January 14, 2008

And then the sheeple started to figure it out - they would have been MUCH better off renting


Bubble Sitters and Bitter Renters rejoice. When the world was going mad, and listening to realtors on commission and their lies, you ran the numbers, you did your research, you found places like HP, and you did the right thing.

And you avoided the biggest financial mistake of your lives as home prices plummet and the costs of home 'ownership' are now not just your mortgage payment and fees, but the devastating leveraged monthly price declines in the thousands or tens of thousands.

There will come a time when "owning" will be the right thing to do again. It could be a year from now, it could be ten years from now, we just don't know.

How will you know? Because it'll be cheaper to own than rent. Because the historical price-to-income and price-to-rental-yield ratios will return. Because you could buy a place and rent it out for positive cash flow. Because people will be disgusted with real estate. And because lying realtors on commission will be back to flipping burgers or turning tricks.

Those who rent instead of own look smarter these days - no worries about falling prices, maintenance costs

There was a time when it was simpler. That is, when it cost less to own than to rent. Ten years ago, according to Moody's Economy.com, the average annual cost of owning a home - including mortgages, taxes and maintenance costs - was $10,231 nationally, compared with $13,090 for renting.

Then things changed. Owning became more expensive than renting in the first quarter of 2004, and that trend has persisted. In the second quarter of this year, nationwide, the average annual cost of owning a home was $17,707, compared with $15,721 for renting.

"In the last four years, rent became a four-letter word. No one wanted to rent. They looked down upon it . . ." said Larson. "I think a lot of people just assumed buying makes sense. They drank the Kool-Aid and unfortunately are finding themselves now in a tough spot."

"I just saw a lot of people around me buying things that were risky," said Raneri, who recently signed another one-year lease for a rental in Baltimore. "I just don't think it's a wise idea to be buying something when you can get it for $100,000 or $200,000 less two years later."

32 comments:

Ed said...

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"I just don't think it's a wise idea to be buying something when you can get it for $100,000 or $200,000 less two years later."

It comes down to such a simple concept. I mean when you take away the charts, the graphs, regression to the mean, rent vs.buy calculators, etc. It all comes down to this simple statement. I can buy a product today or I can buy it in the future for $100K or $200K less. If 90% of people who are buying a home today just sat back and thought about that one statement for 10 minutes, they would walk away and go renew their lease for a year.

Unfortunately millions of people are still so brainwashed that they have to buy at any cost. I was out looking at some homes this weekend, just browsing. It's amazing to me the mentality out there from other buyers I encountered. They have fully swalloed the NAR line of "now is the best time to buy". I tried talking with one older gentleman. I said yes now is a good time compared to 6 months ago. But it will be even better in 6 months and even better than that in 12 months. Useless. His main concern was if he could qualify for enough of a mortgage to buy the house. It was like arguing with my dog about whether or not eating milk bones is a good idea. I told him good luck and went on my way.

We have a long way to go folks.

debtisslavery.blogspot.com

Anonymous said...

BINGO!!! 'nuff said!!!

LauraVella said...

"I just don't think it's a wise idea to be buying something when you can get it for $100,000 or $200,000 less two years later."

If one would shout this out in a crowded room back in 2005 everyone would laugh...

The crowd isnt laughing now.

Malcolm said...

I’ve mentioned this before, but to me a good sign of how crazy things got is the fact that you could, right now, live in a Vegas hotel cheaper.

Based on today’s rates, living the “rat pack” life is about $3000/month.

You never have to make another bed, you get the glitter, the lights, and you can blow your life savings like an honest man.

Stuck in So Pa said...

"Ed said...
......... It was like arguing with my dog about whether or not eating milk bones is a good idea."

Well said! The concept of "homeownership" is so ingrained in the sheeple's psyche as being preferable to all else, ALL the time, that it's going to take a major "learning lesson" to undo the indoctrination.

Well, at least you tried!

Paul E. Math said...

"But you're throwing all that money away on rent when you could be owning!"

That's what a friend's wife, a social worker, said to me once.

I tried to explain to her that she and her husband were throwing their money away on interest. I explained that they could pay less by renting and if they saved the difference they could actually be earning interest instead of paying it.

