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Renters Gloat Over Housing Slump

Discussion in 'Members' Lounge' started by jeffie7, Jan 16, 2007.

  1. jeffie7

    jeffie7 Wrong Whole! VIP

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    Some Who Missed the Boom
    Are Feeling Vindicated Now;
    Resisting 'Nesting Instincts'
    By JAMES R. HAGERTY and GEORGE ANDERS
    December 26, 2006; Page D1

    The housing slump has been painful for millions of people who work in real estate or recently bought a house.
    For Patrick Killelea, however, this year has been one long victory lap. Mr. Killelea, a 41-year-old software engineer, has long preached that it makes more economic sense to rent than buy homes. He recalls shouting "Wow!" when he heard about September's 9.7% drop in prices of new homes.
    "I didn't want to gloat," he says. "But then again, maybe I did."
    For years, Americans who refused to buy real estate at what they considered excessive prices were ribbed for failing to profit from one of the greatest booms in history. "Are You Missing the Real Estate Boom?" needled the title of a 2005 book by David Lereah, chief economist of the National Association of Realtors.
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    Dean Baker, an economist, sold his condo during the housing boom and now is renting an apartment for about $2,300 a month.
    Now, with the housing market in a slump, renters who sat out the boom are finally getting some satisfaction.
    Dean Baker, an economist, believes that the slump validates his decision to sell a two-bedroom condo in Washington's Adams Morgan neighborhood two years ago. Mr. Baker says he received $450,000 for the unit, which he had bought for just $160,000 in 1997. Since unloading the condo, he and his wife, Helene Jorgensen, also an economist, have been renting an apartment nearby for about $2,300 a month.
    Mr. Baker concedes that he could have made an even bigger profit on the condo had he held it for another year or so but says it's impossible to time the market perfectly. While some economists argue that the housing slump is nearly over, Mr. Baker insists, "We're just at the beginning of it."
    Mr. Baker has a history of forecasting bubbles early and often. He was quoted by newspapers in March 1997 -- three years before the tech-stock bubble burst -- as warning that equity prices were rising at an unsustainable pace.
    That track record, he says, shields him from any snickering among his friends about his decision to cash out of real estate early. "Ever since I nailed the stock bubble, no one I know dares to razz me about my investment decisions," Mr. Baker says.
    Rich Toscano did get some razzing from friends in early 2003 when he moved back to San Diego after a spell in Austin, Texas, and decided renting made more sense than buying. At that time, "it was universally agreed upon that real estate would always go up," Mr. Toscano says.
    "I thought he was insane," says Mike Mannion, a friend who had met Mr. Toscano in the 1990s when they both worked for an information-technology consulting firm. The two friends spent hours debating over meals and coffee whether San Diego real estate was a good buy. In the end, Mr. Mannion rejected Mr. Toscano's warnings. Even though Mr. Mannion's wife, Christina, an architect, was nervous about the possibility of house prices falling, the couple plunged ahead and bought a three-bedroom house for about $580,000 in late 2003.
    That proved a good buy. Home prices continued to soar in San Diego through 2004 and early 2005. But Mr. Mannion says he gradually began to be persuaded by Mr. Toscano's arguments about home prices soaring beyond many buyers' ability to pay. Last spring, Mr. Mannion and his wife put their house on the market and wound up selling it for $830,000. Now they rent and don't plan to buy until they're convinced the housing market has bottomed out. Before buying again, Mr. Mannion says, he will consult Mr. Toscano.
    Of course, as even many hard-core renters acknowledge, homeownership has some big advantages, including tax deductions on mortgage interest, the possibility of gaining value over the long term and the security of knowing you won't be evicted by a capricious landlord. But some of today's renters say it has been a bad time to buy in the past few years, when speculators helped drive up prices at an unusually rapid clip.
    David Jackson, a 26-year-old information-technology specialist, has been railing against the housing industry for two years -- ever since he made a vain attempt to find an affordable town house or condo in Silver Spring, Md. Unable to understand why prices were so high, he began researching the real-estate market and, he says, "came to the conclusion that there was a massive housing bubble." So Mr. Jackson decided to remain a renter. He pays $645 a month for part of a townhouse.
    Now that the housing market is slumping, "I feel vindicated," Mr. Jackson says. "But I'm not looking forward to the coming recession." He believes that the housing slowdown and the effects of "a mountain of debt" on consumers will pull the entire economy into a slump.
    Mr. Jackson blames what he calls "the housing industrial complex" in general and Mr. Lereah, the Realtors' economist, in particular. Since last year, Mr. Jackson has maintained a blog (davidlereahwatch.blogspot.com) devoted entirely to vilifying Mr. Lereah.
    The blog recently offered a $75 cash prize for an essay containing "the most scathing criticism" of Mr. Lereah. Sample submission: "Dr. Lereah is a lying snake with the ethics of a dope-dealing pimp."
    Mr. Lereah says he doesn't object to the blog. "There are people who believe it's the end of the world" for housing, he says. "They blame me for being positive."
    Among all the defiant renters, few roar louder than Mr. Killelea, who pays $2,350 a month to rent a snug, two-bedroom craftsman house near Stanford University in Menlo Park, Calif. He figures it would cost him $7,000 a month in mortgage payments and taxes if he owned it.
    Most mornings, he sits at a small pine table just off his kitchen and scans emails from acquaintances for any bad news that fits his world view. Before he heads off to work at a bank, he posts the dozen bleakest stories to his Web site -- patrick.net/housing/crash.html -- under the permanent headline, "U.S. Housing Crash Continues."
    Almost anything grim will do. Economic assessments from Finnish newspapers pass the test. So does an ad from a Michigan home seller offering to cut his asking price $1,000 a day. One favorite posting consists of a spoof of a Realtor ad, showing a terrified woman screaming in front of a hideous house.
    A native Midwesterner, Mr. Killelea worked in Chicago in the mid 1990s before moving to Silicon Valley in 1997 to take a job at Sun Microsystems Inc. He was excited about the $77,000 starting salary -- a 55% increase from his previous job -- until he discovered how much housing cost in California. He and his wife, Leah, rented for a few years in Palo Alto before deciding that they might find cheaper housing in Berkeley.
    "We spent several months looking at open houses and bidding on properties," Mr. Killelea recalls. "We bid over the asking price, but never enough to win. On the last one, they were asking $395,000 and we bid $500,000. We got a call afterward, asking us if we wanted to raise our bid. We said, 'No.' We thought that was enough. It turned out that the house sold for $530,000."
    After losing that Berkeley home, Mr. Killelea told his wife they were calling off the home-buying search. She says she wasn't thrilled. But they moved to a new rental -- their fourth in five years -- and nestled their two children into an upstairs bedroom with bunk beds.
    Even though prices have come down a bit in parts of California, Mr. Killelea vows to resist the pressure to buy. Recently he mused on his Web site about why more people don't follow his example. "I get the feeling many wives are pressuring the husbands to buy," he wrote. "I know it's not politically correct to say so, but I think a lot of irrational purchases are driven by female nesting instincts."
    Mr. Killelea says his wife has been "very understanding" about his refusal to buy at today's prices: "She can do the math, too."
    But Ms. Killelea seems more open to the idea of homeownership. "We haven't really talked yet about when we'd want to start looking again," she says. "I think we're going to need to discuss that."
    Write to James R. Hagerty at bob.hagerty@wsj.com and George Anders at george.anders@wsj.com
     
