Defending Home Ownership
By Barry Ritholtz - August 28th, 2010, 10:42AM
Jonathan Miller and I have been kicking around an idea for a “Home ownership is a good thing” OpEd.
Apparently, we aren’t the only ones:
• Five Reasons to Stop Worrying About Your Home’s Value (Moneywatch)
• In Defense of Home Ownership (NYT)
None of these hit the issues and topics that we want to cover — but it is interesting that other folks are thinking along the same lines.
Now, if only I could figure out whether these articles are 1) Contrarian pushback against the dominant RE meme; or b) proof that the bottom is not yet here, as people cling to the hope of a RE recovery.
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August 28th, 2010 at 11:04 am
It’s only an asset if you can sell for a gain at some point and recoup the carrying costs. Even if you have skin in the game it has been ripped off ala Hannibal Lecter and your chance of a gain is perilous at best. More fluff pieces and no real solutions for the underwater crowd. The under water’s are still stuck in a 1930’s Dust Bowl scenario waiting for real action. If the banks want the properties back why not just let people turn them in without a ding to their credit report , call it a day and all those with pristine credit make the choice to buy or rent?
August 28th, 2010 at 11:13 am
How can a bottom be found until all of the folks who aren’t making payments are foreclosed upon? Those properties still need to come back on the market. At the present ‘extend and pretend’ rate I’d guess we have 5 more years until the bottom is arrived at.
August 28th, 2010 at 11:15 am
I watched rents go up around me in 1999 and decided to buy to insure I knew what my monthly nut would be for housing. The property taxes are not as much of an issue here in CA. With a 15 year loan @ 4.75, it is almost mine – then I’ll have no rent or mortgage payment.
I’d do it again in a heartbeat.
August 28th, 2010 at 11:17 am
A home is a place to live. Nothing more, nothing less. When Americans start to figure this out we will much better off as a society. As such, I still think we need to move 10-15% lower in prices before people have revulsion for homes as an asset class. Most people I know are still holding out hope for a recovery. They think that they will be able to sell in a few years, make a little profit (smaller than what they imagined a few years earlier, but still a decent profit) and then downsize to help fund their retirement. The problem as I see it, is that too many people are thinking the exact same thing. This leads me to the conclusions that: 1) these people are in for a rude awakening, and 2)we are still in the early to middle innings of the consumer spending pullback. I live in middle America and so many of the people on Wall Street are so far removed from how most Americans live, that they themselves will ultimately be shocked at where consumer spending finally bottoms. I hope that I am wrong, but I am afraid I will be correct. Keep up the good work, BR.
August 28th, 2010 at 11:27 am
I don’t want to buy until we see another 20% drop from here. Higher interest rates will come, eventually. If I buy before interest rates have risen significantly, then I’m likely overpaying.
August 28th, 2010 at 11:38 am
As I skimmed, I didn’t see a caution about over-investment (bad asset allocation). I’m probably too low in real estate allocation (my humble condo is valued at 2o% of my total net worth), but that low percentage does give me some feeling of safety.
August 28th, 2010 at 11:52 am
With a 15 year loan @ 4.75, it is almost mine – then I’ll have no rent or mortgage payment.
Some people call property taxes rent. Plus you have the upkeep. So you are not on free street, just easier street.
August 28th, 2010 at 11:54 am
I bought a rental in June. So far, so good.
Isn’t most of the damage concentrated in a few areas like CA, AZ, NV, FL. That seems a positive.
Negatives are the constant press attention to how bad it is and the jobs situation. There’s a lot less movement and a lot of fear over jobs.
I’d like to know to more about the concentrations of foreclosures and poor r.e. markets especially with regard to unemployment.
I think things may be better than painted.
August 28th, 2010 at 12:38 pm
These articles aren’t “proof” for anything. How could they be? This week has been full with good news about the real estate market, though. So, I’m optimistic about the further development.
Whether home ownership is a good thing depends on various factors. One is simply affordability compared to renting with a given personal income, one’s own debt load, other costs one has and pricing of homes in a market. In addition to one’s own financial situation, the answer here probably differs for various markets and market segments. I guess, homes for instance in Miami, San Diego, or Las Vegas have become much more affordable compared to, for instance, the market in New York City, where the ratio of home prices to income or to rent is still very high. According to my calculations, price to income ratios in latter would have to come down another 30 to 50% to get about in line with a pre-bubble normal. Buying here could be a big mistake, since there is a good chance that prices will come down much more in the current economic depression with its deflationary pressure, so that one would lose a large amount of money, if one bought now, unless one gets a very, very good deal way below the market average.
Whether owning a home is a good thing also depends on what does one want personally and what are the professional prospect for one’s own life. If the own job prospects are quite uncertain or if one needs flexibility to move, it might not be such a good idea to commit oneself to a place by buying a home, currently.
August 28th, 2010 at 1:26 pm
Which was the better investment, buying an apt in Manhattan in 2000 or taking that same money and buying and holding SPY? Durrrrr. I’m sure the answer will be the same in 2020.
August 28th, 2010 at 1:26 pm
“Some people call property taxes rent.”
Yeah, I’ve always looked at it this way. The nice govt allows you to live in ‘your’ home right up until the minute you fail to pay the rent, er, prop tax, at which time they will evict you and confiscate without prejudice.
