In some ways, this reminds of the same logic that Al Gore uses about global warming. I’m not convinced that everything’s going to fall to pieces. I think that you do present some good advice (”don’t bite off more than you can chew” comes to mind), but in such a way that makes you come off as an “end of the world” nut job (all you need is the “so convert all of your assets to gold, build a cabin in the woods with a fallout shelter and wait for the worst” conclusion).

I will admit to this. However, my “advice” (if you will) is to those who are on the margins. And for those people, a house will most definitely be a doomsday scenario (again, depending on local factors). But for the broader segment of marginal buyers, I think my admittedly over-the-top fire-and-brimstone view shoul dbe considered.

Also, real estate is local..although many people don’t want to hear that..where I live now the bubble did not make it…however where I left..in SFL..well that was a case study for bubble 101…There are areas of the country that one can purchase and stand a much lower risk of losing money..but I do agree if you plan to live in it less than 3 years renting maybe a better option…

Finally, for us, owning a home pre-bubble allowed us a appreciation we could never have dreamed of..we sold at the peak..(Poor soul who bought our house is $200K underwater)..and then BOUGHT a LESS expensive home than what we sold it for..1)we lowered our cost of living expenses by relocating out of the state 2)Because we moved to a lower cost area our housing dollars bought us a larger brand new home(which we built pre construction..and made it the lowest pre construction home in a the community…) 3)We improved our quality of life by doing so…4)owning a home is not always bad investment vehicle..5)Educate yourself on what your comfort level is in purchasing a home, don’t let others make that choice for YOU…

When I would go to a mortgage broker..I worked backwards..I always told them what I wanted my payment to be and then asking what they translated into for the purchasing price. I also would tell my realtor, NOT TO SHOW me homes out of my price range…

Now, if the landlord has a great interest rate, and you have bad credit and would get a terrible interest rate, then maybe renting would end up being cheaper for you.

http://www.usatoday.com/money/economy/2008-03-04-local-differences_N.htm

This article demonstrates what I said…You can live in a state like I do that did not have a bubble nor is having one now..and the market is ok..minimal forclosures and affordable housing…or you can be in the market like I was before in South FLorida where some values have gone down as much as 40% since peak, top three foreclosure state and where in some cities as much as 50% of the loans that were made from 04-06 were foreclosures…so whether you like it our not..real estate is local, just like some economies are local…you can’t judge the entire USA based on a problem or positive happening for a few states…

Yes some prices have come down in housing but a 1% change state cannot be equal to a 40% change state…

Smart woman.

Hmm, I’m no good at economics, so my comments will have to be only tangentially related.

Colin, as for your sheep lifestyle, I kind of like it (not that I personally actually fit that model) . Except you forgot the part about get a job, which of course, is a big part of the picture too. Also, that lifestyle will work better if you don’t get divorced, which many of the sheep do–divorce is expensive and is the cause of many a bankruptcy.

Homeownership has something going for it in the marry-and-have-kids part of the scenario. I suppose it is true for men to some degree, but it is very true for pregnant women–they want a nest to put those chickadees in–a nest that is theirs, and they don’t want to have to move any time soon. The problem comes, as you point out, when families bite off way more than they can chew by buying a house too big and too fancy and too far away from where they work.

Some of the related blame for that goes to the developers who hardly make starter homes any more. In our area there are TONs of huge, ugly houses built six inches away from each other.

There is a family in our church who suffered the exact scenario you portray, and it was a bit of an awkward spot when those of us who wanted to help them financially on one hand, didn’t want to help them hold on to an over-sized and over-priced house on the other. We wanted to help them pay their electric bill, but not hold on to that money pit of a house.

You are correct that Real Estate is local. However, there are still market-wide direct and indirect effects that have a significant impact on local markets. A country-wide recession is going to affect Maine to Washington - differently, of course, but it will still bring problems. The entire lending industry is also generally uniformly affected by interest rates - which, when they finally are raised, will depress the market on the whole.

There is a family in our church who suffered the exact scenario you portray, and it was a bit of an awkward spot when those of us who wanted to help them financially on one hand, didn’t want to help them hold on to an over-sized and over-priced house on the other. We wanted to help them pay their electric bill, but not hold on to that money pit of a house.

This is an interesting situation. I would actually be curious what people think is the right thing to do in this scenario.

I am quite alarmed by the rush of people my age who feel the need to buy a house, as though it’s on the checklist, the privilege of every American or even part of the American dream. I have been crunching the numbers over the past year, and I am developing what I think might be a better way of living - and it is almost entirely based on leasing/renting and non-ownership of property in principle. The housing market (especially currently) is one place where I think buying is highly overrated.

Colin wrote:
Atanamis, I agree with much of what you say. There is generally a decent long-term investment in a house. But one has to do it right. They also have to be able to weather economic instability. This can only happen by wise budgeting and basic economic common sense.

Your graph shows why this is the case though. Over the last 8 years, money put into real estate has in many cases doubled. This is the same period in which the stock market has come crashing down a couple times, and the period in which people our age first started hearing about financial investments in passing. OF COURSE they think they can get an interest only loan, and benefit from the value going up. Unfortunately, unless you have the financial resources to withstand hard times a home mortgage can be an anchor around you neck dragging you to the bottom.

I don’t actually know all the facts in the specific situation at our church, but I think what happened was quite like what Darius suggested. I believe the elders intended to talk to the couple about letting the house go, but I’m not sure what ended up happening with that.

I know at least one person in the church thought folks were being selfish and stingy by thinking the couple should give up the house. But others, mostly us older folks, thought they should get rid of the house.

Are you basing this on assumption? Or do “people your age” inform you that they feel they need to buy a home?

