Journal SlashChick's Journal: Why I Rent (Alternate Title: Why The Bay Area Sucks) 20
In one of my previous journal entries, Liora made a comment that I've been meaning to reply to for a while. She said, "The interest rates pretty much mandate it such that renting is just dumb. Rent is throwing money away."
This is absolutely true for most of the country. It's absolutely NOT true for the Bay Area (hence the alternate title.)
Before we go on, I should mention a few things:
1) I rent;
2) I believe that housing prices in the Bay Area will drop about 10% (or perhaps more) in the next 3-5 years.
Why? Read on.
I just signed a 1-year lease for a 2BR/1.5BA condo for $1475 a month. This is the reason why I leased.
That is a link to a similar condo in Pacifica... a 2BR/1.5 bath, just like I have, and of the same vintage (built in 1972). They are asking $342,500 for it. This means that with a $68,500 down payment, I'd have to pay $1675 a month to own it.
Stop and think about this for a minute. Supposedly, the whole point of owning is that you aren't "throwing your money away" (i.e. a mortgage payment should be cheaper than renting the equivalent property), but I could put $70,000 down on this condo and have nothing to show for it except a larger mortgage payment than I would pay in rent. A housing price devaluation of 10% or more could completely wipe out any equity that I would have in the house after only a year or so of owning it. As many people learned with the stock market, it's extremely dangerous to always count on your investments to go up (like many people assumed both now with housing and in 1998-1999 with the stock market.) A lot of wealth was completely wiped out in 2000-2001 with the stock market devaluation. Imagine what any housing price devaluation will do to people who have saved up $50,000 or more to make a down payment, only to watch their equity disappear as housing prices face the same adjustment the stock market did.
Why will housing prices drop? To put it bluntly, they have to. Renting cannot forever be cheaper than owning, or people who buy investment properties will be out of work. People cannot afford to keep bleeding cash on investment properties like they are now. Plus, once interest rates go back up, those first-time home buyers who have been saturating the home-buying market right now will no longer be interested in buying. Thus, housing demand will drop, supply will keep going up (as builders keep building new houses and condos), and prices on houses will start to fall. And they will fall more than most people will expect. I'm forecasting an overall drop of 10%. It could be more, or it could take 5 years to hit 10%. But it will happen. This will wipe out a lot of equity for a LOT of people.
Renting vs. owning is a huge sticking point for me. I would love to own property. I could probably afford to own property in the Midwest. And I probably would own at this point if I lived in the Midwest. But in the Bay Area, it's not justifiable to own when you look at the numbers.
I'd rather take $68,500 and invest it into my company... that way, whatever return I get on it is directly influenced by me and how well I do sales. I know I can take that $68,500, put it into Simpli, and turn it into a revenue generator of $10,000 a month or more. There is no way I could do the same thing with a house. And that is why I rent.
Smart (Score:2)
Those of you thinking of buying in an economically vulnerable area would be wise to consider what happened in New England and certain places in Texas in the eighties.
Due to massive job losses, a sufficiently large number of people were unable to make the mortgage payments and the banks foreclosed and sold the properties in such numbers that the market completely tanked. As a result the banks weren't even getting back their equity in the houses, which meant that, in the eyes of the IRS, the difference bet
Why I Rant (Score:3, Informative)
Whoa! Back up a minute here. The idea is that the mortgage payments are divided into two parts; the interest you pay the bank for borrowing their money (really, other bank customer's money) and the amortization (actual paying back of the money). The interest part just goes away, never to be seen again. The amortization is "paying back to yourself" since it's money you won't have to pay back when the property is sold. If you keep the condo for ten years and sell it for the same price you bought it, you'll only be down the interest (minus the tax breaks you can get for them), the amortized part will be back in your pocket.
I would love to own property.
Most people do. And that's why it can be more expensive to buy than to rent. People are willing to pay a premium to be able to tear down an interior wall, build a garage, keep a few dogs, have trees for the kids to climb and basically tinker with one's own home. Stuff you can't do when you rent. If you haven't noticed, I'm mostly comparing renting an apartment to buying a house. It's a little apples and oranges, but it's what most people (gross generalization) choose between. Maybe not in the bay area, but in the civilized world. ;-)
Very fem people think of a house as an investment. Most people just want to live in it. Condos are a little different since we don't get so many fringe benefits from them as from a house. A condo is just an owned apartment - no trees, garage or large herds of antelopes roaming around the property.
I know I can take that $68,500, put it into Simpli, and turn it into a revenue generator of $10,000 a month or more.
This, however, is a very good reason for you to not tie that money up in a passive investment. Assuming, of course, owning that condo isn't worth that much to You. It could be. For some people it apparently is.
