John Romanin and I met today with KFNX radio in Phoenix. The radio station thinks a renters radio show would be a great idea. We agree. As a result, it looks like "RenterNation", the Official Radio Voice of the American Tenants Association, is tentatively scheduled to debut on Saturday, November 20 at 11AM to noon Arizona time.
We intend to discuss matters of importance to residential tenants as well as take your phone calls about your concerns. We will keep you posted when things are finalized.
Friday, November 5, 2010
Wednesday, November 3, 2010
ATENA's 2011 Legislative Agenda
Please make sure you check out our 2011 Legislative Agenda. It's just been updated on our website.
Since this is a dynamic document, please contact us if you have suggestions for additions to our Agenda.
Thanks.
Since this is a dynamic document, please contact us if you have suggestions for additions to our Agenda.
Thanks.
Wednesday, October 20, 2010
Let's Get On With Foreclosures
Remember the Academy Award winning movie “Network”? In it, the fictional TV host Howard Beale became a ratings sensation by nightly exclaiming that he was “mad as hell and not going to take this anymore”.
Well here’s one renter who’s “mad as hell and not going to take this anymore.”
While millions of “homeowners” continue to abuse and destabilize the nation’s banking system by not making their monthly mortgage payments, renters like you and me stay current on our rent payments.
While millions of homeowners skate for months and even years without making mortgage payments and continue to live in their homes, try not paying your rent for even one month. You’d be thrown out on your ear in no time flat.
While homeowners claim to be victims of the banking system because the banks didn’t properly sign or can’t locate certain documents the basic facts remain. The banks lent them the money to buy their homes, the banks took a security interest in the property, the homeowner failed to fulfill their part of the bargain by making their monthly payments. Therefore, the banks are legally entitled to foreclose on the property and liquidate it to try to recover their investment.
Just as a renter faces eviction by not paying their rent, homeowners should face timely foreclosure for not making their mortgage payments. It’s a basic issue of fairness.
While I can feel sympathy for homeowners victimized by the current economic recession you have to remember that renters are feeling the same pinch. We’re all in the same boat.
Continuing to delay the foreclosure process by instituting foreclosure moratoriums helps no one. Let’s get these properties back on the market so credit worthy homeowners and, yes, renters can take advantage of lower home values.
Enough is enough. It’s time to end delinquent homeowners’ free rides.
Well here’s one renter who’s “mad as hell and not going to take this anymore.”
While millions of “homeowners” continue to abuse and destabilize the nation’s banking system by not making their monthly mortgage payments, renters like you and me stay current on our rent payments.
While millions of homeowners skate for months and even years without making mortgage payments and continue to live in their homes, try not paying your rent for even one month. You’d be thrown out on your ear in no time flat.
While homeowners claim to be victims of the banking system because the banks didn’t properly sign or can’t locate certain documents the basic facts remain. The banks lent them the money to buy their homes, the banks took a security interest in the property, the homeowner failed to fulfill their part of the bargain by making their monthly payments. Therefore, the banks are legally entitled to foreclose on the property and liquidate it to try to recover their investment.
Just as a renter faces eviction by not paying their rent, homeowners should face timely foreclosure for not making their mortgage payments. It’s a basic issue of fairness.
While I can feel sympathy for homeowners victimized by the current economic recession you have to remember that renters are feeling the same pinch. We’re all in the same boat.
Continuing to delay the foreclosure process by instituting foreclosure moratoriums helps no one. Let’s get these properties back on the market so credit worthy homeowners and, yes, renters can take advantage of lower home values.
Enough is enough. It’s time to end delinquent homeowners’ free rides.
Tuesday, September 28, 2010
"Tenant Traps"
Here's some words of rental wisdom from Janet Portman and Marcia Stewart, the authors of "Renter's Rights: The Basics."
Never agree to put up with a rental unit that lacks basic health and safety features such as heat, plumbing, hot water and weatherproofing.
Never push for repairs before figuring out whether it's a habitability problem or a minor repair.
Never delay in reporting major repair problems.
Never use a "big stick" (such as withholding rent) to prod a landlord into action without first telling them of the problem and giving them a reasonable time to fix it.
Never use a big stick if you are behind in the rent, have an unauthorized roommate, or are violating some other important tenant obligation.
Never make a big deal over a minor repair unless you are prepared for an uphill fight with your landlord.
You have a right to livable housing. It's called the landlord's "implied warranty of habiltability". This means your landlord has promised you a livable place simply by renting it to you.
Never agree to put up with a rental unit that lacks basic health and safety features such as heat, plumbing, hot water and weatherproofing.
Never push for repairs before figuring out whether it's a habitability problem or a minor repair.
Never delay in reporting major repair problems.
Never use a "big stick" (such as withholding rent) to prod a landlord into action without first telling them of the problem and giving them a reasonable time to fix it.
Never use a big stick if you are behind in the rent, have an unauthorized roommate, or are violating some other important tenant obligation.
Never make a big deal over a minor repair unless you are prepared for an uphill fight with your landlord.
You have a right to livable housing. It's called the landlord's "implied warranty of habiltability". This means your landlord has promised you a livable place simply by renting it to you.
Monday, August 23, 2010
One Couple's New American Dream - Rent Don't Buy
Check out this article which appeared on the website of National Public Radio.
Earlier this year, Mark and Joanne Cleaver faced a decision: buy or rent. In normal times, their decision would have been easy.
But these are not normal times.
"We would lose money if we bought now — even at today's market rates," Joanne says. "Frankly, condo prices would have to go down a good 30 percent more to overcome the negative effect of the transition and transaction cost."
Mark and Joanne sold their home in Milwaukee — a home they owned for 28 years — and moved to Chicago. The couple, both in their 50s, relocated for her job. And they decided to rent an apartment overlooking Lake Michigan.
"It was a tough decision," Mark says. "You have kind of the emotional baggage of wanting to continue to own a house — the 'American Dream' theory. The flip side of it is, you kind of get to give up the baggage of all the maintenance cost — and all the maintenance time that goes along with it."
"Utilities are included. Parking's included. I write my check, I'm done for the month. It's a wonderful feeling," Mark added.
"Our front porch collapsed on our Milwaukee house," Joanne adds. "It was, like, $22,000 to replace it, just to get back to having a front porch. That's a lot of money to get hit with just to be able to walk up to your house, your front door."
Mark says that when he writes his rent check every month, he thinks to himself, "This is worth every penny."
"It locks my cost in every month," he says. "I have no surprises. Utilities are included. Parking's included. I write my check, I'm done for the month. It's a wonderful feeling."
While the Cleavers are enjoying the conveniences of renting — a staffed pool, a workout room, maintenance workers — they still haven't ruled out buying again. "We'll continue to go to open houses and take a good look and see if there's something there that really absolutely hits on all those cylinders," Joanne says.
And so far the Cleavers say there is only one downside to renting: "We do miss the ability just to go out into a backyard and grill," Mark says.
But they say it's a compromise they're willing to make.
"And when winter comes, and I'm watching everyone else doing their snow shoveling and snow plowing," says Mark, "I'm going to be smiling."
Earlier this year, Mark and Joanne Cleaver faced a decision: buy or rent. In normal times, their decision would have been easy.
But these are not normal times.
"We would lose money if we bought now — even at today's market rates," Joanne says. "Frankly, condo prices would have to go down a good 30 percent more to overcome the negative effect of the transition and transaction cost."
Mark and Joanne sold their home in Milwaukee — a home they owned for 28 years — and moved to Chicago. The couple, both in their 50s, relocated for her job. And they decided to rent an apartment overlooking Lake Michigan.
"It was a tough decision," Mark says. "You have kind of the emotional baggage of wanting to continue to own a house — the 'American Dream' theory. The flip side of it is, you kind of get to give up the baggage of all the maintenance cost — and all the maintenance time that goes along with it."
"Utilities are included. Parking's included. I write my check, I'm done for the month. It's a wonderful feeling," Mark added.
"Our front porch collapsed on our Milwaukee house," Joanne adds. "It was, like, $22,000 to replace it, just to get back to having a front porch. That's a lot of money to get hit with just to be able to walk up to your house, your front door."
Mark says that when he writes his rent check every month, he thinks to himself, "This is worth every penny."
"It locks my cost in every month," he says. "I have no surprises. Utilities are included. Parking's included. I write my check, I'm done for the month. It's a wonderful feeling."
While the Cleavers are enjoying the conveniences of renting — a staffed pool, a workout room, maintenance workers — they still haven't ruled out buying again. "We'll continue to go to open houses and take a good look and see if there's something there that really absolutely hits on all those cylinders," Joanne says.
And so far the Cleavers say there is only one downside to renting: "We do miss the ability just to go out into a backyard and grill," Mark says.
But they say it's a compromise they're willing to make.
"And when winter comes, and I'm watching everyone else doing their snow shoveling and snow plowing," says Mark, "I'm going to be smiling."
Monday, August 9, 2010
Housing Policy's Third Rail
The New York Time's Gretchen Morgenson offered up some excellent points regarding the apparent shift in U.S. housing policy away from home ownership. Our thanks to her for the heads up.
While Congress toiled on the financial overhaul last spring, precious little was said about Fannie Mae and Freddie Mac, the mortgage finance companies that collapsed spectacularly two years ago.
