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 ...
12,000 sqft??? I guess size does matter and I am behind with my 1,500 sq footer!!! LOL
In most states EVERYONE rents... just from their local taxing authority. Don’t think so? Just try to get away with not paying your yearly rental payment and see if you still have a home.
As far as buying vs renting.... in the end it really is a matter of your personal choice. ALL things considered, except for the occasional value blip, both in the end are about equal.
The decision is about how and when you want to use your money.
It's all about location and you live where you live because that's where you want to live and I respect that but there are places in this country where you can buy a fairly nice house for what you referred to as "down payment"
I am currently looking at a place in Missouri that has five bed rooms, four baths, full finished basement with a kitchen in it, large in ground pool with a pool house, 10 fenced acres and 2 horse barns at $185,000. 5 miles from the nearest store to buy so much as a loaf of bread and about 15 miles from more shopping. The pool is a negative to me because I don't want it. Another negative is a septic system, I know from experience that they are nothing but trouble but you don't get city sewer in the country. I live in Illinois and I want out of this socialist hell hole and Missouri is looking good. The house I now live in is paid for and would more than pay for the one in Missouri.
You and the bank own it now, soon only you and the property tax assessor will own it.
Example: Imagine a population of 100 people: 99 of them make $100,000 and the 100th person is Warren Buffet. Assume Warren Buffet made $50 million last year.
The mean income for the group is about $600,000. This really doesn't give an accurate picture of the typical person in the group, since $600,000 is six times the income of %99 of the people in the group.
That's why they use the median.
This is going to come off as overly grand, but I don't care.
For me, most people who live in America do not take advantage of the GREATEST freedom we have here, which is the freedom to choose one's own way of living.
I think too many of us haven't been exposed to how other people live in other cultures; multiculturalism is this silly, Sesame Street-rendition of "culture" but our young people don't realize what it's like to actually LIVE in another culture.
If they did, they wouldn't be thinking about Kwanzaa or such garbage--they'd be thinking "Wow, America is awesome!" and not just because of malls and TV.
It is nice to be free to choose, but ALL Americans have that freedom.
Yet so many just fall into patterns they've seen enacted.
Of course there are always drawbacks to every choice, and I'm aware of the things I've missed out on by living as I do. But everyone misses out on things in life. Not all of us take the reins and make choices their family and friends may not agree with. Too many people just go along and end up sitting in front of the tube after midnight when they're 60 wondering how the heck they got there.
The article discounted lifestyle and looked at the cost/benefit of renting vs. owning. Of course, buying is often more desireable for any family with children. He was just saying, when houses are too high compared with renting, it may not make financial sense to buy. Just like it makes no financial sense to buy a $40,000 car, when a $20,000 car will do the same job of moving people.
Your reason for owning is typical and a good reason.
This is a really interesting topic...central point is that Median Income has not kept up with Median House prices..
During the past 20 to 30 years there has been a slowly developing problem in that incomes have not kept up with prices..While the Fed kept the tight lid on wages (income) and prices, and that kept inflation in check, over the years, prices slipped out of the control box and went through the roof-—everything from groceries to health insurance to auto repairs, you name it..now since a home is the average person’s largest ‘investment’ they figure that the home must increase in value in order to keep up with the huge increases in prices all around them..We average joes understood that—the Fed did not..and now homeowners who want to sell are paying the price..best strategy is to stay put for the time being and let the market forces bring the prices down on homes...it will take the top off the bubble, but it still will not bring house prices down to near the median incomes...should say—down to the average ‘net’ median income...Incomes need to rise more- and the Tax Code, especially the AMT (Alternative Minimum Tax-cuts in at $70,000 Income) should also be adjusted to give relief to the working people in this country...and to think the Dems want to raise taxes to pay for ever increasing costly universal health care...
For me, it's not money thrown away, though, it's freedom. I've changed my job (from boredom) many times, and ditto with my location.
The freedom to quit work, give my landlord notice, pack up and move on is worth the price of the rent.
We built a house in Vegas 4 years ago. We sold it, pocketed $135,000 and have since rented the same house we sold for less than our mortgage was originally. Sometimes the market dictates whether it is wise to rent or own.
No they haven’t. But your right about exports. Imports will take a beating, in fact you should hear all the whining across the border, Canadian manufacuters crying about the high cnuck buck and low dollar. We can expect the same whining is going on in Europe and elsewhere. A low dollar is great for American exporters, so you won’t be hearing complaints in that part of the economy.
I noticed another peculiar thing today, Canadians are rushing to buy American greenbacks while it’s at par. That could drive our dollar back up again, depending on how much they are buying. Long, long lines today though.
Plus the weekend shoppers pouring over the border today from Canada. It’s like Christmas time.
Yes, that's what I meant when I talked about the time and expense involved. I think some people who defend ownership don't think about all those weekends spent working on the house...
My parents owned, and all of my closest friends own, so I know the headaches.
(assuming you invested the money you saved by not owning).
I imagine that if I had the money to save and invest that, for all my protesting, I'd give in to the impulse to own.
We rent. A nice place. Nice neighbors. Nice area. And a whole s-load of money left over to play with investments. I could buy a house outright right now. Why? In ‘03 I looked at a nice condo in Santa Clarita for $175K. Four years later the same thing goes for $450K. Something is wrong. And my money says no.
The taxes alone must be over $1000/month.
If you bought the house and put down %20, you would be carrying an $800,000 mortgage. At %6 interest, your payment on a 30 year loan would be over 4 1/2 thousand/month.
Only 6 or 7 hundred of that would go toward principal, and 4 grand would be interest.
You aren't "renting" that house: you're stealing it.
Or to put it another way: Your landlord could just sell the house and invest the money. Even government bonds would pay a lot more than $1800 a month if you bought a million dollars worth.(and that's ignoring the fact that your landlord isn't getting $1800 since most of your rent is going for the taxes)
Seattle’s median home price shot up over 500K this past month.
They figured that a single person whould have to have an average salary of 120,000 a year to be able to handle the mortgage payment. That’s fine, except the average income for seattle is less than half of that.
>>I think some people who defend ownership don’t think about all those weekends spent working on the house...<<
You are so right. It is always something, when you own a house. A few years ago, I woke up to water squirting out of a crack in my slate patio. It took a jack hammer, and five guys working for two days to repair the break in the line.
And, then there was the time that that the washing machine filled up, and didn’t turn off, and flooded my house in the middle of the night.
Another time - a microburst took off half my roof and it all had to be replaced.
This stuff is not ‘duck tape’ stuff. And, it all had to be repaired asap. (At my expense).
You should do whatever makes you happy and won't get you thrown in jail.
But where do you move too? And why can’t you just pack up and sell?
A condo is freedom too, not much different than renting. They usually sell fairly fast, OR you can even rent them out.
You can have freedom without being foolish with your money.
I won’t argue with your freedom to throw it away,However. I rent out several places and people like you are how I make some good money.
If I were you, and really wanted the max freedom to just quit my job and pack up and go where ever my heart desired, I’d buy a nice sailboat. You can pretty much go anywhere you want and live a pretty nice life. I have a few friends that do exactly that.
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