I can see the risk of owning a house, but honestly if you have a family (which probably most people your age are starting to) than the stability of owning a house far outweighs renting (Of course given that they are smart about it like other posters have pointed out). I would never want to raise my daughter in a place where if given notice from the landlord we could be suddenly uprooted and she would have to change school districts, where she may not be able to study because the noise from upstairs, where we may be forced to give up her cat because who knows if the next place will let us have it. (just for example)

So perhaps people are more interested in owning houses because it instills in them a sense of stability that they would not feel renting.

I can see the risk of owning a house, but honestly if you have a family (which probably most people your age are starting to) than the stability of owning a house far outweighs renting (Of course given that they are smart about it like other posters have pointed out). I would never want to raise my daughter in a place where if given notice from the landlord we could be suddenly uprooted and she would have to change school districts, where she may not be able to study because the noise from upstairs, where we may be forced to give up her cat because who knows if the next place will let us have it. (just for example)

I presume you would favor your daughter being raised in a car or public housing when you lose your house and still have $50,000 in debt?

You can be in a great neighborhood, get a good contract and have pets in rentals. Now whose putting forward doomsday scenarios?

The “sense of stability” is false when it comes to buying a house - unless it is a wise purchase. There is nothing inherently better about a house - and in the short term, it is mathematically worse on aggregate and much riskier.

Annie wrote:
I would never want to raise my daughter in a place where if given notice from the landlord we could be suddenly uprooted and she would have to change school districts, where she may not be able to study because the noise from upstairs, where we may be forced to give up her cat because who knows if the next place will let us have it.

Honestly, this posting demonstrates a massive amount of ignorance. It is almost impossible (legally) for a landlord to evict a tenant who pays their bills on time. If you have a contract, they CAN’T evict you. Most landlords are more than happy to sign a new contract before the old expires, and most states have limits regarding how much they can increase the rent. I have lived in 5 apartments over the last 5 years, and I have NEVER lived in one where excessive noise was permitted. If you have, it was most likely a slum where the landlord simply didn’t care about their tenants. It is a TRIVIAL matter to check whether an apartment allows pets, and really isn’t that hard to find them.

There are CLEARLY benefits to owning over renting, and your complete inability to articulate a single one demonstrates extreme ignorance. I sincerely hope your spouse makes your families financial decision, because you lack the understanding of economics needed to make them.

Advantages:
Your housing budget shifts into equity in a property
You can make any “improvements” you want
You don’t need to contract for things like pets, waterbeds, etc

Disadvantages:
If you get awful neighbors, you can’t as easily complain or move
All problems that happen come out of your pocket
You are committing a lot of money to one thing, that might lose value
You have to do all maintenance of everything yourself or contract for it
If you lose your job and need to relocate, it is very hard to do
If conditions of the neighborhood change, you can’t easily get out

The idea that owning a house is a clear advantage is simply false. There are many people who benefit from a house, and even if it economically doesn’t make sense the intangibles can still make it worthwhile. There have also been enough people that get houses they can’t afford to cause a financial crisis that has the nation’s biggest banks selling ownership shares at massive discounts for operating cash. Too many people have gotten the stupid idea that a house is worth it at any cost, and we are all now paying the price.

The market where you live can dictate a lot, too. My husband & I wouldn’t even be considering buying if a rental could inexpensively meet our needs. But in the town we live in, rentals are extremely rare & very highly priced. We need a larger home than we have now but finding a rental to meet that is unrealistic to our budget, buying a home is not. We want a home to live in, not make tons of equity on.

It’s still a long way to the bottom. The credit and liquidity crisis is far, far from over. Why? Cash reserves. Lenders only need a small cash reserve to lend. This is great as long as cash reserves are growing. Cash reserves grow by a dollar and 10 can be lent. However if cash reserves are shrinking lenders have to collect 10 dollars back for every dollar reserves are reduced by. This was not a financial system threatening problem until mortgage lenders got the brilliant idea of selling their mortgages on the investment market instead of servicing them in house the old fashioned way. Suddenly (and it was almost overnight) instead of making solid loans that the lender would live or die with for 15 to 30 years, lenders are turning and burning any loan they can as fast as possible since they now make money on the origination, not the servicing of a loan.

I am personally renting a $450,000 condo with $5000 a year in taxes for $1400 a month. That is financially insane for the owners but it’s what the market will bear. I wouldn’t even consider purchasing in my market at this time, even though I could. I have nothing against home ownership at all. I own several houses (in several different states), all with a 15 year mortgage, and am renting them all out with a positive cash flow.

All that being said, for many people buying a house is a good idea for many of the reasons already stated in this blog already, EXCEPT to make money. However, the only way buying makes any sense at all is if you:
1. Be very sure (as sure as anyone can) you will be there reasonably long term. Anything less than 5 (preferably 10) years will eat you alive with with fees. Remortgaging is a suckers game up there with 3 card monte.
2. Don’t consider it an investment. Odds are, based on history, a house will appreciate little more than the inflation rate. Housing traditionally has been more an enforced savings plan than an investment.
3. Put down a real downpayment, preferably 20% to avoid pmi. Pmi is also a suckers game. You also need to be very careful you won’t get sucked back into pmi if the house value should fall. This kind of downpayment gives you a lot of leverage going to lenders.
4. Don’t even consider a house you can’t afford with fixed a 15 year mortgage. You will pay about 80-90% of the loan amount in interest with a 15 year, 200%-300% of the loan amount with a 30 year. The payments aren’t that much higher. Can you really afford and extra $200,000 on a $200,000 house? That’s 4 years tuition to an ivy league college. Or 20 years rent. Think about it.

That being said the people who would follow this advice aren’t the one’s in trouble anyway. Remember that a bear market is when stocks return to their rightful owners.