April 13, 2009

F*ck the NAR. Help your fellow Americans make the case AGAINST home ownership (debtorship)


I know it's an American obsession, to "own" your own home. To get on that wonderful "property ladder". To live the "American Dream". To "show that you've arrived". To "stop paying rent to the bank". Blah blah blah.

But in other countries, home debtorship isn't so important. People haven't bought into the myth.

So maybe one good thing that comes out of this epic and historic housing disaster is that the ENTIRE MINDSET favoring homedebtorship will change. Hell, maybe the NAR-lobbyist-wet-kiss homedebtorship tax breaks will go away (to help pay for the housing crash carnage).

So I'll get it started. Here's why "owning" a home is not worth it:

1) When the market crashes, you can be quickly financially destroyed (hint - look around)

2) When you need to move for a new job, or just because you'd like to move, you're stuck until you can lose the debt-trap

3) When a new neighbor moves in who likes to crank the tunes, host wild parties and deal drugs, you're stuck

4) Homeowner association fees and community regulations

5) Renters never have to give a realtor one penny of their hard-earned money to point out granite countertops and where the bathroom is

6) In most places you still can't generate enough rental income to cover your carrying costs

7) The hours and hours of upkeep and maintenance work

8) Worrying about and paying for everything that can go wrong (roofs, water pumps, termites, floods, foundation cracks, etc)

9) Losing your flexibility and freedom

10) Not being able to take advantage of renting for pennies on the dollar for the next decade


But hey, who cares about that list. When you rent money from a bank to 'own' a home, you can paint the walls any color you want! And you (still) get a tax break on all that interest you're paying to the bank while your home declines in value!

37 comments:

mimi said...

Patrick.net has really covered this argument well - I think over 5 web pages worth. My very favorite point that he makes is that a buyer's agent never works for the buyer. I don't know how old his page is though - because I don't really agree with him that in SF area houses rent for only 3% of list price. According to his logic - my area in metro NY is priced right in terms of rent/list price ratio but still way out of line with median/mean salaries - particularly now that there are not as many bonuses floating around and high unemployment.

will shill for coin said...

Denninger picks up on the American Idol theme. Maybe he's a S&A'er.

How I do love his work though.

Anonymous said...

How somebody who couldn't put down a damn dime, but instead took out at 106% (or more as they refinanced other debt) loan can be referred to as a "Homeowner" is beyond me.

Anonymous said...

Somewhat foolish advice.

Like any other investment, and ESPECIALLY like any other TAX ADVANTAGED investment, if you buy close to the bottom and sell close to the top, by all means it is a good investment--especially if you've picked out a good property.

I doubled my already healthy net worth in five years by buying in the middle of winter in 2002 (a few weeks after 9-11 crashed stocks, interest rates, and consumer sentiment) and sold in spring 2007 (a year after the housing downturn was established but the market was still okay in my location, and the Treasury/bond bull hadn't really gotten going).

Don't buy a fixer-upper if you're not a handy man, don't buy a rental if you don't want to be a landlord, don't buy when it's cheaper to rent, don't buy in a neighborhood you don't know, and don't buy when everyone else if saying "you HAVE to buy" or when the first few people are just figuring out that they have to sell. Don't buy without an honest appraisal, don't buy using a seller's agent, don't buy without legal advice, don't buy without a thorough checklist of your must-haves, nice-to-haves, must-not-haves, etc (walk in closets, garage, short commute, whatever). Don't guy a condo from a the builder unless it's a REALLY great deal and the condo fee hasn't been lowballed. Don't buy a condo in a building that hasn't been maintained properly. Don't buy a condo if the condo fee has been kept flat for several years. Don't buy a SFH where the driveway slopes down into the garage. Don't buy a SFH where the driveway is steep in a northern (snowy) state; don't buy a SFH if the surrounding land is a very steep slope. Don't buy if there's evidence of mold, a past fire, abuse, neglect, or a neighborhood noise or crime problem.

Don't buy a property with any problem that an AVERAGE person (i.e., your someday buyer prospect) would complain about, even if YOU can tolerate it.

vanilla ice said...

I like that list. I would bet homedebtorship is inversely proportional to quality of life.