I have owned a condo. I bought it with saved money and got every dime back when I sold it. Now, 8 years later, those condos are worth 4x that. But so what, I lived really cheap the three years I had it. 3 months ago, we bought a house and yes, we're paying more in interest than we'd pay for renting an apartment. Is it worth it? Sure is. I love having a lawn. Trees. A large garage. A license to rant on Slashdot. Hey, wait...
Re:Why I Rant (Score:2)
Premium price is an understatement. $342,000 for a 900 square foot condo is way high compared to most places in the country.
To give you an idea, I live in the yuppieville Detroit suburb of Royal Oak [royal-oak.mi.us]. Royal Oak is considered a prime area in the Metro Detroit area.
I couldn't find any that exactly meet her criteria (2 beds
The UK Sucks too! (Score:1)
The bottom line is that at the
Re:The UK Sucks too! (Score:2)
Owning a house in London, you'd think I'd be happy about this. But in reality, house price rises are hurting most house owners as much as they're hurting first time buyers. The trouble is, I (like most people) would like to move to a larger house. But because house prices are rising so much, I can't afford to. It doesn't matter if my house is worth twice what I paid for it 5 years ago. The house I want to buy is also worth tw
Re:The UK Sucks too! (Score:2)
Does that include a filled moat or empty?
Union or contract bowmen for the loopholes?
Is the drawbridge fully operational?
How about damsels? Blonde? No Repunzels please! And if she weighs the same as a duck I will pass too.
How far is the Castle of Aaaaggggggghhh?
Re:The UK Sucks too! (Score:2)
No A/C, but most of them have hot water these days. Albeit with SFA water pressure, so if the weather were hot enough you'd get a better shower outside from the rain...
Does that include a filled moat or empty?
No idea, but you need one. Remember, you aren't allowed to defend your property (burglar gets injured, you get sued or even prosecuted for it) - and the police no longer investigate routine burglaries. (Happened to my mother this week twice in fact, a
Re:The UK Sucks too! (Score:1)
Investments do always go up... (Score:2)
That's actually not true. Both property and the stock markets do always increase in value. Or at least, to date that has always been the case. There is of course, no guarantee that it'll hold true tomorrow. The problem is short term outlook. The stock market has risen steadily since inception. Don't belie
Northern Virginia (Score:2)
Odd thing here in NoVA, this apartment, built in 1999 and quite nice, is about the same price as the old apartment I had in the same town, but the new one is much nicer. As a matter of fact, almost all apartments of the same size are around the same price around here with a great difference in quality and options.
One reason I am staying put is the private garage. They a
Good reasoning (Score:1)
The only thing I'd like to point out that sometimes buying prices don't fall to come in balance with rent prices- rent prices can rise to come in balance with buying prices, or some combination can occur.
As long as you are saving significant money that could one day be used for a downpayment, go ahead and rent until the timing is better for you.
Someone else posted, extremely erroneously, that home ownership is in general a terrible investment. I must compl
All I can say is... (Score:2)
$1475 a month???
My house payment is less than that for a house over 2,000 sq ft. I'm beginning to love where I live even more.
Re:All I can say is... (Score:1)
Erica, one thing I think you missed in your analysis is the tax ramifications. Depending on your bracket, this can lower your effective interest (or raise your rate of return, depending on where you plug in the numbers) quite a bit. No, it doesn't change things eno
Re:All I can say is... (Score:2)
Oh, sure. But you miss out on the all tranny crackhead hookers.
Re:All I can say is... (Score:2)
I couldn't afford to move to this county until this year. Even now, I can only afford to live here in Pacifica, which (by virtue of it being several miles of foggy, winding roads out of the city) is probably the cheapest place to live in San Mateo County. I still can't afford to live any closer to San Francisco (I'm 10 miles out right now; any closer and the rent on a similar place goes up to $1600+ a month.)
Tw
I disagree (Score:2)
Apologies if I'm being redundant here, but it seems to me that you're doing exactly the opposite here - gambling that the market will go down and go down everywhere in the Bay. I can't speak for your neck of the woods, but down here in L.A., there have been extremely few periods of time, all of them very brief, where such a gamble paid off. And then, they're really only been valid for specific regions (I'm specifically thinking of the I
Cost of Living... (Score:2)
However, my sala
Is that payment right? (Score:2)
Anyway, not trying to chaneg you mind or anything.. I don't see house prices dropping here. If they were going to, I would have figured they would do so during the crash, but no.. Also, interest rates seem destined to go up in the future, so it's a good time to lock in a rate.
RENT IT! (Score:2)
You are wrong (Score:2)
The housing bubble in the Bay Area continues to outstrip the nation while the area continues to suffer 16% unofficial unemployment (depression level high), a further polarization of incomes, a California fiscal crisis, and an ongoing implosion of high-end home prices since 2001.
The issue isn't if prices will come down - all financial bubbles are followed by asset bubbles that collapse (Japan has also went through a real estate bubble following their 19