Renting vs. Buying – Myths that created the housing bubble and the foreclosure crisis

I read an interesting article today at efinancedirectory.com – detailing 5 “Rent vs. Buy” myths that we’ve all heard over and over in the past few years, dissecting them, and telling us why they are just that — myths. Myths that created a real estate buying frenzy that seemingly everyone got caught up in, buying houses they could barely afford because they were such a great investment. Certainly, some people were able to sell at the right time, and made a lot of money off of the housing bubble. A lot of other people, though, are currently losing their shirts. This article won’t help them now, but it does make a pretty good argument for renting.

“None of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,”

Thus spake David Sambol, the president and chief operating officer of Countrywide, in an official statement today. But is that really fair? I mean, I’m not advocating throwing people out into the street or anything, and I don’t like to see people go into financial ruin, but when you sign up for an adjustable rate mortgage…. you’re signing up for an adjustable rate mortgage. That means that the rate ADJUSTS. You should be ready for that. It shouldn’t be a surprise.

The cost of the housing market “correction”

A few days ago I used several online calculators to get estimates of the value of my house. Most were simple online calculators, but one, from HouseValues.com, arrived in my inbox, sent by an actual human being — a realtor to be exact. He sent three comparables — recent sales in my neighborhood, all of which were priced $10,000 to $20,000 below what I paid for my house a few years ago, and an estimated range of $219,900 to $234,900.

Four years ago, I bought my house for $230,000. A year later, it was appraised for about $280,000. So this was unhappy news, even though I saw it coming.

Competition for the zestimate – there are other online home value calculators

I’ve been using zillow.com to watch the value of my home slowly decline over the past couple of years… luckily, since I’ve been paying down the principal on my 30-year fixed mortgage as well as my home equity line of credit, I haven’t seen my “zestimate” (Zillow’s home value estimate) dip below what I owe. It’s come down by about $60,000, though, from what my appraisal was when I refinanced a few years ago. Such is the current housing market.

For comparison’s sake, lets see how my home value stacks up on a few different (free) sites

Home sellers are the ones giving incentives now…

It wasn’t long ago that it was the landlords offering incentives. With the housing market as soft as it is, renting has been looking more attractive every day. Where I am, landlords have stopped offering (as many) incentives, and rents have edged up, while vacancy rates have gone down. While a few years ago, everyone I knew was in a mad dash to become homeowners, the situation is now the reverse.

(Almost) Free Houses in Detroit

For the fearless investor who’s on a very (very) long-term schedule, it seems that there’s a big opportunity out there just waiting to be snapped up… If you search for homes for sale in Detroit, Michigan, you’ll find that there are 22,387 homes for sale right now, and if you search for Detroit homes for sales between $0 and $20,000, you’ll find that there are 3,431 homes for sale in that price range!

Subprime-mortgage crisis government aid…a handout? or a safety?

I was talking with some friends last night about how the government is bailing out people who “bought way more house than they could afford” on an adjustable rate mortgage. At first we were all united against it — after all, we were all responsible homeowners, watching our budgets, paying our bills on time. We were all on 30-year fixed mortgages in modest houses that we can afford. Why should these people get extra aid that we don’t? Where’s our reward for being responsible? If the government is handing out money, shouldn’t we get some too?

It’s official, I am an armchair real estate investor

After all of my speculative talk about buying the duplex next door, four months later, it’s still for sale. Still vacant, too. AND, when I came home from work today, its front door was adorned with a lovely blaze-orange sign notifying the would-be residents that the water will be shut off soon. No buyers in sight, AND, the owner apparently isn’t paying his bills, either. (How much could the water bill really be in a vacant house?)

The McMansion is (finally) falling out of fashion?

On Yahoo finance today, the feature article in the real estate section is on a topic that I have always loved to hate: the McMansion. Any inner-city dweller worth his/her salt has to loathe the McMansion on principle, after all. They’re big (wait, huge) and grandiose and impressive, sure. That and they’re brand new. But they’re also soooooo close together, crammed onto lots in character-less new subdivisions, and the building materials always seem slightly cheap to me. I have a feeling that they will not age quite as well as their Victorian predecessors. They seem a bit ostentatious and over the top to me, kind of like the gold lamé of housing.