@Chief – agree that we are years away from a true bottom. In addition to everything in the foreclosure pipeline there is an enormous shadow inventory (boomers downsizing, investors trying to dump rentals) which is trying to wait out a market recovery. Every time we get a sniff of recovery, a glut of these properties will come on the market and further depress prices.
August 28th, 2010 at 1:33 pm
There is decent evidence/analysis of a 16-20 year cycle in real estate. If we peaked in 2005, I wouldn’t expect the nadir of the cycle until 2013-2015. Even then, it doesn’t mean you’ll see a big rally…it just might mean we stop going down for awhile…maybe get a little bounce back. The cycle doesn’t feel “washed out” yet.
In terms of whether home ownership is a “good thing?”
Sure, it’s a nice idea, but the government shouldn’t have a role in the process. It should not be ‘national policy’ that we strongly incentivize home ownership via artificially low interest rates and tax subsidies. The whole affect has been to create a) a less mobile workforce; b) suburban crawl which is draining natural resources (longer commutes, etc); c) a surplus of workers who are ill-trained to do anything else but build homes.
The whole housing boom was a massive misallocation of resources into a non-yielding asset.
August 28th, 2010 at 1:38 pm
Not until property taxation is brought WAY down (and public sector unions busted), will there be a sustainable rebound in housing. Houses are at all times liabilities AND assets. Taxation shifts the balance towards the former in a huge way.
In NJ for example, a single individual can NOT afford an average home with an average wage. THAT is disgraceful and is indicative of potential further long-term deterioration in housing prices.
Furthermore – career instability (perceived or real), other cost of living issues (tuition for kids, oil/gas/heat/food etc.) are hidden taxes which undermine the ability for people to afford homes. The only ownership will be by the upper classes who will rent to the lower classes. People will flock to city centers as the economy shrinks so as to find work. Houses will be stable near job centers like NYC but will continue to get crushed in the outlying areas. Areas with second homes will get crushed as well. We have a LONG ways to go here.
August 28th, 2010 at 2:02 pm
I see some Hypocrisy in the prop taxes are the devil’s work argumwnt.
If you want to live in an area of good schools, paved roads, shopping, traffic controls, good sanitation services, public transport, parks, airports, entertainment camps, fire/police departments, decent neighbors and a sense of stability, those things (and their infrastructure) cost money.
You may not use all of the above but you benefit from their mere existence.
Maybe some peole don’t want all those “luxuries.” Lots of the country is undeveloped, and you can live there without all of these additional public services.
Don’t buy next to an airport and then bitch about the noise.
August 28th, 2010 at 2:05 pm
MayorQuimby;
Public sector unions have nothing to do why homes are so expensive in New Jersey. Why do you hate unions do much? Why not hate the banksters? They’ve done the most harm to the economy. Say public sector unions were busted, do you think property taxes will go done? Or would you rather be like Colorado Springs.
August 28th, 2010 at 2:18 pm
BR- Bah. I’m not talking about the Hamptons here. I’m talking Woodbridge, NJ. J6P-land. Sure – you can ultimately blame J^P (no one FORCED you to buy the house!) but that goes for anything really. The bottom line is property taxes are FINE to pay for services. But I’m NOT talking about normal taxation. I’m talking about ABUSE such as this:
http://1.bp.blogspot.com/_nSTO-vZpSgc/THgbF1V_JhI/AAAAAAAAJO4/9YhLdzQb2IA/s1600/cost+of+the+protected+class.png
Calvin-
Simply put, NONSENSE. I have no problem with private sector unions – in fact, I encourage them. But public sector unions should be BANNED. EVERY single dollar given to the public sector is taken via taxation. Let the free market determine wages, not political maneuverings. In the end, public sector unions are organized groups of humans trying to literally steal from their fellow human beings. There’s simply no excuse for the abuse brought about by the public sector. $100K pensions result in MILLIONS of dollars for a cop, firemen etc. that is ABUSE. There’s no way any cop or firemen is deserving of $2 million in GUARANTEED payouts for NOT contributing to society. NO one FORCED cops to be cops. They have a choice.
I stand by my post 100%.
August 28th, 2010 at 2:32 pm
If you want to live in an area of good schools, paved roads, shopping, traffic controls, good sanitation services, public transport, parks, airports, entertainment camps, fire/police departments, decent neighbors and a sense of stability, those things (and their infrastructure) cost money.
=============================================
Agree wholeheartedly. I don’t have too much of a problem with property tax for their intended purpose. It is the middleman fee I have the problem with. A good example is a 50 year old road that has been paid for many times over by my commerce and gas taxes that suddenly gets a toll on it because there is no other way from point A to B. That is blatantly dishonest rent seeking by power brokers
I also wonder if there might be a better way to deliver some of these services apart from a 60 year old model. Trying to get off the various grids will usually bring the man down on you and getting permits from city hall for permission is asking someone with a vested interest in pushing the status quo.
You are either stuck renting or owning in most cities. Only two ways to live with a minimum cost that are quite often dictated by the money powers. Try parking a camper on the outskirts of town or even on your own vacant lot and see how long that works
What I’m saying is that within city limits should be for the benefit of the people, not a fiefdom for the bureaucrats and power brokers who have put a dot on the map
August 28th, 2010 at 2:34 pm
“You may not use all of the above but you benefit from their mere existence.”
