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Renters Gloat Over the Housing Slump
The Wall Street Journal Online/Yahoo! Finance ^ | December 29, 2006 | James R. Hagerty and George Anders

Posted on 12/29/2006 6:45:01 AM PST by Labyrinthos

The housing slump has been painful for millions of people who work in real estate or recently bought a house.

For Patrick Killelea, however, this year has been one long victory lap. Mr. Killelea, a 41-year-old software engineer, has long preached that it makes more economic sense to rent than buy homes. He recalls shouting "Wow!" when he heard about September's 9.7% drop in prices of new homes.

"I didn't want to gloat," he says. "But then again, maybe I did."

For years, Americans who refused to buy real estate at what they considered excessive prices were ribbed for failing to profit from one of the greatest booms in history. "Are You Missing the Real Estate Boom?" needled the title of a 2005 book by David Lereah, chief economist of the National Association of Realtors.

Now, with the housing market in a slump, renters who sat out the boom are finally getting some satisfaction...

(Excerpt) Read more at biz.yahoo.com ...


TOPICS: News/Current Events
KEYWORDS: housingboom; housingbust; mortgages; slumlordsrejoice; wheresmyequity
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To: Extremely Extreme Extremist
The money that goes towards rent goes NOWHERE.

The same can be said about money that a homeowner spends on closing costs, points, trasfer taxes, real estate taxes, interest on the note and mortgage, insurance, maintenance costs, and in many cases, home improvements.

21 posted on 12/29/2006 7:15:09 AM PST by Labyrinthos
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To: Labyrinthos

Renters wont be gloating when prices spike. They already are in NYC, something like 5% per month!


22 posted on 12/29/2006 7:16:41 AM PST by montag813
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To: fleagle
I've found a lot of working people with a decent credit score can buy a place for close to their rent plus their tax savings from the mortgage and property tax.

Some people rent out of preference or short term considerations, but many could buy, if they knew how to figure it out.

23 posted on 12/29/2006 7:17:20 AM PST by carolinalivin
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To: linda_22003
If you put money into an investment it compounds on the basis of what you put in. If you put the same amount into a 10% down payment on a rental, the appreciation is based on the total value of the house. The leverage is 9-10 times in favor of the real estate.

With my 3 rentals in southern California and in many other places, I'll greatly out run your 401(k) over a 30 year period.

24 posted on 12/29/2006 7:21:08 AM PST by carolinalivin
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To: Labyrinthos
"Mr. Baker has a history of forecasting bubbles early and often. He was quoted by newspapers in March 1997 -- three years before the tech-stock bubble burst -- as warning that equity prices were rising at an unsustainable pace.

That track record, he says, shields him from any snickering among his friends about his decision to cash out of real estate early. "Ever since I nailed the stock bubble, no one I know dares to razz me about my investment decisions," Mr. Baker says."

Let's see. If Mr. Super Genius "nailed" the stock market bubble and cashed in the equivalent of 1 share of the NASDAQ market at $1,250 in March of 1997 he missed the run up in the market to $5,000 over the next three years. If we assume he wasn't quite smart enough to predict the absolute top we can concede that he did miss the downturn as well. However, assuming he invested that $1,250 in treasury bonds in March 1997 at an average return of 5.5% (about right for the time period) he would now have $2,100. Of course, someone who just held onto the NASDAQ would now have $2,400. Brilliant call.

25 posted on 12/29/2006 7:21:32 AM PST by Lonely NY Conservative
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To: carolinalivin

That's fine. And as I said, I'm doing both, so I'm covered either way. Sounds like we'll both be fine.


26 posted on 12/29/2006 7:22:06 AM PST by linda_22003
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To: linda_22003

Happy New Year!


27 posted on 12/29/2006 7:23:59 AM PST by carolinalivin
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To: Labyrinthos
"The same can be said about money that a homeowner spends on closing costs, points, trasfer taxes, real estate taxes, interest on the note and mortgage, insurance, maintenance costs, and in many cases, home improvements"

And you think that when you rent you aren't paying for all those things? The owner that rents to you charges to cover all that plus a profit.

To each his own, but I think its foolish to rent unless you know you will be moving out of the area in 2 years or less.
28 posted on 12/29/2006 7:24:20 AM PST by Beagle8U
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To: Labyrinthos
It all depends on where you are located, whether it is safe to buy or wait. If you need a home to live in and you can afford the payments, then it is prudent to buy.

I have seen wealth generated my whole life by my parents and in laws on their real estate decisions. You have to live somewhere, try to buy if you can afford the payment. Most of the people today heading into retirement, with the possibility of not much social security, have huge sums built up in equity in their homes. Building wealth through real estate, has been a reality for decades, only the last couple of years has it been a little more risky, and only in a few places in the nation.