Indeed, these wards of the state got just two mentions in the 1,500-page law known as Dodd-Frank: first, when it ordered the Treasury to produce a study on ending the taxpayer-owned status of the companies and, second, in a “sense of the Congress” passage stating that efforts to improve the nation’s mortgage credit system “would be incomplete without enactment of meaningful structural reforms” of Fannie and Freddie.
With midterm elections near, though, there will be talk aplenty about dealing with the companies precisely because Dodd-Frank didn’t address them. Unfortunately, if past is prologue, this talk is likely to be more political than practical.
Fannie and Freddie amplified the housing boom by buying mortgages from lenders, allowing them to originate even more loans. They grew into behemoths because they lobbied aggressively and played the Washington political game to a T. But after both companies bought boatloads of risky mortgages, they required a federal rescue.
The Treasury’s study on Fannie, Freddie and housing finance must be delivered to Congress by the end of January 2011. In a speech last week, Timothy F. Geithner, the Treasury secretary, told a New York audience that resolving the companies isn’t “rocket science.”
But attaining genuine remedies for our housing finance system could actually be harder than rocket science. That’s because it would require an honest dialogue about the role the federal government should play in housing. It also requires a candid conversation about whether promoting homeownership through tax policy and other federal efforts remains a good idea, given the economic disaster we’ve just lived through.
Alas, honest dialogues on third-rail topics like housing have proved to be a bridge too far for many in Washington. So, what we may hear instead about Fannie and Freddie before the elections is a lot of sound and fury signifying a stealthy return to the status quo.
This would be unfortunate, not only because the financial crisis presents a rare opportunity to reassess the supposed benefits of homeownership but also because there was a lot not to like about the way these companies operated and the ways their friends in Congress enabled that behavior.
Outwardly, Fannie and Freddie wrapped themselves in the American flag and the dream of homeownership. But internally, they were relentless in their pursuit of profits from partners in the mortgage boom. One of their biggest and most steadfast collaborators was Countrywide, the subprime lending machine run by Angelo R. Mozilo.
Countrywide was the biggest supplier of loans to Fannie during the mania; in 2004, it sold 26 percent of the loans Fannie bought. Three years later, it was selling 28 percent. What Countrywide got out of the relationship was clear — a buyer for its dubious loans. Now the taxpayer is on the hook for those losses.
An internal Fannie document from 2004 obtained by The New York Times sheds light on this question. A “Customer Engagement Plan” for Countrywide, it shows how assiduously Fannie pursued Mr. Mozilo and 14 of his lieutenants to make sure the company continued to shovel loans its way.
Nine bullet points fall under the heading “Fannie Mae’s Top Strategic Business Objectives With Lender.” The first: “Deepen relationship at all levels throughout CHL and Fannie Mae to foster alignment and collaboration between our companies at every opportunity.” (CHL refers to Countrywide Home Loans.) No. 2: “Create barriers to exit partnership.” Next: “Disciplined Risk/Servicing Management” and “Achieve Fannie Mae Profitability Goals.”
(Later in 2004, by the way, the Securities and Exchange Commission found that Fannie had used improper accounting and ordered it to restate its earnings for the previous four years. Some $6.3 billion in profit was wiped out.)
The engagement plan also recommends ways that Fannie executives should mingle with Countrywide’s top management, because “fostering more direct senior level engagements with key influencers throughout their organization will be beneficial in ensuring strategic alignment and building organizational loyalty.”
Recommendations included conferring with Mr. Mozilo at Habitat for Humanity golf tournaments and Mortgage Bankers Association conventions. Franklin D. Raines, then Fannie’s C.E.O., and Daniel H. Mudd, then its chief operating officer, were advised to see Mr. Mozilo twice a year. “We will be successful when Angelo influences the industry or his organization on our behalf,” the document says. Mr. Raines didn’t respond to e-mails requesting comment last Friday; he left Fannie in December 2004.
The memo advised pursuing other Countrywide executives: “Deep Rapport” should be the goal with David E. Sambol, the lender’s president, but because he did not “heavily attend outside events” Fannie executives should “look for opportunities for meetings” at Countrywide headquarters.
“We will be successful if we can foster ongoing communication channels that allow us to understand and leverage Sambol’s priorities and demonstrate our commitment to making him successful,” the memo stated. Mr. Sambol and Mr. Mozilo could not be reached for comment.
For his part, Mr. Mudd, now the chief executive of the Fortress Investment Group, said Fannie’s courting of Countrywide was not unusual. “We tried to build a program that was based on having multiple strong relationships with our main customers,” he said. “You want to be sure that the first call is not the last call, that a customer is not doing business with you anymore.”
But Representative Darrell Issa, a California Republican and ranking member on the House Committee on Oversight and Government Reform, says he has concerns about such mating dances.
“Lost in the debate over how best to legislate the aftermath of the financial crisis has been the necessity to conduct an inward examination of the too-cozy relationship between government enterprises and private industry,” Mr. Issa said. “The true nature of this strategic partnership between Countrywide and Fannie-Freddie should be exposed so we can measure the extent to which it fostered the conditions leading to the financial meltdown.”
Understanding how these companies operated is crucial if we want to avoid repeating the mistakes of our recent past. So, when you hear about Fannie and Freddie reform this fall, remember that we still don’t know the half of it.
While Congress toiled on the financial overhaul last spring, precious little was said about Fannie Mae and Freddie Mac, the mortgage finance companies that collapsed spectacularly two years ago.
Indeed, these wards of the state got just two mentions in the 1,500-page law known as Dodd-Frank: first, when it ordered the Treasury to produce a study on ending the taxpayer-owned status of the companies and, second, in a “sense of the Congress” passage stating that efforts to improve the nation’s mortgage credit system “would be incomplete without enactment of meaningful structural reforms” of Fannie and Freddie.
With midterm elections near, though, there will be talk aplenty about dealing with the companies precisely because Dodd-Frank didn’t address them. Unfortunately, if past is prologue, this talk is likely to be more political than practical.
Fannie and Freddie amplified the housing boom by buying mortgages from lenders, allowing them to originate even more loans. They grew into behemoths because they lobbied aggressively and played the Washington political game to a T. But after both companies bought boatloads of risky mortgages, they required a federal rescue.
The Treasury’s study on Fannie, Freddie and housing finance must be delivered to Congress by the end of January 2011. In a speech last week, Timothy F. Geithner, the Treasury secretary, told a New York audience that resolving the companies isn’t “rocket science.”
But attaining genuine remedies for our housing finance system could actually be harder than rocket science. That’s because it would require an honest dialogue about the role the federal government should play in housing. It also requires a candid conversation about whether promoting homeownership through tax policy and other federal efforts remains a good idea, given the economic disaster we’ve just lived through.
Alas, honest dialogues on third-rail topics like housing have proved to be a bridge too far for many in Washington. So, what we may hear instead about Fannie and Freddie before the elections is a lot of sound and fury signifying a stealthy return to the status quo.
This would be unfortunate, not only because the financial crisis presents a rare opportunity to reassess the supposed benefits of homeownership but also because there was a lot not to like about the way these companies operated and the ways their friends in Congress enabled that behavior.
Outwardly, Fannie and Freddie wrapped themselves in the American flag and the dream of homeownership. But internally, they were relentless in their pursuit of profits from partners in the mortgage boom. One of their biggest and most steadfast collaborators was Countrywide, the subprime lending machine run by Angelo R. Mozilo.
Countrywide was the biggest supplier of loans to Fannie during the mania; in 2004, it sold 26 percent of the loans Fannie bought. Three years later, it was selling 28 percent. What Countrywide got out of the relationship was clear — a buyer for its dubious loans. Now the taxpayer is on the hook for those losses.
An internal Fannie document from 2004 obtained by The New York Times sheds light on this question. A “Customer Engagement Plan” for Countrywide, it shows how assiduously Fannie pursued Mr. Mozilo and 14 of his lieutenants to make sure the company continued to shovel loans its way.
Nine bullet points fall under the heading “Fannie Mae’s Top Strategic Business Objectives With Lender.” The first: “Deepen relationship at all levels throughout CHL and Fannie Mae to foster alignment and collaboration between our companies at every opportunity.” (CHL refers to Countrywide Home Loans.) No. 2: “Create barriers to exit partnership.” Next: “Disciplined Risk/Servicing Management” and “Achieve Fannie Mae Profitability Goals.”
(Later in 2004, by the way, the Securities and Exchange Commission found that Fannie had used improper accounting and ordered it to restate its earnings for the previous four years. Some $6.3 billion in profit was wiped out.)
The engagement plan also recommends ways that Fannie executives should mingle with Countrywide’s top management, because “fostering more direct senior level engagements with key influencers throughout their organization will be beneficial in ensuring strategic alignment and building organizational loyalty.”
Recommendations included conferring with Mr. Mozilo at Habitat for Humanity golf tournaments and Mortgage Bankers Association conventions. Franklin D. Raines, then Fannie’s C.E.O., and Daniel H. Mudd, then its chief operating officer, were advised to see Mr. Mozilo twice a year. “We will be successful when Angelo influences the industry or his organization on our behalf,” the document says. Mr. Raines didn’t respond to e-mails requesting comment last Friday; he left Fannie in December 2004.
