.[/quote]

They did fine.  In 11 years they would have sunk half a million dollars into rent.  [/quote]

They probably also sunk a half million into taxes, maintenance and interest and now lose $100k (ok, less than that since the purchase is leveraged) plus transaction costs.  [/quote]

Yes.  I think for these facts, the cost of renting would have been almost identical to the cost of buying.  Let's do the math.

Bought for $850,000 in 2008, which was the end of the bubble so admittedly a bad time to buy.  20% down ($170K down payment and $680K loan @4% interest).  Let's assume houshold income of $400,000 so around 35% margin tax bracket.  Let's assume $20,000 closing costs upon purchase.  
Interest of ~$260,000.  Deductible so net cost is $170,000.
Maintenance of 1.5% per year for 11 year. Total cost  $150,000 (should be a well-maintained home after this spend).  
Property taxes of $8k/year or $88,000 total.  Assume they pay AMT so not fully deductible.  We'll assume zero deduction.  
Sell house in 2019 for $750,000.  Let's assume $50,000 in closing costs upon sale (about 7% of sale price of $750,000).  There will be about 530,000 left on the mortgage, so our the seller should net about $170,000 on the sale.

So their total investment into the home would be $478,000, broken down into $170,000 down payment, $20,000 in closing costs upon purchase, $170,000 net interest, $150,000 maintenance, $88,000 in taxes and $50,000 in closing costs upon sale, with $170,000 in net proceeds from the sale of the house.

Let's assume $3,500/month rent for a similar house for 11 years.  Would have spent $462,000 on rent during this time.  So the rent/purchase value proposition would be pretty similar under these facts.  But this assumes a pretty steep loss.  Most people thankfully don't sell their houses for a 12% loss.  Real estate is a terrible way to get rich, but it's also difficult to lose a significant amount of money if you stay long enough.   [/quote]

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