Now That Housing Has Soured, Renters Are Glad They Didn't Buy
by Jane Hodges
With the housing-market slowdown, tightening mortgage-lending standards and rising home foreclosures, renters are more easily answering the question: "Why rent when you can own?" Such a question was common during the housing boom, when homeowners, happy with the gains their homes were making -- at least on paper -- would urge non-property-owner friends to join the party.
The conventional real estate wisdom holds that owning a home is a better investment than renting. Real-estate values tend to appreciate over time (despite temporary negative blips in home prices) and homeowners who hold mortgages -- at least those who financed with fixed-rate loans -- know exactly what their monthly housing payments will be for the length of their loan. Renters don't have the same certainty.
But some renters say that the price hikes they may face when they renew a lease are manageable, especially in light of today's housing-market troubles. Several areas across the U.S. that saw substantial home-price appreciation during the housing boom also experienced steep property-tax increases, and mortgage costs for adjustable-rate or subprime loan borrowers can be tough as rates push higher. What's more, home buyers who bought at the top of the market can find themselves with high mortgage payments for an asset that has lost much of its value. With the housing market in flux, it makes sense to hold off on buying, renters say. Now, these renters are asking, "Why own when you can rent?"
Take Jim Kollross, vice president of finance at Telephia, a consumer research firm in San Francisco. In 2003, he and his wife bought a 2,000-square-foot house in the city's Inner Sunset neighborhood for $825,000, but sold the three-bedroom, two-bathroom home two years later with plans of renting a home indefinitely. Their property went up in value approximately 60% during the two years they owned it, and they wanted to sell while its value was still high. Such steep appreciation signals an unstable market, Mr. Kollross says, and he'd rather rent than risk watching his home's value balloon, only to stagnate, or even worse -- fall.
Mr. Kollross, 37, told his mother that he planned to sell and rent an apartment instead. He recalls that her first question was, "Did you lose your job?"
He and his wife sold their place for just over $1.3 million in 2005 and currently lease a 1,700-square-foot flat in San Francisco's prestigious Laurel Heights section. Their new neighborhood is nicer and affords him a faster commute, Mr. Kollross says. Plus, their two-bedroom, two-bathroom apartment has city and San Francisco Bay views and includes a garage parking spot and off-street parking. While the rent is a steep $3,000 a month, he says the price of owning a comparable home in his area -- where home prices start at $2 million -- is three times higher.
To put his cash to good use, he's invested his profits from the home's sale in the stock market, where assets are easier to transfer or sell during market fluctuations than in real-estate, he says.
Mr. Kollross isn't alone in his bearish sentiments on homeownership. Housing-bubble blogs like Housing Panic and Housing Doom are full of anti-ownership sentiment from renters. Some renters are resentful they can't afford to own in pricey cities, while others are bitter that speculators drove up housing values in their markets. Some are irked that naïve buyers who bit off too much mortgage are calling on lenders and government for bailouts when, all along, they could have held off on buying a place.
John Sternal, 33, learned the hard way about taking out more loan than he could handle. As a vice president at LeaseTrader.com, Mr. Sternal has a steady income and solid credit, yet in 2005 he purchased a Fort Lauderdale, Fla., condo with an interest-only loan (instead of a more conventional fixed-rate mortgage). He had rented for most of his life and was living in a $900 per month one-bedroom apartment at the time of his purchase. Now, as he watches his home loan's interest rates balloon upward, he regrets his decision. His mortgage's low teaser rates have begun a series of resets -- first to 8.6%, pushing his $1,300 payment to $1,700. His rates will eventually rise to a maximum of 12% in October 2008, increasing his payments to $2,500, making his $900 rent look awfully nice in retrospect, he says.
If he were to try to sell now, he'd take a substantial loss on the property, Mr. Sternal says. Within his condo complex, a unit similar to his is now listed at $150,000 -- about $47,000 below what he paid for his property. With 60,000 new condos expected to hit the market in South Florida over the next five years, selling his property could be difficult, he says.