Yeah, but HOW MUCH do I benefit relative to other citizens? That’s the question. Why should a single individual who happens to own a lot of RE (lets say it’s vacant and undeveloped for the sake of argument) pay thousands upon thousands of dollars a year for the privilege of owning said property, when he makes no more demand on public services than a renter who pays no property taxes whatsoever?
August 28th, 2010 at 2:37 pm
ALL taxation is gvmt spending YOUR money FOR YOU. Ultimately, the provider of goods and services sees not YOU spending your money, but SOMEONE ELSE. Naturally – they cozy up to the SPENDER, NOT the provider of said money and it is at this juncture that you get corruption. If I buy your lunch FOR YOU, the guy at the deli is gonna give me free Yankees tix, invite me over for holidays and give me free food. One day, after he’s befriended me, he will complain that he needs to raise the price of YOUR LUNCH and I will naturally tell him it’s fine. Why? What do I care? If YOU don’t care that your lunch went up and I keep getting free Yankees tix and lunches for myself, everyone’s a winner!!!
Of course, you just got JACKED but if you don’t care, I’ll keep doing what I’ve been doing.
Welcome to the basics of politics. Leave your car unlocked and SOMEONE will steal your change eventually.
August 28th, 2010 at 2:37 pm
Your house is a liability unless it makes money for you. I don’t know why people put it in the asset column (esp when they overinflate the value).
Think of it like a stock..while it may be an asset on the balance sheet, in the cash flow statement its a negative with capital expenditures.
Having said that, I bought my first house at 23 and have owned a lot of rental property for the past 10 years. Home ownership seems to be in “correction” mode and will continue until the economy stabilizes. Keep in mind that this country was founded on the principles of persecution free land and a place to start a family without a king ruling over you. Home (and land) ownership are favored and have been since the Constitution was written.
August 28th, 2010 at 2:49 pm
So if a union (any union) is able to negotiate that a worker’s pension should be based on their last year of income, including overtime and bonuses, it’s the unions fault for being evil? The union shouldn’t try to maximize the outcome for its members? The union should be banned for doing so? Sounds like the free market working to me.
Now, I don’t think employee pensions should be determined that way, but it sounds to me like a failure on management’s part, not the union’s part.
I’m sure nothing of the sort happens at the other end of the payscale. ;-)
August 28th, 2010 at 3:00 pm
Darmah- When YOU spend your OWN money, YOU determine the price of any given good or service. When SOMEONE ELSE spends YOUR MONEY FOR YOU, THEY determine what YOU PAY for said good and service. IOW – there is a MARK-UP of corruption. If you polled the avg private worker WHO IS THE ONE PAYING FOR THE PUBLIC WORKER, and asked him/her what they were willing to pay for garbage pickup, police protection etc, ALL public workers would get a HUGE pay cut. And if they didn’t want to work for that amount, tough. Go get a job somewhere else.
Which would you prefer? Why not tax everyone at 100% and then let the few at the top dole out the sheckles? Of course, we’re all too busy to sit around worrying about paying for cops, garbage pick-up etc. so governmental spending abuse is a necessary evil of modern life. But I’d prefer to see it mitigated as much as possible.
August 28th, 2010 at 3:14 pm
f you polled the avg private worker WHO IS THE ONE PAYING FOR THE PUBLIC WORKER, and asked him/her what they were willing to pay for garbage pickup, police protection etc, ALL public workers would get a HUGE pay cut.
========================================
Ironically, if you offer those same people a government job they’ll snap it up in a heartbeat.
Ahhhh human nature. Ain’t she a beaut ;)
August 28th, 2010 at 3:23 pm
Surprised to see no discussion of the mobility issue.
My Big Pharma employer is closing the site I work at. All other Big Pharma in the area are either closing sites or cutting workforce. In order to work at our profession (MS and PhD scientists with +/- $100k salaries) relocation is the only option. Three of my colleagues have been lucky enough to find comparable paying jobs in the industry. One will write a $40k check to cover the fact that the sale price will not cover the mortgage, one is selling in a short sale, and one is taking a $75k loss on the sale of his house. In an industry that will continue to contract and outsource or move outright overseas to China and India at least two of the three have decided (sensibly I think) to rent at their new location despite the availability of corporate relocation assistance.
These three are among the lucky ones. Many have already left with no new job to relocate to. There will be more than a few foreclosures I think.
August 28th, 2010 at 3:27 pm
Hmm. I don’t determine the price of any given good or service only whether or not I wish to spend whatever they are asking. If you want to talk about the ‘mark-up of corruption’ and ‘they determining what you pay’, look no further than the Yankees or most any professional sport, or most any corporation for spending abuse.
As for local government, I have two options, voting or moving. The first I do almost every election. The second option I will probably have to face in a few years.
As for value, I can’t say as I haven’t live in NJ in over 35 years and don’t want to. But in my area, teachers are underpaid, cops about right, and the trash is done by a private company.
