There's No Shame in Renting, Home Prices Will Fall

[FutureChickenMan]

Ok, lemme give you some insight from a landlord (go ahead gasp it's ok).

Sure home prices might fall, but they aren't going fall in some magnificent crash. From what I've observed home prices have been reduced 10-20% in SOME areas not all. What you are seeing is not necessarily a crash, but a re-valuation. Meaning the homes were over priced to start with, and now the real value of the home is being established. Most renters are going to be looking at the lower priced homes, $110k-200k price range. These homes haven't so much dropped in price, they've just been sitting on the market longer. (Did I mention I flip houses too?) THe houses that use to sell in 30 days are now averaging 90 days on the market. The market has indeed slowed down, but it has not dried up.

Also, since banks are being watched for cruddy "deals" they're making less of them. Home buyers are being more careful about the loans they get now that they finally know what a ARM is because of the media.

The foreclosure issue you are seeing is caused by two things. First home buyers that couldn't afford the home they bought and two, lenders making crazy deals to get these underqualified people in to homes. Doing things like ARMs, 100% financing, rolling closing costs in to purchase price, etc.

Now take a thought in to this. Do the feds want the housing market to crash? Nope. So they'll make tax payers bail out those who got screwed up loans and are defaulting. (y'all seen that in the paper right?) The local govts, feds, and money power-players have too much at stake to let there be a crash.

As for renters, landlords will try to keep the good ones by not raising their rent in leaps and bounds and will usually raise the rent in winter 'cause nobody wants to move when the weather is crappy. Also the majority of renters don't have the capital to buy a house nor the credit. Just a cold hearted fact.

Considering you can buy a house with good credit and as little as 5% down, there's no reason any responsible person cannot buy a house. The trick is to make sure you are paying a fair value for the house and hang on to the house for at minimum 5 years before selling. Know your market, know what you can afford, jump in and buy a house. 'Cause if you don't chances are you'll be a renter for a long long time.

Former renter, now home owner, landlord to 3 investment properties that my renters pay for.

 

[jeaucamom]

Notices of Default
houses and condos

County/Region 2005Q3 2006Q3 %Chg
Los Angeles 3,233 5,565 72.1%
Orange 743 1,500 101.9%
San Diego 906 2,355 159.9%
Riverside 1,266 3,040 140.1%
San Bernardino 1,269 2,548 100.8%
Ventura 222 578 160.4%
SoCal Total 7,654 15,676 104.8%
San Francisco 71 149 109.9%
Alameda 438 803 83.3%
Contra Costa 507 1,012 99.6%
Santa Clara 430 670 55.8%
San Mateo 168 288 71.4%
Marin 56 89 58.9%
Solano 188 510 171.3%
Sonoma 126 231 83.3%
Napa 22 43 95.5%
Bay Area Total 2,006 3,795 89.2%
Santa Cruz 77 103 33.8%
Santa Barbara 64 188 193.8%
San Luis Obispo 50 94 88.0%
Monterey 83 202 143.4%
Coast Total 274 587 114.2%
Sacramento 697 1,388 99.1%
San Joaquin 323 898 178.0%
Placer 146 443 203.4%
Kern 361 741 105.3%
Fresno 372 789 112.1%
Madera 55 104 89.1%
Merced 132 282 113.6%
Tulare 117 268 129.1%
Yolo 48 101 110.4%
El Dorado 45 120 166.7%
Central Valley Total 2,417 6,017 148.9%
Mountains 56 159 183.9%
North Calif 199 471 136.7%
Statewide 12,606 26,705 111.8%




Source: DataQuick Information Systems



These are foreclosures in CA for 2005 and 2006. These percentages have gone up, up, up, over the last 4 quarters. I can't find the list for 2007, but they were even worse. Home prices in CA have drastically fallen over the last few years (on average they are worth 61% what they were just 2 years ago) and combine that with all these balloon payments due from families that really couldn't afford the monthly payments anyway.... and you get the picture. These are all listed by county in CA. I live in placer co. 203% increase last year, and if I remember correctly for my co. it was 271 % for 2007. The back lash to that is all these people are flooding the rental market and driving demand for rental homes through the roof. So, I can't afford to buy, and I don't have the credit since I DEEPLY believe that if you can't pay cash you can't afford it. But the rents are so high it is ludicrous. I pay 1350 for a small two bedroom duplex. The new 3/2 bath we are looking at on 3 acres is even more expensive. It is insane. But OTOH I have no desire to own my own home. Totally an odd perspective in this day and age, but it is just not part of my value system. My bible tells me to owe no man anything except love. It does not say except for a house, a car or an education. So I own my car, paid my way through college and am extraoardinarily content not owning a home. I am frustrated with the inflation in the rental market however. But that's life I guess.