Marc Savitt, president-elect of the National Association of Mortgage Brokers, says that many first-time buyers, at least those he encounters at The Mortgage Center in Martinsburg, W. Va, are choosing to remain renters over taking out unfavorable home loans. About 75% of prospective buyers decide to postpone buying when informed that waiting to do so could garner them lower rates, he says.
Not everyone who can afford to own needs to, some renters say. Ben Cheng, a 30-year old manager at an oil services firm in Houston, could have purchased his own place in 2000 -- when he returned to Texas after college. But rather than buy, he's using money saved by renting to pursue a masters of business administration program at The University of Chicago. He has a good deal on rent, he admits, paying $400 per month to a friend for an apartment worth $650 in rent monthly.
"If I was paying $800 to $1,000 in rent per month, I'd have definitely looked into buying by now," he says.
Sheara Reich, 34, is another renter who's glad she resisted the buying bug -- until now, anyway. The Washington, D.C., freelance publicist has rented for more than a decade, and as housing heated up during the past four years, she says that her relatively low rent, coupled with the volatility of the housing market, made it a smart move. For eight years she paid $750 to $800 for a studio in a city building that's close to public transit and has a rooftop pool. But since the sale of that building, she's moved into a $1,300 a month unit in another building.
She's watched from the sidelines as friends made hasty purchases without inspections or in fear of "losing out" on a home. "Everyone kept telling me, 'You're so stupid,'" she says. "'You've got to get into the market.'"
Now, she says, some of her friends regret making those buys and are funding expensive home repairs a home inspection might have revealed.
Ms. Reich finally started looking for a place of her own in April -- after 12 years of renting -- when she noticed that prices in her market were cooling. She bought a condo in September in Washington D.C.'s Adams Morgan neighborhood. The 800-square foot unit, which has a bedroom and an office, was listed at $415,000 in April, but dropped to $375,000 by August. She bought the condo for its $375,000 asking price using a 10% down payment and a conventional, 30-year loan; the sellers paid her closing costs. She closed on October 5 and is in the process of moving in.
"I feel really great," she says of her decision to stick to renting during what she says was a "feeding frenzy" in Washington D.C. "I got one over on the market."
Ms. Hodges is a a free-lance writer in Seattle.
With the housing-market slowdown, tightening mortgage-lending standards and rising home foreclosures, renters are more easily answering the question: "Why rent when you can own?" Such a question was common during the housing boom, when homeowners, happy with the gains their homes were making -- at least on paper -- would urge non-property-owner friends to join the party.
The conventional real estate wisdom holds that owning a home is a better investment than renting. Real-estate values tend to appreciate over time (despite temporary negative blips in home prices) and homeowners who hold mortgages -- at least those who financed with fixed-rate loans -- know exactly what their monthly housing payments will be for the length of their loan. Renters don't have the same certainty.
But some renters say that the price hikes they may face when they renew a lease are manageable, especially in light of today's housing-market troubles. Several areas across the U.S. that saw substantial home-price appreciation during the housing boom also experienced steep property-tax increases, and mortgage costs for adjustable-rate or subprime loan borrowers can be tough as rates push higher. What's more, home buyers who bought at the top of the market can find themselves with high mortgage payments for an asset that has lost much of its value. With the housing market in flux, it makes sense to hold off on buying, renters say. Now, these renters are asking, "Why own when you can rent?"
Take Jim Kollross, vice president of finance at Telephia, a consumer research firm in San Francisco. In 2003, he and his wife bought a 2,000-square-foot house in the city's Inner Sunset neighborhood for $825,000, but sold the three-bedroom, two-bathroom home two years later with plans of renting a home indefinitely. Their property went up in value approximately 60% during the two years they owned it, and they wanted to sell while its value was still high. Such steep appreciation signals an unstable market, Mr. Kollross says, and he'd rather rent than risk watching his home's value balloon, only to stagnate, or even worse -- fall.
Mr. Kollross, 37, told his mother that he planned to sell and rent an apartment instead. He recalls that her first question was, "Did you lose your job?"