August 28th, 2010 at 3:29 pm
As for public unions – my wife is a public employee and member of a public employee union. Her union was recently given the choice of a 5% pay cut or jobs losses. They took the 5% pay cut. Being a member of a public employee union was little protection. The only value I could see was that management came to them and gave them some bad options to choose from whereas my private sector company simply announced its decision with no input from its rank and file employees.
August 28th, 2010 at 3:34 pm
@mark,
mobility, yes; I would like to know how the job situation, including mobility is affecting home ownership. I’m thinking this is having a bigger impact now than the r.e. bubble itself. Lack of jobs has picked up the baton from the bubble. I’d like to know that interplay, but don’t think it’s easy to determine.
August 28th, 2010 at 3:36 pm
Darmah- You forgot Eco 101. Actually 001. Supply and demand determines price. No demand = prices collapse. As for the Yankees – there is no mark-up. People voluntarily CHOOSE to pay for the Yes network, buy tix and t-shirts and support the ball club. With public sector workers – YOU HAVE NO CHOICE. The price is SET BY SOMEONE ELSE and you are FORCED to COMPLY quite literally at gunpoint. Your only recourse is to move to another area/state. With regards to Federal workers your only recourse is to leave the country. Supply and demand are tossed away and you lose ALL of your bargaining power.
Seriously, think about it. It’s all very basic and understandable.
August 28th, 2010 at 4:45 pm
@MayorQuimby
You forgot a lotta things. You do have choices other than leaving this country — which has one of the lower tax rates on people AND corporations, BTW ** ESPECIALLY IF YOU’RE RICH **
https://community.oecd.org/community/factblog/blog/2010/05/11/tax-who-pays-what
You can:
1) choose to give money to charitable causes that you support more than you do the boobs in DC
2) you can move to a state that has very low taxes — someplace like Wyoming
3) you can simply choose to make less money, and adjust the way you live so as to not generate a lot of taxable income
And BTW, when you buy a car, or a house, or a sandwich at a restaurant, exactly how much do you think your decisions on whether to buy there or not matter to the major corporations? About as much as the influence you have on your government.
So stop yer bellyachin’ and live in the real world, not some fairyland where you get services at a low cost (compared to the rest of the world, and unless you are from Remulac, this world is all you have to chose from), but not as cheaply as you would like to. Yeah, I’d like to have a goobermint that doesn’t blow my tax dollars like coke up their nose, but that isn’t the real world.
August 28th, 2010 at 4:55 pm
BR: “If you want to live in an area of good schools, paved roads, shopping, traffic controls, good sanitation services, public transport, parks, airports, entertainment camps, fire/police departments, decent neighbors and a sense of stability, those things (and their infrastructure) cost money. ”
Re: “good schools”
There is a better way to have “good schools” and at the same time not to pay high property taxes. Why should your neighbor Barry pay for your kid’s education? Why not to privatize the public schools and cut property taxes? Why should I pay high property taxes to subsidize your kids and illegal alien anchor babies education? Why?
Re: “shopping”
Shopping centers should be paid for by the businesses that operate them, not by the taxpayers.
Re: “decent neighbors and a sense of stability”
I am perplexed as to how paying high property taxes can give anyone “a sense of stability” or “decent neighbors”?
Re: “good sanitation services”
Do you really believe that in order to have “good sanitation services” you need to have unionized public overpaid sanitation workers? There are private non-unionized contractors who will pick up your garbage Barry for a fraction of what you are paying to the union thugs.
Etc.
August 28th, 2010 at 4:56 pm
Jurgen
You are part of a tribe, a social primate that lives, eats, survives collectively through the labors of yourself and your neighbors.
You exchange your labors and the goods/services it produces for the goods/services the rest of society produces. You also share in the costs of the tribe — looking out for lions, foraging for fresh fruit, selecting a mate, picking the nits off of each other’s fur.
You have evolved to be a social creature, and there are things that you cannot do alone that we collectively decide to have society do for you. It is called Democracy, and all of the above are produced thru a voting process.
~~~
Privitazation of schools is another one of those ideological fantasies that won’t happen in the real world. Please point us to a private school system that can educate an entire towns kids better/cheaper than public schools. And if its a real town with more than 200 kids, even better.
Some things can be done better by the private sector — like private garbage collection (although they take the garbage to the public dump!). But roads, lights, hospitals, police, etc. just are not idea for a private provider.
August 28th, 2010 at 5:03 pm
Constant I didn’t forget diddly squat. You have no choice, PERIOD. Your tax money is taken at gunpoint and given to whomever elected officials choose to favor. End of story. The ONLY choice you have is to go to jail, fight (get shot) or leave. As for comparisons, I really don’t give two wet dumps what the rest of the world does. I care about what happens to ME, my family, my friends and my culture. And I don’t like what is happening around me. But in the end – rebalancing WILL occur, whether people want it or not. Giving to charities has nothing to do with taxation and public sector pension abuse.
“this country — which has one of the lower tax rates on people AND corporations, BTW ** ESPECIALLY IF YOU’RE RICH **”
Nothing wrong with being rich. As for taxation, BULLCRAP. We have incredibly high effective taxation. Add up the DOZENS of taxes on EVERYTHING from alcohol to SALT to SUGAR to FATS to PHONES, GAS, AIRFARE, SALES, COMMUTING, ELECTRICITY etc etc etc etc etc etc and you’ll find that based upon disposable income, we’re no better off than many other western nations.