Real Estate is a long term investment.

29 posted on 12/29/2006 7:25:08 AM PST by thirst4truth
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To: Extremely Extreme Extremist

It's still a liability, like buying a car instead of leasing. Let other people make YOU rich.


30 posted on 12/29/2006 7:25:38 AM PST by 100-Fold_Return (MONEY Cometh To Me NOW)
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To: carolinalivin

No problem with real estate investments but the question at hand is rent or buy one's primary residence.


31 posted on 12/29/2006 7:26:48 AM PST by Rippin
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To: Rippin
That's like saying you'll never pay RE taxes while renting.

Sure you do. You pay real estate taxes on someone elses' property. When your lease is up, your landlord still owns the real estate and you have nothing to show for your your money.

If renting frees up cash flow that you use to max out your 401K I wouldn't be surprised if renting would help you build equity.

Interesting theory, but it seems pretty speculative. Most people rent because they can't afford to buy, not to maximize their 401Ks.

32 posted on 12/29/2006 7:28:14 AM PST by Kenton (All vices in moderation. I don't want to overdo any but I don't want to skip any either.)
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To: Labyrinthos

Real Estate has been berry, berry good to me! Three homes and two rental properties owned. Made a tidy profit each time I sold. :)

But, that's in the Midwest where things remain pretty stable. I would've been a fool to speculate as I did on either coast, or in the coastal south.


33 posted on 12/29/2006 7:28:57 AM PST by Diana in Wisconsin (Save The Earth. It's The Only Planet With Chocolate.)
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To: Always Right
"That is how every accountant would record the purchase of a house."

Exactly!! A home is an asset ONLY on the books--on paper--not in reality [no pun intended].

ONLY ON PAPER. kudos

34 posted on 12/29/2006 7:30:43 AM PST by 100-Fold_Return (MONEY Cometh To Me NOW)
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To: Rippin
I've commented on that earlier. Buy.

I talk to a lot of marines in Oceanside. Some of them move every 3 years. And they're in and out of Iraq. They don't want to buy. All they can see is the next move.

Sgt. and above have off-base housing allotments and still they rent.

One of our clients however is a 28 year old Gunney. We helped him buy here and then I went to Nevada to find him a house when he transferred to Bridgeport. He now has two houses appreciating. By the time he retires, he'll have 5 or 6 houses or a small aprtment building.

35 posted on 12/29/2006 7:31:35 AM PST by carolinalivin
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To: thirst4truth

Not exactly true... BUY, but only if you plan on owning at least 5-10 years. Yes, yes, I know in boom times we have seen prices go up in some markets insanely in 2-3 years.. however this is NOT the historical norms.

If you aren't planning on staying more than 5 years, you are taking a very big risk in buying. Appreciation on average over 5 years is usually more than enough to cover the cost of the sale of the home plus what you paid for it. Anything less than that on average and you are taking a huge risk of being underwater when you sell.

Real Estate is a great investment strategy LONG TERM... those that look at it with short term greed sooner or later find themselves burned. Skyrocketing markets cool, expanding markets contract etc etc etc. If you buy a house today with short term aspirations, you better be buying it WELL BELOW ITS VALUE TODAY! If there isn't money/equity on the table the day you buy.. don't buy.

Price is what you pay, VALUE is what you get.


36 posted on 12/29/2006 7:31:37 AM PST by HamiltonJay
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To: Maneesh
Dittos!!!!

Don't pay the mortgage and/or taxes and just see what an asset your house. Well put!

37 posted on 12/29/2006 7:33:16 AM PST by 100-Fold_Return (MONEY Cometh To Me NOW)
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To: Diana in Wisconsin

Rust Belt Investing is about as stable as you can get...just have to approach it with long term vision and understand the markets.

If you try the "get rich quick" view, you will get your butt handed to you quickly.


38 posted on 12/29/2006 7:33:43 AM PST by HamiltonJay
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To: carolinalivin
" That's a net asset."

Only on paper...it's a myth.

39 posted on 12/29/2006 7:34:46 AM PST by 100-Fold_Return (MONEY Cometh To Me NOW)
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To: Labyrinthos
If you have a "traditional" job then buying a house makes a lot of sense.

However, if you are self-employed and growing your business, it may make more sense to rent and use the cash difference to fund your business rather than have to spend your time taking care of a house. As long as the business is growing you are better off investing in your business than in a house.

40 posted on 12/29/2006 7:36:05 AM PST by ikka
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