In Berlin a renter can find a two bedroom apartment with a basement, on a nice street, in a walkable neighborhood, with world class transit, for under $1000/month. And you know what, the apartment won't be a 2x4 sheetrock, warped hell hole like my apartment in the states. F you NAHB, our buidings suck.

Ross said...

Are the figures on that chart representing the percentage of homeownership? If so, it looks like we are average in that category.

Some knucklehead on AZCentral told me that he has accumulated 30"turn key" rentals in the last 60 days, all for less than $30,000 each and all with rental income of $850/month, obviously cash-flowing. Does anyone here believe that? Are we missing the boat?

Anonymous said...

Great, we're getting rid of the housing bull$hit and now the other rip-off created to fleece taxpayers:

WSJ -- Oil Industry Braces for Drop in U.S. Thirst for Gasoline

Among those who say U.S. consumption of gasoline has peaked are executives at the world's biggest publicly traded oil company, Exxon Mobil Corp., as well as many private analysts and government energy forecasters.

The reasons include changes in the way Americans live and the transportation they choose, along with a growing emphasis on alternative fuels. The result could be profound transformations not only for the companies that refine gasoline from crude oil but also for state and federal budgets and for consumers. Much of contemporary America, from the design of its cities to its tax code and its foreign policy, is predicated on a growing thirst for gasoline.

Drivers filled their cars with 371.2 million gallons of petroleum-based gasoline every day in 2007, according to the U.S. Energy Information Administration. It expects that to fall 6.9% to 345.7 million gallons in 2009, as demand at the pump declines and the use of plant-based ethanol increases. Even if usage climbs after the recession ends, it won't exceed 2007 levels, according to EIA forecasts.

Demand for all petroleum-based transportation fuels -- gasoline, diesel and jet fuel -- fell 7.1% last year, according to the EIA. This is the steepest one-year decline since at least 1950, as far back as the federal government has reliable data.

Many industry observers have become convinced the drop in consumption won't reverse even when economic growth resumes.


Dump your cars, ride a bike or scooters to save big bucks. Give the finger to Arabs, insurance companies, blood sucking governments that tax you to death on fuel!

Next scum on the list to get rid of: BANKSTERS AND ITS PUPPET FED.

never_forget_y2k said...

Forget it. The opportunistic speculators, the nick-style deadbeats, and the evil-as-f*ck realtors and bank fraudsters WIN. They have the global economy hostage now while they keep collecting 6%. When this is all over, if ever, 1 of 2 outcomes will occur,
a) the world will be left in total ruin, or
b) the realtors will still collect 6%.

The only way I can think of to beat them is to rally thousands of realtor haters to become real estate agents ourselves, and maybe charge 4%. But we'd probably just turn evil/greedy and charge 6% in the end anyway, so why bother..

Anonymous said...

Just go over to Patrick.net

http://www.patrick.net

Anonymous said...

does anyone know of a RE search engine that allows one to filter out homes in HOA neighborhoods?

Nick said...

Anonymous Anonymous said...

How somebody who couldn't put down a damn dime, but instead took out at 106% (or more as they refinanced other debt) loan can be referred to as a "Homeowner" is beyond me.

April 13, 2009 6:48 PM

Well I couldn't figure it out either. So when the banks in the good old days were handing out money like lollipops, I jumped right in. We bought a townhouse, and then took out equity and every time the value went up, there was another letter from my bank to take out more equity. Sure it was freaking crazy but millions of us took advantage of this madness for our personal benefit.

Happy Renter said...

Oh, here's my personal favorite reason to avoid being stuck in a house. The neighbor gets a BARKING DOG. That happened to me. I asked nicely for them to make it stop, begged, bribed, whatever. No dice. Dog kept barking.. At all hours. Drove me nutz. My saving grace is that I am a PROUD AND HAPPY RENTER. I was able to MOVE! Without having to unload the house or kill someone. I love that flexibility.

wallstreetveteran said...

My father made a killing buying real-estate in the 1970's & 80's, but as for now you are better off in other investments, renting, then buying a house cash. As we all know over the very long run of 30+ years its cheaper to buy than rent unless you are making a killing with your cash. No need to get a mortgage and pay 2x the price of the house over 30yrs.

