Thursday, September 13, 2007

"Renting is Still the Better Short-Term Deal"

From Time:

With the number of homes on the market up 19% from a year ago, buyers (finally) hold the best cards. To play them, start entertaining all the offers homebuilders and real estate agents are hurling your way.
...
Just keep in mind that the housing market hasn't hit bottom. Looking at the gap between how much it costs to rent a place or to buy one, Deutsche Bank research analyst Lou Taylor concludes that in the bubbliest markets, renting is still the better short-term deal. Consider Sacramento, Calif., where rent runs about 40% of the monthly cost of buying, half of what it did a decade ago.
From AFP (hat tip Jeff):
Stockton's Weston Ranch neighborhood, a 15-year-old subdivision of modest tract homes, has the worst foreclosure rate in the area, according to ACORN, a national advocacy group for low and moderate-income families.
...
Sign-after-sign beckon to potential buyers on the Weston Ranch streets. "American Dream Realty -- Reduced Price!" reads one placard spiked into a brown lawn. "People are just walking away," said [Geri] Taylor [a broker at Weston Ranch Realty]. "We've seen houses with food still on the table from when the sheriffs have come knocking."
...
"There are just are no buyers out there right now," said Taylor..."We've got 350 homes for sale in this neighborhood right now and at this rate, that is five years of inventory," said Taylor. "Nobody has a crystal ball, but I don't expect to see an improvement until 2010."

23 comments:

Sippn said...

Renting has almost always been the better short-term deal. With transaction costs totaling close to 10% (6% commission, points and closing costs, moving costs, drapes, clean up, etc.)

Cmyst said...

In my experience, renting has cost more on the move-in than buying. Where you get the "deal" is in the lower monthly payment, not having to spend money on maintenance (although many of us do, anyway, we don't HAVE to), not having to pay property taxes, and the freedom of knowing that if your job or life circumstances dictate that you need to move, you can do it without the burden of trying to sell the house.
K.Hovnanian is running some weekend sell-a-thon event where they pay your entire closing costs AND furnish your home for you.
I've never had a landlord waive my security and pet deposits, or furnish a rental with all-new stuff.

Sippn said...

Census Data per Lasner:

"...In 2006, the typical California home with a mortgage spent 51.8% of their household income on monthly owners costs. That’s tops in the nation! Meanwhile, California renters (a typically poor group) were spending 51.9% of their income on rent and utilities (U.S.’s #2 behind Florida.)..."


All I need is a nice lawn to park my pick up. . .

Gwynster said...

Sippin,

Neighbors parking on the lawn has little to do with whether you rent or buy these days but you get a B for trying to muddy the issue >; )

Real said...

California renters (a typically poor group) were spending 51.9% of their income on rent and utilities (U.S.’s #2 behind Florida.)..."

Oh Sippin....don't go around throwing facts into a debate on California housing! 50% decline by 2009!

BMac said...

the average renter has a much lower income than the average owner, obviously.
The point is that in today's market, the people who could possibly buy a house if they wanted to, can find excellent rentals that will be more like 20$ of income, whereas the same person would be a 50% of income homeowner.

smf said...

"In 2006, the typical California home with a mortgage spent 51.8% of their household income on monthly owners costs. That’s tops in the nation! Meanwhile, California renters (a typically poor group) were spending 51.9% of their income on rent and utilities (U.S.’s #2 behind Florida.)..."

What is not said and noted, is that the utilities are not included in those that spend 51.8% of their income in their mortgage. Not even additional HOA or Mello-Roos fees. If you include utilities costs for those with a mortgage, it will go way over the 51.8% to probably about 65-75% of their income, making renting still a cheaper option than buying at this current market.

I have a $2000/month mortgage, and our utilities costs (landscape, water and sewer included) could easily be 40% of our mortgage.

Sippn and Real, next time try to provide a better context to the figures you throw around. Then again, you did by including that renters figure with rent AND utilities included.

Gwynster said...

thanks BMAC, you saved me a whole 250 words of ranting >; )

I think it's spin and bait day for the boys.

Sippn said...

I just stumbled across it and thought it was a fun fact. Assuming Census people would compare apples to apples and either include sewer and water in each or not.

G - why would I park my truck on grass I own and would have to repair?

Really?:

". . .The figures show that housing costs continue to be slightly higher for renters than for homeowners with a mortgage. The difference is logical, Adibi said, since buying a home can cap one's housing costs, with loan payments gradually eating up a smaller proportion of the owner's income over time. Tenants, on the other hand, keep getting rent increases. . . "

wrong moves said...

Look, the title of this contains "Better Short Term Deal"

Sippn you can't throw a snippet in like "loan payments gradually eating up a smaller proportion of the owner's income over time. Tenants, on the other hand, keep getting rent increases. . . "
when that is an arguement for long term. Occasionally you make a good point, but this isn't one of them.

Figures may show higher costs for renters, maybe in backwoods generic hell, but you could rent a true mansion (I'm guessing) for what it would cost PITI for a "typical" "median priced" "starter" home in the Sacramento area.

OK, my quote button is sticking now.

Sippn said...

OK G, that one was smaller than legal . . . throwing it back.

smf said...