The memo advised pursuing other Countrywide executives: “Deep Rapport” should be the goal with David E. Sambol, the lender’s president, but because he did not “heavily attend outside events” Fannie executives should “look for opportunities for meetings” at Countrywide headquarters.
“We will be successful if we can foster ongoing communication channels that allow us to understand and leverage Sambol’s priorities and demonstrate our commitment to making him successful,” the memo stated. Mr. Sambol and Mr. Mozilo could not be reached for comment.
For his part, Mr. Mudd, now the chief executive of the Fortress Investment Group, said Fannie’s courting of Countrywide was not unusual. “We tried to build a program that was based on having multiple strong relationships with our main customers,” he said. “You want to be sure that the first call is not the last call, that a customer is not doing business with you anymore.”
But Representative Darrell Issa, a California Republican and ranking member on the House Committee on Oversight and Government Reform, says he has concerns about such mating dances.
“Lost in the debate over how best to legislate the aftermath of the financial crisis has been the necessity to conduct an inward examination of the too-cozy relationship between government enterprises and private industry,” Mr. Issa said. “The true nature of this strategic partnership between Countrywide and Fannie-Freddie should be exposed so we can measure the extent to which it fostered the conditions leading to the financial meltdown.”
Understanding how these companies operated is crucial if we want to avoid repeating the mistakes of our recent past. So, when you hear about Fannie and Freddie reform this fall, remember that we still don’t know the half of it.
Wednesday, July 28, 2010
Rent Is No Longer A "Four Letter Word"
A recent San Francisco Chronicle "On The Block" blog post by "Jenny P" noted that the Obama Administration is backing off on the nation's historic posture of promoting home ownership.
"In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you wanted to go," said Raphael Bostic, a senior official in the Department of Housing and Urban Development. "You're not going to hear us say that anymore."
The post also noted that NPR recently talked about the apparent shift in policy:
"Nicolas Retsinas, the director of Harvard's Joint Center for Housing Studies, says "rent" is no longer a "four-letter word." "In the past, you rented if you didn't make enough money," he says. "You rented if you weren't ambitious. You rented if you weren't smart enough. But as it turns out, as we look at recent years, renting turned out to be a pretty smart thing to do."
At the American Tenants Association we have always believed that rent never was a "four letter" word. The millions of homeowners underwater on their mortgages or with homes at half their purchase price would probably tend to agree.
"In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you wanted to go," said Raphael Bostic, a senior official in the Department of Housing and Urban Development. "You're not going to hear us say that anymore."
The post also noted that NPR recently talked about the apparent shift in policy:
"Nicolas Retsinas, the director of Harvard's Joint Center for Housing Studies, says "rent" is no longer a "four-letter word." "In the past, you rented if you didn't make enough money," he says. "You rented if you weren't ambitious. You rented if you weren't smart enough. But as it turns out, as we look at recent years, renting turned out to be a pretty smart thing to do."
At the American Tenants Association we have always believed that rent never was a "four letter" word. The millions of homeowners underwater on their mortgages or with homes at half their purchase price would probably tend to agree.
Friday, July 23, 2010
Rentals Are Cutting Edge Solution
Rentals are a cutting edge solution for one Bakersfield, California builder according to the Wall Street Journal's Dawn Wotapka. Maybe this is an idea that will catch on and help turn around the single family housing industry.
The housing crash has forced a California land developer to don a different hat: Landlord.
Five years ago, Steve Lantz teamed with other investors to buy a 30-acre tract at Silverado Ranch in South Bakersfield, Calif. for about $1.8 million. They planned to quickly flip the site for a hefty profit, standard practice at the time. But, then the housing crash hit - striking Bakersfield particularly hard, depressing prices and fueling a foreclosure crisis.
Mr. Lantz, who owns a commercial-development firm, found himself stuck with land he couldn’t sell, so he made the unusual choice to build 53 homes. Instead of selling them, he’s waiting out the downturn by renting them for between $1,150 and $1,350 per month.
Construction financing wasn’t available–most lenders are hesitant to fund any new residential projects–so Mr. Lantz and his partners are paying about $85,000 to build each unit. Half the homes are done and construction should be finished this fall, reports trade publication builderonline.com.
The finished units are rented and there’s a waiting list. Things have gone so well, Mr. Lantz says, he might might stick with the month-to-month solution. “The cash flow is so good,” Mr. Lantz tells us. “We haven’t have had one late rental payment, knock on wood.”
As we’ve written before, more Americans burned by the housing market are foregoing the “American dream” of ownership and becoming renters by choice. And, given all those foreclosures, the Bakersfield region has plenty of families seeking shelter. Silverado Ranch, which offers one-year leases and doesn’t take pets, has a waiting list.
Cynthia Martinez is one of the lucky ones. She and her family moved into a four-bedroom home in March after losing their home. “Our old house was right down the street, so we knew the neighborhood,” Ms. Martinez told the Bakersfield newspaper. Plus, “we have granite countertops and landscaping and good blinds, not the cheap ones you usually see in rentals.”
Even better: The rent comes in $1,200 less than the mortgage at her previous home.
Explains Mr. Lantz: “It’s a cutting-edge solution.”
The housing crash has forced a California land developer to don a different hat: Landlord.
Five years ago, Steve Lantz teamed with other investors to buy a 30-acre tract at Silverado Ranch in South Bakersfield, Calif. for about $1.8 million. They planned to quickly flip the site for a hefty profit, standard practice at the time. But, then the housing crash hit - striking Bakersfield particularly hard, depressing prices and fueling a foreclosure crisis.
Mr. Lantz, who owns a commercial-development firm, found himself stuck with land he couldn’t sell, so he made the unusual choice to build 53 homes. Instead of selling them, he’s waiting out the downturn by renting them for between $1,150 and $1,350 per month.
Construction financing wasn’t available–most lenders are hesitant to fund any new residential projects–so Mr. Lantz and his partners are paying about $85,000 to build each unit. Half the homes are done and construction should be finished this fall, reports trade publication builderonline.com.
The finished units are rented and there’s a waiting list. Things have gone so well, Mr. Lantz says, he might might stick with the month-to-month solution. “The cash flow is so good,” Mr. Lantz tells us. “We haven’t have had one late rental payment, knock on wood.”
As we’ve written before, more Americans burned by the housing market are foregoing the “American dream” of ownership and becoming renters by choice. And, given all those foreclosures, the Bakersfield region has plenty of families seeking shelter. Silverado Ranch, which offers one-year leases and doesn’t take pets, has a waiting list.
Cynthia Martinez is one of the lucky ones. She and her family moved into a four-bedroom home in March after losing their home. “Our old house was right down the street, so we knew the neighborhood,” Ms. Martinez told the Bakersfield newspaper. Plus, “we have granite countertops and landscaping and good blinds, not the cheap ones you usually see in rentals.”
Even better: The rent comes in $1,200 less than the mortgage at her previous home.
Explains Mr. Lantz: “It’s a cutting-edge solution.”
Sunday, July 11, 2010
Homeownership -- Milestone or Millstone?
Jon Maddux, the CEO of strategic default consultant YouWalkAway.com, had this to say about the disadvantages of homeownership:
It seems that to many, their home has become a millstone that is pulling them deeper and deeper underwater. With no end in site. What once was felt to be a milestone, the luster of homeownership is eroding and causing many to re-think that goal in life. In fact, if you type in the word homeownership into google, the fourth suggestion is “homeownership is overrated”. On June 7th, the Wall Street Journal had an article with that title and sub title of “Today’s economy requires a more mobile workforce. “ Here is an excerpt from the article:
Owning a home may actually be a drawback given the economic flexibility required to power long-lasting recovery. My colleagues and I tracked homeownership levels across U.S. cities and regions to see how they correlate to other measurable demographic and economic factors. As we expected, the rates of homeownership are greatest where housing prices are lowest. But cities with high levels of homeownership—in the range of 75%, like Detroit, St. Louis and Pittsburgh—had on average considerably lower levels of economic activity and much lower wages and incomes. Far too many people in economically distressed communities are trapped in homes they can’t sell, unable to move on to new centers of opportunity.
Another article from the same google search on Portfolio.com shouts “Homeownership Makes You Fat and Unhappy” there was a pretty interesting study they did of 809 women in Columbus, Ohio, in 2005 — before the property bubble burst:
An interesting portrait of homeowners emerges from my analysis. I find little evidence that homeowners are happier by any of the following definitions: life satisfaction, overall mood, overall feeling, general moment-to-moment emotions (i.e., affect) and affect at home. Several factors might be at work: homeowners derive more pain (but no more joy) from both their home and their neighborhood. They are also more likely to be 12 pounds heavier, report lower health status and poorer sleep quality. They tend to spend less time on active leisure or with friends. The average homeowner reports less joy from love and relationships. She is also less likely to consider herself to enjoy being with people. The results are robust after controlling for reported financial stress.
Now, I have experienced happiness from homeownership so I know it’s not all true, but you have to wonder, is that american dream really the dream we should all have? Should it be the dream of our future children and something we feel is a milestone?
This Boston Globe article last year that said
But a growing chorus of economists and housing experts say that this mind-set needs fundamental reform. Owning a home is not right for everyone, they say: In some ways it’s overrated, and it can even have harmful effects for individuals and society. It is now glaringly clear that buying a home is a financial risk, not the surefire investment it is often perceived to be.