Anonymous said...

as a "shareholder" of AIG the insurance company i feel even more looted when i get health insurance bills and house insurance bills that are preposterous and forced upon me, and those bonuses and recession and inflation proof jobs and billings make me wanna scream RAPE....................

Anonymous said...

THE "IRRATIONAL" HOUSE PRICE INFLATION AND DOLLAR DEVALUATION IN RELATION TO HOUSING STARTED IN 1997 WHEN THEY CHANGED THE TAX SCHEME ON CAPITAL GAINS ON HOUSINGS AND EVEN BEFORE WHEN THEY CHANGED THE INFLATION CALCULATION SO THAT HOUSE PRICE INFLATION WAS NOT CALCULATED AS INFLATION AND THUS ENABLED LOWER INTEREST RATES ON DOLLAR DEPOSITS BY "ALLOWING" IF NOT FORCING NON PRICE STABILITY

Anonymous said...

THAT KNUCKLEHEAD HAS A POSITION IN THE GOVT FORCLOSURE REPO LINE THAT MOST "CHEESE" WANTERS WILL NEVER SEE, AND YET THOSE PROPERTIES ARE THERE AND BEING SOLD THRU INTER CRONYISTIC SYSTEMS, JUST YOUR NOT INVITED TO THE PARTY BEING HAD WITH YOUR MONEY

Anonymous said...

So WFC and GS now look like they have decent earnings with thanks to Uncle Sam. The banking industry has been saved. Yeah. Now the little people who have lost their jobs, their homes, their dreams....now they can ban together to pay the tax bill. Its truly unbelievable, and makes me sick that Joe Bloggs just can't see how bad he got sc***ed.

Mammoth said...

3) When a new neighbor moves in who likes to crank the tunes, host wild parties and deal drugs, you're stuck.
-----------------------

Oh, really - you're stuck?

Got matches (or moltov cocktail)?

John said...

I assume the chart is either level of indebtedness in percentage terms or level of home ownership...???

Miss Goldbug said...

Don't forget that 8,000 dollar tax "credit" which is really a loan from the government.

A true "credit" doesnt have to be paid back.

With houses losing thousands of dollars in equity a month, you'll be upside down in a year or two.

Rent, don't buy.

Anonymous said...

Keith/Board

Do you have children that are going to school?

I agree with every one of your points. With school-aged children, the points are trumped.

Can you logically be at the mercy of a landlord, who can ask you to leave at any time? Uprooting your family...your children from their schools?

Irresponsible parents would subject their children to that kind of risk.

Miss Goldbug said...

Ross said:"Some knucklehead on AZCentral told me that he has accumulated 30"turn key" rentals in the last 60 days, all for less than $30,000 each and all with rental income of $850/month, obviously cash-flowing. Does anyone here believe that? Are we missing the boat?"


He bought 30 properties at the top of the roller coaster ride.

I wonder what his cash flow will be on these properties 1 year from now?

Markus Arelius said...

Do we dare mention the potential wealth-obliterating tax consequences of debt forgiveness on either the primary and/or secondary residence of a recourse mortgage?

No. Better not. So, lemme see....

Step 5 says "Insert head into sand."

Wait, that can't be right.

Bloggs said...

Oh believe me...Joe knows he is getting the stick but...what can old Joe do about it?

That's right...Same as you...

NOTHING

patrat said...

Pros of renting: I love being able to move.
Cons of renting: I may have to move.
Pros of buying: I love not being forced to move.
Cons of buying: I may want to move and not be able to.
You pays your money, you takes your chances.

Anonymous said...

Happy Renter -

You can take a neighbor with a barking dog to court. A coworker of mine had that happen to him and was forced by a judge to take the dog to a trainer and buy a shock collar.

But you go ahead and move anytime you don't like something a neighbor does. I wouldn't bother unpacking anywhere, anytime, if I were you. You're going to be on the move for a long time. Enjoy paying that monthly nut until you die.

casey said...

Keep renting and telling me how broke you are.Know when to buy and know when to sell and you will be rich.

Anonymous said...

1) Depends on when you buy.

2) If you live in an area that has good jobs and industries, you won't have to move for a while. If you sit on the house for a while, you will sell at a profit. Not so with rent.

