Re: A Word of Advice During a Housing Slump: Rent

On Apr 12, 2:45 pm, "Jerry Okamura" <okamuraj...@xxxxxxxxxxxxx> wrote:
In the first place, a person should buy a home because they want to own
their own home. In the second place, for most people who do buy a home
(depending on where they live) that asset will grow over time, which in turn
will increase their net worth. Can you say the same thing about a person
who rents?

I agree that people should buy because owning and living in their
own house is important to them. But if people find that they honestly
don't want to maintain, decorate, mow lawns, or pay taxes on a house
that is also a reasonable choice, particularly if they are individuals
without spouse or children. If someone doesn't need to accumulate an
estate for the sake of his/her descendents, why bother? I'm told - by
renters - that there is less annoyance and fewer hassles in a good
rental situation than in many homeowner scenarios. We always own a
house because we do like fussing with decor, planting ornamental trees
and shrubs, decorating for Christmas, etc etc - all the classic
homebody behaviors.
Planning for net worth using real estate is tricky, imho, because
the pattern of rise and fall in real estate values that we have
observed over the last 45 years is literally like ocean waves - it
advances, it retreats, it advances, it retreats - in a very
predictable pattern, with now and then a really large peak or an
unusally deep trough.
If an owner needs to take the equity and profit on a house in
present time, but real estate is in one of its trough periods, then
the owner's net worth at that exact time may consist of only the
physical comfort and emotional pleasure s/he experienced in the past
by owning the house. We have seen this happen several times, to other
people. By simple chance, we have never lost money selling a house
but we have not become rich either.


"Florida" <demeter547op...@xxxxxxxxx> wrote in message
news:1176337794.728991.103140@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

The New York Times April 11, 2007

Economix
A Word of Advice During a Housing Slump: Rent

By DAVID LEONHARDT

A promotional spot for the National Association of Realtors came on
the radio the other day. The spot, introduced as something called
"Newsmakers," was supposed to sound like a news report, with the
association's president offering real estate advice.

"This is the best time to buy," Pat Vredevoogd Combs, the president,
said cheerfully. "There's a lot of inventory in the marketplace.
Interest rates are low. It's a wonderful tax deduction."

By the Realtors' way of thinking, it's always a good time to buy.
Homeownership, they argue, is a way to achieve the American dream,
save on taxes and earn a solid investment return all at the same time.

That's how it has worked out for much of the last 15 years. But in a
stark reversal, it's now clear that people who chose renting over
buying in the last two years made the right move. In much of the
country, including large parts of the Northeast, California, Florida
and the Southwest, recent home buyers have faced higher monthly costs
than renters and have lost money on their investment in the meantime.
It's almost as if they have thrown money away, an insult once reserved
for renters.

Most striking, perhaps, is the fact that prices may not yet have
fallen far enough for buying to look better than renting today, except
for people who plan to stay in a home for many years.

With the spring moving season under way, The New York Times has done
an analysis of buying vs. renting in every major metropolitan area.
The analysis includes data on housing costs and looks at different
possibilities for the path of home prices in coming years.

It found that even though rents have recently jumped, the costs that
come with buying a home - mortgage payments, property taxes, fees to
real estate agents - remain a lot higher than the costs of renting. So
buyers in many places are basically betting that home prices will rise
smartly in the near future.

Over the next five years, which is about the average amount of time
recent buyers have remained in their homes, prices in the Los Angeles
area would have to rise more than 5 percent a year for a typical buyer
there to do better than a renter. The same is true in Phoenix, Las
Vegas, the New York region, Northern California and South Florida. In
the Boston and Washington areas, the break-even point is about 4
percent.

"House prices have to fall more before housing becomes a clear buy
again," says Mark Zandi, chief economist of Moody's Economy.com, a
research company that helped conduct the analysis. "These markets
aren't as overvalued as they were a year ago or two years ago, but
they're still unfriendly. And that's one of the reasons the market is
still soft - people realize it's not a bargain."

There is obviously no way to know what home prices will do in the next
few years. But there are two big reasons to doubt the real estate
boosters who insist that it's once again a great time to buy.

The first is history. After the last big run-up in house prices, in
the 1980s, a long slump followed. In the New York area, prices peaked
in early 1989 and then fell 9 percent over the next three years,
according to government data. (Adjusted for inflation, the drop was
much bigger.) Not until 1998 did prices pass their earlier peak.

Keep in mind that the 2000-5 boom was even bigger than the '80s boom
and that house prices on the coasts, according to the official numbers
at least, have fallen only slightly so far. So it is hard to imagine
that prices will rise 5 percent a year, or another 28 percent in all,
over the next five years.

The second reason for skepticism is that buying has never been quite
as beneficial as Realtors - and mortgage brokers, home builders and
everybody else who makes money off home purchases - have made it out
to be. Buyers have to pay property taxes on top of their mortgage,
while renters have the taxes included in their monthly rent bill.
Buyers also face thousands of dollars in closing costs (and, in
Manhattan, co-op charges). Renters, meanwhile, can invest what they
would have spent on closing costs and a down payment in the stock
market, which hasn't exactly delivered a bad return over the last 20
years.

And that famous mortgage-interest tax deduction? Yes, it reduces the
borrowing costs that come with a mortgage, but it doesn't eliminate
them. Renters don't face any such borrowing costs.
[....]


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