The new “American Dream”

[desmond]

http://finance.yahoo.com/news/new-american-dream-is-renting-to-get-rich.html

[scaredyclassic]

A house is basically consumption .. But so is everything ultimately. As consumption goes, houses seem unlikely to ever go completely out of style

[NotCranky]

Too much dreaming has been the problem,not houses.

[bearishgurl]

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, “100 percent of the time it was better to rent, rather than own.”

That’s right: 100 percent.

I don’t know who Arzaga’s clients are, but I don’t agree with this statement. Many thousands of people have mortgage payments of $400 to $1200 mo (PI only). Yes … even in CA.

The article states he lives in a 5000 sf home in San Ramon. I’m from that area and can competently attest that it used to be a “hick town.” Back in the day, it had a church, graveyard and a handful of small biz. It must be another mcmansion-laden suburban megalopolis by now, lol.

The average USA homeowner doesn’t live in one of those.

McBride crunched the numbers in a pre-bubble era (2004) for a home purchased at $200,000 by a buyer in the 27 percent marginal tax bracket. Factoring in a 30-year mortgage, $1,200 in annual home insurance, closing costs of $5,500 and maintenance costs of $100 a month, along with property taxes, he calculated that it would take a selling price, 10 years later, of $395,404 just to break even. His conclusion gave Arzaga’s view credence: “Homeownership may not be the moneymaker you think it is.”

He’s probably factoring in a 2% (of assessed value) or higher property tax (as with most states or CA subdivisions with MR). In addition, he doesn’t appear to be factoring in the effect of taking the MID.

Hands down, owning makes a LOT more sense, esp for a family with pets … or horses or other large animals. In most markets, it’s cheaper than renting …. of course, NOT if one will live in nothing less than a 5000 sf “mcmansion.”

[NotCranky]

I agree with BG.

The terrible investment theory makes no sense unless you cherry pick.Cherry pick in favor of a large set of different people and different houses and it’s a totally different story.

[scaredyclassic]

Still, this kind of publication s good contrarian indicator.

[bearishgurl]

[quote=Jacarandoso]I agree with BG.

The terrible investment theory makes no sense unless you cherry pick.Cherry pick in favor of a large set of different people and different houses and it’s a totally different story.[/quote]

Yeah, “cherry-picking” the currently (anything could change) “well-heeled” set that was rooked into agreeing to no-doubt exorbitant MR and a min of 50 mins underground on a BART train to Jack London Square (OAK) or 1+ hrs to the Embarcadero (SF) – and that’s after traveling to Dublin to the park-n-ride to board! Not to mention boarding a SAMTRANS bus (or light rail) afterwards for any Silicon Valley job they might have.

OR traversing the SF Bay, SM or Dumbarton bridge to work by car 1 – 1.5 hrs one way (depending on city of employment).

Good L@rd!!

If they’re lucky enough to have their employer in Alameda or Contra Costa County, they are MUCH better off!

I fail to see here where Arzaga’s “local” clients are having such a “wonderful `lifestyle,'” lol …

[CA renter]

Here’s the first problem with this “analysis”:

“McBride crunched the numbers in a pre-bubble era (2004) for a home purchased at $200,000 by a buyer in the 27 percent marginal tax bracket. Factoring in a 30-year mortgage, $1,200 in annual home insurance, closing costs of $5,500 and maintenance costs of $100 a month, along with property taxes, he calculated that it would take a selling price, 10 years later, of $395,404 just to break even. His conclusion gave Arzaga’s view credence: “Homeownership may not be the moneymaker you think it is.”‘

By 2004, the bubble was well on its way, and near a peak in many markets. Of course renting made more sense using 2004 numbers. Greg McBride should know this since he was reading the bubble blogs back then.

OTOH, if you use today’s numbers in some of those same markets, the numbers tell a different story: it’s actually better to buy than to rent. In many areas, your PITI payments will be lower than rent (which is why so many investors/landlords are buying right now).

The benefit of buying your primary residence isn’t that you’ll make lots of money when you sell, it’s that you will have a place to live that is/should be paid off by the time you retire.

Some of the comments after that article also wisely point out that the RENTER pays most of the PITI and maintenance costs on a rental, not the landlord (unless the LL wants to lose money, year after year; in which case, s/he won’t be a landlord for very long).

Ultimately, it depends on one’s job and income prospects over time. If you need to sell every couple of years, it’s probably safer to rent. If you have skills that will be in high-ish demand in a particular area, and pay looks like it will be consistent or rising over time for the foreseeable future, then it’s probably better to buy if monthly PITI costs and rents are fairly equivalent.

[briansd1]

It depends on the lifestyle you want. Sometimes better to rent it.

My brother is renting a very nice house because it would cost more than double to buy it even at today’s interest rates.

He says that his daughter’s friends’ parents all want their kids to come and play now. And his wife’s relatives are coming one after another from middle America. When you look rich, all kinds of people come out of the woodwork.

Life’s a lease. Negotiate well.

[Author]

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