A Nation of Renters
Home sales are down. Way down. Maybe that's because the sentimental attachment to the idea of the home as an investment -- and as a good investment -- is fading away. From the NYTimes:
“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”
Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.
Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.
Stung by a collapsing market, a lot of potential home buyers are waiting for prices to bottom out. But in the meantime, rental vacancies are way up (thanks to the income-property speculation boom of the past decade) which means rents are low. From Business Insider:
With nationwide vacancy rates now well over 10%, it is extremely difficult for a landlord to even consider raising rents. Since roughly 25% of all home sales are currently going to investors paying cash, large numbers of homes will continue to be thrown onto the rental market.
The one major market where there is apparently a shortage of nice 3-4 bedroom rental homes is Phoenix according to the Cromford Report. If this claim is accurate, it is due to thousands of former homeowners who have lost their house to either foreclosure or a short sale and are looking for an attractive home to rent. The supply is down because, as I have reported in a previous article, banks are withholding most repossessed homes from the market.
...the attractiveness of renting will be a serious impediment to the return of potential buyers to the housing market.
I'm not sure this is such a bad thing. Why is home ownership seen as such a universal good? Why not become a nation of renters?
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Jul '10
Re: A Nation of Renters
With Our government and eminent domain, We already are a Nation of renters.
Jul '10
Re: A Nation of Renters
I can understand the appeal of home ownership: the lawn, the trees, the pool, the barbecue.
But for decades, people have been under the delusion that a home is an investment.
I was in the mortgage and home-building industries during the bubble. I can't tell you how many times I gritted my teeth and smiled while homeowners crowed about their "profit" on a house they bought for, say, $300,000 and sold for $450,000 ten years later.
I could do the numbers in my head: $150,000 of gains, minus closing costs (twice); realtor's fees; property taxes; maintenance; mortgage insurance; inflation; and the real capper - all of that front-loaded mortgage interest that could have been put to better investment use. In almost every instance, they came out behind.
The one argument for ownership that makes me insane is the "tax break" on mortgage interest. Paying $100 in interest to get a $20 tax break is not genius. Especially when most taxpayers never realize the "break" because they either take the standard deduction or they end up paying the Alernative Minimum Tax.
It's shelter, folks. And pleasure. But it's not an investment.
Jun '10
Re: A Nation of Renters
With unemployment at 10%, and real unemployment even higher, you have to feel pretty secure to sign your name on a mortgage agreement. Even if you have a skill that's in demand, you may have to follow that job, or a new job, across the country. And now, you're buying something that's not liquid, and may not even be a good long-term investment. How things change.
May '10
Re: A Nation of Renters
The move having more renters has another benefit: the economic upward mobility is significantly higher among renters than homeowners (I would cite the study but I read it a year or two ago at the peak of the financial crisis and, well, just trust me). One suggested reason is that owning a home tends to lock a person or family into a geographic area and limits the ability to seek career advancement in other cities. Homeownership also imposes a large debt on a person or family -- thereby limiting the ability to take entrepreneurial risks.
Homeownership is a wondeful ideal and I understand the central place it has in the modern American Dream. It is not, however, without its sacrifices. And like all government imposed one-size-fits-all solutions, it blew up in our face because we looked at the ideal instead of the practical ramifications of the policy.
Feb '10
Re: A Nation of Renters
I've long considered the real estate market to be overblown-- ever since about 2003 or so when it became apparent the Fed's (and people's) overreaction to the bursting of the dot-com bubble created a mass rush into what was considered a "safe" investment. To avoid the pain of the bursting of the last bubble, the Fed just blew up a bigger bubble in a different area.
Another thing that clued me in was the ratio between income and housing prices. Historically, you shouldn't buy a house that costs more than twice your annual household income; but ratios were as high as 10x annual income in some markets.
If you must move every few years, it is insane to buy. But if you are able to stay in one place and put down roots, buy, because it gives you more stability, and you do get back a lot of the money you put in over the long run (renters can kiss good-bye to their money forever). My grandfather passed down his house to my mother and it's been a great blessing.
However, stay under the 2x annual income rule when you buy.
Re: A Nation of Renters
Sure enough, common sense is decisive. A home can be a great investment. But there's not really any national real estate market. The insanity that's devastating markets in and around Las Vegas and Phoenix, for instance, bears very little relation to what's going on in other markets -- which aren't even strictly geographical. Too many media reports act as if nobody should buy a house because the national numbers look bad. Our predilection to view everything nationally and quantitatively, here as elsewhere, serves us ill.
