Posted on 09/21/2007 10:49:53 PM PDT by Freedom_Is_Not_Free
Sep 17, 2007 -- When you rent, most people mistakenly assume the decision is made out of necessity, not rationality. But there is a very good reason to rent in today's bubble-stricken market: median incomes do not support median home prices.
By Ben W. (bdarbs)
Median income household cannot buy median priced home
The graph above demonstrates three very important facts.
* Whenever prices rise more than the normal trend, they eventually correct and drop back in line. * This housing bubble is an absolute giant when compared to the housing bubbles of the previous decades. * Income levels haven't come close to keeping up with home price inflation. For decades, home prices strongly correlated with median incomes. In 1997, everything changed.
What does this mean?
Now is perhaps the best time in US history to be a renter. You are far better off paying high rents for the next few years than buying a home and watching your equity disappear while the market takes a freefall.
Not convinced? Here's my argument...
The home prices that we are seeing today are artificial and not sustainable. This is because home prices have deviated from the fundamental formula that has always ruled the real estate market. Nationally, median home prices increased by nearly 50 percent in the last decade. The median income, on the other hand, has gone up 10 percent in the last ten years--a very meager increase compared to the change in home prices.
Incomes simply cannot support the bubble-inflated prices. In many places, Americans earning the median income have no chance of reasonably affording a median priced home with a conventional home loan.
(Excerpt) Read more at efinancedirectory.com ...
My name is Freedom Is Not Free and I approve of this message...
My reason for buying and not renting is because I have five kids. I can’t always worry that the landlord is going to come by and expect the house to be spotless because he only has one child and that’s how his house is. Plus, I can make any improvements I want. Yes, I read the article. I just wanted to say why I prefer to own.
OK, ‘freedom’. What will you have to show for your money ten years from now?
Your landlord will be paying off the mtg. with your money - he will own the place, and you will have nothing but reciepts.
IMHO, I am totally against renting. Buy a teenie little house - pay it off, sell it, take the equity and buy a bigger house - pay it off, etc. At least it is yours.
OK, ‘freedom’. What will you have to show for your money ten years from now?
Your landlord will be paying off the mtg. with your money - he will own the place, and you will have nothing but reciepts.
IMHO, I am totally against renting. Buy a teenie little house - pay it off, sell it, take the equity and buy a bigger house - pay it off, etc. At least it is yours.
but what's the big deal with a down payment? everyone gets their money. is it just proving that i can save money? hell, i have to make it first! i have very steady income, there just ain't enough of it to save 100K for a down payment.
heard you the first time. ha!
I think renting is fine if folks are more comfortable with it
owning a home is a lot more than just paying mortgage, taxes and insurance monthly
and they don’t all appreciate like the dickens
Get a better job.
Sorry - I don’t know why it does that double post.
I rent because I am living a lifestyle of my own choosing and that means I don’t make a lot of money, BUT I am happy in work I like AND I have flexibility and time to do the other things I want to do in life.
Therefore, I’ve cut a lot of things from my life. Sure, I’ve missed out on a lot of things, but I’m the envy of my married-couple friends with their mortgages and multiple cars. I’m not against those things, and if I had the cash I’d have them, too.
But some people simply don’t care about that stuff.
I pay a pretty steep rent, but I live in the city, don’t have to worry about a car or the insurance, gas, upkeep, etc.
My landlord of one year has never once stepped into my apartment. In fact, she’s given me a break on raising the rent (the rest of the building is going up) because the previous tenant was a pain and I stepped in.
The one argument I hear over and over is “You’ll have nothing to show” for paying rent, etc.
So what?
I also don’t have the heart attacks, ENDLESS upkeep, expenses, wasted time...
Renting isn’t for everybody, but owning, while something I hope to do someday, isn’t the guarantee of security people wish it were. In many ways, owning is a ridiculous burden that takes up in time and effort and expense any benefit that may appear down the line.
Think about it. If every time there was a spike, and the market fell back down to join the slow, gradual trend up wards line that preceeded the spike, we'd only be paying about 60,000 for a house that sold for 17,000 in the sixties. (an average 12,000 sq. ft. 3 brm bungalow)
(I've had a decent amount of math education, through Calculus II, but never took statistics.)
Do what you want to as long as you can afford it. I subscribe to the Dave Ramsey school of thought. My only debt is my house and I am just a few years away from owning that free and clear.
Exactly. Buy what you can afford, not what you really want.
Work your way up to it.
It’s always better to buy than rent. When you buy is important yes, but most people when they buy their first house have been following the market for a while and can see when thinks get hot and cool down.
If you stay in a house long enough, you will not loose money when it comes time to sell and upgrade.
If you sell in a “spike” or hot market, remember you also have to buy in one too, unless your parents are willing to let you move back home till the market cools down again.
I’d say, wait till about Jan or Feb, the market will probably have cooled as much as it’s going to, and buy before the spring market spike.
You sound just like my cousin who is a prof/researcher at Harvard. It is nice to be free to choose!
It just goes to show all real estate is local. If you can find a place that would rent for what the mortgage is *today* then you should be OK.
I bought small and its somewhat comforting to know that If I decided to rent my place out I would make about a 5% profit over the mortgage. I would lose money on maintenance but I wont take a bath..
i’d like to see a graph with home prices vs. gold and i bet it would show that they have pretty much stayed in line with one another. the dollar is falling. i bet exports are gonna start booming.
Renting is good for some people, true enough.
But owning isn’t a burden either, it all depends what you own.
Obviously for you, owning a 10 acre spread would be too much work for the lifestyle you want to live.
A condo however, isn’t, and may be better choice for you than throwing away money on rent. At the very least you can recover what you would have otherwise spent on rent.
The median is used because it is at the midpoint of house values- that is: one half of all the houses are priced above the median point, and one half are below the median point. If an average were used, very high priced homes would skew the $$ value amount to a higher point above the midpoint...
Imagine a horizontal line...draw a ‘camel’s hump’ on top of it ( i forget what the statistical terminology is) ..at the very top of the hump draw a vertical line...half the home values should be below it, the other half above. That is a graph of a median....calculate the horizontal line by $10,000 for each ‘block’ of the hump...prices would cluster around the median...low at the lowest values and low again at the highest values...Now if you used an average value, the hump would be lopsided towards the higher priced end...and if you are still awake at the end of this, you are really paying attention.
You have to look at all the costs of home ownership, not just the mortgage payment.
While homes can appreciate in value, it is guaranteed that they will depreciate unless you keep up with the maintenance on them. Roofs, water heaters, furnaces, water fixtures, electrical wiring, carpeting, wall coverings, etc., all go bad from time to time and need repair or replacement.
For the first ten years of your 30 year mortgage, the vast majority of the payment is interest.
If you truly figure up all of the costs, it is entirely possible to come out way ahead by renting (assuming you invested the money you saved by not owning).
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