Posted on 09/14/2014 10:35:20 AM PDT by 2ndDivisionVet
We’ve all heard that millenials are the key to the housing recovery and that home prices are set to skyrocket just as soon as all the people renting or living in family homes (read: basements) get out, get married, get employed, and settle down in their new homes. However, for some reason, the estimates for when all this will happen just keep moving farther and farther out. In an effort to determine just what is delaying renters from becoming homeowners, the New York Federal Reserve conducted a Survey of Consumer Expectations to address the issue. The study found that while most renters have a “desire to own,” a number of factors are preventing them from buying. Some of these factors are very real hurdles to homeownership, while others are literally all in the renters’ heads.
The biggest hurdle to buying a home for most renters is a very large, very real one. More than half (55.7 percent) say that they simply do not have enough money saved or that they are paying too much money out toward debts. 52.7 percent report that they do not make enough money to purchase a home, and 41.4 percent report that their credit is not good enough. Interestingly enough, however, many renters do not actually do any research before coming to these conclusions. About two-thirds of renters reported that they simply think it will be “somewhat or very difficult” for them to get a mortgage versus actually knowing this to be true[1]. Furthermore, many renters do not even check their credit to determine whether they have a viable score for buying but simply assume that they do not; more than a third (35 percent) “think that their credit score is below 680” rather than actually knowing this to be true. “They are convinced that they would not be granted credit and thus may fail to apply for a mortgage even after an easing in standards,” explained Fed researchers in their report. The researchers also added a caveat regarding lowering borrowing standards. “Relaxing credit standards may…have undesirable consequences down the road since borrowers with lower credit scores are at higher risk of default,” they wrote [2].
WHAT WE THINK: While we want to believe what so many rose-colored-glasses-wearing analysts are selling (namely that we can get back to a serious real estate boom before 2020), reports like this indicate that we are simply living in a new era for real estate in which appreciation is not fast and not guaranteed, in large part because an increasingly large portion of the population is opting out of homeownership and feeling okay with that decision. While the NY Fed did determine that most renters think buying a house would be a good investment, those renters’ perspectives on their own personal homeownership experience do not indicate that they will actually buy. As long as they keep renting, the face of the housing market is going to continue to change and the dream will be less and less universal because these individuals are going to raise families and socialize among friends who do not necessarily think homeownership is crucial to happiness, productivity, or professional success.
Do you rent or own? Wish you did something differently?
I call it “living below your means’. I think it’s a smart objective.
I live in a small apartment complex (not Section 8). Been here for the past 14 years. I’ve got two bedrooms, central air, and a dishwasher, plus storage area. My water and trash collection is included. I pay my own gas & electric, cable/internet, and phone. They plow the snow, shovel the walk, and cut the grass, plus provide maintenance when you need it. When I moved in, my rent was about $380. It’s now $435. I’m retired, and would be crazy to move from here.
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I don’t know where the he++ you are, but STAY PUT!
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LOL!! Don't worry. The only way I'll be leaving here is in a bag.
I know of people who are buying these up at firesale prices, and renting them to 3 to 4 older people by the bedroom, they all come with private baths.
Making nice profit.
Doesn’t much matter to me.
Although, I wouldn’t hire any grads from those schools over someone from a familiar four year state school. There is a lot more to college than the classes. Those things can be made up with mil experience and other real world stuff.
Social ability and being able to work as a team member are essential.
But I get your point.
Doesn’t change mine: kids are getting out of school with too much debt and not enough job. Telling them post facto isn’t going to do anything but depress them.
Let's look at a home that I came across not far from where I live. It's an upscale townhouse with 2 bedrooms and 2 baths. It's listed for $499,000 right now.
Here are the monthly costs, assuming a 30-year fixed-rate mortgage with no money down (I'm doing this to make it a valid comparison, because a renter would not have to make a down payment):
Mortgage: $2,680
Property Taxes: $865
Association Fees: $375
Mortgage Insurance*: $150 (minimum)
TOTAL: $4,070
* This is a rough estimate based on a $400,000 loan balance and a 0.05% insurance rate; the mortgage insurance premium is based on the loan amount and will decline until it disappears once the loan-to-value ratio is below 80%.
I left out the utilities because these would be the same regardless of whether you are renting or buying the home. I also left out the property insurance because there would be a comparable cost for renter's insurance.
Now here's something interesting ...
An identical townhouse in the same development is listed for RENT by the same broker. The monthly rent that they're asking is $2,900.
