patrick.net

They don’t like it, but that’s all they can afford, and they’d rather buy than rent.

This is my favorite.

Well, I am impervious to peer pressure. I am sub-consciously self-confident but consciously self-doubting.

Well, I am impervious to peer pressure. I am sub-consciously self-confident but consciously self-doubting.

You are the exact inverse of a typical American, Peter P.

I dont know if that’s true for today’s market though. Even with 20% down, I believe it’s still wont cover your monthly mortgage.

Don't worry, with 100% down, rent should cover HOA + tax + insurance.

Maybe people think that "renting = homeless"

However, if I am over-leveraged to the max by my mortgage payment, the bank can still kick me out of my house via foreclosure, so owning doesn’t necessarily offer much more security in an over-valued market.

Or the house can be destroyed by natural forces and you will still be on hook for the mortgage.

Philosophically, what does "ownership" entail?

Practically, what does it mean?

I doubt many "intangibles" are more than rheotics.

Purely for investment considerations (but not an advice of course): if you rent consider hedging by buying apartment REITs. That way if rent goes up you recoup (probably more than recoup) in capital gain and in dividend income.

To most people, hedging produces more risks. There are too many considerations. REITs are usually not local enough for this purpose anyway. Also, one needs quite a bit of leverage to have reasonable effectiveness. Finally, tax will throw more complexity into the equation. (I believe REIT incomes are taxed as ordinary income)

Renting is not that bad because rising rent usually accompanies rising income. If not, the person does not deserve the place anyway and he can/should move somewhere else.

Lots of people have investment mentality for owning, even if you dont live in it, you can always rent it to someone to cover for your mortgage.
I dont know if that’s true for today’s market though. Even with 20% down, I believe it’s still wont cover your monthly mortgage.

BINGO! This is true for practically ANY property along the Bubble Coasts right now. And that's before factoring in property tax, maintenance, homeowner's insurance, HOA, Mello-Roos, etc.

In open societies commitment to own is a case of putting your money where your mouth is. Ownership says you have an interest in the long term general interests of your community.

I tend to agree.

I didn’t mean to strictly hedge out the rent rises. I used it in a broader sense as in “finding something that anti-correlates”.

I know. :) Actually, it is also the only easy way for regular people to participate in non-residential real estates, like health care facilities, oil fields, malls, etc.

I am going to keep an eye on MACROs though.

I don’t visualize American’s consumption habits reverting back to a 20% down payment anymore than I can see Ozzie and Harriet making a comeback on the television.

Reflexivity of credit cycles. Reflexivity of regulations. :)

In At the Rise, why did you think that your house was overpriced in 2003?

After putting 20% down, your PITI should be less than 1200 a month. How much could it be rented for?

Nope I got in with 100% financing so my PITI is about 1300+. Could prob rent it out for 2000?

Then it was not overpriced at all. How could it be overpriced with your 100% financing PITI is significantly LESS than comparable rent?

In the Bay Area nowadays, house that can be rented for 2000 usually costs 650K or more.

The bubble was taking off about that time. My friends purchased similiar home 3-5 years before for way less so thats why I say overpriced.

Was rent going up during that time?

I wish i could find a house to rent for the same price or a little more i am paying for renting the apartment. You get more privacy than living in an Apartment. No worries about your neighbors stomping around above you and giving you sleepless nights.

Anyone know how to look for houses to rent ?

It is all about stuff and a place to put it. This is why I think there are actually good things about renting that many people overlook. Take my case in example. I rent a house with 2 others. The rent is cheap, the space is nice, and we even have a garage with a workshop. We each pay $450. Chicken feed. But... I also can never get out of my head the big question in the sky as to when or if we might have to pack up and leave, meaning months of prep, packing, tossing, and possibly downgrading in case rents go up.I've moved several times, so I am conditioned to be ready at a moment's notice. So I am constantly checking out how much crap I own. Crap as in speakers, books, old CD's, Bike parts, car parts, and clothes I own that I no longer use.I store what I use in cases and boxes that are easy to move. So I have yard sales, donate to goodwill, give away, sell on CL, etc. As a result, I have by far less clutter than any of my friends who own a house. My parents on the other hand would have to spend forever moving all the accumulated junk they own- most of which hasn't been touched in years. Stupid stuff like the barber chair my dad picked up, or mom's vast collection of 1980's dresses.
I think that the only thing houses can really assure people that want to buy one is that they proide a giant container for all the shit they buy over the years.Like egg-waves, Ipods, Singing bubba fish, and baby strollers. That way they can scrounge, collect, store, and rumage all they want without the worry of having to enevitably move for any reason... except these days there's no guarantee that that too won't happen just because you " own" something.
But to be honest, I too would like to someday packrat lots of worthless junk in a garage you can't even walk through. I'd like to have dusty baseball hats hanging in the garage, and massive stacks of magazines sitting next to the armchair. But for now, I just like being trim, and effcient, being capable of just throwing all my stuff in the truck and leaving.

