Now That Housing Has Soured, Renters Are Glad They Didn't Buy

[marmar]

from RealEstateJournal.com, via Yahoo!



Now That Housing Has Soured, Renters Are Glad They Didn't Buy
by Jane Hodges
Thursday, November 1, 2007


With the housing-market slowdown, tightening mortgage-lending standards and rising home foreclosures, renters are more easily answering the question: "Why rent when you can own?" Such a question was common during the housing boom, when homeowners, happy with the gains their homes were making -- at least on paper -- would urge non-property-owner friends to join the party.

The conventional real estate wisdom holds that owning a home is a better investment than renting. Real-estate values tend to appreciate over time (despite temporary negative blips in home prices) and homeowners who hold mortgages -- at least those who financed with fixed-rate loans -- know exactly what their monthly housing payments will be for the length of their loan. Renters don't have the same certainty.

But some renters say that the price hikes they may face when they renew a lease are manageable, especially in light of today's housing-market troubles. Several areas across the U.S. that saw substantial home-price appreciation during the housing boom also experienced steep property-tax increases, and mortgage costs for adjustable-rate or subprime loan borrowers can be tough as rates push higher. What's more, home buyers who bought at the top of the market can find themselves with high mortgage payments for an asset that has lost much of its value. With the housing market in flux, it makes sense to hold off on buying, renters say. Now, these renters are asking, "Why own when you can rent?"

Take Jim Kollross, vice president of finance at Telephia, a consumer research firm in San Francisco. In 2003, he and his wife bought a 2,000-square-foot house in the city's Inner Sunset neighborhood for $825,000, but sold the three-bedroom, two-bathroom home two years later with plans of renting a home indefinitely. Their property went up in value approximately 60% during the two years they owned it, and they wanted to sell while its value was still high. Such steep appreciation signals an unstable market, Mr. Kollross says, and he'd rather rent than risk watching his home's value balloon, only to stagnate, or even worse -- fall.

Mr. Kollross, 37, told his mother that he planned to sell and rent an apartment instead. He recalls that her first question was, "Did you lose your job?"

He and his wife sold their place for just over $1.3 million in 2005 and currently lease a 1,700-square-foot flat in San Francisco's prestigious Laurel Heights section. Their new neighborhood is nicer and affords him a faster commute, Mr. Kollross says. Plus, their two-bedroom, two-bathroom apartment has city and San Francisco Bay views and includes a garage parking spot and off-street parking. While the rent is a steep $3,000 a month, he says the price of owning a comparable home in his area -- where home prices start at $2 million -- is three times higher. ......(more)

The complete piece is at: http://finance.yahoo.com/real-estate/article/103796/Now-That-Housing-Has-Soured,-Renters-Are-Glad-They-Didn't-Buy

[RuleOfNah]

1. On the other hand...

A collapsing housing market creates additional renters (those that lost their homes), forced migration (landlords sell your rental to cash in before it is too late), and a depressed economy (which impacts wages, which impacts ability to pay rent).

It is the kinder, gentler post-Katrina Shock Doctrine.

[girl gone mad]

2. Who could afford to buy in SF recently..

without some kind of crazy interest only or ARM loan? I'm guessing very few people. It's a shame how greed has ravaged such a nice city.

[demnan]

3. I've thought about this

But what happens in this type of economy is that rent prices go up because of demand. My fixed-rate mortgage went down $20 this year. (On edit, taxes are taken out and the value lowered for once).

I bought my condo in 2004 with an adjustable rate ARM I was so afraid of that that I didn't wait the second year but refinanced the next year for a fixed rate mortgage at 5.5%. I bought in on the easy side in the hot Nothern VA market as a single woman and now can still survive and own my small home.

I hope to take retirement money and pay what ever is left of the mortgage off when I retire. With that, and my rather higher rate of SSN due to my higher salary, if it still exists, I can live comfortably. Can these renters say the same?

No, they will still be paying the month to month.

I might even qualify for a reverse mortgage.

[Rosemary2205]

4. I disagree COMPLETELY

If one is in a volatile market - west coast, or NYC etc then maybe - but for the vast majority of Americans, a careful, thoughtful purchase, with a knowledgeable well established agent, lots of research, and buying a house one can afford to put 10% minimum down on and takes a maximum of 30% of one's income for the PITI is still a better choice than renting -- IF one is going to stay put for any length of time. Those who are stuck with contract work and constantly move all over the country -- people in transition -- have a whole other problem on their hands and likely renting IS their best choice -- as it was for decades upon decades before the predators got out of the techs and into real estate.

People were allowed to get in over their heads with dreams of garden tubs and island kitchens in their heads. No one bothered to give buyers a dose of reality because they all wanted the commissions from higher priced home sales.

And shame on Yahoo for taking a balloon market like San Fran and scaring the shit out of all of America with it. Middle America can buy a house. It takes a little more work than it used to but this is the biggest purchase people are likely to make in a lifetime.