Sweet girl, great mother and she's good at what she does. But you can't expect a social worker to understand logic. (my apologies to the rare social worker who does get it)

Brian said...

Keith-

Wish I could say I saw this all coming, but the reason I stayed out of the market was just cost. There was no way I was going to buy at an insane debt to income level, so I figured I was a lifelong renter. It wasn't until I stumbled on this blog and others that I learned what had happened. I've always had a head for money, but I thought somehow I had missed the boat on real estate.

Now the boat's returning, and a lot of people seem to want off.

Brian

only goes up said...

brand new NEVER lived in homes here in Carlsbad, CA (5 bed, 5 bath) are now trying to be rented out for $3,200/mo. These homes have been for sale for $1.3 Million +.
Naw, there is no problem here in San Diego County. These homes will end up being rented for around $2800/mo.

Boom2Bust.com said...

Since the late nineties, my family/friends had been pushing me to buy. "Your throwing away money!" and "Think of the tax breaks!" they argued. I didn't listen to them (reverse indicators!) and decided to rent instead. It was pretty obvious (to me at least) that the U.S. housing market was in a HUGE bubble. But the real clincher was when I heard that CEPR economist Dean Baker and PIMCO EVP Mark Kiesel sold their homes during the boom and decided to rent based on their housing forecasts. From PIMCO's Kiesel:

"Back in late 2005, I became anxious about my investment in the 'American Dream,' after spending a considerable amount of time and effort researching several factors that I felt would influence housing prices. At the time, I was nervous about housing and ended up selling my house in early 2006 after owning for eight years..."

Anonymous said...

Since the late nineties, my family/friends had been pushing me to buy. "Your throwing away money!" and "Think of the tax breaks!" they argued. I didn't listen to them (reverse indicators!) and decided to rent instead. It was pretty obvious (to me at least) that the U.S. housing market was in a HUGE bubble.

==========

Dude you are an idiot. You should have bought in the late 90s and sold in 2005 or 2006. You would have made a shitload of profit for doing nothing.

You not buying in the late 90s was as idiotic as someone buying in 2006.

Anonymous said...

Since the late nineties, my family/friends had been pushing me to buy. "Your throwing away money!" and "Think of the tax breaks!" they argued. I didn't listen to them (reverse indicators!) and decided to rent instead. It was pretty obvious (to me at least) that the U.S. housing market was in a HUGE bubble.
==============================

Oh man, if you're boasting that you didn't buy through this whole cycle, you're insane. I wish to God I could have gone back to 2000-2003 and bought a house or more. Even if I sold now "below market" I would still have profited big time. You blew it bud!

Anonymous said...

Well people are already buying homes again and the market won't crash. Actually, if people don't buy right now during this once in a lifetime buying opportunity, they will be kicking themselves in the rear for life. Folks, now is a perfect buying opportunity. You won't get a chance to pick up bargain property ever again. Those who rent will lose out while those who decide to buy now will make a good financial move.

Anonymous said...

Brand new NAR advertising slogan:

It is a great time for the greatest fools to buy.

Anonymous said...

but do not forget the crop moneys in a commodity price escalating morket

Anonymous said...

that rat pack lifestyle was only 1500 a month in 2002

Anonymous said...

still have the 2 buck all you can eat extragavanza called breakfast, with everything included in Las Vergas

Frank@Scottsdale-Sucks.com said...

Renters vs. "Owners"

I always hear arrogant homedebtors complaining about renters moving into the neighborhood. Well, here's a true story from my neighborhood:

One of our neighbors who rented is a commercial developer and was forced to temporarily move due to a new project he just broke ground on. He and his wife moved out - they were perfect neighbors. Clean, friendly, always inviting everyone over, helpful, etc.

Then his landlord, the "owners" of the house moved back in since they couldn't rent it out to anyone. They don't take care of the property, there is garbage all around their house, their landscaping has gone to sh*t, they constantly park on the street and block other people's driveways, they leave their garbage bins out for 3-4 days after garbage pickup, their obnoxious kids play in the street and annoy everyone trying to drive by, etc.

So much for the "renters are bad" myth - in this case the previous renters were far better neighbors than the arrogant "owners" who have moved back in.