Agree that At the Rise is in fairly decent shape. I might quibble over the amount that he would be able to rent the place out for, but the analysis is fairly sound.

I also think that his 2003 purchase price was a little high. Most SoCal homeowners aren't really in a position to purchase a $215k home. If one of the members of a two-income, blue collar family loses their job, $1300 per month can be a real stretch. Not impossible, but a stretch just the same. Arrearages are a real possibility. And if lending practices were sane, such a couple would never be able to come up with a $43,000 20% down payment; they might be able to scrape together $10,000 or $20,000 after many years of disciplined frugality, but that is it IMO. In light of this, I would say that the average Riverside County SFH should ideally go for around $150-$175k tops, and probably a little lower.

But at $215k, At the Rise himself is in good shape. He should be in a position to survive any downturn. Even if prices do fall, he shouldn't be affected. If I could somehow turn back the clock to 2003, I'd do exactly the same thing that he did. He is in an enviable positition.

I agree that there is a strong bias towards owning as opposed to renting, most of which have been well reasoned by others. I would add that before the most recent bubble, simply owning wasn't enough to establish social credibility. In fact, buying in a transitional area often met as much or more resistence from peers and family than renting in a good area (implying saving up enough down payment to buy a 'proper' home). I encountered this on the North Side of Chicago when I first transitioned from renter to buyer. Friends and family were dead set against buying anything "so near the projects". Today, this has shifted to "buy anything you can [or can't quite] afford, damned be the location".

There are some very strong qualities to owning over renting. As SQT said, stability. I'd extend this to knowing you can keep your kids in the same school, knowing when you pay the plumber to root the sewer at 2:00am that you're fixing your own pipes (not begging a landlord for recomp, risking he'll claim you must have broke it by having it fixed), and being able to adjust to family changes like having an elderly mother move in, installing wheel-chair ramps, etc.

The sheeple are illiterate regarding the history of housing in the 1900s. Housing was a "it only goes up" proposition from the end of the deflationary depression in 1897 to the 1929 crash. I/O suicide loans were the "only way to go" in the 1920s. It took a generation of renting during the depression to get the sheeple to forget how housing was risky. WWII vets were give nothing down loans and a new "it only goes up" generation was born. 60 years of going up almost continuosly is hard to fight.

60 years of going up almost continuosly is hard to fight.

60 years is less than one lifetime.

Here's a personal example of the biggest problem with renting:

(My wife and I are renting, after having been long time owners in the BA, due to a job move that brought us up to Marin from the Peninsula)

ME: (calls landlord) There is a pipe leaking and water is leaking into our son's bedroom, and since it's small it's dripping on his bed.

LANDLORD: Did you overflow a sink or toilet?

ME: There's no bathroom above his room (this is a house, btw, not a complex)

LANDLORD: Ok I'll send someone over to look tomorrow.

(2 weeks later)

ME: No one came to fix the leak, now the ceiling is severely damaged.

LL: Georje never came? I'll come tomorrow.

(a week later, he comes with Georje)

LL: Is there anything else wrong?

ME: Yes, the toilet runs, the microwave has never worked, the thermostat is broken [and so on]

(next morning)

ME: Hello, yes. You shut off the water to the upstairs bathroom. We couldn't take a shower. My wife had to use the gym shower at her health club to get ready for work.

LL: You guys must have kept overflowing water in the shower. This is a new house, the pipes can't be leaking.

ME: !#*(!@?! The bathroom is 40 feet on the other side of the house!

LL: Exactly. That's how the water's getting in. I'll have to asses the damage you guys caused and talk to you about it later.

ME: (hangs up phone, opens CL looking for other houses to rent. contemplates how much time i'll have to waste in small claims court with this bozo to get my hefty deposit back)

@PS,
well said.

@newsfreak,
one of your best poems so far.

Hedging is going to get easier in April 2006. The Chicago Mercantile Exchange is going to start trading House-Price Futures for 10 major cities in the United States. Three cities are in CA - San Diego, Los Angeles, and San Francisco.

Futures? I bet the liquidity will be very thin, considering that market makers cannot hedge their positions easily. We will see.

I will say that as far as homeowning goes, I don't feel any peer pressure from anyone I know, because everyone I know is around my age( 25-30) and none of them can now afford. So we are all in the same boat, so it doesn't feel that lonely. On the other hand, I see one of our neighbors, a 30-something guy with a kid and wife toiling out in the front yard of his tiny, crappy little house. He wear a cut lil' cowboy hat and all.. he's sooo proud that he bought the crappy shack someone built in the 40's, hoping someday they could move out and buy a real house. The above statement is dead on.. Young families these days are fighting just to get what yesteryear's generation considered lower class housing.