"The difference is logical, Adibi said, since buying a home can cap one's housing costs, with loan payments gradually eating up a smaller proportion of the owner's income over time."

That applies with a conforming loan like ours. We stretched a little at first, but now it is only 28% of our bring-home income.

It doesn't apply to those who used exotic mortgages, as it is well documented that their payment can go up by $500 or 2X their original payment.

I have yet to see rents that can go up at the same rate that a toxic ARM can go.

Sittin' Out This One said...

Sippn,

I almost bought in 2005. Lucked out after stumbling onto this blog and HBB.

I rented a nice new house from a flipper instead. He paid 758,000. I pay $1950 in rent, he adds $3500/mon and makes the payment. Current value of the home? Maybe $450,000. Total loss to Flipper? $371,000 over the last 18 months. He is buried. No way out. Even if he walks from the $75,000 down payment (10%) and the $63,000 in negative cash flow, he will still pay taxes on the $233,000 in phantom income for the debt relief.

How does that compare to renting? It doesn't stand a chance.

Sippn said...

who will notify you... owner or sherif?

Sippn said...

btw, the tax bill only comes if you purchase it 4 less than you finance (shawdow income)

Sittin' Out This One said...

Sippn, WTF?

"....who will notify you... owner or sherif?..."

"...btw, the tax bill only comes if you purchase it 4 less than you finance (shawdow income)..."

Are you saying I should have purchased in Dec 2005, and lost $371,000? I think you've been sippn more than usual at your Friday happy hour!

1) Who will notify me? My bank notifies me every day on line: I still have not lost $371,000 in the last 18 months!

2) No 1099 unless you borrowed the money? I would rather pay 38% tax on "borrowed" money than to lose 100% of a cash down payment.

Fess up Sippn. Concur that renting was a stellar move in Dec. 2005.

Sippn said...

Sittin' - "Concur that renting was a stellar move in Dec. 2005."

That is a given!


What I was getting at (the keys on my home laptop are missing courtesy o'toddler)

If he sells at a loss, I don't believe he pays on phantom income. The phantom income comes from homeowners who borrow more on their home than they spent on it (I think).

Example: Pays $758K, finances or refinances for $858K without spending it on improvements, walks away, has phantom income of $100K if all held as personal asset.

Unless he needs his credit rating during the next 2 years, or is worth $millions, he'll walk.

So I was just asking you how much notice you think you'll get for the eviction and if it would come from the law man or the bank?

Happy renting!

Sittin' Out This One said...

Sippn,

The taxable gain is the amount of debt foregiven regardless of the cost basis. If you buy a $1 million house, put a $500,000 loan on it, and then walk away, you pay tax on the difference between the loan amount and the sale price. If it sells for $400,000, the borrower pays tax on a $100,000 gain issued in a 1099 from the lender. So not only did the borrower lose $500,000 cash, in the 30% tax bracket, he pays the IRS another $30,000 on the $100,000 "gain" from the debt foregiveness (you also can add interest, unpaid taxes, force placed insurance, HOA, Mello Roos bonds, etc, etc,.)

Bush is trying to get the phantom gain issue waived for homeowners for a couple of years, but investors will not get the benefit of that temporary abatement.

Also, it is funny you mentioned the sheriff, because the house I rent went NOD two days ago. 90 days from now, it may go NOT and be foreclosed 21 days later.

The lender may evict me, but I have a 7 months left on my lease. In the meantime, I am paying rent into my attorneys trust fund and he doubts I will have to pay rent for 4-5 months, adding another $10,000 into my downpayment fund.

There are opportunities everywhere in an imbalanced market.....

Sippn said...

Gut check intact, thank you. Analyse the tax bill vs the negative cash flow and it still made sense to walk. Hell, he won't need the credit score until RE starts moving up again with gusto. Just in time.

(I'm not advocating these practices, just pointing out that if you rent from someone with a questionable moral compass to start with, there might be a price for you to pay also.)

PeonInChief said...
This comment has been removed by the author.
PeonInChief said...

Hey, folks, foreclosure voids a lease, unlike the sale of the building, in which case the lease transfers to the new owner. Once your landlord loses the building, the lender can give you a 30-days notice to vacate. A lender is not required to give you a 60-days notice if you've lived in the unit for more than a year, since you have not been a tenant of the lender for the requisite year.

Interestingly, although this isn't applicable to Sacramento and environs since we have no rent control/eviction protections, it appears that a tenant in a community with a provision requiring payment of relocation expenses in the event of an eviction not the tenant's fault would be eligible for that payment from the lender.

Sittin' Out This One said...

Peon,

It is O.K. if they want to void the lease, and they probably will. It is not automatic. The lender has the option. That is why my attorney is holding the 5 months of rent in a trust account, pending the lender canceling the lease.

I am happy to live rent free for 5-6 months and bank the $10-12,000. It is not like it is hard to find another rental. The FB's/reluctant landlords are giving another month free with a new lease.

I was just lucky to see the NOD at foreclosurestogo.com. Otherwise, the FB losing the house would keep my money, not pay the mortgage and leave me hanging.

Sippn said...

interesting site.thanks