Why it still makes sense to Buy vs. Rent
Nearly a full third of households are still renting...but if you are one of them, you could be paying a hefty price. Additionally, the children of the baby boomer generation are close to or at the home buying age, but these "echo boomers" could mistakenly decide to put off the purchase of a home because of all the noise about a "bubble" in home prices.
Is there a "bubble"? The simple answer is "no".
Even if interest rates move a bit higher, it won't be enough to cause a nationwide slide in home prices.
The key to a healthy housing market is the job market. If the payment on a new home might be slightly higher due to increased interest rates, it generally won't stop someone from purchasing the home of their dreams...but if they feel their job is in jeopardy, it might be enough to stop them from making a move.
So with the currently low levels of unemployment and the beefy gains in job creations, it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains that much of the country has seen, price declines are highly unlikely. Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good.
May 23, 2007
Think this "there is no housing bubble" mortgage broker genius is still employed?
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The government's inflation numbers are artificially kept low to limit the amount of entitlements that the government must pay. Many government entitlement programs are linked to the official inflation numbers and thus the less the numbers, the less the payout.
Inflation is skyrocketing, our currency is devaluing and out purchasing power is rapidly decreasing and the gap between the rich and poor in this country is widening.
Home ownership has become just another tool to push the middle class into indentured servitude and poverty and yet countless American's swallow this pill thinking that it is their ticket to the American dream. It is like everyone is stuck in the Matrix.
"Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good."
That's just not true. Why is it that people can just outright lie these days and no one seems to call them on it?
and assuming a 5% a year appreciation...
well sure that's all fine and good except the next year or two that will be a negative 5% meaning the $300K home will be worth $270K in 2009 and the at 5% appreciation won't be worth $300K again until somtime around 2012.
Hmmm what was that about throwing money away renting again?
Sad thing is that the vast majority of people will read that and think yeah, I am wasting my money renting, better go buy something before I get priced out. Which is why I still don't think a serious crash will be coming and 5% depreciation a year for 2 years ia about all we'll see. People will do whatever it takes to become home "owners". Can't qualify with a 30 year fixed? No problem we have a 40. Can't qualify with a 40, no problem we have a 50. Need 55 year loans? Sure wtf, we'll give you one of those too.
My wife and I rent and absolutely gorgeous house, it would qualify as a "dream" house for many. We are paying 1/4 to 1/3 in rent of what it would cost to own. I have explained to my wife 1000 times why buying anything today makes no sense. And yet she still thinks we're 2nd class citiznes for renting. The entrenched mentality of buy buy buy at any cost will take years, maybe even decades to go away from the American psyche.
Any speculation on how the baby boomers retiring (and selling off their homes) will affect house prices? If it happens, when will the great sell-off start and which areas will the boomers be moving from and to?
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yaya whatever.
His last name wouldn't happen to be VanWinkle, would it?
Crazy assumptions in his article. $1500 rent--OK
5% increase a year??? seems high
$300,000 mortgage???--who's paying $1500/month rent in an area where housing is available for $300,000? Give me a break. Also, he proposes giving the silly renter increased costs of 50% a month.
In other words, it makes sense to buy if you have a high rent compared to area housing (or are willing to make a significant downgrade the quality of your houwing), and are willing/able to tack on another 50% expense each month.
Rent isn't throwing money away. It's money paid for a service.
What a buffoon. Ex-competitive body builder: don't that say it all?
Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good.
Sorry, but the historical range of appreciation over the past 100 years, adjusted for inflation, PER schiller (Yale economist who tracks housing trends) has been closer to 0.2%. Bet they didn't mention THAT at the real estate investment "courses" you took, eh?
Renting rocks. No yard. Mexican neighbors. Black neighbors. Thumping jungle music at 3:00am. Increases in rent every year.
Gee whiz, I sure wish I rented like you smooth operators.
