Posted: 19 Mar 2011 03:32 AM PDT
Today's featured article looks at how Americans are changing their views on the rent-versus-buy decision.
Irvine Home Address ... 4162 SALACIA Irvine, CA 92620
Back when real estate always went up -- or at least when that was a commonly accepted as fact -- the rent-versus-buy decisions wasn't primarily financial or investment oriented. Most often people would chose to rent instead of own because they valued mobility, didn't want the liability and responsibility of home ownership and maintenance, or a variety of other reasons. Until the market crashed, renters did not consider losing their down payment and more if they need to sell unexpectedly. Much to the chagrin of realtors, potential buyers now know crashes are possible.
Deciding used to be simple—buying a home always made sense. Then the bubble burst.
By Alina Tugend -- Wednesday, March 16, 2011
There are some people who get it. Equity is ownership. Negative equity is an oxymoron invented by the lending industry who preferred a nonsense term that made money-renters feel like home owners.
She recognizes the opportunity cost of loan ownership. Without HELOC money to supplement income, high debt-to-income ratio living is a real drag.
Those are the emotional payoffs of home ownership -- or at least the perception of home ownership minus the inconvenient reality of debt. When people feel ownership of something, they tend to take better care of it.
For example, I recently moved to a different rental (I am still Irvine Renter), and this property has beautiful wood floors. I so enjoy the beauty of these floors that I take care of them as if i were an owner. I am caring for the floors because I appreciate their beauty. I get the benefit of use, so I feel and act like an owner even though I merely rent. I take better care of the floors in my rental because I feel that emotional sense of ownership.
I haven't owned my primary residence for over 10 years now. I never thought that would happen, and I do miss many aspects of home ownership. Unfortunately, the reality of local price declines and the still staggering cost makes me stay on the sidelines. I can see the stars and moon aligning sometime in the next two or three years. I feel no urgency.
It amazing how much those myths are embedded in our culture.
We developed the IHB calculator because most of the online calculators are intentionally misleading. Most rent-versus-buy calculators were not designed to give people accurate information. Most of these calculators were designed be realtors with the intention to present buying in a favorable light no matter the truth. It part of the ongoing campaign by realtors to dupe buyers into action -- even if buying is harmful to the buyer -- to generate sales commissions.
We are planning an upgrade to the IHB calculator this year. We may go high tech. I believe it can be a very useful tool if it can be streamlined for easier use and to present accurate information as clearly as possible.
The sad reality is most new homeowners underestimate their monthly costs by 20% to 30%. The most difficult period for most first-time buyers is the first year or two when they adjust to what their house really costs.
An astute observer noted I have stated several times -- perhaps too many times -- people should expect to hold for seven to ten years to break even. Fair enough, but it is a message worth repeating, because most in Orange County real estate are still telling people rapid appreciation awaits those who buy today.
Many people who want prices to go back up quickly have complained about the tightening credit. I believe credit will tighten further and become more expensive going forward. The comment above reflects the current "bar" people must reach to buy a home. A FICO in the high 600s and 10% down is not onerous by historic standards.
Many in the lending industry have equated lower lending standards with progress. We are somehow going back to the stone ages of the 1970s by raising lending standards. Progress should not measured by how stupid banks can be with giving out free money to people who won't pay it back. Relaxed lending standards do not reflect progress, they reflect regression and stupidity.
When stated-income became the easiest conduit for Wall Street money, those programs were doomed. In many instances, we have probably thrown out the baby with the bath water when it comes to stated-income loans.
Some version of stated-income can be underwritten successfully. There are many ways the self-employed can demonstrate income, and programs using these sources as documentation will eventually return. However, right now, if you don't get a W-2, it is very difficult to provide lenders with income documentation they will accept. We should never return to the days of signature mortgages, but programs that accommodate alternate sources of income can and will return to the market in time.
That is the most important statement in the article. Prior to the collapse of the housing bubble, renting was universally derided as a sub-standard way of life. A tremendous amount of emotional baggage is attached to our desires to be home owners. Sometimes people just need to be given permission, the comfort of the herd, to make a change. The whole point of this article was to prepare people to emotionally accept the statement above.
Perhaps Irvine Renter is the start of a small national movement?
That truism is only factual when borrowers use fixed-rate mortgages. ARM borrowers do not gain the certainty of costs lower than renting that fixed-rate mortgage borrowers gain.
What does it say about her that she is a lesser citizen when she rents?
Freedom is renting. Given my new line of work, I strongly considered moving to Las Vegas. Since I rent, that is an option for me. A quarter to a third of home owners in America do not have the same freedom, and many of those people will not regain their freedom for a very long time.
Irvine Home Address ... 4162 SALACIA Irvine, CA 92620
I play too much Wii Golf
I really enjoy playing Wii Golf. I have the Tiger Woods golf game, and it is more realistic, but Wii Golf captures the essence of golf. The thrill of golf. Sometimes you are forced to cope with unfair bounces and bad breaks. Wii Golf is more like real life. Golf has always been a metaphor for life, for dealing with capricious fate. Wii Golf is an instructional spiritual practice.
Wii Golf was designed by gamers who were interested in good gameplay. Some of the architectural devices they use (trees in fairways, ridiculous green slopes, and others) are a turn-off to many seeking the golf course experience. I love these features because they force you to overcome them.
Wii golf is broken down into groups of three holes, a par 3, a par 4, and a par 5. Once you become proficient at the game, you expect to birdie nearly every hole. The par 5s offer an opportunity for an eagle 3 if the wind is favorable. Practically speaking, the best you can achieve on each three-hole group is -4 (four under par). I will usually be either -2 or -3 for each three-hole group. Most often I will shoot between 6 and 9 under par for a nine-hole round, but sometimes, when everything comes together, I can get to -10 or better. The round above was perfection.
I will spare you the shot-by-shot description of my brilliant play. No need to go into detail about the masterful judgment of ball physics and creative shotmaking only a golfing genius could ever attain. No, I won't recount the amazing three wood I sliced onto the third green to within 10 feet. but i have to share the final hole.
The par 5 ninth has always been a nemesis. It's set up to be reachable in two only if the wind is behind. No backwind, no chance for eagle. The green is severe with mounds and plateaus on the left side and a steep gradient on the right. There are many difficult pin placements and few easy ones.
I got my favorable backwind, and I judged my tee shot perfectly between a large central pine tree and the nearby left rough. it provides a hilltop driver "from the deck" that lands in a small patch of fairway between two greenside bunkers. Too short, and the ball is in the water, and too long, and it hits the green and bounds over the back. If you don't hit this tiny square, your ball does not end up on the green.
After managing to get on in two, I pinpointed the cup on the other side of the green -- the side you can't access with your second shot. I faced this 50+ foot putt with a swinging left-to-right break of great severity.
I stopped to laugh to myself about the degree of difficulty for a perfect score. The game was not making it easy for me. I used all my experience to try to pick a line and speed I believed would rattle the cup from three-putt land. As I watched it arc into the hole with perfect speed and break (I think the Wii helps you out sometimes), I felt a sense of satisfaction as deep as any experience I have enjoyed on a golf course. In some ways, more so.
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