 

[Royicus]

Erm... Paying rent means you pay someone else's mortgage and gain no equity. Owning a home, over time, you'll own that home and also over time, the value of that home will increase.

Unless you don't care about money or don't want the responsibilities that come with a house (and you can hire people to help with that), owning a home is one of the better things that you can do.

I'll keep an eye on the market, and talk with my financial adviser (Hi Mom!) before I purchase a home, but I do plan to within the coming year(s).

 

[speckledhen]

People don't value LAND like they used to. They buy these huge cookie-cutter houses on postage stamp lots rather than smaller houses on acreage or even just the acreage. No one wants to stay in the same place for very long, either. I saw people make lots of weird purchases as a realtor, buy houses I wouldn't buy, but hey, everyone wants something different, right? Well, land has value. A small house on a bigger parcel of land is a better investment than a big house on a small piece of land, IMO. I bought my house in 2002 with acreage. I then bought the extra acreage next to me when it went up for sale a year later. I am selling it now, if anyone will buy it, but only so I can pay off my small mortgage on the original house and small acreage I bought, under market I might add because it was an estate and needed some TLC. If it wasn't for wanting and really needing to pay off that mortgage because of the economy going in the toilet in the last few years, I'd keep my 3 acres to glean wood from and for privacy. I'd love to have more, not less.

 

[Rosalind]

People don't value LAND like they used to. They buy these huge cookie-cutter houses on postage stamp lots rather than smaller houses on acreage or even just the acreage.

Boy, I would have loved to have had you for my realtor.

My real estate agent could not get it through her head that I wanted at least two acres, more if possible. She kept showing me things on postage-stamp lots because they were cute or historical-looking. Every single time: "Yes, it's a nice place, but the neighbors are too close and where would I put my apple trees?" Almost like she didn't think I knew how big an acre is, she had a million objections to why more than an acre was too much to maintain. I gave up and just told her which houses I wanted to see after a while, instead of hoping she'd find something appropriate.

FWIW, if you are self-employed, it's really worth it to own. The mortgage deduction alone saves us a small fortune in federal taxes (I'm talking $12,000/year). When we rented, we paid a fortune in taxes. When we rented, our rent covered the mortgage payment + taxes on the landlord's house, so we were effectively paying taxes on the house in addition to fed. & state taxes, plus self-employment taxes and the tax you end up paying as a self-employed person to Social Security and all that. At least now we get that fed. deduction, makes it a little less painful.​

 

[silkiechicken]

I don't have much to say, but in the long run I believe that buying property is a good LONG TERM investment. Not something you get and then sell 5 years later. I live on acreage at home that my grandpa bought when he was younger last century. Up and down through depressions and recessions, the value has gone up AND DOWN with good and bad decades in the past 70 years or so, but in the end it has been a good thing as it is worth orders of magnitude more than it was originally. (Basically kept a good stride ahead of inflation.)

As for the "There is no Shame in Renting". I believe there is no shame in renting if you cannot afford to buy a home right away. It is a temporary situation. It is not ideal, but you have to start somewhere and renting is better than debt and foreclosure when it turns out that you can't keep up on rent, or are a student on the go.... and can't fork over 500k for a one bed room house near campus.

 

[verthandi]

Interesting topic, and I agree there is no shame in renting. But I bought my farm in 1980, paid my last mortage payment in 2000. Ahhh. My down payment was to take care of 30 head of dry cattle for 5 years for the former owner. Bit by bit the acreage around me has been sold off for new homes, I own paradise right in the middle of it. Grandfathered for farming much to their dismay.