Cashflow and the duplex next door

So, I’ve been biding my time, not really thinking too seriously about buying the duplex next door (but thinking about it, nonetheless). It went up for sale a month ago, and the sign is still there. I haven’t seen a great deal of activity there (both units are currently vacant), although they do periodically mow the grass (not really as often as they should when trying to sell the place, however.). All of this cashflow 101 playing has gotten me wondering a little more seriously about it…. and doing the math over again.

Cashflow… a new addiction.

I recently got hooked (ok, not quite as hooked as the person who introduced me to it) on the computer game “Cashflow.” Designed by Robert Kiyosaki (well known author of “Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money–That the Poor and Middle Class Do Not!“), it’s an interactive game that teaches the value of passive income. And it actually got me to sit down and work out what all of my actual costs were on my duplex, and figure out what I was paying in rent these days (I did this at the beginning, when I first bought the duplex, but taxes have since gone up, insurance has gone down, and I’ve raised the rent a bit).

So, the rental market is getting a bit better. But (predictably), condos are getting in the way.

I just signed my tenants into another one-year lease, so I don’t have firsthand knowledge of what the rental market is like at this moment, but I’m reading that although rents have inched a bit higher in the past year, the vacancy rate is at a two year high (6.1% nationally). How would this happen? Although renting is looking more attractive to people, there are a lot of people who bought (primarily condos) speculatively, hoping to do a buy-and-hold strategy and make some easy money. Unfortunately, the housing market didn’t do what they predicted (went down, or at best flat instead of skyrocketing), and they’re left either selling at a loss, or renting. Adding more stock to the rental market, driving vacancies up (and preventing rents from increasing enough to keep up with rising inflation, property taxes, insurance costs, etc.)

No longer a speculator’s market

OK, so this is technically old news, (the article I’m quoting below is from 7/30/06), but I still find news about the movement of the housing market interesting. I’m happy that the current swing of the housing market is making the rental market more in my favor (even though I just signed my tenants into another year lease). Owning a duplex kind of puts me in a good place regardless of which way the housing market swings — if appreciation goes way up, and it’s a seller’s market, I’m in a good position to cash out and sell my duplex. If prices slow down, and so does appreciation, it becomes more attractive to rent than to buy, and my rental market goes up (lower vacancy rate = higher rents and more tenants to choose from).

Casey Serin – Mistakes we can learn from for now, one to watch in the future

I just read an article on CNET about would-be real estate mogul Casey Serin — at just 24, he bought 8 properties within a year, taking cash out at financing, planning to flip them all to turn a profit. But alas, due to the market slowdown, some hasty and risky decision, and perhaps just general bad luck, things did not go so well for him, at least in this round. He’s sold three properties and been foreclosed on in 6 properties (yep, six.)

Property taxes… and the info on the assessor’s website

I just paid my property taxes this morning. I’ve chosen not to escrow my taxes and insurance with my mortgage payment, so that I can save the money up in a bank account through the year, and earn interest on it. (5% in an Emigrant account is nothing to sneeze at). So that means that twice a year I need to log into the county assessor’s website and send a payment via e-check (of course, if I planned ahead, I could also snail-mail it). They do keep going up, though. I’ve chosen not to raise the rent on my tenants if they signed another year lease, so the increased property tax bill just cuts into my profits. At least, though, the money that I pay in property taxes is deductible (on my 1040 for my personal half, on my schedule E for my rental unit).

Want to buy more house than you can afford? Get a 40-year mortgage!

Yes, Virginia, there is such a thing as a 40-year mortgage. And some people are apparently using them (!) I was doing a bit of reading on bankrate.com today (doing some research, as I’m considering buying the duplex that went up for sale next door to me), and saw a banner ad from a mortgage company that had a list of mortgage rates. All of the usual fixed loans were represented — 30 Year Fixed, 15 Year Fixed, 10 Year Fixed. The ARMS were all there, despite the bad press they’ve gotten lately with all of the people who bought on ARMS that are now coming, causing the banks to foreclose on them. And then I saw it. The much-fabled 40 year fixed mortgage. Wow.