Patrick.net has a great section on why you may not want to buy a home and it states among many other
reasons:
Because it’s still much cheaper to rent than to own the same size and quality house, in the same school district. On the coasts, annual rents are 3% of purchase price while mortgage rates are 6%, so it costs twice
as much to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is three times the cost of renting and wipes out any income tax benefit. Buying a house is still a very bad deal in the richer neighborhoods, but it does make sense to buy in some relatively poor neighborhoods where prices have already fallen into line with salaries and rents.
Bottom Line
Homeownership shouldn’t necessarily be a milestone. It’s ultimately different for each individual and depends on the type of life you want. Homeownership has also changed over the last several decades. Our parents generation used to keep the same job all the way till retirement and that was a good reason to buy a house and set down roots. Today with technology, things are changing so rapidly. People are changing jobs and career paths more often. Homeonership drastically changed when lenders loosened their credit guidelines and started to allow people to buy homes with no money down. ”Easy come, easy go.” The older generation considered homeownership a milestone because they had to put a good chunk of money down. 20% or more in many cases. With the birth of zero down zero income loans, homeownership became so easy to attain that it lost it’s prestige.
Jon Maddux, CEO
www.YouWalkAway.com
It seems that to many, their home has become a millstone that is pulling them deeper and deeper underwater. With no end in site. What once was felt to be a milestone, the luster of homeownership is eroding and causing many to re-think that goal in life. In fact, if you type in the word homeownership into google, the fourth suggestion is “homeownership is overrated”. On June 7th, the Wall Street Journal had an article with that title and sub title of “Today’s economy requires a more mobile workforce. “ Here is an excerpt from the article:
Owning a home may actually be a drawback given the economic flexibility required to power long-lasting recovery. My colleagues and I tracked homeownership levels across U.S. cities and regions to see how they correlate to other measurable demographic and economic factors. As we expected, the rates of homeownership are greatest where housing prices are lowest. But cities with high levels of homeownership—in the range of 75%, like Detroit, St. Louis and Pittsburgh—had on average considerably lower levels of economic activity and much lower wages and incomes. Far too many people in economically distressed communities are trapped in homes they can’t sell, unable to move on to new centers of opportunity.
Another article from the same google search on Portfolio.com shouts “Homeownership Makes You Fat and Unhappy” there was a pretty interesting study they did of 809 women in Columbus, Ohio, in 2005 — before the property bubble burst:
An interesting portrait of homeowners emerges from my analysis. I find little evidence that homeowners are happier by any of the following definitions: life satisfaction, overall mood, overall feeling, general moment-to-moment emotions (i.e., affect) and affect at home. Several factors might be at work: homeowners derive more pain (but no more joy) from both their home and their neighborhood. They are also more likely to be 12 pounds heavier, report lower health status and poorer sleep quality. They tend to spend less time on active leisure or with friends. The average homeowner reports less joy from love and relationships. She is also less likely to consider herself to enjoy being with people. The results are robust after controlling for reported financial stress.
Now, I have experienced happiness from homeownership so I know it’s not all true, but you have to wonder, is that american dream really the dream we should all have? Should it be the dream of our future children and something we feel is a milestone?
This Boston Globe article last year that said
But a growing chorus of economists and housing experts say that this mind-set needs fundamental reform. Owning a home is not right for everyone, they say: In some ways it’s overrated, and it can even have harmful effects for individuals and society. It is now glaringly clear that buying a home is a financial risk, not the surefire investment it is often perceived to be.
Patrick.net has a great section on why you may not want to buy a home and it states among many other
reasons:
Because it’s still much cheaper to rent than to own the same size and quality house, in the same school district. On the coasts, annual rents are 3% of purchase price while mortgage rates are 6%, so it costs twice
as much to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is three times the cost of renting and wipes out any income tax benefit. Buying a house is still a very bad deal in the richer neighborhoods, but it does make sense to buy in some relatively poor neighborhoods where prices have already fallen into line with salaries and rents.
Bottom Line
Homeownership shouldn’t necessarily be a milestone. It’s ultimately different for each individual and depends on the type of life you want. Homeownership has also changed over the last several decades. Our parents generation used to keep the same job all the way till retirement and that was a good reason to buy a house and set down roots. Today with technology, things are changing so rapidly. People are changing jobs and career paths more often. Homeonership drastically changed when lenders loosened their credit guidelines and started to allow people to buy homes with no money down. ”Easy come, easy go.” The older generation considered homeownership a milestone because they had to put a good chunk of money down. 20% or more in many cases. With the birth of zero down zero income loans, homeownership became so easy to attain that it lost it’s prestige.
Jon Maddux, CEO
www.YouWalkAway.com
Tuesday, June 8, 2010
How To Negotiate Your Rent - A 10-Step Guide
Our thanks to Chris Thorman who blogs about landlord software for Software Advice for this timely information:
The National Multi Housing Council recently reported that the U.S. apartment market was “tighter” than it had been at any point in the last four years. A “tight” market is defined as one with low vacancies and high rent increases. The tighter the market is, the harder it is for renters to get good deals.
Tight markets mean it’s time for tenants to hone their skills when it comes to negotiating their lease. That means coming to the negotiating table armed with the right information and asking the right questions. To help tenants negotiate a better rate in this tight market, our landlord software experts have put together this handy guide. This guide will help tenants:
•Determine a fair rental price;
•Figure out the local demand for rental housing; and,
•Ask the right questions during negotiations.
Once a tenant determines what amount they’re willing to pay, and how desperate the landlord is to keep them, the negotiation can begin.
What’s A Fair Rental Rate?
One phrase common to nearly every lease negotiation is “market rate.” The landlord or property manager will cite the market rate for a particular rental property as cause for an increase in rent.
This market rate may be culled together from the prices of nearby properties or it may simply be a rate that the landlord needs to charge to make a profit.
No matter where the rate came from, a tenant needs to treat the “market rate” cited by the landlord as the first step in the negotiation process. It will likely be high but that won’t help tenants looking for the fair price.
So how does a tenant know what the actual market rate is? There are a number of resources available, both online and in person, that a tenant can consult to determine the fair market rate of their rental.
#1. Find out what others are paying. Rent-O-Meter is one of many online resources that will tell tenants if their rent is reasonable based on comparable properties in their city. Web sites such as Craigslist.org and newspaper classifieds are two places that tenants can find specific information about properties in their area. By searching these sites by zip code, a tenant can get a good idea of what the rent is of nearby properties. Neighbors are also a great source of information. They’ll know the insider deals, as well as any concessions the landlord typically gives.
#2. Consult the local tenants’ council. Many cities have a local tenants’ association or council that lobbies for tenant rights. They’ll have resources specific to their area, including information about rent increases and even mediation services should a tenant need them. Tenants will also be able to get first hand rental information about certain areas from experts.
#3. Know the trends. One of the oldest sources of online information about apartment living, ApartmentRatings.com, has a database of average rental rates for dozens of cities and towns in the United States. It’s called “What The Neighbors Pay.” Tenants can use this online resource to see if rents are falling or rising in their area. If the rent has been falling over the last few years in an area, that may be a good point to bring up during negotiations.
What’s The Demand Like?
After figuring out a fair rental rate, a tenant will need to figure out what the demand is like for their particular rental property, as well as the demand for surrounding properties. Occupancy rate will influence a landlord greatly in the negotiation process. If they can fill a unit quickly, they may be less inclined to negotiate with tenants.
#4. Take note of vacancies. As the end of a tenant’s lease nears, they should take note of the number of vacancies in their complex, as well as how long those units have been vacant. If a landlord has trouble filling their current empty units, it’s likely they will have trouble filling a newly empty unit too. A landlord may not care about a $50 a month increase in rent if it risks the possibility of leaving a unit vacant for a month or two.
#5. Check local advertising. If a landlord isn’t advertising heavily, or at all, it may mean that they feel confident they can fill their units quickly. On the other hand, if a tenant notices the same Craigslist ad appearing every couple of days, they can assume that the units aren’t being filled fast enough.
#6. Choose the right time to renew. Depending on when a tenant’s lease is up, they can take advantage of the natural ebb and flow of the rental market. Most property management companies are busiest in the summer months, while demand for rental properties drops off significantly in the winter. Take early advantage of the summer rush by negotiating a new lease in March or April, if possible.
In The Negotiation Room
Once a tenant has figured out what others are paying, the demand for the unit and how desperate the landlord is to rent, it’s time to begin the negotiating process. Here are a few handy tips to remember during the negotiating process.
#7. Point out the positives. If a person has been a model tenant, now is the time to mention that. Paying rent on time; having a good credit score; and being a loyal community member are all things a tenant wants to mention during the negotiation process. Landlords know that model tenants can save them money over the long term, even if they aren’t able to increase their rent.
#8. Bring the homework. If a landlord’s offer is more than the market rate, a tenant can counter with the information they gathered before the negotiation. Having up to date information about what the market actually looks like, as well information about other rental options nearby, puts a tenant in a strong negotiating position. Also, if a tenant is able to cite rates or concessions other tenants received, there is a possibility a landlord will give them the same deal.