I do see creative mortgage products with equity protection features though.

Using index (housing price index) futures to hedge one particular asset is very dangerous. Options may be better, if the IV is not absurd.

Will the MACROs futures be binary, or have a standard future payoff? I've just started reading about them in detail recently.

Will the MACROs futures be binary, or have a standard future payoff? I’ve just started reading about them in detail recently.

Look up US Patent 5,987,435.

"Maybe you should lay off the Schlitz a bit and try a Martini or something a bit stronger."

All right Randy H: I'm sick of your irrelevant fact distorting ways! I'm taking you up on your offer! I challenge you to a duel! Tequila shots to the death! I demand satisfaction! Just name the bar, pal! Name the bar!

--DV

Any housing hedging instrument with digital payout is pretty much useless.

All right Randy H: I’m sick of your irrelevant fact distorting ways! I’m taking you up on your offer! I challenge you to a duel! Tequila shots to the death! I demand satisfaction! Just name the bar, pal! Name the bar!

How about Toro sashimi duel instead? Can I watch? Can I have the last piece?

Paint? IS the whole buying a house Vs renting really all about a bucket of semigloss home Depot acrylic? I swear, that's like the most common answer I ever hear from people who buy, or want to buy.. because they "wanted to be able to paint the walls any color they wanted." Every place I've ever rented, you could paint the walls anyway you wanted.. as long as you painted it back, which you'd have to do if you sell your place anyhow- including the outside and not to mention new carpets, fixtures, and who knows what else. In most place I rent, you could alter things as long as you got the landlord in on it, and since it was usually some sort of improvement, there wasn't a problem.
So in the end, that little can of paint becomes a 600k can of paint. Pretty expensive if you ask me.

There was a great description of the "I rent dance" over on Ben's blog. I haven't done it myself, but I'm tempted.

My wife frequently hosts play group at our house. When the moms see our 500 sq/ft great room and look out at our enormous back yard and huge pool/spa, they have to ask, "How much did you pay for this house?" When we answer, "We rent it for $2000/month" you can see the smoke come out of their ears trying to compare to what they pay a month. The light bulb goes off and they figure out that they should have rented instead of giving into their nesting instinct. A look of shock comes on their face. They suddenly think about everything that they are giving up, for LESS HOUSE. It's as predictable as the sun rise every time we get a new mom come through.

These are single income families in my neighborhood that pay $4000/mo or more for LESS HOUSE. On that single income, that tax deduction just doesn't mean as much. You could put away 401K and 529 money if you need the tax shelter.

Oh yeah, if you lose the one income due to outsourcing/layoffs/a housing driven recession, you're gonna be so screwed! I actually feel bad for these people. I've been there. That tax deductibility doesn't mean SQUAT when your income is limited to unemployment insurance. Very, very sad.

The job losses here haven't even got started. I was lucky that appreciation bailed me out nicely when I got in over my head (thank you, Jesus), not so for these folks. It's a damn shame. At least they may learn to appreciate the good things in life, which are all free.

No one has disdained me for renting in a loooooooooooong time! Did I mention the "I rent dance" on Ben's blog? It's nice not to have to worry about debt or how to make it through a recession.

--DV

I think many landlords will let you change color schemes, provided that you restore the walls to their original color when you leave.

I even talked to one that will allow us install central A/C, and they will even split the cost with us.

The point is that flexibility is possible with renting, if you find good landlords and are willing to be generous with them. Trust me, it will still be much cheaper than owning.

Sushi, hmmmmmmm, yes, sushi. Maybe not Toro. You could only eat like 3 pieces of that stuff. Too fatty. Sushi AND Tequila? Hmmmmm.

--DV

Maybe not Toro. You could only eat like 3 pieces of that stuff.

How about sea urchin? The first to gross out loses.

(Don't get me wrong, I love Uni. But large quantity of it will make you sick)

Hey DV,
Same thing with us. My wife's family is coming over next month along with her 2 brothers and their kids because out of all her family that lives here, we have the only house with a yard,and the living room big enough to host them. It's a 3 bedroom place with 2 stories, an office, 2 bathrooms, a balcony and deck, front porch, 2 car garage, garden and front and back yards.. all for 1700, which given the fact that 4 of us rent it means we pay $450 each. The real kicker is that 2 of the housemates are always gone, so it's like we rent the whole house to ourselves. People are amazed beyond belief that I tell them I rent a whole freakin' house for less than half of what they rent for in the city( we live in alameda) and less than 1/4 what someone would pay to buy this place. Cheap livin!

@Deo & Peter P,

How about Fugu (as in, prepare your own meal)? That would make it a "real" duel. :twisted:

ABG:

If we find the right sushi/tequila bar, I'll tell you a no shit honest to goodness true story. Only if you promise not to wear a wire. You can still be retried if your momma bought off the jury.

--DV