Keith,
Am I crazy? I set my personal housing allowance to 25% of my monthly net income. That's it. Net income drives how much house I can afford. Everyone says I am throwing away money on rent, but I keep seeing my net worth go up every month. These same dissenters want to borrow money from me. Am I doing something wrong?
Desperate in DC
"... No yard. Mexican neighbors. Black neighbors. Thumping jungle music at 3:00am. Increases in adjustable mortgage every MONTH. "
Sounds like the typical homeowner (Fu*ked borrower) around here in Southern Ca.
"Gee whiz, I sure wish I rented like you smooth operators."
When you finally get your head out of your ass, you'll see the us renters have way more savings, and less debt than YOU.
Why do Desperate Homedebtors assume that Bubble Sitters are renting bad places?
Word to the wise - there are millions of unneeded, unwanted homes out there - tons of great ones that some desperate flipper is renting out because if he sold he'd go bankrupt
We rent for pennies on the dollar, and many of us are renting million dollar homes for a fraction of the cost of buying
It's the new reality. And it's pretty sweet for the Bubble Sitters.
The stock market is up but the FB's have all of their money tied up in a depreciating asset. LMAO
"Renting rocks. No yard. Mexican neighbors. Black neighbors. Thumping jungle music at 3:00am. Increases in rent every year."
What a ridiculous thing to say fool. Owning a home doesn't exempt you from mexican or black neighbors nor does it exempt you from noise. Have you checked out what the rich white kids listen to these days? Hip Hop fool. So it could be your next door home-debtor's son or daughter blasting "thumping jungle music" at 3AM from their highly-leveraged prestige vehicle.
The only thing you got right was the increase in rent, but look here...it will take LONG time for rents to become comparable to a mortgage. Until that happens, it is still cheaper to rent fool!
I hate renting. I don't have yardwork to do. There's no maintenence to tie up my weekends. I don't get to pay thousands in property taxes, PMI and insurance. Worst of all, I can pick up and move right away if I get a bad neighbor.
who's paying $1500/month rent in an area where housing is available for $300,000?
Atlanta. Look for rentals on craigslist for $1500. Then look for homes under $300K in the same part of town and the same bedrooms/bathrooms/lot size. You'll see they are one and the same.
When you can rent a home for $1500 or buy it for $250,000, renting is indeed throwing money out the window.
Desperate in DC,
Yup - the worst thing about renting in DC area is having all your FBer friends hitting you up for money. I get it everyday.
keith,
why do renters assume every homeowner has an adjusting arm, is upside down, will default soon and is desperate?
word to the wise there are millions of people who have no mortgage. there are millions of people who have a 5.35% 15 year fixed (moi included). there are millions of people who bought well before the bubble (moi included) and will not be affected.
it's funny to see you get pissed off when people assume renters are the scum of the earth yet you have no qualms assuming every homeowner is an fb.
kinda hyproctical don't you think?
"By God’s Divine Grace, I met the owner of a gym and group of bodybuilders who took a special interest in me..."
Perhaps Darren Steroid Face has returned to the sweaty embraces of his muscle bound saviors.
renters have no yard work...and? Mowing the lawn every 2 weeks - and hour's work - is a small price to pay for having a yard. I also don't mind spending 30 mins a week cleaning the pool in order that I have my own pool and don't have to share it with the filth that lives in apartment buildings. I honestly don't know how anyone could swim in a public swimming pool, the thought of it makes me ill.
As for white kids that listen to rap..you kidding me? White kids listeing to rap are harmless. They listen to gangsta in their new $40K SUVs on the way to and from school. Your neighbors listen to gangsta on their way to and from gang initiation killings, drug deals and god knows what elese. Nice try comparing the two renter.
Note to Anon
May 23, 2007 6:50 PM
word to the wise there are millions of people who have no mortgage. there are millions of people who have a 5.35% 15 year fixed (moi included). there are millions of people who bought well before the bubble (moi included) and will not be affected.
it's funny to see you get pissed off when people assume renters are the scum of the earth yet you have no qualms assuming every homeowner is an fb.
kinda hyproctical don't you think?
