home ownership, renting, double dip, good for whom?

[Rich Weese]

My day started with getting ready for a trip tomorrow to Cancun. Fun, excitement and grand kids.... Then, I made the mistake of reading news reports and picking up the USA Today.
Front Page headline article "Cities see rise in rental homes". Shouldn't have read it. Opening paragraph states that over 500 large and mid size cities have seen homeownership drop and increase in renters. Good or bad?
The 4 million foreclosed homes in last 5 years will cause long lasting changes, reduction in neighborhood stability, and eliminate the # 1 method folks have created wealth over the last 50 years-their home equity.

Irvine increased from 40-50% renters in last 10 years
25 cities now have more renters than owners
Since 206,rental households have grown 692,000 a year
Since 2006, owner-homes have dropped 201,000 a year.

Then I read some more articles that talk about a DOUBLE DIGIT drop (11.6%) in RE values currently.

Then I read some more articles that seem to say the dream of home ownership might not be so good any more. Concern about more drops in values. Continued foreclosures. Potential cuts to home owner subsidies. Possible elimination of interest deduction on taxes.

It seems to me, when I start to think deeply about this, maybe there is a move afoot to turn U.S into renters. Who does this benefit? Why would someone not want to be positive about real estate ownership. Isn't this where the majority of estates have been created? What if we can't see benefit in owning real estate? What does that do to values? Why would lenders want to loan on a bad future?

There is definitely a positive in renting currently. In many cities you can rent the same home than what you would pay in mortgage pmts. If you didn't believe in value increases, or were constantly being told that is no longer the best route, why would you do it? Even with the low interest rates, govt assistance programs, mortgage re-dos etc, the prognosis is not good. We've been told we're on the mend, yet the facts tell a different story.

Why would govt want this? Could it be beneficial to them? Take away that dream and create more dependence on Big Brother? Higher inflation wouldn't matter as much or would it? Would this help create a more "level playing field for all" if the # 1 wealth creator was taken away? Would this be helpful? Would this lead to more "socialistic" approach and need of Big Brother involvement?
I told you this messed up my day!! I don't have the answers. The increased demand for renters is good for my rentals, but if the buying public doesn't believe owning real estate is a good thing, aren't we screwed? Feel free to disagree or tell me I'm nuts. In this instance, I hope I am. Rich

[Michael Zuber]

I know this is not a good idea as I type this because Rich Weese is The Man as far as I am concerned.

But I wanted to take a stab at his triple whammy and see if I can turn a negative into a positive. Rich please be gentle with the response

1) Real Estate not finding a bottom yet. When you look at the overall market no one can argue with that fact. But lets step back just one step and look at the market that fell first. The Subprime market. I have been buying properties for 2 years now that I am sure had sub prime Neg Am loans on them and I can tell you I am not seeing prices going lower. In fact I just paid 38K for a house I bought for 35K (twice) last year (I own 3 on same street now). Same street, same condition, etc. Now 3K isn't a lot but it is almost a 10% rise in price over last 18 months. Also note my rents are '995-1,025 so I don;t really care if it goes lower, but it is note going lower (I tried to get for 32K but no dice). Another point is 2 years ago I was the only buyer now I am seeing 10-12 offers on properties I am going after. So while the move up market has A LOT more Pain and the High End has A Lot more pain and thus the overall numbers will look terrible for years to come it is ok. My point is look at the part of the market that fell first for the first sign of recovery and you can see clear signs of a bottom, more competition, etc in the market that fell first.

2) Inflation, hard to argue again with this especially as we go into QE3 later in the year. But again last time I checked I am getting fixed rate loans and raising my rental rates so I am not all that concerned about more cash flow every month. Now I know I can buy less with it but I take my chances with fixed rate debt.

3) Unemployment this is tricky as near 10% unemployment sucks no matter how you slice it. But that still means 90% of us are working. Another point that goes unsaid is the low savings return and this is where the magic could come in. Eventually people will start looking for higher returns as inflation decreases the savings return (lets be honest if you have a savings account today you are losing money with inflation). This happens because people are scared and they should be. The debt ceiling, the EU, greece, the latest soft patch, etc. But again the money is being made when other are scared or frozen.

We have at least 5 years of fun ahead with the next 2 years being REALLY dicey in my opinion. The next election cycle should be interesting and could be a catalyst for change or more of the same.

Lets see.

Just to be clear Rich Weese is my Hero!!!