[midnight armadillo]

7. And I disagree with you

If one is in a volatile market - west coast, or NYC etc then maybe - but for the vast majority of Americans, a careful, thoughtful purchase, with a knowledgeable well established agent, lots of research, and buying a house one can afford to put 10% minimum down on and takes a maximum of 30% of one's income for the PITI is still a better choice than renting -- IF one is going to stay put for any length of time. Those who are stuck with contract work and constantly move all over the country -- people in transition -- have a whole other problem on their hands and likely renting IS their best choice -- as it was for decades upon decades before the predators got out of the techs and into real estate.


Market volatility isn't the problem, it's the housing is overvalued by about 30-50% relative to incomes according to historical norms. Buying now is just throwing your money into a pit of negative equity since values are sure to continue to fall over at least the next 18 months.

[Rosemary2205]

8. That is only true for a few markets

What you said is true only in a few extremely hot markets. I realize people who live in those few "hot" markets like to think they live in the center of the universe and the whole world is just like them, but it isn't so. MOST of the country has not seen double digit or even triple digit appreciation - what's more like in MOST of the country is that developers are building bigger "dream" houses and people are opting to spend just a little over their heads instead of the little well built affordable house down the street.

This housing thing isn't a "one size fits all" problem and neither is the solution. IMHO

[NashVegas]

10. Ding! Ding! Ding! Ding!

Market volatility isn't the problem, it's the housing is overvalued by about 30-50% relative to incomes according to historical norms.

AFAIC housing was that overvalued in 2003, and where I am, it hasn't yet come back down to anything remotely reasonable.

Right now, the only things affordable to 30% of my income (and Ann Landers always said no more than 25%) are in Outer Bumfuck, or in neighborhoods where you hear gunshots at night and will need to put another 20-50k into rehabbing it.

My income is just a tiny bit over the mean, and well over the median, for Americans. You want us to go shopping at Home Depot & Lowes, then make/sell affordable homes for our income brackets that aren't constructed out of tar paper!

[Deja Q]

9. Given the need to move around due to layoffs (for whatever reason), and amongst other reasons,

the concept of housing is increasingly outdated.

[Rosemary2205]

12. In "my" market that seems limited to the larger house market.

I'm familiar with 4 different markets - metro Atlanta, Metro Cleveland Ohio, Dearborn, Mich area, and Metro St. Louis. I consistently see a lot of turnover in areas with 2500sq ft plus homes in the burbs - or loft/condo spaces in downtown areas. In contrast, the more affordable home neighborhoods 1500 sq ft or less - you might go 5-10 years without even one house in the neighborhood go up for sale.

I know contract work is becoming more common for people with advanced degrees and certainly they want stability and a good investment too. It presents some unique problems, that is for sure. But for most of America, certainly those without college degrees, they still tend to buy and stay put for a long time - normally within 30 miles of the parents. And of course there are myraid of people in between.

As I said, the housing market is not "one size fits all" and the solution isn't either. IMHO Yahoo is silly for taking a particularly hot market like San Fran and making it look like the whole country is in the same boat.

[hfojvt]

5. Yeah, if I could sell my home for $475,000 in tax free income

I would do it too but I wouldn't be renting or working any more either.

[no_hypocrisy]

6. It depends upon the region where the real estate is located.

I had a young couple who closed on property that was not worth the sales price ($239,000). The home inspection revealed a home that was reminiscent of the kind in The Money Pit or Mr. Blandings Builds His Dream House. The foundation had major cracks, black mold all over, etc. Their real estate agent tried to talk them out of the deal. But they were determined to buy it. I tried to use the inspection report to get a lower price but the Seller wouldn't budge more than $3,000, a pittance.

When it closing approaching I discovered why the Seller wouldn't and probably couldn't reduce the sales price: He had bought the property five years prior for about $75,000 less and had refinanced at a new price that was $6,000 less than the sales price with maybe $15,000 equity in the house. Countrywide Mortgage must have seen a similar home inspection report and still approved the refinance at the higher appraisal value. My clients were paying for Countrywide's greed for more capital that wasn't supported by home improvement/repairs or even by the rising price of real estate.

[NashVegas]

11. There's a Lot Of That

People have been told for the last 10-15 years that your home is the "greatest investment you'll ever make."

What they aren't told is that experienced, successful, investors know when to walk away from a losing stock. They won't try to hold onto it, hoping it regains its value. They accept the loss and walk away.

When your home is your sole investment, no one wants to take the loss.

[krabigirl]

13. As a renter, I'm glad, but with a growing family, we'd like to own eventually.

We need roots. We rent a house, which is great because of the space, but once I have another baby, we'd like to own. Probably at the end of the year. I know, I know, the market won't be at the bottom, or even close, by then. Life sucks. But we plan to stay for more than 10 years in the house, and prices are falling where we live. Also, our landlord is a pain in the ass. :) Seriously, it's so hard to get her to make repairs, and I sometimes am concerned that she'd sell the place quickly and we'd be out.

[ileus]

14. It's the renters turn to buy now...