3) The nice thing about noisy neighbors is you don't have to worry about running the table saw in the garage at 11pm or 6am. Regarding being stuck, I guess you might think that way, if you like to run from things in life.

4) Don't buy in an HOA. Look at the laws of the area you intend to live in. Caveat emptor. Or you could move in, act shocked and surprised, and leave in disgust as naive as you were before.

5) FSBO

6) A house can also be a place to live. If you don't want to be a landlord, don't.

7) Yes, you do learn to fix things and be handy if you don't want to hire work out. What's wrong with knowing how things work and how they are put together? BTW, it's not dawn-to-dusk work we're talking about here.

8) One of the worst feelings I ever had was watching in horror as my apartment flooded and having the manager not pick up the phone, roto-rooter say it would be a half hour, etc. I know my home's systems and how to fix them, including in emergency situations. If I have to bash a hole in my wall to get to a gushing pipe, I won't lose a damage deposit. Again, what's wrong with knowing how to fix things?

9) I find the greater freedom in doing what I want in my own home. If I want to take out a wall and reconfigure the rooms, I can do that. A couple years ago I put a washup shower and utility tub in the garage. At my old apartment, I did what the landlord wanted me to do which was walk from the garage to the apartment all grungy after working on my car. No freedom or flexibility there, either.

10) Rents will be higher 10 and even 5 years from now; my mortgage will remain at $680/mo. I don't know anybody who rents 2500 sq. ft. for $680/mo. Even with taxes, utilities, maintenance, etc., I will remain at $680/mo. for the house and lot. And stop kidding yourself, you pay the landlord's taxes, utilities, maintenance, etc. Oh sure, there are some wannabes that are losing money, but someone who has been renting a home out for 15 years has everything paid for them. By a sucker.

Anonymous said...

Home ownership is away worth it when the price affordability index is around three time the median income in your area.

Normally price affordability index is the most favorable during the ending stage of the housing slump to the beginning stage of the housing recovery.

Remember there are three phases to a housing cycle.

1) Boom
2) Slump
3) Recovery

and each phase has three stages:

a) Beginning
b) Middle
c) Ending

Bottom line - price affordability index is at it highest if an average person in the location where he/she work can put 20% down towards the payment of a house by his/her work location and his/her monthly house payment including "interest and principle", property tax, insurance, and "home owner association due" is around 28% of his/her gross income.

patrat said...

Just a thought - the real meaning of the Tea Party is that people are starting to get together. It's the government's worst nightmare.

Bukko_in_Australia said...

And you (still) get a tax break on all that interest you're paying to the bank while your home declines in value!Hey Keith, I'd like to give you a short lesson on how Australia's tax system works re: home debtorship.

Unlike the U.S., you CAN'T deduct the amount of interest you pay on your mortgage from the amount you pay income tax on. Australia does not subsidise home "ownership" the way the U.S. does. Growing up in America, I always thought that sort of subsidy for home buyers was a natural thing, like breathing air.

What Oz DOES subsidise is "landlordship." If you buy a house or flat that costs you $2,500 a month in mortgage, taxes, etc. and you only pull in $2,000 a month rent, you can deduct that $500 a month loss ("negative gearing" is the term used here) from the amount of income you pay taxes on.

It strikes me as weird that the government doesn't give you tax benefits for the place you live in, but it will subsidise you if you're a petit bourgeois rent-collecting landlord. I don't know how this system evolved, but there must have been some sort of political calculations behind it. But the "landlord subsidy" system is as natural to Australian thinking as the "homedebtor subsidy" is to Americans.

There's a "financial advisor" industry that's built up here with storefront offices that will analyse your income, look at what kind of houses/flats you could buy, what the tax ramifications are... It's as bogus a business model as mortgage originators were in the U.S., IMHO. I expect it to get crushed like mortgage bucket shops did in the U.S. when the housing bubble bursts here.

OTOH, the bubble is only deflating at the edges so far. Could Oz be immune, and housing prices won't crash before global hyperinflation and currency degradation makes all list prices go stratospheric? (I'm not in the Mish deflationista camp.)

You've got a bit of an international readership. I'd be curious if other people, including yourself observing the quirks of the U.K. system as regards taxes and homes, could report on how different countries do things.

Anonymous said...