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Just like stocks, the pricing of homes comes at the margin. Sure, there are millions of people with their homes paid off and there are millions of people with low, fixed rate mortgages (I had one of those before I sold).
However, there are also millions of homeowners in trouble with toxic mortgages, there are millions of homes in foreclosure, there are millions of vacant homes bought by speculators and there are millions of homes being built right now! That means supply is going through the roof.
At the same time, lending standards are finally being tightened, interest rates are higher and a huge chunk of potential homeowners (call them HPers) are unwilling to buy homes at these prices. That means demand is cratering.
You add the two together and it means prices are coming down and they will come down hard! it sounds like the only way this will affect you is if you try to sell (or your neighbor gets foreclosed on).
Hmmm, let's put things in perspective: According to the latest US Census of 2005, only 17% of American households have earnings above $100k. Please note that this figure is usually a combine income of 2 spouses.
Since about 50% of American marriages end up in costly divorce, more and more Americans opt for a single life. And since home buyers should NOT buy a home that's more than 2.5 X Annual Gross Income, we can really see that all this hoopla about unemployment rates being low in the US is totally irrelevant.
Add to that all the 20 million plus illegals who are depressing American wages, middle class jobs are constantly being outsourced thanks to Wal-Mart, and the corporate mafia can't have enough of H-1B visas to depress the wages of American tech jobs by 30%.
Sure, go ahead. Buy that $300k house with your average salary of $50k and finance it 30 years into an ever uncertain and risky American future. All the sheeple are doing, why not you? How's that gas bill doing for you, btw? Nice, huh? It will only get worse.
who's paying $1500/month rent in an area where housing is available for $300,000?
Atlanta. Look for rentals on craigslist for $1500. Then look for homes under $300K in the same part of town and the same bedrooms/bathrooms/lot size. You'll see they are one and the same.
Atlanta... The Detroit of the south... only with bible thumpers, rednecks, peckerwoods, trailer trash, and CRACKERS. Who cares if housing is cheap there???
Yup - the worst thing about renting in DC area is having all your FBer friends hitting you up for money. I get it everyday.
It really pains me to see them buy a cup of coffee with a credit card. I wonder what the real price of the coffee will be?
I'm not sure about other homedebtors, but I happily rent for $900 an onceanfront condo that would cost $400 to buy, plus it's 10 minutes from work. My Net Worth keeps getting higher every month since my money, which includes foreign currency, is not in paper or car leases. Call me crazy but I like liquidity and not stupidity.
Just read this story on Money.com to get a feel how home buyers are in deep deep trouble:
http://tinyurl.com/353uts
Like Kiyosaki always says:
NEVER TAKE "ADVICE" FROM A COMMISSIONED SALESPERSON!!!!!
What does FB mean? I'm not up on some of these acronyms.
We rent for pennies on the dollar, and many of us are renting million dollar homes for a fraction of the cost of buying
I'm renting a $1.2M McMansion in Newport Beach for $3,500/month. The suckers who "bought" are paying $8,000/month to live in the same house ... LOL!!!!!!
I'm jealous. This guy must be doing some really GOOD drugs.....
"When you can rent a home for $1500 or buy it for $250,000, renting is indeed throwing money out the window."
Didn't we go through this already in another thread? When you factor in all your expenses (property tax, maintenance, insurance) and the risks that prices will fall, renting is not 'throwing money out the window'.
One of the reasons that this bubble was created is that people did not factor in 'risk'. If you assume that the price of your home will be higher next year no matter what you pay for your home then what does it matter what you pay? But what if prices start to fall? Oh yeah, they already are.
PDX Renter said...
anon May 23, 2007 5:38 PM said:
"Renting rocks. No yard. Mexican neighbors. Black neighbors. Thumping jungle music at 3:00am. Increases in rent every year."