Jul '10
Re: A Nation of Renters
"Our predilection to view everything nationally and quantitatively, here as elsewhere, serves us ill."
Au contrare, it could be very good come election time.
Re: A Nation of Renters
I bought a house because I can't stand hearing strangers tromp around on the floor above me.
Edited on Aug 25, 2010 at 10:46amJul '10
Re: A Nation of Renters
James Lileks: I bought a house because I can't stand hearing strangers tromp around on the floor above me. · Aug 25 at 10:45am
Edited on Aug 25 at 10:46 am
One word: penthouse.
Jul '10
Re: A Nation of Renters
Kenneth: I can understand the appeal of home ownership: the lawn, the trees, the pool, the barbecue..It's shelter, folks. And pleasure. But it's not an investment. · Aug 25 at 9:30am
I agree 100% with Kenneth. Hardly anyone *owns* their own home anymore.
They rent from the mortgage company.
James Lileks: I bought a house because I can't stand hearing strangers tromp around on the floor above me. · Aug 25 at 10:45am
Edited on Aug 25 at 10:46 am
Don't you have kids? Is your kid's and friends' stomping somehow better?
Jul '10
Re: A Nation of Renters
From Hufffington Post:
Rob Long, notorious Hollywood slumlord, seems to have a conflict of interest.
Yes, that Rob Long, whose Section 8 Holmby Hills tenants have taken him to court over tardy topiary maintenance and failure to maintain proper pH levels in their lap pools.
Now Long, blogging for his new Fascist web site, is engaging in rhetoric designed to scare people away from home ownership and into his clutches.
Anyone tempted to rent from slumlord Long should be forewarned: temperatures in the wine cellar of one of his squalid Beverly Hills properties are said to have fluctuated so drastically that entire vintages of Chardonnay have been rendered unpalatable.
Edited on Aug 25, 2010 at 11:26amAug '10
Re: A Nation of Renters
I think the quickest and easiest answer to why home ownership, qua home ownership, is a good thing is summed up with the term Self Reliance. In a nation of renters, the residents of the domiciles must rely on the compassion of their landlords or the protection of government to ensure their continued residents.
Landlords, at least rational ones, seek to make a profit with their investment. This is a natural and good thing, but it can put the investor in conflict with the renter who has it their best interest to get the greatest use for the lowest price. Conflicts between these two entities will be worked out by governments, whose interference historically has led to things like rent control and other activities that lower the value of the properties while raising the market price of new properties artificially. Rent control raises overall rent prices, but there will be a continual fight for such benefits in a nation of renters.
Much better to have citizens who have ownership in their properties. Self reliance teaches individuals what they are capable of accomplishing on their own, and without the "benefit" of government interference.
Re: A Nation of Renters
Kenneth: From Hufffington Post:
Rob Long, notorious Hollywood slumlord, seems to have a conflict of interest.
Yes, that Rob Long, whose Section 8 Holmby Hills tenants have taken him to court over tardy topiary maintenance and failure to maintain proper pH levels in their lap pools.
Now Long, blogging for his new Fascist web site, is engaging in rhetoric designed to scare people away from home ownership and into his clutches.
Anyone tempted to rent from slumlord Long should be forewarned: temperatures in the wine cellar of one of his squalid Beverly Hills properties are said to have fluctuated so drastically that entire vintages of Chardonnay have been rendered unpalatable. · Aug 25 at 11:18am
Edited on Aug 25 at 11:26 am
I wish.
Aug '10
Re: A Nation of Renters
Nathaniel Wright: In a nation of renters, the residents of the domiciles must rely on the compassion of their landlords or the protection of government to ensure their continued residents.
I think what we rely on most is not compassion from our landlord, or government protection, but the fact that our rent is low enough that we'll be able to afford it for the foreseeable future.
Nathaniel Wright: Conflicts between these two entities will be worked out by governments, whose interference historically has led to things like rent control and other activities that lower the value of the properties while raising the market price of new properties artificially.
Our conflicts with our landlord, such as they are, are worked out by compromising with him. That governments will try to interfere beyond the basic law of landlord and tenant is likely, but must we take the interference as a given?
Nathaniel Wright Much better to have citizens who have ownership in their properties. Self reliance teaches individuals what they are capable of accomplishing on their own, and without the "benefit" of government interference.
Is it self-reliant when your bank, not you, has primary ownership of the property?
May '10
Re: A Nation of Renters
Hmmm. Did I hear somewhere that you have a relative in the real estate business?