The pride of home 'debtorship' just doesn't have as catchy a ring to it...


Bubblenomics: from American Idol to idle American.


Sweat Equity: a comparison in the amount of cold perspiration generated when viewing your 401k and your recent home appraisal.

Anonymous said...

So I'll get it started. Here's why "owning" a home is not worth it:

1) When the market crashes, you can be quickly financially destroyed (hint - look around)

My house is not an investment vehicle (hint: to realize value on it I need to sell it, which isn't easy at the best of times, and I then need to find somewhere else to live). Houses are not fungible. Treating houses as an investment vehicle undoubtedly helped get the US into the current mess.

2) When you need to move for a new job, or just because you'd like to move, you're stuck until you can lose the debt-trap

Agreed, see above. But some of us either work from home, have stable jobs, or the ability (and desire) to reside in one spot for a good long while.

3) When a new neighbor moves in who likes to crank the tunes, host wild parties and deal drugs, you're stuck

Agreed, but this is why there are laws against this, lodge enough noise complaints with the other annoyed neighbors and it will probably be taken care of. There is also something to be sad for living in a good area (my preference is a high percentage of home owners vs. renters, especially professional/blue collar people, they tend to work hard and unwind quietly at home).

4) Homeowner association fees and community regulations

This must be a US thing, I'm actually unclear on the point of this (we don't have these in Canada as far as I know).

5) Renters never have to give a realtor one penny of their hard-earned money to point out granite countertops and where the bathroom is

Neither do home buyers. Well you can cut at least one agent out, both if it's a private sale (comfree is pretty big in Canada).

6) In most places you still can't generate enough rental income to cover your carrying costs

I thought we were talking about homes, not investment properties. Again I suspect this kind of thinking is what led to the mess.

7) The hours and hours of upkeep and maintenance work

This all depends, personally I enjoy it, I hated apartment living because I couldn't get it the way I wanted it (Ethernet to all the rooms, refinish the hardwood floors, etc.). I also enjoy working with my hands when I can (it's a nice change of pace from being a computer geek).

8) Worrying about and paying for everything that can go wrong (roofs, water pumps, termites, floods, foundation cracks, etc)

Agreed, we have to replace our sewer line this week, not cheap. But on the other hand it's not like a landlord is just going to eat that cost and not pass it on to a renter.

9) Losing your flexibility and freedom

Depends on your definition of the above terms. I like living here, both my wife and I have family in the city, lots of friends, etc. Neither of us really want to move, we like it here, it's a nice place.

10) Not being able to take advantage of renting for pennies on the dollar for the next decade

Maybe in the US, and certainly some other parts of the world, locally we didn't have much of a boom, our market stayed relatively sane, and renting a place like our house would cost about 50% than I pay in mortgage and taxes (the comparable is right next door in my case).

Now personally I think home ownership, like ownership of most anything is a privilege, not a right. Now I would say people have a basic right to housing and shelter (partly because I want that right, and partly because I don't want extremely desperate people roaming my city) but as for home ownership, that's strictly for adults who can pay their bills.

Anonymous said...

there's always squatting...

Anonymous said...

it can not be true that the insurance companys are raping us because they own all the politicians who make the laws and rules that benefit the insurancwe companys and those paid politicians care about the people..............hahahahahahahaha

Anonymous said...

Good luck with that huge bill flippers and homedebtors:

A taxpayer who bought a home at $200,000 then lost the home to foreclosure can end up paying more taxes if the home is now worth only $150,000. The IRS may chalk up that drop in value as ''income'' on your return, unless you can demonstrate you are financially insolvent.

Anonymous said...

Bukko,

It isn't a landlord subsidy in Australia, it's a standard "you are running business and you get to deduct your expenses from your earnings in order to calculate profit" - being able to apply business losses against other income is also pretty standard.

And the American "ownership" subsidy is simply an attempt to work around the problem you mention in the Australian version.

If there was no mortgage interest deduction then rich people would have one anyone since they wouldn't buy their home, they'd "rent" it from a shell company they happen to own. Smart (and dishonest) less rich people would simply do a deal with their neighbor to pretend to be renting each others houses for tax purposes. The dumb, poor, and honest would be stuck paying more than they need too...