I may have to do repairs and pay taxes, but I also live basically rent free. I'm just over 50 years old and only have basic utilities to pay and all those critter bills. No landlord to tell me what I can and can't do with my land or home. Life is good.

 

[Reinbeau]

Quote:
Boy, I would have loved to have had you for my realtor.

My real estate agent could not get it through her head that I wanted at least two acres, more if possible. She kept showing me things on postage-stamp lots because they were cute or historical-looking. Every single time: "Yes, it's a nice place, but the neighbors are too close and where would I put my apple trees?" Almost like she didn't think I knew how big an acre is, she had a million objections to why more than an acre was too much to maintain. I gave up and just told her which houses I wanted to see after a while, instead of hoping she'd find something appropriate.

I had the same problem years ago when I was looking for the house I'm in now. Most of the real estate people I worked with just didn't want to hear what I wanted, they only wanted to show me what they wanted to show me. Only one listened, and he's the one I ended up buying with. While I didn't end up with the land I really wanted, the house was exactly what I was looking for. I've got good neighbors, the land behind me is an eight acre rhododendron garden that'll most likely stay in that family forever. I've been here for 30 years now!

FWIW, if you are self-employed, it's really worth it to own. The mortgage deduction alone saves us a small fortune in federal taxes (I'm talking $12,000/year). When we rented, we paid a fortune in taxes. When we rented, our rent covered the mortgage payment + taxes on the landlord's house, so we were effectively paying taxes on the house in addition to fed. & state taxes, plus self-employment taxes and the tax you end up paying as a self-employed person to Social Security and all that. At least now we get that fed. deduction, makes it a little less painful.

It is always better to own than rent. You just have to be realistic about what you can afford. That's what got so many people into trouble, buying above what they should be buying. Those that even with those sub-prime mortgages ended up with marginal houses probably shouldn't have purchased anything at all. I feel sorry for them, but they were gullible and believed the mortgage seller who was only interested in making that sale - they got paid, they were done. Tough tookies for the poor buyer who had a mortgage that was going to become unmanageable for them in five years or so.​

 

[Galaxie_Man]

I have to say I think it depends on the situation. I have done both, rent and own. My personal objective is always to own my own home. When my wife and I were first married (1983), we wanted our own house. We were literally laughed at by banks and realtors. Our problem was we didn't make enough to qualify for a conventional mortgage, which at the time was 10% fixed with 20% down, and we made too much to qualify for first time buyer assistance programs. We stopped looking and paid rent. In June 1988, we were able to buy our first house, with an adjustable mortgage and a "secret" loan of $12,000.00 from my parents. At the time it was a sellers market, so we thought if we don't buy now, we probably never would be able to, because house prices were spiraling up out of sight, and we saw some real DUMPS! We bought a 38 year old, little 1000 square foot cape cod on a .20 acre city lot. 1 1/2 years later, we owed over $100,000.00 on a house that was now only worth $80,000.00 We paid back Mom and Dad in two years, all the while paying all our other bills and obligations. Our original plan was to only stay in the house a few years and move up, that plan was put on hold for a long time. We were not going to do what we saw other people do that were determined to move up, by taking a financial beating to do it. We stayed put, and did many major improvements and renovations in the 16 years we were there.
In May of 2004, we sold our house for what was a handsome cash pile leftover after paying off the mortgage, put everything into storage, and moved into an apartment while we searched for a new home. We lived above a veterinary hospital on a busy state road for 11 months, and had the house we live in now built on 3.4 acres in a rural town 20 miles from where our first house was. Because of our patience and willing to do what was necessary, we got what we always wanted. We had enough for the downpayment, upgrades, furnishings, and got a fantastic mortgage at 5.5% fixed. If the market tanks, I am only a loser on paper. Like the stock market, real estate goes up long term. Speculators and flippers need to beware.

 

[Galaxie_Man]

Quote:
We had a good laugh at the qualification letter we got from our bank, it said we could "afford" a $450,000.00 mortgage. My wife and I knew what we could really afford for a mortgage, and it was less than half of that. We took in to account things like food, utilities, gas for cars, taxes, insurance, etc. I wonder how many people see that kind of letter and think, "WOO HOO!!! Looky what we can buy!"