  2. jeffie7

    jeffie7 Wrong Whole! VIP

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    Just thought this was a nice write up to all of the people who say buying a house is always better then renting.
     
  3. BigJ

    BigJ I'm just about that action Boss. VIP

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    It's a buyers market right now.


    Boom and Bust Cycle.


    Macroeconomics 101.
     
  4. totalburnout

    totalburnout Well-Known Member VIP

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    Usually I subscribe to this ticket, but I think its going to be another five years before you can truly cash on your investment again. So if you have the money and time to sit and wait, its a buyers market.

    There will be no more flipping of homes.
     
  5. Celerity

    Celerity Well-Known Member

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    I say, as I tried to get across in my other thread: RENT FOR AS LONG AS YOU FUCKING CAN.

    Save your money. Save save save. Be in whatever situation you can be, and this is just plain good advice if you rent OR own, Be in whatever situation you possibly can that puts more greenbacks in your bank at the end of the month.

    You'll be FAR better off for it.
     
  6. pissedoffsol

    pissedoffsol RETIRED

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    ok, so he took in 290k profit.

    and for the past 2 years, hes been renting at 2300...
    2300x24 = 55200

    in 4 more years, his entire profit will be gone from paying rent. he'll still have to pay the rent, and in the long term, he looses out on living free when he's older.


    I entirely disagree that renting is a good idea.


    you pay and pay and pay....
    and at the end of all of it, you have nothing.

    but even more importantly, you have no write off.



    the 7000 he mentions, probably 5000 of that is interest.
    5000x12 = 63000 a year in interest write off.
     
  7. Celerity

    Celerity Well-Known Member

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    Look at one of the final posts in my thread. Owning a house, if done properly, is completely free.
     
  8. reckedracing

    reckedracing TTIWWOP VIP

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    and even more importantly, capital gains on PRIMARY residence is exempt (within the rules etc)
     
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