Renters Gloat Over the Housing Slump

The Wall Street Journal Online/Yahoo! Finance ^ | December 29, 2006 | James R. Hagerty and George Anders

[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...

[Labyrinthos]

Timing is everything.

[1rudeboy]

Housing prices rise: renters hit.
Housing prices fall: homeowners hit.
Housing prices flat: renters and homeowners hit.

That should cover it . . . .

[100-Fold_Return]

If one really investigates, while ignoring common wisdom, then it will become clear that a mortgage, therefore buying a home, is a LIABILITY, not an asset as presumed by the masses.

A mortgage[house] is ONLY an asset when OTHERS are paying the mortgages off, while putting a chunk of change in your pocket monthly. [Leasing or renting.]

[Kenton]

I'd say that it makes a great difference whether you are buying a house to live in, or buying a house as an investment.

But I know one thing - you'll never build equity by renting.

[poobear]

"Timing is everything."

Yep. Bought my 4/2 2550 sq. ft. in 2001 for $181,000. (Needed a little TLC) it is now worth $400,000. Can't afford to move. All who bought before the overvalued boom are sitting pretty. This renter is just trying to justify his poor timing. Cheers!

[Always Right]

Timing is everything.

Yep. This engineer is probably from silicon valley or somewhere that has seen a 100% run up in the last 6 years and is gloating because his market pulled back 9.7%. Remind me not to hire him as a financial advisor.

[Extremely Extreme Extremist]

The money that goes towards rent goes NOWHERE. Besides, why make other people rich?

[Always Right]

If one really investigates, while ignoring common wisdom, then it will become clear that a mortgage, therefore buying a home, is a LIABILITY, not an asset as presumed by the masses.

The note is a liability and the house is an asset. That is how every accountant would record the purchase of a house. Trying to claim that when you purchase a house, all you get is a liability is not accurate.

[Maneesh]

"If one really investigates, while ignoring common wisdom, then it will become clear that a mortgage, therefore buying a home, is a LIABILITY, not an asset as presumed by the masses.
A mortgage[house] is ONLY an asset when OTHERS are paying the mortgages off, while putting a chunk of change in your pocket monthly. [Leasing or renting.]"

You are absolutely right. Owning a home is the biggest liability as long as you live in it and pay the mortgage. It may appreciate in value and be an asset when you sell it but it is the biggest money sink while you live in it. The reasons to buy a home are more emotional and life can't be lived on logic only. The banks have a done a great job in brain washing the masses that a home is an asset and you need that tax deduction. Only something that puts money in your pocket every month is an asset and something which takes money out of your pocket is a liability.

[Rippin]

But I know one thing - you'll never build equity by renting.
_____________________________________________________

Not a helpful statement though is it? That's like saying you'll never pay RE taxes while renting.

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.

[carolinalivin]

Let the renters gloat all they want. I have three rentals and raised the rent in all three this year. Housing starts are down and population is up. Let us landlords have a little gloat of our own.

[carolinalivin]

In some areas even a mortgaged home can be an asset. Our pirmary residence has gone up over 30,000 per year, while the PITI is 22,000. That's a net asset.

[MissEdie]

My husband and I bought our 2 bedroom lake house several years ago for $80,000. I was recently told we could get well over $300,000 for it now.

[carolinalivin]

I'll take real estate equity in investment (rental) properties over 401 (k).

[Labyrinthos]

If one really investigates, while ignoring common wisdom, then it will become clear that a mortgage, therefore buying a home, is a LIABILITY, not an asset as presumed by the masses.

How right you are. I had this exact discussion over Christmas dinner and no matter how many times I explained the math, they just didn't get it.

[linda_22003]

And I take (and have) them both. :)

[carolinalivin]

I think 401 (k) is wasted investment, when you can do so much better in insurance grade investing or real estate. But suit yourself.

Best wishes!

[Centurion2000]

The note is a liability and the house is an asset. That is how every accountant would record the purchase of a house.

You would be absolutely stunned at how many people cannot make that distinction ... or maybe you wouldn't.

[fleagle]

"The money that goes towards rent goes NOWHERE."

Money that goes towards rent gives one a place to live. No, you certainly aren't building any equity while renting, but you aren't paying for a new roof or fixing a busted hot water heater.

There are some people who don't want to buy a house. I can appreciate that. Other people can't see renting. I can see that also. But money spent on rent is not a waste, unless you consider living with a roof over your head a "waste."

[linda_22003]

I do, thanks - when it gets up past a half million or so, it really snowballs. When I had $100k or so, I would have totally agreed with you. :)