#9. Ask for a longer lease. If a landlord won’t meet a tenant’s offer on a 12-month lease, it’s possible the landlord will budge if the tenant is willing to sign a longer lease. A landlord will be motivated by not having to pay for advertising and cleaning up the unit for one more year.
#10. Ask for a trade-off. If a landlord absolutely will not back down from their offer, and the tenant wants to remain in that complex, a trade-off may be a good idea. If the landlord can’t meet a tenant’s offer, perhaps the landlord can offer another concession, such as free parking. The important thing in the negotiation is to get something out of the deal, even if it’s not a lower rate.
Be Prepared To Walk Away
It’s regularly happens that a tenant and landlord won’t be able to arrive at a compromise. In that case, a tenant needs to make sure that they are prepared to leave their residence in a timely fashion. This means having a move out plan, as well as a new place to live. If a landlord realizes you have no alternatives except to remain in your current place, you’ve lost all negotiating power.
You can read Chris Thorman's blog at http://www.softwareadvice.com/property/
The National Multi Housing Council recently reported that the U.S. apartment market was “tighter” than it had been at any point in the last four years. A “tight” market is defined as one with low vacancies and high rent increases. The tighter the market is, the harder it is for renters to get good deals.
Tight markets mean it’s time for tenants to hone their skills when it comes to negotiating their lease. That means coming to the negotiating table armed with the right information and asking the right questions. To help tenants negotiate a better rate in this tight market, our landlord software experts have put together this handy guide. This guide will help tenants:
•Determine a fair rental price;
•Figure out the local demand for rental housing; and,
•Ask the right questions during negotiations.
Once a tenant determines what amount they’re willing to pay, and how desperate the landlord is to keep them, the negotiation can begin.
What’s A Fair Rental Rate?
One phrase common to nearly every lease negotiation is “market rate.” The landlord or property manager will cite the market rate for a particular rental property as cause for an increase in rent.
This market rate may be culled together from the prices of nearby properties or it may simply be a rate that the landlord needs to charge to make a profit.
No matter where the rate came from, a tenant needs to treat the “market rate” cited by the landlord as the first step in the negotiation process. It will likely be high but that won’t help tenants looking for the fair price.
So how does a tenant know what the actual market rate is? There are a number of resources available, both online and in person, that a tenant can consult to determine the fair market rate of their rental.
#1. Find out what others are paying. Rent-O-Meter is one of many online resources that will tell tenants if their rent is reasonable based on comparable properties in their city. Web sites such as Craigslist.org and newspaper classifieds are two places that tenants can find specific information about properties in their area. By searching these sites by zip code, a tenant can get a good idea of what the rent is of nearby properties. Neighbors are also a great source of information. They’ll know the insider deals, as well as any concessions the landlord typically gives.
#2. Consult the local tenants’ council. Many cities have a local tenants’ association or council that lobbies for tenant rights. They’ll have resources specific to their area, including information about rent increases and even mediation services should a tenant need them. Tenants will also be able to get first hand rental information about certain areas from experts.
#3. Know the trends. One of the oldest sources of online information about apartment living, ApartmentRatings.com, has a database of average rental rates for dozens of cities and towns in the United States. It’s called “What The Neighbors Pay.” Tenants can use this online resource to see if rents are falling or rising in their area. If the rent has been falling over the last few years in an area, that may be a good point to bring up during negotiations.
What’s The Demand Like?
After figuring out a fair rental rate, a tenant will need to figure out what the demand is like for their particular rental property, as well as the demand for surrounding properties. Occupancy rate will influence a landlord greatly in the negotiation process. If they can fill a unit quickly, they may be less inclined to negotiate with tenants.
#4. Take note of vacancies. As the end of a tenant’s lease nears, they should take note of the number of vacancies in their complex, as well as how long those units have been vacant. If a landlord has trouble filling their current empty units, it’s likely they will have trouble filling a newly empty unit too. A landlord may not care about a $50 a month increase in rent if it risks the possibility of leaving a unit vacant for a month or two.
#5. Check local advertising. If a landlord isn’t advertising heavily, or at all, it may mean that they feel confident they can fill their units quickly. On the other hand, if a tenant notices the same Craigslist ad appearing every couple of days, they can assume that the units aren’t being filled fast enough.
#6. Choose the right time to renew. Depending on when a tenant’s lease is up, they can take advantage of the natural ebb and flow of the rental market. Most property management companies are busiest in the summer months, while demand for rental properties drops off significantly in the winter. Take early advantage of the summer rush by negotiating a new lease in March or April, if possible.
In The Negotiation Room
Once a tenant has figured out what others are paying, the demand for the unit and how desperate the landlord is to rent, it’s time to begin the negotiating process. Here are a few handy tips to remember during the negotiating process.
#7. Point out the positives. If a person has been a model tenant, now is the time to mention that. Paying rent on time; having a good credit score; and being a loyal community member are all things a tenant wants to mention during the negotiation process. Landlords know that model tenants can save them money over the long term, even if they aren’t able to increase their rent.
#8. Bring the homework. If a landlord’s offer is more than the market rate, a tenant can counter with the information they gathered before the negotiation. Having up to date information about what the market actually looks like, as well information about other rental options nearby, puts a tenant in a strong negotiating position. Also, if a tenant is able to cite rates or concessions other tenants received, there is a possibility a landlord will give them the same deal.
#9. Ask for a longer lease. If a landlord won’t meet a tenant’s offer on a 12-month lease, it’s possible the landlord will budge if the tenant is willing to sign a longer lease. A landlord will be motivated by not having to pay for advertising and cleaning up the unit for one more year.
#10. Ask for a trade-off. If a landlord absolutely will not back down from their offer, and the tenant wants to remain in that complex, a trade-off may be a good idea. If the landlord can’t meet a tenant’s offer, perhaps the landlord can offer another concession, such as free parking. The important thing in the negotiation is to get something out of the deal, even if it’s not a lower rate.
Be Prepared To Walk Away
It’s regularly happens that a tenant and landlord won’t be able to arrive at a compromise. In that case, a tenant needs to make sure that they are prepared to leave their residence in a timely fashion. This means having a move out plan, as well as a new place to live. If a landlord realizes you have no alternatives except to remain in your current place, you’ve lost all negotiating power.
You can read Chris Thorman's blog at http://www.softwareadvice.com/property/
Friday, May 28, 2010
76% Of Consumers Say Renting Is A Better Choice
Amy Houk of http://www.marketwatch.com/ had this to say in a recent article: Despite low mortgage rates and reduced home prices, an increasing percentage of consumers say they believe renting is a better choice than owning a home in the current real-estate market, according to a survey from the National Apartment Association, released this week.
The survey of more than 2,000 U.S. adults found that 76% of consumers deem renting to be more favorable than owning a home these days, a 5% increase from 2008.
"While some may want to declare the housing crisis over, consumer patterns of behavior are showing otherwise," said Douglas Culkin, president of the National Apartment Association, in a news release. "The findings in this survey mirror what our members are seeing throughout the country, especially in areas of the country that are experiencing the first signs of economic recovery."
One of those declaring the housing crash over: Mark Zandi, chief economist at Moody's Analytics. Listen to what he had to say in a MarketWatch radio report. And read more real-estate news in this week's pages, including where the bargains are for house hunters and a Realty Q&A on credit score tips for the best mortgage rates.
One reason some people see renting as a better option today: the job market.
"The simple fact remains that in a bad economy, people must make whatever changes necessary to improve their situation, especially if they have lost their job," Culkin said. "Sometimes this might mean moving to another city where there is more opportunity, and if you're tied to a mortgage, you don't have the same ease of mobility as you do if you lease your home."
The survey of more than 2,000 U.S. adults found that 76% of consumers deem renting to be more favorable than owning a home these days, a 5% increase from 2008.
"While some may want to declare the housing crisis over, consumer patterns of behavior are showing otherwise," said Douglas Culkin, president of the National Apartment Association, in a news release. "The findings in this survey mirror what our members are seeing throughout the country, especially in areas of the country that are experiencing the first signs of economic recovery."
One of those declaring the housing crash over: Mark Zandi, chief economist at Moody's Analytics. Listen to what he had to say in a MarketWatch radio report. And read more real-estate news in this week's pages, including where the bargains are for house hunters and a Realty Q&A on credit score tips for the best mortgage rates.
One reason some people see renting as a better option today: the job market.
"The simple fact remains that in a bad economy, people must make whatever changes necessary to improve their situation, especially if they have lost their job," Culkin said. "Sometimes this might mean moving to another city where there is more opportunity, and if you're tied to a mortgage, you don't have the same ease of mobility as you do if you lease your home."
Monday, May 3, 2010
America Needs to Get Over Its House Passion
A recent article by Richard Florida in Atlantic Monthly explored the relationship of homeownership to overall happiness and financial well being. Mr. Florida makes a great case for renting.
Here's the link to the article:
http://www.theatlantic.com/national/archive/2010/04/america-needs-to-get-over-its-house-passion/39543/?source=patrick.net
Here's the link to the article:
http://www.theatlantic.com/national/archive/2010/04/america-needs-to-get-over-its-house-passion/39543/?source=patrick.net
Sunday, April 25, 2010
John Romanin Joins the ATA
The American Tenants Association is pleased to announce that John Romanin of Mount Vernon, Virginia has joined the ATA as Director of Legislative Initiatives. John will head up our new Washington, DC office and will be responsible for working with Congress and the White House in developing and guiding legislation favorable to America's 100 million residential renters. You can check out John's complete biography on our "About Us" page.