“And BTW, when you buy a car, or a house, or a sandwich at a restaurant, exactly how much do you think your decisions on whether to buy there or not matter to the major corporations? About as much as the influence you have on your government.”
I don’t HAVE TO buy ANY of those things. I can buy a cheap used car and eat at home. Hell – I can grow my own food if I want. But as it stands now – I HAVE to pay for Joe Smith’s $145,000 pension to the tune of $8K per annum (in NJ on average – not me but for the sake of argument).
“So stop yer bellyachin’ and live in the real world,”
The ‘real world’ is what you make of it. I’ll continue to belly ache thank you kindly.
“Yeah, I’d like to have a goobermint that doesn’t blow my tax dollars like coke up their nose, but that isn’t the real world.”
Wrong. They can only take what you are willing to give. Grow a pair, educate people around you and make a difference. This is the ONLY country capable of righting such a mess. Your attitude will not cut it and the kleptocracy will prevail.
August 28th, 2010 at 5:09 pm
Fascinating debate today.
August 28th, 2010 at 5:24 pm
MayorQuimby — have you EVER had a gun pointed at you by your government? No? Didn’t think so. Ever known anyone personally who has had that experience? No?
“Add up the DOZENS of taxes on EVERYTHING from alcohol to SALT to SUGAR to FATS to PHONES, GAS, AIRFARE, SALES, COMMUTING, ELECTRICITY etc etc etc etc etc etc and you’ll find that based upon disposable income, we’re no better off than many other western nations.”
Prove it. Do the work, show me the numbers, or stop ranting about that which you cannot demonstrate. There is a reason why people are so eager to come here, despite our substandard health care and lousy schools — based on performance vs cost, in both instances. It is because we have more of our money left after taxes, and have more control over what we do with it, than almost any other nation.
FYI — the kleptocracy has already prevailed, the result of many decades of steady erosion of the goobermint that was unique on this planet, the ONLY one in history expressly designed to protect its citizens from itself. That government is dead and buried, and it ain’t NEVER comin’ back.
Too late to fix problems that have been decades in the making, by Republicans and Democrats who cheerfully lied their way into office and proceeded to weaken the legislative frameworks, like termites in a rotten building.
Fuggedaboudit. You and I will never agree on this, there is no point to further argument.
August 28th, 2010 at 5:37 pm
My mortgage has been paid off since 2002. Without the benefit of the mortgage tax credit, my records show that taxes, maintenance and insurance consume almost exactly 5% of the home’s original value annually. I paid 1.4x annual income for it in 2000 and it’s down just about 10% from the original purchase price.
Evaluated as an investment, it’s been terrible. It was the wise man who said “If it flies, floats, rolls, screws, needs feeding or painting, then lease it.”
August 28th, 2010 at 5:44 pm
I haven’t forgotten Eco 101, 001, or supply and demand. But I do know that prices are determined by a lot more than supply and demand.
I think some might argue about the markup or lack thereof for Yankees tickets. I suspect there are a few taxpayers unhappy about footing the bill for stadiums. I have no bargaining power to speak of for most things; it’s usually a binary decision – buy or don’t buy.
Nor can I determine the wages of private workers any more than I can of public workers.
Whatever system you come up with, people are gonna work it however they can to their advantage.
You won’t be buying much of anything if you’re this upset about public pensions and apply the same logic to public corporations.
And, yeah, I have moved twice to get away from what I thought was unreasonable taxation (among other factors) for the quality of life in return.
Back on topic — anybody have any comments on mobility / unemployment on the housing market and is there someway to look at that regionally?
August 28th, 2010 at 5:49 pm
“MayorQuimby — have you EVER had a gun pointed at you by your government? No? Didn’t think so. Ever known anyone personally who has had that experience? No?”
Try and avoid paying your taxes and you WILL experience it. Once AGAIN – you have NO CHOICE when it comes to supporting abusive public sectors and I’m tiring of belaboring this issue. Accept it. It is fact. You can pay, leave or go to jail (or taste a 9mm bullet. Yummy.).
“Prove it. Do the work, show me the numbers, or stop ranting about that which you cannot demonstrate. There is a reason why people are so eager to come here, despite our substandard health care and lousy schools — based on performance vs cost, in both instances. It is because we have more of our money left after taxes, and have more control over what we do with it, than almost any other nation.”
No. Do your own research. I bet that we are near or at the top of disposable income for 2010 but that doesn’t account for per capita income, purchasing power relative to peers nor does it include greater cost of living expenses such as longer commutes (America is very much spread out forcing us to travel more and pay more for certain goods such as food), tuition prices, health care deductibles NOR will it include future tax increases, health care contributions and social security issues – all of which are huge concerns near term. Simply put – the nation is getting poorer and the middle class will bear the brunt of this deterioration in lifestyle.
“There is a reason why people are so eager to come here, despite our substandard health care and lousy schools — based on performance vs cost, in both instances. It is because we have more of our money left after taxes,”
Not at all. It’s because we have JOBS here. It is NOT a quality of life issue. There are countries with MUCH higher per capita incomes but they don’t let anyone in and have no employment. We do. Check that – we USED to.