What a ridiculous thing to say fool. Owning a home doesn't exempt you from mexican or black neighbors nor does it exempt you from noise.
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Right on PDX and obviously owning does not exempt one from living next to some arrogant white racist a-hole:)!!!
"Renting rocks. No yard. Mexican neighbors. Black neighbors. Thumping jungle music at 3:00am.
who's paying $1500/month rent in an area where housing is available for $300,000? Give me a break.
I pay $600/mo I rent a 4 bed/2bath on 40 acres 15 min. to the gate of Yosemite. This house Zillows for $356k. I can't even see my neighbors, unless you count the occasional deer. I work at a resort, make 70k and get free golf and lake usage. Actually, I get to golf for free just about anywhere.
I put $1500/mo in stocks plus my employer paid pension.
When I get tired of all the fun I'm having here, I'll probably pack my bags and spend a few in Hawaii, playing free golf.
Have fun paying off your 30? 40? 2nd? 3rd? HELOC? as the price of your "investment" craters like the dino killer.
I definitely agree with the sentiments here. I rent in a very nice neighborhood in Chicago surrounded by 2,000,000 homes for 1250. I have a yard for my dogs, good street parking, etc. If I had gotten in before the boom, then cool, but until the real crash hits the prices here are crazy. The subject at every cocktail party I have been to in the last 2 years has been, how many Dr's and Lawyers can there be out there when 2Br condo's are going for 400K? Or more, way more. Now there are 450 homes in pre-foreclosure, 200 owned by Banks, and 100 headed for auction in my Zipcode alone.
Anon said:
"The subject at every cocktail party I have been to in the last 2 years has been, how many Dr's and Lawyers can there be out there when 2Br condo's are going for 400K?"
Ha! That's funny, as I'm a doctor, but I'm no fool: I won't buy until the market aligns to fundamentals. A market that drops affordability (down to 5%, in Santa Barbara!) is completely unrealistic, and unsustainable.
The point is, why pay a premium price (which was inflated, based on the speculator's hope of hyper-inflated returns in the future) when such returns are a thing of the past (and in fact, depreciation is guaranteed)?
Why buy at 2006 prices in 2007? What, just to piss away money, or just to bail out some fliptard so they can sleep at night again?
I make $70K a year, which is well above the median income for my area. The problem is that decent homes here cost about $400K on average. Can anyone here tell me it wold be a good idea to take out an option ARM to buy a house? I wouldn't be able to make a fixed 30 payment even if I went on the rice and beans diet.
Atlanta... The Detroit of the south... only with bible thumpers, rednecks, peckerwoods, trailer trash, and CRACKERS. Who cares if housing is cheap there???
So I can now add Atlanta to the list of cities HP elites think is beneath them. The list as I can gather is:
Phoenix
Dallas
Houston
Atlanta
Las Vegas
Denver
Miami
Tampa
well shit anywhere other than S. California really.
The subject at every cocktail party I have been to in the last 2 years has been, how many Dr's and Lawyers can there be out there when 2Br condo's are going for 400K?
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You don't have to be a doctor to afford a $400K condo Einstein. $400K with no money down would be a $2400 payment. For a 2 income copule each making $75K a year could afford that quite easily.
I take it your cockatil party guests are utter idots if after 2 years you haven't figured that out yet.
2:39:
Why do you want to buy so desperately? Have you not been reading horror story ater horror story of what happens when ARMs reset? It's your money and financial suicide, go get an ARM, get 3 for all I care. When you default in 2 years that's one more cheap property I will have to choose from.
Hopefully home-ownership will go the way of Bell Bottoms, Platform Shoes and Afro hairstyles.
For a few months it might be unpopular in the common psyche to own. But that won't last long as owning a tangible asset will be the only way to deal with the hyper inflation that's coming as soon as china pulls the plug (stops buying Treasury bonds) on us (could be years since they seem to be happy with us exploiting their manpower cheaply).
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