Monday, April 19, 2010
The Renters Manifesto
Our thanks to M.J. Harris at the Liberty Guardian for this excellent article:
"Stop throwing your money away on rent.” You see the phrase in Realtor junk mail and hear it from new homebuyers who are immersed in the nightmare of paperwork, points, and plastering.
The logic is simple: renting is just flushing money down the toilet; buying a house gives you a piece of something to call your own. You earn home equity and end up with something tangible to pass down to your heirs–or to sell or refinance when you retire.
There is a kernel of truth to all of this. But it’s mostly crap. I’ve been a renter all my adult life, and I have plenty of home equity. My home equity is called “cash,” and it’s the accumulated difference between what I pay in rent and what a comparable homeowner pays for their mortgage, maintenance, property taxes, and utilities. (Sure, I pay for all of those things indirectly, but that’s the point: they’re rolled into my rent, and they’re not rolled into your mortgage.)
Unlike a homeowner, I can choose to invest my equity in something other than real estate. I can spend my equity without taking out a line of credit. I might squander my equity, but I’ll never be “underwater” due to the vagaries of the market. And I accumulate home equity more quickly than the average homeowner.
Yes, thirty years from now, when your mortgage is paid off, you will own a home, free and clear. You know what I’ll own? Enough money to pay cash for your home.
Sure, I’m making a big assumption: I’m assuming the value of your house won’t rise much faster than inflation (or, at least, not much faster than the performance of my investments). Harvard professor Ed Glaeser, writing on the New York Times’s Economix blog, thinks this is an excellent assumption:
Houses are assets, too, but it’s a mistake to expect them to offer a regular rise in price. Houses pay hefty dividends to their owners in the form of living space–that’s the real return on housing investment–and the basic economics of housing doesn’t point to perpetual price growth.
Indeed, the Case-Shiller index, the most respected measure of housing prices, shows that they’ve barely outpaced inflation since 1890.
I’m also assuming that I have the discipline to keep saving the money. So far so good. Homebuying is often lauded as a “compulsory saving scheme.” I guess that’s true: it’s a scheme that compels you to invest a large proportion of your money in real estate. How is this better than simply increasing your 401(k) contribution?
Two kinds of renters
We’re not so different, Joe Homeowner and me. I rent property from a landlord. He rents money from a bank.
Every month, I write my landlord a check. The money gets spent on orthodontia for the landlord’s kids, and I will never see it again.
Every month, Joe writes his banker a check. The interest portion of the payment–for Joe, that’s well over half the payment, more than I spend on rent for a similar home–gets spent on polishing the banker’s yacht, and Joe will never see it again.
For this analogy, I’m indebted to David Crook of the Wall Street Journal, who wrote a landmark 2007 column on the topic:
Mortgage interest is rent that you pay to your lender for the use of its money rather than to a landlord for the use of his house…most of your monthly payment neither builds equity nor is deductible. It just goes down the same black hole that sucks up any other renter’s money. And it takes 20 years before a typical borrower pays more principal each month than interest.
Oh, but what about the mortgage interest deduction? It’s not for Joe. It’s for my landlord and Joe’s banker. Only half of homeowners take it–the rest are better off with the standard deduction–and the average tax savings for those who do is $2000, according to Roger Lowenstein of the New York Times. (The big winners in the mortgage interest deduction game are homeowners who make over $250,000 a year but not so much that they can afford to buy a home with cash.)
Trapped in the closet
Home ownership, it has long been said, leads to financial and community stability. The last three years should have taught everyone that “owning” (that is, financing) a home is no protection against financial upheaval.
As for community stability, be careful what you wish for. If you lose your job, the worst place to find yourself is trapped in an underwater house. I could move with two weeks notice and get my security deposit back.
This isn’t just anecdote. As Tim Harford reported in Slate:
English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment…. Renting your home and staying flexible do wonders for your chances of always finding an interesting job to do.
As for high levels of homeownership creating community, I’m not sure how you would measure that. All I know is that my family lives in one of the safest and most desirable census tracts in Seattle; as of the 2000 census, it consisted of 85% renters.
Why buy?
Am I saying nobody should buy a house? Of course not. There are plenty of situations where you would want to do so:
•You live in a place where the total monthly cost of renting is similar to borrowing. This is true in a lot of non-housing-bubbly places, outside of big cities and off the coasts. In that case, sure, why not?
•You really want to be able to renovate. Yes, this requires ownership. But be careful: renovation costs are almost never recouped when a house is sold. Also, people talk about the ability to customize as if this should be important to everyone. I just don’t care to get my hands dirty.
•The kind of house you want in the neighborhood you want isn’t available for rent. (This is unlikely to be the case in the present market, however).
•There’s a specific house you want, and you can afford to buy it with a big down payment and a boring 15- or 30-year fixed-rate mortgage.
Just because a house isn’t a good investment, in most cases, doesn’t mean you shouldn’t buy one. A steak isn’t a good investment, either. The problem is, houses cost more than steaks, and a lot of people are convinced that everyone should own one, whether they can afford it or not. If you can’t afford to buy real estate, or just don’t want to, don’t. It’s okay. You’re still a grownup.
Me? There isn’t anything I want out of my financial, social, or family life that requires me to own real estate. So I rent.
"Stop throwing your money away on rent.” You see the phrase in Realtor junk mail and hear it from new homebuyers who are immersed in the nightmare of paperwork, points, and plastering.
The logic is simple: renting is just flushing money down the toilet; buying a house gives you a piece of something to call your own. You earn home equity and end up with something tangible to pass down to your heirs–or to sell or refinance when you retire.
There is a kernel of truth to all of this. But it’s mostly crap. I’ve been a renter all my adult life, and I have plenty of home equity. My home equity is called “cash,” and it’s the accumulated difference between what I pay in rent and what a comparable homeowner pays for their mortgage, maintenance, property taxes, and utilities. (Sure, I pay for all of those things indirectly, but that’s the point: they’re rolled into my rent, and they’re not rolled into your mortgage.)
Unlike a homeowner, I can choose to invest my equity in something other than real estate. I can spend my equity without taking out a line of credit. I might squander my equity, but I’ll never be “underwater” due to the vagaries of the market. And I accumulate home equity more quickly than the average homeowner.
Yes, thirty years from now, when your mortgage is paid off, you will own a home, free and clear. You know what I’ll own? Enough money to pay cash for your home.
Sure, I’m making a big assumption: I’m assuming the value of your house won’t rise much faster than inflation (or, at least, not much faster than the performance of my investments). Harvard professor Ed Glaeser, writing on the New York Times’s Economix blog, thinks this is an excellent assumption:
Houses are assets, too, but it’s a mistake to expect them to offer a regular rise in price. Houses pay hefty dividends to their owners in the form of living space–that’s the real return on housing investment–and the basic economics of housing doesn’t point to perpetual price growth.
Indeed, the Case-Shiller index, the most respected measure of housing prices, shows that they’ve barely outpaced inflation since 1890.
I’m also assuming that I have the discipline to keep saving the money. So far so good. Homebuying is often lauded as a “compulsory saving scheme.” I guess that’s true: it’s a scheme that compels you to invest a large proportion of your money in real estate. How is this better than simply increasing your 401(k) contribution?
Two kinds of renters
We’re not so different, Joe Homeowner and me. I rent property from a landlord. He rents money from a bank.
Every month, I write my landlord a check. The money gets spent on orthodontia for the landlord’s kids, and I will never see it again.
Every month, Joe writes his banker a check. The interest portion of the payment–for Joe, that’s well over half the payment, more than I spend on rent for a similar home–gets spent on polishing the banker’s yacht, and Joe will never see it again.
For this analogy, I’m indebted to David Crook of the Wall Street Journal, who wrote a landmark 2007 column on the topic:
Mortgage interest is rent that you pay to your lender for the use of its money rather than to a landlord for the use of his house…most of your monthly payment neither builds equity nor is deductible. It just goes down the same black hole that sucks up any other renter’s money. And it takes 20 years before a typical borrower pays more principal each month than interest.
Oh, but what about the mortgage interest deduction? It’s not for Joe. It’s for my landlord and Joe’s banker. Only half of homeowners take it–the rest are better off with the standard deduction–and the average tax savings for those who do is $2000, according to Roger Lowenstein of the New York Times. (The big winners in the mortgage interest deduction game are homeowners who make over $250,000 a year but not so much that they can afford to buy a home with cash.)
Trapped in the closet
Home ownership, it has long been said, leads to financial and community stability. The last three years should have taught everyone that “owning” (that is, financing) a home is no protection against financial upheaval.
As for community stability, be careful what you wish for. If you lose your job, the worst place to find yourself is trapped in an underwater house. I could move with two weeks notice and get my security deposit back.
This isn’t just anecdote. As Tim Harford reported in Slate:
English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment…. Renting your home and staying flexible do wonders for your chances of always finding an interesting job to do.
As for high levels of homeownership creating community, I’m not sure how you would measure that. All I know is that my family lives in one of the safest and most desirable census tracts in Seattle; as of the 2000 census, it consisted of 85% renters.
