June 22, 2006

Renters and Bubble Sitters - are these now the happiest days of your lives?



Ya gotta admit, many of us who cashed out a year ago, or who rented through the bubble, were seen as village idiots not too long ago.

Oh, how fast things changed.

Happiness though is elusive. Perhaps relief is the best word?

70 comments:

The Thinker said...

I for one can take no relief in not having bought a home. Home prices are still sky-high here in the New York metro area. The house I was interested in last summer at an asking price of $750,000 is now at an asking price of $689,000. That is only an 8% reduction and it is still way too expensive. I estimate its fair value to be around $400,000 judging from the fact that it last sold in the year 2000 for slightly over $300,000. But even $400,000 may be too much for this small 2br cape cod in a fancy Connecticut suburb.

But the sellers, like all sellers these days, still has dollar signs in their eyes and 18 months without a sale has apparently failed to convince the sellers that they may have unrealistic expectations.

I don't know whether prices are plummeting where you are, but here, sellers are sticking to their guns and property just isn’t moving.

Here in the suburbs of NYC renting a nice 2-br apt will run you at least $2,000 a month so bubble sitting isn’t as easy as in some parts of the country.

Bottom line is owners are screwed and renters are screwed. Are the owners more screwed than the renters? Sure, but the fact that they are screwed more doesn’t make me feel any better about being screwed myself. Should it?

foxwoodlief said...

I agree with "the thinker" as renting isn't always a viable option. We sold our house in the spring of 2005, just as the Phoenix real estate market exploded. We rented and can't say that we would have come out ahead if we hadn't bought a new home in Austin and waited a year for it to be built while we rented. Our tax burden for 2005 sucked since we didn't have all the deductions for interest etc and then we rented a small (1/2 the size of our house) Condo in Central Phoenix for the same money as our mortgage. So we spent $15,000 in rent plus several thousand more in higher taxes. We'd have been better off keeping our house and after our home in Austin was finished, renting the house out since we could have rented it for our mortgage since we paid 1/2 of what that home is currently selling for (after a drop of about $50,000 since the peak but I doubt the buyer will see the value drop below what she paid to us since she bought just before the bubble inflated).

Here in Austin rents are high! A dump can go for .70c a sq ft and for a luxery place up to $1.50 or more. Our friends bought a rental home in Lakeway (they still live in Phoenix) and rent it for $2100 a month for 2500 sq ft which is $800 more than their mortgage on that house.

The house we bought has gone up significantly since we bought as we bought almost a year and a half ago before Austin prices started moving back up after their dot.com meltdown in real estate in 2000. The homes all around us are going for $150,000 minimum more than our house just due to the higher cost of building (concrete, stone, excavation of the hillside etc).

And for the NY renter, my mortgage is 2/3 the cost of renting a 2 bedroom apartment and the home is custom, rock and brick on four sides, 3400 sq ft, 1/2 acre hillside lot with views, granite, tile, rosewood staircase and rod iron work etc. Decked out with every upgrade and I could easily rent it for $1000 a month more than I pay and that would be a discounted rate as the other rentals in the area are getting upwards of $3500 a month or $2000 more than I pay for a mortgage.

All I want is a place to LIVE that isn't going to break the bank, is in a good neighborhood, quality construction, descent amenities, and not a long commute (by the way I'm less than five minutes from work and for those who have to work downtown, downtown Austin is 9 miles).

Anonymous said...

My business is in the toilet.
I cant deal with a big mortgage right now.

Anonymous said...

renting sucks & rents are going up

Anonymous said...

Thinker.

It is better to be screwed with options and a exit than be screwed with a ball and chain contract with no takers. The only one that can screw you know is yourself. Feel free to exercise your freedom, many do not have that luxury.

Anonymous said...

I like renting. Havent mowed a lawn, cleaned a pool, fixed a leaky pipe, hassled an insurance claim, sweated my mortgage, shreeked at at natural disaster, or worried about my neighbors in quite a while.
I may move, just because I can.

Anonymous said...

As a homeowner, yes it sucks that my house (Eastern MA) is probably less now than it was when I bought it in Sept' 05, but I sold my 5 room house at the peak and ended up in an 8 room house that appraised at 15-20k more than I bought it for (yes I know appraisals can be juiced, but never any discussion of HELOC's or exotic loans).