“it ain’t NEVER comin’ back.”
Given up already? Not me.
“Fuggedaboudit. You and I will never agree on this, there is no point to further argument.”
“Too late to fix problems that have been decades in the making,”
It’s NEVER too late.
August 28th, 2010 at 5:50 pm
“Some people call property taxes rent.”
You’re always paying that. If you are a renter, it’s not like your landlord is donating your taxes for you out of the goodness of his or her heart. You just don’t see it itemized. If you want to dodge that, you are going to have to live in your RV parked semi-legally on the street somewhere.
We are in the same situation as snapshot. Paid it all off because it was the best guaranteed return going. It’s true maintenance can get you, but after fifteen years of doing repairs right, we can now coast on that too. It’s when you first take possession that the house can feel like a sinkhole for cash. It is easy living, by which I mean the monthly wine budget just went up 5x.
August 28th, 2010 at 5:54 pm
“But I do know that prices are determined by a lot more than supply and demand.”
Nope – that’s it. Even a weaker currency is accounted for in basic supply and demand issues since the purchasing power of the currency is diminished which equates to weaker demand all things being equal.
“Whatever system you come up with, people are gonna work it however they can to their advantage.”
It’s up to YOU to constrain the abuse. You lock your car at night right? Well, this is the equivalent. Pay attention and do not let them steal from you.
“You won’t be buying much of anything if you’re this upset about public pensions and apply the same logic to public corporations.”
I’m not applying the same logic, you are! I’m saying the two have NOTHING to do with each other. Re-read the debate.
August 28th, 2010 at 6:11 pm
MayorQuimby said:
“In the end, public sector unions are organized groups of humans trying to literally steal from their fellow human beings.”
In the end, corporations in their modern incarnation are organized groups of humans trying to literally steal from their fellow human beings. The whole execu-entitlement culture that permeates corporations is testament to this. If the CEO of a company makes 400 TIMES the amount of money of the average worker, while Corporations are cash hoarding and slashing jobs, all the while paying almost nothing in taxes, I see that as literally stealing from their fellow human beings.
MayorQuimby Says:
“There’s simply no excuse for the abuse brought about by the public sector. $100K pensions result in MILLIONS of dollars for a cop, firemen etc. that is ABUSE. There’s no way any cop or firemen is deserving of $2 million in GUARANTEED payouts for NOT contributing to society. NO one FORCED cops to be cops. They have a choice.”
There is simply no excuse for the abuse brought about by the private sector and the execu-entitlement culture. Million dollar pensions result in Tens or Hundreds of millions for a C-level executive, VP, etc. that is ABUSE. There’s no way any CEO or VP is deserving of Tens or Hundreds of millions in GUARANTEED payouts for NOT contributing to society.
You gotta set of stones on you if you think that Cops or Firemen aren’t contributing to society. I think a lot of public sector workers contribute more to society then C-level execs. I see the executive culture in this country as one of the greatest cons ever pulled. A bunch of glorified, self absorbed, overzealous, narcissistic salespeople that have managed to somehow convince everyone that what they do is HUNDREDS OF TIMES more important then what everyone else does. The truth is that the money that the top 1% makes isn’t from any sort of productive labor or real contribution to society, but COMES AT THE EXPENSE OF EVERYONE ELSE.
August 28th, 2010 at 6:18 pm
I think that Constant is settling here. I admire Mayor’s willingness to fight ‘the good battle’. Shouldn’t we all make every effort to stand up for what is fair, just and equitable. Especially now? I mean, I have a very hard time seeing our country being pulled down by our current entitlement system, and feel strongly that those educated enough to realize the essential wrongness here, need to stand up and make themselves be heard. Good decisions should not be punished. Our hard work should not enrich those too lazy to invest in their own development (education, work ethic, smart financial choices). It’s one thing to feel humbled by success and decide to help those less fortunate—it’s quite another when our (GASP) government decides to take our gains and redistribute them–as they see fit.
August 28th, 2010 at 7:13 pm
For those looking for a good model to compare Rent vs. Buy, I would suggest this one. It’s the best I have seen.
http://www.khanacademy.org/video/renting-vs–buying-a-home
After years of being a homeowner of a primary residence and vacation homes, I am now fully 100% in the camp that it is better to rent than own, unless the property you own can generate some rental income to cover the expenses. Home ownership at this point should be viewed as an emotional investment, not a financial one. It’s a bad financial investment at this point. Happy to debate this one with anybody, by the way. (but only on facts and data).
We made the conscious decision a year ago to sell our home, take the cash, and rent a very nice home closer into town. After one year of adjusting to the emotions of it all, I can tell you it’s a no-brainer. And, funny, I never thought I would said that. I was trapped for years in the home ownership “best investment” myth.
Now our plan is to rent for our primary residence and own our vacation home on the beach. How is that for ass backward?
August 28th, 2010 at 7:21 pm
One more thing.
The bottom is not here yet. At some point in time (even if it is years away) interest rates will rise. When rates rise for mortgages, people will qualify for smaller loans than now (basic math), and this will push prices lower.
I ask you this: If mortgage rates are currently at the lowest level in history and prices are still falling, how will prices increase when rates start rising? Mortgage rates have been falling since the early 1980′s. That’s almost 30 years of a downward drift in interest rates. That’s secular, not cyclical. Come on, think about it.