Why buy?
Am I saying nobody should buy a house? Of course not. There are plenty of situations where you would want to do so:
•You live in a place where the total monthly cost of renting is similar to borrowing. This is true in a lot of non-housing-bubbly places, outside of big cities and off the coasts. In that case, sure, why not?
•You really want to be able to renovate. Yes, this requires ownership. But be careful: renovation costs are almost never recouped when a house is sold. Also, people talk about the ability to customize as if this should be important to everyone. I just don’t care to get my hands dirty.
•The kind of house you want in the neighborhood you want isn’t available for rent. (This is unlikely to be the case in the present market, however).
•There’s a specific house you want, and you can afford to buy it with a big down payment and a boring 15- or 30-year fixed-rate mortgage.
Just because a house isn’t a good investment, in most cases, doesn’t mean you shouldn’t buy one. A steak isn’t a good investment, either. The problem is, houses cost more than steaks, and a lot of people are convinced that everyone should own one, whether they can afford it or not. If you can’t afford to buy real estate, or just don’t want to, don’t. It’s okay. You’re still a grownup.
Me? There isn’t anything I want out of my financial, social, or family life that requires me to own real estate. So I rent.
Wednesday, April 7, 2010
Apartment Rents Decline as Vacancies Hit Record
April 6 (Bloomberg) -- U.S. apartment rents dropped in the first quarter and the vacancy rate remained at a record as unemployment near a 26-year high limited tenant demand.
Actual rents paid by tenants, known as effective rents, declined 1.5 percent from a year earlier, Reis Inc. said in a report today. Asking rents fell 1.6 percent, according to the New York-based property research firm. Vacancies were unchanged at 8 percent, the highest level since 1980, when Reis began tracking the number, said Victor Calanog, director of research.
U.S. rental demand has slumped as employers cut 8.4 million jobs since the start of the recession in December 2007. The bigger drop in asking rents than effective rents in the first quarter signals that landlords are pricing their properties lower at the outset and minimizing concessions, Calanog said.
“Landlords are saying: ‘Even before we talk about the free month off, and even before we talk about the free gym, we want to lower the asking rents to get you through the door,’” he said in a telephone interview.
The U.S. unemployment rate was 9.7 percent for the third straight month in March, the Labor Department said April 2. The economy added 162,000 jobs in the month, a sign the labor market may be recovering.
Actual rents fell year over year to an average of $967 in the first quarter, Reis said. Asking rents dropped to $1,027.
Rent rates rose less than half a percent from the previous quarter, the first sequential growth since the three-month period when Lehman Brothers Holdings Inc. filed for bankruptcy.
The net change in occupied space, a measure of leasing known as absorption, grew by 20,424 units, the most for the first quarter since 2000, according to Calanog.
“The perception that labor markets are stabilizing is probably enough to tip the demand for apartments,” he said.
Effective rents fell the most, year over year, in Las Vegas; San Jose, California; Phoenix; Seattle; and San Francisco, according to Reis.
Rents paid by tenants climbed the most in Colorado Springs, Colorado; Washington, D.C.; San Antonio; and Dayton, Ohio.
This article appeared at http://www.bloomberg.com/.
Actual rents paid by tenants, known as effective rents, declined 1.5 percent from a year earlier, Reis Inc. said in a report today. Asking rents fell 1.6 percent, according to the New York-based property research firm. Vacancies were unchanged at 8 percent, the highest level since 1980, when Reis began tracking the number, said Victor Calanog, director of research.
U.S. rental demand has slumped as employers cut 8.4 million jobs since the start of the recession in December 2007. The bigger drop in asking rents than effective rents in the first quarter signals that landlords are pricing their properties lower at the outset and minimizing concessions, Calanog said.
“Landlords are saying: ‘Even before we talk about the free month off, and even before we talk about the free gym, we want to lower the asking rents to get you through the door,’” he said in a telephone interview.
The U.S. unemployment rate was 9.7 percent for the third straight month in March, the Labor Department said April 2. The economy added 162,000 jobs in the month, a sign the labor market may be recovering.
Actual rents fell year over year to an average of $967 in the first quarter, Reis said. Asking rents dropped to $1,027.
Rent rates rose less than half a percent from the previous quarter, the first sequential growth since the three-month period when Lehman Brothers Holdings Inc. filed for bankruptcy.
The net change in occupied space, a measure of leasing known as absorption, grew by 20,424 units, the most for the first quarter since 2000, according to Calanog.
“The perception that labor markets are stabilizing is probably enough to tip the demand for apartments,” he said.
Effective rents fell the most, year over year, in Las Vegas; San Jose, California; Phoenix; Seattle; and San Francisco, according to Reis.
Rents paid by tenants climbed the most in Colorado Springs, Colorado; Washington, D.C.; San Antonio; and Dayton, Ohio.
This article appeared at http://www.bloomberg.com/.
Friday, April 2, 2010
Don't Buy The Myths!
The National Multi-Housing Council recently published a study entitled: "Don't Buy The Myths - Renting Can be A Smart Investment." Here's the bullet points. Check out the full study at http://www.nmhc.org/.
Myth #1 I'll reduce my tax bill if I buy a home.
Myth #2 Paying rent is throwing away money. I could be building equity.
Myth #3 My mortgage payment will be less than my rent.
Myth #4 As an owner, my housing costs will remain constant. I won't have to worry about rent increases.
Myth #5 Investing in a house is a safe investment.
Myth #6 I can't afford not to buy with these low interest rates.
Myth #7 I know I'll make money on my house because I plan to stay there for at least five years.
Myth #8 Buying a house will force me to save and help build a nest egg for retirement.
Myth #9 I know buying is better for me because I used an on-line "Buy vs. Rent" calculator.
Now more than ever, renting makes sense!
Myth #1 I'll reduce my tax bill if I buy a home.
Myth #2 Paying rent is throwing away money. I could be building equity.
Myth #3 My mortgage payment will be less than my rent.
Myth #4 As an owner, my housing costs will remain constant. I won't have to worry about rent increases.
Myth #5 Investing in a house is a safe investment.
Myth #6 I can't afford not to buy with these low interest rates.
Myth #7 I know I'll make money on my house because I plan to stay there for at least five years.
Myth #8 Buying a house will force me to save and help build a nest egg for retirement.
Myth #9 I know buying is better for me because I used an on-line "Buy vs. Rent" calculator.
Now more than ever, renting makes sense!
Saturday, March 27, 2010
It's Time We Stop Abusive Landlords!
The ATA supports the creation of Tenants’ Ombudsman offices in all fifty United States. The purpose of these offices will be to serve as a central point for residential renters to officially voice and register complaints about specific landlord and housing abuses leading to enforcement action.
The ATA recommends that the Office of Ombudsman be an administrative and quasi-judicial function of either the Governor’s Office or Attorney General’s Office of each state. Along with the creation of the Office of Ombudsman, the ATA recommends legislation and regulations that would allow the Ombudsman to bring civil or criminal action or sanctions, including fines, penalties or imprisonment against abusive landlords and landlords who fail to provide for safe, clean and habitable facilities.
All too often, landlords get away with actions contrary to existing law and regulations in their relationships with tenants. The ATA believes that effective enforcement at the state level is needed now to protect the well being of residential renters throughout the United States.
The ATA recommends that the Office of Ombudsman be an administrative and quasi-judicial function of either the Governor’s Office or Attorney General’s Office of each state. Along with the creation of the Office of Ombudsman, the ATA recommends legislation and regulations that would allow the Ombudsman to bring civil or criminal action or sanctions, including fines, penalties or imprisonment against abusive landlords and landlords who fail to provide for safe, clean and habitable facilities.
All too often, landlords get away with actions contrary to existing law and regulations in their relationships with tenants. The ATA believes that effective enforcement at the state level is needed now to protect the well being of residential renters throughout the United States.
Thursday, March 18, 2010
Apartment Crime Prevention Programs
Many apartment owners and law enforcement agencies in the U.S. are promoting a crime prevention program known as "Crime Free Multi Housing".
This program calls for the certification of rental properties by meeting certain physical condition and social standards designed to enhance a property's safety. These standards include security management, exterior lighting and door, window and lock guideline compliance.
We believe this program is generally in the best interest of residential renters. Where we differ with apartment owners, however, is in the "Crime Prevention Lease Addendum" that is considered an integral part of the program. In summary, the Lease Addendum puts all the responsibility for crime prevention on the tenant. We'd like to see the Lease Addendum upgraded to include the landlord's responsibilities as well. This would include legally binding assurances that the property's physical crime prevention standards are maintained and that reported crime occurances are communicated to tenants as they occur.
The ATA believes that it is the landlord's, and not the tenant's, primary responsibility to maintain an apartment community that is safe, habitable and secure.
You can view a copy of Arizona's Lease Addendum by following this link:
www.crimedoctor.com/crimefree2.htm
This program calls for the certification of rental properties by meeting certain physical condition and social standards designed to enhance a property's safety. These standards include security management, exterior lighting and door, window and lock guideline compliance.