He and his wife sold their place for just over $1.3 million in 2005 and currently lease a 1,700-square-foot flat in San Francisco's prestigious Laurel Heights section. Their new neighborhood is nicer and affords him a faster commute, Mr. Kollross says. Plus, their two-bedroom, two-bathroom apartment has city and San Francisco Bay views and includes a garage parking spot and off-street parking. While the rent is a steep $3,000 a month, he says the price of owning a comparable home in his area -- where home prices start at $2 million -- is three times higher.
To put his cash to good use, he's invested his profits from the home's sale in the stock market, where assets are easier to transfer or sell during market fluctuations than in real-estate, he says.
Mr. Kollross isn't alone in his bearish sentiments on homeownership. Housing-bubble blogs like Housing Panic and Housing Doom are full of anti-ownership sentiment from renters. Some renters are resentful they can't afford to own in pricey cities, while others are bitter that speculators drove up housing values in their markets. Some are irked that naïve buyers who bit off too much mortgage are calling on lenders and government for bailouts when, all along, they could have held off on buying a place.
John Sternal, 33, learned the hard way about taking out more loan than he could handle. As a vice president at LeaseTrader.com, Mr. Sternal has a steady income and solid credit, yet in 2005 he purchased a Fort Lauderdale, Fla., condo with an interest-only loan (instead of a more conventional fixed-rate mortgage). He had rented for most of his life and was living in a $900 per month one-bedroom apartment at the time of his purchase. Now, as he watches his home loan's interest rates balloon upward, he regrets his decision. His mortgage's low teaser rates have begun a series of resets -- first to 8.6%, pushing his $1,300 payment to $1,700. His rates will eventually rise to a maximum of 12% in October 2008, increasing his payments to $2,500, making his $900 rent look awfully nice in retrospect, he says.
If he were to try to sell now, he'd take a substantial loss on the property, Mr. Sternal says. Within his condo complex, a unit similar to his is now listed at $150,000 -- about $47,000 below what he paid for his property. With 60,000 new condos expected to hit the market in South Florida over the next five years, selling his property could be difficult, he says.
Marc Savitt, president-elect of the National Association of Mortgage Brokers, says that many first-time buyers, at least those he encounters at The Mortgage Center in Martinsburg, W. Va, are choosing to remain renters over taking out unfavorable home loans. About 75% of prospective buyers decide to postpone buying when informed that waiting to do so could garner them lower rates, he says.
Not everyone who can afford to own needs to, some renters say. Ben Cheng, a 30-year old manager at an oil services firm in Houston, could have purchased his own place in 2000 -- when he returned to Texas after college. But rather than buy, he's using money saved by renting to pursue a masters of business administration program at The University of Chicago. He has a good deal on rent, he admits, paying $400 per month to a friend for an apartment worth $650 in rent monthly.
"If I was paying $800 to $1,000 in rent per month, I'd have definitely looked into buying by now," he says.
Sheara Reich, 34, is another renter who's glad she resisted the buying bug -- until now, anyway. The Washington, D.C., freelance publicist has rented for more than a decade, and as housing heated up during the past four years, she says that her relatively low rent, coupled with the volatility of the housing market, made it a smart move. For eight years she paid $750 to $800 for a studio in a city building that's close to public transit and has a rooftop pool. But since the sale of that building, she's moved into a $1,300 a month unit in another building.
She's watched from the sidelines as friends made hasty purchases without inspections or in fear of "losing out" on a home. "Everyone kept telling me, 'You're so stupid,'" she says. "'You've got to get into the market.'"
Now, she says, some of her friends regret making those buys and are funding expensive home repairs a home inspection might have revealed.
Ms. Reich finally started looking for a place of her own in April -- after 12 years of renting -- when she noticed that prices in her market were cooling. She bought a condo in September in Washington D.C.'s Adams Morgan neighborhood. The 800-square foot unit, which has a bedroom and an office, was listed at $415,000 in April, but dropped to $375,000 by August. She bought the condo for its $375,000 asking price using a 10% down payment and a conventional, 30-year loan; the sellers paid her closing costs. She closed on October 5 and is in the process of moving in.
"I feel really great," she says of her decision to stick to renting during what she says was a "feeding frenzy" in Washington D.C. "I got one over on the market."
Ms. Hodges is a a free-lance writer in Seattle.
Comments