I can afford the payments (80/10/10, 5.625 1st, 8% second w/ a 15yr balloon payment, all fixed), plan to stay for at least the next 5 years or so, have tenure at my job, and am happy, so I'm happy with my home (notice it's not an "investment", it's a home). Just glad my wife insisted that we sell last summer!

Anonymous said...

I left my 9-to-5 job in 1989 to sell RE (land, only) full time, so I caught the very tail end of that boom to bust cycle. Had to give my new house away to get out from under it - and was glad to since it was in one of those trashy high desert boom towns of So Cal. Learned a hard lesson then, so all these years I've avoided buying RE like the plague.

Sure I miss having a place of my own, but I certainly don't miss all the bills associated with home ownership. And if the neighborhood goes to pot, I can move.

I now rent a small place in one the best neighborhoods on the Westside of L.A. where I could never afford to buy - well, not until 2010-2015 by which time prices should return to a reasonable level.

austingal said...

Now we sold in albuquerque, and consider renting in austin to be cheap. I think the problem may be, the previous poster bought at the top in austin. You can only deduct mortgage interest if you're paying a lot. Our standard deduction was more than if we itemized, because we had a small mortgage, with a low interest rate. It was not advantageous to keep our house. That is a myth that is perpetuated by the real estate industry. That buying a bigger house, or owning more property, is the way to go, to get the deduction. You still are screwed, if you owe a lot of money.
Be glad you sold the house in phoenix. Renters there are similar to albuquerque, and you could have had your whole house stripped down to the studs, when your renters skipped out on the rent. I know someone who this actually happened to. She then couldn't pay her the payments on two properties. She couldn't rent a trashed house. She ended up declaring bankruptcy.

Anonymous said...

We're renting and not too thrilled about it. We can afford a house now, but don't want to buy until prices are more reasonable. If the market is falling then waiting is probably our best option. I really don't want to pay realtor commission either, so am looking at FSBO more.

panicearly said...

i can`t imagine that people are still saying they wished they had bought etc.
why on earth would you want to be in
huge debt at this point in time. sure a home is nice to come home to, but thats just an illusion when its debt that you are living under.
for me home is where you hang your hat, be it under a tree, a rental or a mcmansion where you take care of your family. "owning"it vs renting it does not make it a home,
i for one am relieved having avoided a train wreck.

Anonymous said...

Happiest days? Hell no. I'm renting. No deductions, no solidity. If I could buy at 2004 prices in Phoenix, I'd buy.

Late 2004: I had a contract on a property for $193k. That was 30% higher than any house had ever sold in that neighborhood. I backed out due to the hyper-emotionalism in the market. I couldn't bring myself to pay 30% over any reasonable comp.

Today similar houses are selling for $340k.

No I'm not happy. And not because I "missed out" on the gain. Because of this insanity and the knowledge that it's unsustainable and will affect every one of our lives.

Anonymous said...

foxwoodlief "We'd have been better off keeping our house and after our home in Austin was finished, renting the house out since we could have rented it for our mortgage since we paid 1/2 of what that home is currently selling for (after a drop of about $50,000 since the peak but I doubt the buyer will see the value drop below what she paid to us since she bought just before the bubble inflated)."

Don't forget to factor in the profit that you must have made on the equity of your home when you sold it at the right time. Think of that as subsidizing your rent on the short term. Sure the renter would have paid mortgage payment but you would be holding a declining asset, big time. When that property goes through the 30%-40% or more haircut from the price that you sold it for, you won't be as upset. I think it'll take Pheonix a very long time to rebound from this one. Problem is, if you are buying right now you may be blowing away the equity that you made in the Pheonix house. Subsidizing your rent payments with profits made from selling a house in 2005 seems like the way to go--- let this thing play out.

Los Angeles Friends In Deed said...

A broker, whom I had been speaking to, commented to me, interestingly, saying , "prices are going down". They were referring to prices in west los angeles.

That was revealing

boomer/bubblesitter/renter/whoissoscrewed said...

Happy I rent, Cash in CD's, no debt, rental house burned up Friday night. My 2006 paid for car caught fire. Thanks to my rental contract, it is not my problem. I am renting a new place today.

And I was worried about hurricanes.

All kids and pets are fine.

Laura said...