We believe this program is generally in the best interest of residential renters. Where we differ with apartment owners, however, is in the "Crime Prevention Lease Addendum" that is considered an integral part of the program. In summary, the Lease Addendum puts all the responsibility for crime prevention on the tenant. We'd like to see the Lease Addendum upgraded to include the landlord's responsibilities as well. This would include legally binding assurances that the property's physical crime prevention standards are maintained and that reported crime occurances are communicated to tenants as they occur.
The ATA believes that it is the landlord's, and not the tenant's, primary responsibility to maintain an apartment community that is safe, habitable and secure.
You can view a copy of Arizona's Lease Addendum by following this link:
www.crimedoctor.com/crimefree2.htm
Tuesday, February 2, 2010
Time For A Winter Ban On Evictions?
Due to its suffering economy, France has adopted an annual winter ban on residential tenant evictions that runs from November 1 through March 15. This is a concept worthy of closer study here in the United States.
With the U.S. economy in recession, the official national unemployment rate at 10% and many states experiencing free-fall real unemployment rates of closer to 20%, this measure will protect millions of tenants during this time of economic crisis.
The ATA is working on an analysis of the best way to implement a version of the French plan in the U.S.
With the U.S. economy in recession, the official national unemployment rate at 10% and many states experiencing free-fall real unemployment rates of closer to 20%, this measure will protect millions of tenants during this time of economic crisis.
The ATA is working on an analysis of the best way to implement a version of the French plan in the U.S.
Friday, January 15, 2010
"Home Sweet Rental"
We came across this recent article by James Altucher in the New York Post. Right on, James!
Home ownership has often been considered a critical part of the American Dream -- an unwritten privilege of living in America bestowed on its financially secure citizens.
Owning a home was the ticket to financial security and, for several years earlier this decade with home values soaring, seemingly the best investment Americans would ever lay their hands on.
But in the wake of the housing crisis -- with home values down 35 percent or more and with little robust growth seen on the horizon -- it may be time to ask whether buying a home is still so vital to financial happiness.
The current economic environment is making a strong case that renting a home and smartly investing your savings can be just as rewarding.
When making the decision to buy vs. rent, people usually consider several factors -- the rent vs. mortgage payment being the primary question. But there are other financial factors to consider, including:
* Your insurance premium.
* Property taxes (which are usually higher than any tax deduction you get from your mortgage interest).
* Maintenance (pipes break, electricity problems, etc.).
* Utilities (utilities and maintenance for renters is often reflected in the rental price, but it's not reflected in a mortgage when you own).
* Yard work, pest control, remodeling, etc. (again, rents usually have this built into the price, but mortgages don't).
And let's not forget those initial costs that always seem to add up to more than you expect:
* A down payment of at least 15 percent, which is $90,000 on a $600,000 home.
* Closing costs, usually 5 percent of loan amount, or another $25,000.
* Initial remodeling costs.
Remember that you are completely out of that cash down payment you made because even if you sell, homeowners usually roll over that initial down payment into a new house for tax purposes. Cash is king and many prefer having cash in the bank.
Okay, so when you buy you definitely spend more per month and your initial costs mean that the house has to appreciate 10 percent-to-20 percent on Day 1 in order for you to break even. But that's supposed to be okay because you have the house as an investment, right?
Well, except for earlier this decade, it's been a so-so investment.
Between 1890 and 2004 (when housing prices began being tracked up until the peak of the housing boom, so I am giving zero credit to the decline in housing prices that have made these numbers a lot worse), housing went up a dismal 0.4 percent annually vs. 8 percent for the stock market, according to the Social Security Advisory Board.
Critics of renting point to real estate being an asset as opposed to throwing money away renting. But they forget about the massive amounts of money that it takes to get into the home ownership game.
Rather than spend $100,000-to-$200,000 on a home's initial cost -- and that has become completely illiquid as long as you own the house -- you can put that money in a portfolio of diversified real estate investment trusts, including residential investment trusts, if you truly believe in the housing market.
Renting in today's market and investing your savings will allow you:
* To diversify your savings, something buying a home prevents you from doing.
* To keep your assets liquid, a real security blanket, particularly in times of stress.
* To keep from becoming way too leveraged in housing for a significant chunk of your portfolio.
So while the banking industry, the White House and your Uncle Bob are all telling you to buy a house already, your portfolio may be better set if you rent a place to live.
And maybe you can get your landlord to shovel the snow.
Thursday, January 14, 2010
What Does The Fed Have Against Renters?
What does the Federal Reserve have against renters?
In a recent report entitled "The Homeownership Gap", the Fed implies that residential tenants are not "invested" in their communities and contribute to "less stable" neighborhoods. This is a slap in the face to the 95 million hard working Americans who just happen to rent their homes.
To say that renting leads to unstable neighborhoods ignores reality. One only needs to drive through some of the newer single family home projects in states like Arizona, California or Nevada and elsewhere that were built during the speculative fervor of the last decade to see every other home either in foreclosure or vacant. Now that's unstable neighborhoods for you.
It's hard to see, however, how communities of active seniors, young families and people who just want to enjoy life without the burdens of maintaining a home result in a situation the Fed finds unacceptable.
We have written to the Fed and Members of Congress demanding that they retract their demeaning characterizations of residential tenant communities.
In a recent report entitled "The Homeownership Gap", the Fed implies that residential tenants are not "invested" in their communities and contribute to "less stable" neighborhoods. This is a slap in the face to the 95 million hard working Americans who just happen to rent their homes.
To say that renting leads to unstable neighborhoods ignores reality. One only needs to drive through some of the newer single family home projects in states like Arizona, California or Nevada and elsewhere that were built during the speculative fervor of the last decade to see every other home either in foreclosure or vacant. Now that's unstable neighborhoods for you.
It's hard to see, however, how communities of active seniors, young families and people who just want to enjoy life without the burdens of maintaining a home result in a situation the Fed finds unacceptable.
We have written to the Fed and Members of Congress demanding that they retract their demeaning characterizations of residential tenant communities.
Friday, January 8, 2010
U.S. Now a Renter's Market
According to Nick Timiraos at the Wall Street Journal, the housing oversupply and a weak economy have created a great opportunity for residential renters to negotiate great deals.
Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones.
The vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980.
Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession.
Gains in home sales have been driven by government stimulus, leading some to wonder if the nascent housing recovery needs federal assistance to sustain, Nick Timiraos reports.
In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents -- which include concessions such as one month of free rent -- fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990.
Landlords now must entice tenants to renew leases. "We'll shampoo their carpets. We'll paint accent walls. We'll add Starbucks cards," said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate investment trust that owns 63,000 units. He said the first half of 2010 should be "pretty ugly," but was optimistic the sector would pick up later in the year.
Few markets have been spared. During the fourth quarter, vacancies increased in 52 markets, while they improved in 17 and stayed flat in 10. Vacancies increased most sharply for the year in Tucson, Ariz.; Charlotte, N.C.; and Lexington, Ky.
Vacancies are tied to unemployment, because many would-be renters move in with family members or double up during a downturn. Apartments have been squeezed because younger workers, who are more likely to rent, have experienced the brunt of job losses during the downturn.
Landlords were also hit last year by competition from a wave of new supply that hit the market. The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis.
Many of those developments had secured financing before credit markets seized up. The credit crunch has frozen most new development, which means that new apartment completions should fall by half in 2011. That's one potential silver lining for apartment owners: The limited new supply should give them the ability to boost rents quickly whenever job growth returns.
"If you are renting a place, now might be a good time to renegotiate that lease," said Victor Calanog, director of research for Reis, who added that the sector could see a recovery in the second half of the year, buoyed by either job growth or at least the perception that the economy was turning around.
Such oversupplied markets as Florida, Phoenix and Las Vegas are hurting, even though housing sales have picked up. "Landlords aren't benefiting because jobs aren't recovering," said Hessam Nadji, managing director at Marcus & Millichap, a real-estate firm.
Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months. The report forecasts Washington, D.C., will be the healthiest rental market in 2010 for the second straight year.
Government efforts to prop up the housing market also threaten the apartment sector by making it easier for some renters to buy homes. Some landlords have reported a slight uptick in renters moving out to buy homes. Around 13% of Camden Property's move-outs last summer left to buy homes, up from 11% at the beginning of the year. But that is still roughly half of the rate seen during the housing boom, when mortgage standards were much looser. "During the housing boom days, you had people who weren't qualified to rent but could buy a half-million-dollar home," said Alexander Goldfarb, an analyst at Sandler O'Neill & Partners LP.
Thanks to falling home prices and record low mortgage rates, it now costs less to own than it has in the past decade on a mortgage-payment-to-rent basis. But falling rents are expected to offset some of the recent improvement in affordability, making renting more attractive than owning in some markets.
Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones.
The vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980.
Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession.
Gains in home sales have been driven by government stimulus, leading some to wonder if the nascent housing recovery needs federal assistance to sustain, Nick Timiraos reports.
In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents -- which include concessions such as one month of free rent -- fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990.
Landlords now must entice tenants to renew leases. "We'll shampoo their carpets. We'll paint accent walls. We'll add Starbucks cards," said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate investment trust that owns 63,000 units. He said the first half of 2010 should be "pretty ugly," but was optimistic the sector would pick up later in the year.
Few markets have been spared. During the fourth quarter, vacancies increased in 52 markets, while they improved in 17 and stayed flat in 10. