Welcome. It’s always good to have another like-minded soul join our cast of characters. In a world that’s willing to pay a huge premium to have a paper that says “deed” on it, it’s always refreshing to me to log on and converse with people who realize that there is more to dream about and invest in than that paper.

For me, it’s a simple philosophy that plays out time and again, what goes up, comes down. And home prices went up way too high. With a little patience, those on this site (and awake) will make a tidy killing in a few short years.

Thus, what may have been an advantage over renting in the past (the “forced savings” effect) has all but dissolved, leaving you with paying for equity that is disappearing by the day. Absent a really outstanding deal (e.g., 1999 prices), you’d have to be unbalanced to buy now.

Sad isn’t it?

I’ve tried spelling it out for them, line by line — how even if I drop 40-60K in rent over the next few years waiting for the bottom (or something like it), that’s still far less than the money I would spend servicing the *interest* on a house running 100 to 300 thousand more than it is today. Not to mention the extra 30 to 240 K in principal I would have had to pay for the house in the first place. Even pointing out that, if prices drop 300K, then my 25% down payment has dropped 75,000 dollars US.

In the mean time, I don’t have to freak out that the drains need to be cleared and pipes replaced, worry about being over-appraised for this years property taxes, or even that the fruit trees in the back need topping.

The thing that people like to point out is how “rents can be raised” — and then I show them how a lot of those ARM payments are reset. In this neck of the woods a 10% rent increase is “huge” — yet some of those resets are a heckuva lot higher than that.

Or that “you can put holes in the walls” benefit that they keep going on about — unless you’re in a HOA, of course. Suddenly the length and shade of your lawn is your neighbor’s business, and your house color will probably be the approved shade of beige. Remember, you get to pay for this privilege of being fined for forgetting to close your garage door.

I have to admit that I’ve always despised HOA’s — it’s one thing to charge a fee to deal with common area issues (landscaping, security, community center, and so forth), another entirely to create this bizarre legal entity that can foreclose on your house if you dispute a minor fine. My not-so-secret hope is that this mess flushes a lot of the more onerous HOA’s — it was one thing to convince buyer’s to sign hyper-restrictive documents when they were desperate to find ANYTHING they could move into, but now that the market’s popped? But I digress…

BTW, an update on the “bet” with my co-worker — since placing the bet, the Zillow estimate on the house I’m renting has gone from 704K (8/23/07) to it’s current price of 645K (11/2/07). He’s still insisting this is a “temporary slump” in pricing (well, technically that’s correct — even if it’s a decade long downturn, it’s only temporary), going so far as to start looking for investment opportunities.

(shakes head)

http://www.marketwatch.com/news/story/record-home-price-declines-all-top/story.aspx?guid=%7BE0F209E8%2DB6B3%2D4352%2D8F24%2DED365FBA216D%7D

Could not believe the Citigroup bailout today. I understand that they can trade stock for cash, but a guaranteed 11% return?, must be preferred stock?

Great post twist, props to M for the source.

All of you, cut out this blog entry and paste it on your refrigerators.

One day they will GIVE you a house.

My response to that is: “Prices are DROPPING; I’m not LOSING any equity.”

And “owners” aren’t just losing equity on the percentage they actually own… since a house is highly leveraged, they’re losing equity on the full amout, in essence, eating the lender’s loss.

Building equity? LOL. Not in this market.

The house sold quickly, they moved to the other city, rented a small cottage, and guess what? She didn’t like her new job!

So, she and her husband made the decision to follow their dream of traveling and working from a motor home. She quit the job, they bought an RV, and now they live and work wherever they are. He’s a web developer and she’s a writer/photographer.

Occasionally, she says that she misses yardwork, but that’s the only homeownership nostalgia I’ve been able to detect.

You’d think it was “needless to say,” but I still have mathematically challenged relations who say, “But you aren’t building any equity!”

Thank you for your comment about a “healthy perspective,” because that is what I’ve learned over the past couple of years as well.

It has really been liberating not to put so much money and time into remodeling and redecorating our home. I’ve loved the savings in money and time.

I’ve watched the teary-eyed folks on TV who are being forced to move because they can’t manage their wonky loan. I keep thinking the news crews ought to come back a year later when these folks are in an affordable rental and have discovered the world of disposable income. I suspect most people will ask themselves, “What in the world was I thinking?”

I’ve owned four homes over the past twenty years, but I’ve also rented for about half of that time as well. I’ve always considered my family’s specific circumstances, with many factors in mind, when making this decision to rent vs. own.

Currently, my wife and I are renting in DC for $1150 per month. The homes that interest us would cost $4000 per month in mortgage and taxes, so we’re saving at least $2000 net of the tax effect. We’re literally putting $2500 into the bank every month.

While waiting on the sidelines this past year, prices have dropped up to 15% depending on the seller, and we predict they will drop another 20% by next summer, without a recession.

The likely result is that we will buy a home a couple of years later than we originally planned, but our purchasing power will be a third greater when we do. Around here, that’s the difference between a run-down place in a marginal neighborhood and a completely updated place in a prime neighborhood.

We’ve also learned alot about ourselves and our true sources of happiness while waiting, and those lessons are worth as much as the money savings. For us happiness is less about material things and more about health, loving well and doing good work.

I truly recommend a combination of renting and owning to anyone who needs to maintain a healthy perspective on life while building a strong financial foundation for it.

The house I sold for $289K in 2004 is listed for $229K. I bet I could scoop it up for $210K tomorrow, if I wanted it back.

Plus, renting, my expenses are $600/mo less. That’s $22K over 3 years.

I got a chuckle out of “Prices would have to fall at least 10%?” Don’t look now… but they already HAVE.