August 28th, 2010 at 7:25 pm
“b) proof that the bottom is not yet here, as people cling to the hope of a RE recovery.”
if you’re talking of RRE, be betting b).. (heavily)…
~~
“If you want to live in an area of good schools, paved roads…”–BR, above..
BR,
simply, where’s ‘the Research’ that details ~”more Cash=better student outcomes”?
and, really, have you ever seen the, literal, ‘Employment Rolls’ at those various ‘Gov’t Entities’ that you think should be so expensive (or, otherwise, ‘decent people’ wouldn’t show up/populate the environs..)
sounds more like ‘Closet Discrimination’ from the “Price is the only *Legal Form of Discrimination”-School..
http://www.thefreedictionary.com/discrimination
August 28th, 2010 at 8:10 pm
The NAR would want you to believe the former. The C-S data suggests the latter. To revert to pre credit bubble mean levels, it appears from the charts that there is still another 15-20% to drop. However, most markets overshoot in a correction?
The supply overhang, including the shadow inventory in the Banks is too large to see prices stable at these levels.
August 28th, 2010 at 9:52 pm
38 comments and not much to show for it:
1. ‘National price of real estate’ conversations are fairly pointless to me besides an another economic data point. As individual real estate holder and investor in rental properties, I care about what is occurring locally. Prices haven’t dropped that much in any area I own real estate (general single digits or flat) because frankly they never went up that much in PA especially compared to other parts of the country. Real estate like politics is local first and foremost.
2. This malaise in real estate prices is likely going to linger for years to come in both residental and commerical really is going to push local budgets to their limit and likely cause a reordering of a tax model that primarily relies upon property taxes and real estate transfers to provide a majority of funds.
3. We are going to see this get nasty as a young vs. old issue. It already happened in my school district where my kids go this year. Seniors or Boomers nearing retirement (and there are a number of them because it is PA although it is an affluent area outside of Philly) balk at paying any property taxes or having their property taxes reassessed even though the values of homes greatly exceed their assessed value even with a slight decrease in prices. To them, every tax is generally too high accept when you brings up services that they use including the local Office of Aging, social workers, etc. Frankly, it is absurd at the levels at which our society is investing in its most elderly members compared to its youth and this is only slated to get worse as more Boomers increasingly enter retirement.
4. Homeownership policy is effected in a huge way by federal tax policy and other incentives. While I have seen some general agreement on issues (stopping interest deduction on 2nd homes, etc), there has been little ground or consensus on what a new policy should look like including the mortgage tax interest deduction (biggest single expense to the federal gov’t revenues at around $80B last year) or what role there is for the gov’t in mortgage-backed securities.
Home ownership certainly has had some benefits but it also has created an American society that is increasing immobile, spreadout, and possibly sucking up too much investment capital to the detriment of other industries.
I just don’t know how any party gets around radically changing the present system because people have grown very accustomed to the idea of a 30-year fix mortgage which is something that is entirely an artifical creation due to federal tax policy and role in mortgage-backed securities. People from both sides of aisle would balk at going back to a system of say 65-70 years where you were required to typically put 40-50% down and then had another single or series of balloon payments 5-7 years afterwards. There was no such thing as a 15- or 30-year fixed loan and home ownership was dramatically lower (mid 40s vs. a high that reached I think 67% in ’06 or ’07)
August 28th, 2010 at 9:54 pm
Home ownership sucks. Unless it makes financial sense, rent.
I’ve never understood why people want to wallow in POO (Pride Of Ownership).
Let’s see … slave to a mortgage or freedom to upgrade or downgrade upon termination of a lease?
It’s crazy. There is a guy at my office living 6 blocks from the beach in a 3 bedroom with his family for about $2,000 per month and he’s going to drop the downpayment and $God-knows-what per month for something north about 20 min and inland. Why? They want to own!
Unless my adjusted cost of owning = my cost of renting I would be renting. IF I tried to buy I would look at rental property or try to utilize the $250k exemption for 5-yr ownership tax rules.
I think the problem with home ownership is people get into it for the wrong reasons. I understand the sentimental value, but it totally screws many people out of their quality of life and is one of the larger and most misunderstood financial risks they take on.
But what do I know…
August 28th, 2010 at 9:57 pm
Other point is that a majority of Americans have their wealth primarily tied up in real estate (especially their primary residence). If we move to discourage this through new policy at the federal policy, there is going to have to be an alternative created to allow Americans to accrue enough benefits for retirement in other saving vehicles.
Please don’t tell me that 401ks and IRAs are the answer either especially 401ks which at best have been a mixed policy solution with some pretty crummy results.
August 28th, 2010 at 10:30 pm
MQ is correct.
Protect yourself and the future, do not reelect incumbents.
August 28th, 2010 at 11:59 pm
WOW! A discussion on the value of home ownership ends in arguements about public workers’ unions. Why am I no longer surprised that we have, as a nation, become so politically dysfunctional.
There are valid reasons for home ownership. And of course, if you are smart, reasons NOT to buy a home in a market where values can be altered at the whim of the US governmnt or the banksters. For the New York investor-”Boy am I glad I bought that $800,000 McMansion on the West Side of Las Vegas” Yep, Boy Howdy!!!
