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 ...
I and my fellow landlords thank you for paying our mortgages and providing us substantial net revenues on top.
3. You find that 1 in a hundred deal going for 60 cents on the dollar when #1 and #2 are in effect.
Yes you are.
However, that point is relevant when considering one needs SOMEWHERE to live which you will pay for either way, and either pay rent w/no deduction or mortgage with one.
In the next 4 years?
Doubtful.
And I’d love to see at least a few of this 40 million vote for conservatives...but thats another topic entirely.
Like I said, there are 2 sides to every coin. Sure, landlords make money, and incur expensive and take risks. Ask my father about tenant vacancy, vandalism and non-payment of rent. Eviction. Ask him what happens when a tenant owns a dog and gives it the run of the house and lets it relieve itself inside over all of the carpets. That’s always a fun clean up mess before you can rent the house out again.
I’m sorry to see so many people on this thread convinced that owning a home automatically makes money and renting is NEVER more economical, costs be damned. To read some posts on this thread, I swear they would rather buy a house for a million dollars than rent one for a buck.
I no longer wonder why people pushed the housing bubble to insane heights, when some people demand to own an home, no matter how insanely overpriced they are.
As I have written AT LEAST 4 times on this thread, buying a house is never a bad investment.
And I have also said, when rent is cheap and houses are nose-bleed expensive, then renting can make more financial sense than owning. A blind allegiance to home ownership as an investment at any cost, no matter how cheaply you can rent, has got me completely baffled.
A question for you — did you bother to check my calculations that show over a 15 year period, renting an apartment for $800 per month that goes up 5% each year, still leaves me enough that when invested in the stock market for an 8% return puts me financially ahead when compared to buying a $250,000 home at 6.0% interest.
It was my Post #66.
I will AGAIN REPEAT MY POINT — I am talking about renting for 3 or 4 years while rents are cheaper than owning due to the insane overpricing of homes in Sacramento, and buying when they return to sane price levels. AND THEY WILL.
I never talked about renting until I am old and gray. I can’t make it any clearer than that.
But I assure you, if I knew I could rent for a fraction of the overall cost of owning, then renting until I am old a gray would be well worth considering to me. It means I would have greater net worth and more money left over for expenses, travel, leisure and health care.
Paying a landlord over a 15 year period less than I pay a bank over a 15 year period and earning more in the stock market than I would in home appreciation, doesn’t bother me in the least.
It is no skin off my teeth that so many are blind to this. Ignorance is bliss.
Are you in the banking industry, or know folks who have gotten loans this past week or two with 5% down? How does the rate on a loan with 5% down compare with the rate on a loan with 20% down?
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I am surethat tou are right.
Yes to both.
At 95% loan to value (5% down) you can still get a fixed rate in the mid 6’s. PMI will be just under $100/mo for each hundred grand give or take a few bucks.
Thanks for the info.
xc1427 said: “Bullsh*t!!! You show me anywhere in the United States were you can have a house payment of under five-hundred a month and I’ll show you a three-legged as@hole.”
I was just explaining to xc1427 that I thought you were saying that once a house (mortgage) is paid off, then you only have to pay a couple of hundred for taxes..
“On the other hand, there may be attributes of apartment living that aren’t available to home owners (no exterior painting or yard work, for example).”
and I’ll add if anything breaks, i.e. appliances, pipes, etc., you just call the ole landlord! Been renting for 19 loooong years and the biggest downside has been dealing with rude, ignorant, and inconsiderate neighbors, especially 95% of the ones we’ve had living over our heads. Each new tenant seems worse than the one before, and we have had some doozies! We’re not snobs but the people coming in are getting worse and worse, lots of welfare cases too. Plus our rent gets higher and higher every year, might as well be putting our money it into our own place.
Happily my husband and I just made an offer on a house today, our first house (even though we’re 50 and 52!). We have had it with apt. life and long for our own front door and our own driveway. We’re finally in a position to buy and able to get out of New Jersey, state of high taxes!
I have not read the thread and this has probably been repeated ad nauseaum, BUT - why not buy a smaller home and be investing your money instead of giving it away?
We’re not snobs but the people coming in are getting worse and worse, lots of welfare cases too. Plus our rent gets higher and higher every year, might as well be putting our money it into our own place.
Sounds exactly like my last (and final) apartment experience.
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$1,000,000 house / $1,800 month rent
Area is the key
Some choose areas where homes exceed income potentials
Some decide to live in homes beyond their resources
The real estate market on both homes and rentals has gone crazy and it will not shake out to what the average person will like
Anyone buying on a flex mortgage had nobody forcing them to sign
MOST want to live in homes beyond their means.
Location is always considered the prime thing but I still say if you are young and working - buy a small home and build up some escrow for the future.
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One point I do not see on this thread is that the divorce rate, average nuber of married years, average number of home owned years now come more into play.
Great for attorneys and real estate brokers and unethical insiders at banks.
This also incorporates the later marriage ages and the lower percentage of people getting married and the ever diminishing number of children born per couple.
And many that now complain bitterly of these things contributed the most to the situation.
They will never get out of here alive.
[They will never get out of here alive]
No yolk!!
“Actually no site built house appreciates in reality, this can be illustrated quite easily, any increase in the house itself is purely inflationary. The lot on which the home sits can and often does appreciate hugely in real terms but not the house itself.”
Yes, but often value of the site is strongly tied to the value of the improvements (buildings) on it. Often a site is value is enhanced because there is an improvement that is already tied to utilities and services.
For example; a rural vacant lot in the country with no services, could be worth less because there is no improvement and it’s grandfathered improvements and services.... (well, septic, or public services).
The costs to install or upgrade (if allowed!) could make future use as a dealing or business prohibitive.
Oh, and I agree about the mobile (or even modular home stuff). Same overall usage value as a stick built, but at a significant savings.
The only downfall being they are tornado and hurricane magnets. :-)
I don't think most people in this thread really understand what you are saying- but I do. Hubby and I lived the free spirit lifestyle until our oldest child started school. If homeschool would have been legal and as acceptable as it is now we might still be wandering. I wouldn't trade those times for anything, and at times wish we could still do it. Ahh the memories.
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