Frank@Scottsdale-Sucks.com said...

brand new NEVER lived in homes here in Carlsbad, CA (5 bed, 5 bath) are now trying to be rented out for $3,200/mo. These homes have been for sale for $1.3 Million +.
Naw, there is no problem here in San Diego County. These homes will end up being rented for around $2800/mo.


Sounds like Newport Beach CA - the house I rent for $3,500 sold at the peak for $1.2M. In 2007 they've sold for around $800k and sales have now stopped and average rents are around $3,000.

Hello $400,000 in 2009. Cuz that's what you get for a $3,000 payment on an honest 30-yr fixed.

Frank@Scottsdale-Sucks.com said...

Dude you are an idiot. You should have bought in the late 90s and sold in 2005 or 2006. You would have made a shitload of profit for doing nothing.

You not buying in the late 90s was as idiotic as someone buying in 2006.


He's right ... buying in the 90s would have been smart. It was still cheaper to buy than rent then, and you would have made a killing selling at the peak.

Please realize that we're not saying "buying is bad" here - we're just saying buying at the peak or now is bad.

Anonymous said...

San Francisco
Rent 1,195 per month
If I bought 3,000 (mortgage only)per month

As long as you are disciplined enough to invest part of the money you save it is a simple choice

Towjam said...

I never thought I would be happy about renting, but I have to say this is great. I don’t have to worry about maintenance, dropping prices or payments going up. In fact I was able to move out of the homes I was renting for in to another comparable property for 200 less a month.
$2400. in my pocket…50” LCD here I come..

Anonymous said...

I will never forget the day my younger sibling asked me in the most irritating tone..."I have no idea why you keep renting. You're just throwing your money away. Why dont you do the smart thing and buy?"

I will also never forget the way it felt to see all my friends buying into 1.2 mil McMansions and buying SUV's while I wondered where I had gone wrong. I went to college, got a professional degree, opened my own business and still have no ability to move into a 1.2 million dollar home.

As we all began to understand what happened I wondered what would happen to each of them and now I am watching the SUV's get sold, the vacations to europe die off, the pain of not having enough begin to pinch the wallet and the souls of these folks. The aftermath will be much worse than not being able to go to europe. The aftermath will be at the cost of houses, marriages, and families. I dont feel sorry for any of them. Their greed is what is going to take them back to their real life. I am just happy I didnt say yes when that realtor offered me a town home for $675,000 and without even knowing my occupation, education level or financial situation told me, "go ahead and fill out the paperwork, I have a guy that can work miracles and you WILL be approved." Wonder how many miracles are turning into a train coming down the track at a high rate of speed? Time will tell but its not looking good.

CFR Creature exposed said...

What you described was both the inflation which eroded the buying power of the dollar and the growth in the size of newer houses. I am assuming that renters did not go out and rent a house bigger than they needed vs the FBs who bot as big a house as their ARM monthly payment allowed.

Recommended book read: "The Creature From Jekyll Island".

Anonymous said...

people think "owning is better in long run" because "you pay rent forever while i pay my house in 30yrs" also view is "housing will match inflation and go up 1-2% annually" also "i make high income and need a tax break, renters throw tax money away" if you can convince these people that renting is cheaper (i agree) then they will get it

WINGS said...

I think thrift will come back into fasion.

I think modest, low-key living will be en vogue again soon.

I try keeping a pretty low profile myself.

I enjoy seeing some of these idiots have to pay for their real estate excesses.

They're bad Americans, plain and simple.

Now it's time for them to pay up.

It's time for some corrective, free-market punishment to make people live with the consequences of their actions.

Anonymous said...

"
Well people are already buying homes again and the market won't crash. Actually, if people don't buy right now during this once in a lifetime buying opportunity, they will be kicking themselves in the rear for life. Folks, now is a perfect buying opportunity. You won't get a chance to pick up bargain property ever again. Those who rent will lose out while those who decide to buy now will make a good financial move.
"
Why right now?

Do you think the market will start going up 30% a year again?

Why not play it like Japan...wait for a year/year rise before buying, would have kept you out of the market since 1990 there

Anonymous said...