August 29th, 2010 at 4:19 am
THE DETESTABLES
http://williambanzai7.blogspot.com/2010/08/econofools.html
August 29th, 2010 at 5:28 am
Cuts both ways. Sure the flexibility to drop a lease and upgrade or down is great but it equally blows to have your landlord decide your future. This summer alone I’ve had two great friends have their leases not offered for renewel and they’re scrambling trying to find a place. So maybe I missed a class in school that laid out the rent v. own decision process, but regardless of the financials; if you love the place you live, who cares, if everyone you bring home gawks at your ceiling height, isn’t that alone worth it?
August 29th, 2010 at 7:35 am
At some point a lot of “small investor” money currently in low yield “safe” accounts will be scrambling to find protection from inflation. My guess is that a lot of that money will flow into real estate, either in rental income properties or in upgrades to living in a larger house. Most of these investors will not be comfortable with other type of inflation-protected investment.
However, I would not be surprised if we first get that 5-15% fall in prices that Barry has been predicting. There are a lot of resets coming in 2011 if I remember right. But that kind of a dip is the perfect set up for a lot of money piling back into housing in 2012 (when inflation begins to show its teeth).
August 29th, 2010 at 10:25 am
So much wishful thinking about a “housing recovery” here. I wonder how many of those thinking that “now is the best time to buy a home – as investment” know how long it took for housing to at least keep up with inflation after the S&L debacle in Texas…
With the job market place as it is, most people will be better off by keeping their “relocation door” opened. Easiest way to do that at this time is to lease.
Also from one of the articles:
“You can still make money on a house, even if the pessimists are right. If you put 20% down on a home and it rises by the rate of inflation, your equity appreciates at five times the rate of inflation. There’s no guarantee that there will be any appreciation at all–that’s the risk–and maintenance and taxes will take away some of your return. But you don’t need a bubble to be rewarded for taking the risk.”
So this guy thinks that leverage works only in the “up” direction? Really?
August 29th, 2010 at 12:17 pm
@SilverBug:
Tell your friends to always negotiate their lease before they sign it. For example: get a series of one year options to renew after the first term expires. Never sign a one year lease without an option to renew if you choose to.
August 29th, 2010 at 12:26 pm
This is one of these questions based on the fallacy that the same decision is right for all people. Whether to buy a home or not depends more on individual circumstances than on market factors.
And even if you are just talking about real estate as an investment, you’ll get vastly different answers in different locations in the country. Buying a home near a growing government center like Washington D.C. is probably a good idea. Buying one in a dying city like Detroit is a risky proposition. Anywhere the population is fleeing is going to be difficult.
August 29th, 2010 at 9:31 pm
This might be old news, but seems relevant on the possibility it’s not:
http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2010/08/26/prices_drop_but_hopes_never_do/
NOT EVEN a 30 percent drop in housing prices can shake the idea that prices always go up.
Economists Karl Case and Robert Shiller regularly ask new home buyers about what they think will happen to housing prices over the next 10 years. Amazingly, in the 2010 round of the survey, new buyers in Boston reported that they expected housing prices to rise by about 12 percent per year over the next decade, which is almost as unrealistic as the 13-percent-per-year growth buyers expected in 2005. Wildly optimistic beliefs about house price appreciation encourage unwise purchases and help justify mistaken policies that prod Americans to bet borrowed money on housing.
August 29th, 2010 at 9:46 pm
Also, re, mbelardes comment: “I think the problem with home ownership is people get into it for the wrong reasons.”
Amen to that! In my humble opinion, most people would be better off viewing their home as a “quality of life asset.” By that I mean, you buy a home primarily for the intangible (non-financial) long term returns — stability and comfort, pride of ownership, place to raise a family, and so on.
If you can financially break even on a deal like that — getting your money back in keeping with the pace of inflation over time — it’s a great deal. Trying to turn a home into a financial investment, however, is all too often a thinly veneered excuse to stretch too far.
As with most everything else in the financial world, it goes back to “caveat emptor,” or maybe TANSTAAFL. Joe Sixpack is highly discouraged from managing his own money — an army of mutual fund managers and financial planners stand at the ready to do that — but he is readily advised to see his home as an “investment,” the biggest one he is likely to ever make, because it is precisely this model that best serves the real estate industry.
If you look at all this stuff through a Darwinian lens and regularly ask “cui bono” — who benefits — it all makes sense… most conventional financial wisdom rose to mainstream prominence via aggressive promotion from non-disinterested parties. As Canada Bill Jones once opined, “It’s immoral to let a sucker keep his money…”
August 30th, 2010 at 1:11 pm
Captain Jack says- “In my humble opinion, most people would be better off viewing their home as a “quality of life asset.” By that I mean, you buy a home primarily for the intangible (non-financial) long term returns — stability and comfort, pride of ownership, place to raise a family, and so on. ”
This is how a traditionalist sees it and I agree wholeheartedly. This is a total lifestyle choice and there is a certain ideal tied to it….but like marriage, its not for everyone. These days its a committment that does require thought, but the foundation for that basis is shifting gears methinks. “Upgrading” to the next house will be become passe for the traditionalists.