Now why would there be such a big difference between the purchase price and the rental cost? There are a few reasons here, including (but not limited to) the following:
1. The renter doesn't have to pay the mortgage insurance here ($150).
2. The owner of the townhouse that is being offered for sale has built a premium of 6% into the purchase price to cover the broker's commission. In other words, the price of the property would probably be around $471,000 instead of $499,000 if there was no broker involved.
3. The owner of the townhouse that is being offered for rent doesn't have to cover a $2,680 monthly mortgage payment because he didn't purchase it for $499,000 (he probably purchased it for about $300,000 when it was built 15 years ago). Applying the same numbers to a $300,000 mortgage would yield a monthly mortgage payment of only $1,610 instead of $2,680.
4. There would be no mortgage insurance for the landlord to pay after 15 years because the balance on the mortgage is far less than the $450,000-$500,000 current value of the home.
So when you add these up, what you find is that the owner of the townhouse that is listed for rent has to recover $1,240 to cover the property taxes and association fees, which means he can charge $2,850 and just break even for a mortgage payment of $1,610. In this case the mortgage is probably much less than $1,610 because: (A) he may have financed a lot less than the full $300,000 purchase price I've assumed from 15 years ago, and/or (B) he may have refinanced the mortgage in the last 15 years and extended the mortgage for another 30 years.
So in this particular case ... and I must stress that this only applies to my own personal situation which may be different from anyone else's ... if I was absolutely certain that I HAD to live in this neighborhood, I would rent the latter home for $2,900 per month. I would then take the "extra" $1,170 per month (the difference between the $2,900 rental cost and the $4,070 purchase cost) and put it aside in a few low- to moderate-risk investments.
They were taught to believe everything they hear, not to research for themselves. Same as when you take a wild animal and raise it in captivity so that it is no longer able to feed itself or defend itself.
Your home will be worth more as time passes but will it be worth more than what you paid for it over 30 years with interest?
Good grief, who laid that brick? My late uncle would either have a stroke or die laughing. What a bizarre, ugly, amateurish mess. Is a crazy-quilt of mismatched brick actually fashionable somewhere? Or do they plan on some sort of masonry stain? Paint it maybe? Painted brick defeats the primary reason for wanting it, low maintenance, but heck anything would look better than that.
Mandatory HOAs do not protect property values in any way. They have a vast history of abuse and corruption to the point that states like Texas have had to enact legislation to help protect property owners from abuse. The average HOA home seizure through foreclosure is for less than one thousand dollars. No homeowner should ever have the ability to take another’s just because they are on the busybody HOA board. HOAs are are an ungodly constitutional abomination that violates every notion of private property rights. They are a tool for local governments used to double tax homeowners and provide for litigation factories for attorneys of parasitic “management” companies.
I should have specified that I’m referring to mandatory HOAs for single family residences. Condo property is a little different animal because with condos you typically do not own the land and you have many common areas to be maintained. That being said the Condo HOA can be just as abusive and corrupt. It’s just that condo HOAs are harder to do away with do to the shared areas, etc.
You have me in stitches because I thought the same thing!
These people must have thought that the more “gables” the better. To this day, any family my wife I find who owns one of these things is secretly ashamed of buying the place.
Thanks that was an interesting comparison.
I had a 15 year mortgage, not 30 years.
Owning a home is not for everyone, but renting is not so great, either.
Downsides of renting: Either you live in one of those buildings designed for renters, or you live in a home. If you live in a rental building, your neighbor could be a dirtball.Your living space is small. If you live in a rental home, be prepared to move every year or so.
No ownership of pets.
Landlords inspecting you. No privacy.
No control of interior design, you cannot even put pictures on the walls.
Rentals tend to be more run down, because the landlord only wants to put in so much effort into the place.
No stability, your rent could be raised or the landlord can decide to not renew your lease.
The money you pay monthly to the landlord lines his pocket, and he gets the equity and depreciation. You get nothing but a place to stay for another month.
Rosie the riveter’s motive wasn’t to have a career or make money.. It was to contribute to the war effort. A lot of those women went back home and raised a family after the war.
f you’re paying 20% down why do your have mortgage insurance?
The example I gave involved NO down payment. It was a hypothetical case to compare the cost of renting vs. the cost of owning. I didn’t include a 20% down payment to make the comparison valid, because the renter doesn’t have to come up with it.
Also VA has no mortgage insurance.
Thanx for the response
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