"We're renting and not too thrilled about it. We can afford a house now, but don't want to buy until prices are more reasonable. If the market is falling then waiting is probably our best option. I really don't want to pay realtor commission either, so am looking at FSBO more."

It's good that you are renting-better to loose a small amount of money yearly, while waiting for this thing to play out, rather than loose hundreds of thousands of dollars over the next 3 years. Believe me, it's going to happen.

By the way- dont worry about paying commissions- only sellers have to pay because they are listing their properties- the buyers never pays.

Anonymous said...

I sold in August 05 which was pretty much the peak in LA. I'm earning about $25,000/year interest income after taxes on the net profits, which covers a nice chunk of my rental house costs. All in all, before I sold I was paying $2500/month net (figuring tax deductions); now I'm paying less than $1000 all in (figuring in interest income). And with the free gardener and on-call handyman, it much more hassle-free than owning.

I'm unabashedly timing the market, but now I'm not sure I ever want to own again. I'm not diving back in until there's an obvious financial incentive to owning vs renting.

brokersleaveyoubroke said...

I really don't want to pay realtor commission either, so am looking at FSBO more.

The seller pays the commission, not the buyer. If the seller is a FSBO to save the RE commission I can almost guarantee you that the money he saves in commissions will NOT be passed on to you.

Anonymous said...

I am now an owner, with a paid off house I bought in '98, and will keep it.

I owned a home in the Northeast crash, bought 1 mo before the 1987 crash, sold in 1993 at a loss.

Went to Florida, and rented a series of houses there. I did not like the moving around, but did not like the fact that a "good" neighborhood can have trash rental houses with cars on blocks just a 1/4 mile away. Plus Florida houses did not seem worth the money since they were always in some state of decay... (humidity, water, bugs, sun, etc.)

Finally moved out of Florida to an area that has moderate weather, and yes, a bubble, but has not popped yet. Since I bought in '98 and am paid for, will ride it out.

In balance, I prefer owning once I am in an area I want to stay. I knew I was a short timer in Florida, so renting made sense. Though I left Florida just before the exponential rise in prices...

brokersleaveyoubroke said...

i can`t imagine that people are still saying they wished they had bought etc.

Why? If I'd have bought in 2001 when houses were cheap and fixed rate mortgages were below 6% my monthly payments would be less then my rent now. Right now is a bad time to buy but it's not always a bad time to buy.

Anonymous said...

I live in the Boston area. When I noted in 2002 that real estate prices seemed to be coming unhinged from fundamentals like wages and rents, people told me all sorts of excuses why prices were going up: "It's people cashing out their IPOs." "Parents are giving their children cash for the downpayment, or they're leaving it in their wills." 2004 rolls around and I'm now an active bubblehead. People look at me like I'm insane. 2006, and people *still* think I'm nuts, despite the daily newspaper headlines about how it's imploding.

Anonymous said...

Renting in Scottsdale (Arizona)sucks. Rents have skyrocketed and landlords are being even bigger capital-sucking whore dirtbags than ever before. I am seriously considering moving back to the South if this insane market continues for much longer. The ONE thing AZ had in its favor was priced houses. I have already been kicked out of two apt. complexes in the last 2 years and am possibly looking at another move b/c of condo conversion.

Maybe a nervous breakdown and a couple of dead landlords wouldn't hurt?

Anonymous said...

Anon in Scottsdale:

If you like the oven, you will get a chance to own at very reasonable prices within the next few years. The Phoenix area now has over 50k, unwanted, not needed, should never have been built homes. Plus the job market and wages suck, the turn will be in full swing in the 4th quater, that is when the layoffs come, and the inventory starts to go at fire sale prices.

Anonymous said...

I love these owners trying to convince renters that they are making a bad decision. LOL. Owners are Renters to the banks unless there nis appreciation.

As Owners raise rents, the FED will raise rates higher. Home prices will fall down further. Eventually, after 2 years, the economy will be in the tiolet, unemployment and inflation will be sky high. The dollar and home prices will have crashed. Housing by 25-40%. Renters may start buying placing orders for newly constructed homes leaving their previous landlords with a severely depreciated asset and no cash flow. LOL. It is coming.

Catch 22, current homeowners/ investors/speculators/second home buyers/whatever they want to call themselves are in for a rude awakening!

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