FRANK!

you oughta give scottsdale another chance in about 12 months- all the vapid shallow people will have gone back to cali by then and you might have a chance to impress the REAL girls that are here- but then again i have the feeling you are one of those shallow vapid people we are so desperate to get rid of in the first place so stay right where you are!;-))

Anonymous said...

Huntington Beach, CA. $1110/mo. for a 2br/2ba with a golf course view and basic cable. To buy would be $2500+. Instead, I put $900/mo. into a TSA that's been earning me an average 11%/yr. And I don't do one lick of maintenance, either!

Anonymous said...

anonymous said...
Huntington Beach, CA. $1110/mo. for a 2br/2ba with a golf course view and basic cable. To buy would be $2500+. Instead, I put $900/mo. into a TSA that's been earning me an average 11%/yr. And I don't do one lick of maintenance, either!

January 15, 2008 5:53 AM

Hey I'm in HB too. Sounds like you got a good rental deal. After making about 250K tax free selling a 4/2 house bought pre-bubble in oceanside, i threw 75K down summer 07 on a nice mobile home across from PCH at newland. 1450/mo space rent. Earning 5% CD on balance, your 10% return sounds better

Boom2Bust.com said...

"Dude you are an idiot. You should have bought in the late 90s and sold in 2005 or 2006. You would have made a shitload of profit for doing nothing.

You not buying in the late 90s was as idiotic as someone buying in 2006."

Anonymous 1
---
"Oh man, if you're boasting that you didn't buy through this whole cycle, you're insane. I wish to God I could have gone back to 2000-2003 and bought a house or more. Even if I sold now "below market" I would still have profited big time. You blew it bud!

Anonymous 2
---

"He's right ... buying in the 90s would have been smart. It was still cheaper to buy than rent then, and you would have made a killing selling at the peak.

Please realize that we're not saying "buying is bad" here - we're just saying buying at the peak or now is bad."

Frank@scottsdale-sucks.com
---

Anonymous 1, 2, and Frank@scottsdale-sucks.com, appreciate the comments... although I personally don't think too highly of those who go around calling people idiots and then posting as "Anonymous."

"The Anonymous Gang"
http://boom2bust.com/2007/10/16/the-anonymous-gang/

In my former career, I did not have the luxury of being able to stay in one place for very long. Job advancement depended upon my immediate ability to relocate (cross-country/globally, if necessary). So I ask you three (or two, we'll never know I guess), would it have been a good idea to buy a home in that type of scenario? In a "normal housing market," it often takes a few years of staying put to break even on a home purchase.

But there was nothing "normal" about the recent housing boom, was there? In 2008, Anonymous 1, 2, and Scottsdale Frank could argue I should have bought a place, and turned around an sold it for a tidy profit. But saying that AFTER the housing boom is EASY.

So how much of what you're saying is really just Monday morning quarterbacking? Anonymous 1- "You should have bought in the late 90s and sold in 2005 or 2006. Anonymous 2- "I wish to God I could have gone back to 2000-2003 and bought a house or more." Scottsdale Frank- "He's right ... buying in the 90s would have been smart."

Anonymous 1, 2, and Scottsdale Frank, I really do appreciate the comments, but I seriously doubt you guys were out telling people to buy homes back in the late nineties to profit from the coming housing boom...

Anonymous said...

boom2bust,

I got a fucking headache reading your last post.

Point is this:

Buying in the 90s was a smart move. Prices were low and anyone with a 40 IQ or greater could see that r/e was a good investment then.

You stated that you thought housing was in a bubble in the late 90s. How could you have possibly thought that? Housing was just starting to recover from a decade long slide that started in 1989/1990. It wasn't anywhere near a buuble. If you thought there was a bubble anywhere prior to 2002 you have no clue what a bubble looks like.

I'm Anon 1 by the way.

Boom2Bust.com said...

Anon 1:

"You stated that you thought housing was in a bubble in the late 90s."

Where did I write that?!?

This is what I wrote:

"Since the late nineties, my family/friends had been pushing me to buy."

They were, as well as every year until 2006, when the bad news started getting out.

"It was pretty obvious (to me at least) that the U.S. housing market was in a HUGE bubble."

I was referring to later on, "dude"...