Renting has it’s downside…Market info…and more!
But what are the downsides to renting? I know that many people have experienced bad landlords. Some of these people never made repairs, were pains to deal with, or worse, lost the property with 'you' renting it. I know that there are some horror stories out there, but do they outweight the economic costs we looked at earlier this week? I have had mostly good experiences from renting, so I am going to look to the readers to share some 'horror' stories here. I have excellent credit, I have never had a problem making deposits, and I have been lucky to find good situations with good landlords. I did have a situation a few years ago where I had to move out in a weekend, but all in all, I have not had any problems renting.
I know that having to move and not feeling 'secure' is probably the biggest drag on renting. My advice is to sign year long leases with landlords that you have 'interviewed', or find good apartment complexes that are not going anywhere, or plan to be converted to condos. I know that moving is even more of a pain when you have kids and family. But is the pain of possibly having to move a time or two worth the monetary saving by renting in high priced areas? I think it is. I would have to pay over 2x my rent to buy my place with an interest only mortgage. I'd rather rent from my landlord, pay half as much, and not have a huge mortgage hanging over my head...than 'rent' from the bank and the government with an interest only loan and $500 a month property taxes. I know most people just focus on the monthly payment, but you have to look at the amount of debt you are taking on as well. Is it really worth spending 3-4k a month to 'own' that condo that you can rent for $1400? Only you can make this decision for yourself, I'm just telling you what I think at this point in time.
I want to share this information from a reader. Some of you might have read it already, but I think it is worth reading again. I know I have read it several times, and I can't help but think that families like this are not alone. Let's see how they handled their buy vs. rent situation in a high cost area, WITH children.
-----I have one of those perfect families, and wanted to share my story. Despite my husband's very good salary, we lived paycheck to paycheck, due to the high cost of housing in San Diego. We finally sold our house, to cash out at the top. Now we rent for a little less money, and paid off all those credit cards that we used to pay for car repairs, property taxes, and other "unexpected" expenses.
When we moved to San Diego from Arizona in 1999, we almost couldn't afford a home. We stretched to get a 30-yr mortgage, buying one of the cheapest houses in a suburb of San Diego desirable for its good schools. In Arizona, we had a 15 yr mortgage, because we chose to buy a cheaper house than what we qualified for, so we could have a house paid off when hubby retires. That prudent financial plan was shot when we arrived here. To get into the school district we wanted (and no, it's not on the coast either), we needed to get a 30 yr mortgage, and stretch into the payments.
At that time, PITI was 30% of gross income, and I think that was pretty high. Basically, after the 401K contribution and taxes taken from the paycheck, the first payment of the month covered the mortgage and groceries for 2 weeks. That left the other paycheck to cover the other 2 weeks of groceries, gas ($300/month), kids' activities ($700- $900) , a car payment, life insurance, car repairs, home maintenance, clothing, etc. Needless to say, every time the car broke down, it went on the credit card. Every time the annual property tax bill came due, it went on credit.
And forget about vacations - we just couldn't afford them. We did not use credit to spend on vacations, a new car. We bought used cars, and had one paid off. Although we took a few vacations over the last couple years, it was done on credit. There was no way we could save up for that.
And remember, we were only spending 30% of our income on a mortgage.
What about the people spending even more than that, the ones having to go no doc just to qualify? How are they paying for it?
It is popularly reported that US consumers don't save because they are spending their home equity, so they don't need to save. True. BUT: the bigger reason they don't save is the HIGH mortgage payment. They can't afford to save.
And when an unexpected expense arises, take it out of your house. You need to tap your equity just to pay the bills these days!
And to those of you who post with your stories of how much you save, how you never buy anything on credit, I ask you this: 1. Do you have any kids, and if so, do you offer them opportunities for piano lessons, gymnastics, soccer, tutoring? Not all of those, of course, but at least one or 2 activities per kid. 2. Do you live in a high-rent or cheap-rent part of the country? Is it possible for you to pay less than $2K/month to rent?
If you are a good parent and provide after-school activities, plus care about their education and therefore move to a part of town w/ a good school (which costs more), plus you live in a high-cost-of-living area in the country, AND you are debt free, then I am impressed. If you are debt free because you don't have kids to raise, or you live in Wyoming (where you can rent a house for $800/month), then you don't have bragging rights.
I am sharing this personal information only to show how a typical American middle-income family, w/ young children, has had to struggle financially, even though we bought a house 6 years ago, before the bubble was so big. No one in our situation could be expected to save much. Those who bought after we did, are much worse off. My husband makes money in the top 10%, and it hasn't been easy for us. How much harder is it for people with less income, who bought in the last few years?
I would love to hear more stories from people who are honest as I was, who can say "I was in over my head too because of these high housing prices".-----
So there you have it. An honest and straightforward explanation of one family's decision to rent vs. buy at this time. You can read more about this readers situation here.
Let's look at some market conditions right now.
Before I get to the loan side of things, I'd like to point out that there are 16,397 properties for sale in San Diego (maybe more or less when you check). When I checked earlier in the day it was at 16,352. Remember that just 2 weeks ago the inventory stood at 15,568. Ok...onto the loans.
As you can imagine, there is nothing groundbreaking going on out there in the industry right now. I knew that things were going to slow down going into the holidays, and I figured it would be the March timeframe until things picked up noticebly. It seems that more people are 'testing' the waters, but not liking the temperature. More people are seeing the rates, and instead of refinancing early, they are waiting until pre-pay penalties expire. Things are still pretty slow on the subprime side, and I see that continuing for another few weeks at least. A-paper is still clicking along, with some of my offices doing 80% of their business with the option-ARM.
That said, I'm sure most of you can tell that I see the writing on the wall. Hence the extra work going into this blog and working on getting the consulting page where I want it. I'm not going to be one of those people that just 'hopes' it will be 2003 again...or that thinks will 'take off' again during the spring. I read the data, I know what I have seen, and I have my opinions on what I think is going to happen. That is why I believe in having a contingency plan. Waiting until the subprime industry hits a major speed bump, is not the time to go 'what happened?' and try to figure out what to do. I'm sure things will pick up some, but nothing like past years. Even the media is starting to discuss many of the crazy loans that are largely responsible for the boom in the mortgage industry. Once the domino's start falling, I have a hard time believing that subprime will continue to exist as it has the past few years. It will always 'be there', but the rates will be higher as investors will DEMAND a high risk premium again. Once the 'stated income tsunami' washes ashore and makes people look like fools for giving Wal-Mart greeters 400k loans, look for some changes in the industry. I could be wrong, only time will tell. Either way, it never hurts to have a back-up plan.
I want to take a moment here and get serious. I have some startling information to share with you. I was passed this 'secret' info by a reader and I want everybody to take 3 minutes out of their day and watch this educational video clip titled DEBT. Just click on the link that says "watch an ad to view the site for FREE" and you won't have to register or anything. There is some startling information in there. Sometimes the things that sound so simple are the hardest to understand. Let me know what you think.
I am going to keep making my posts over here, but most of the comments are happening at the new site. Go to...
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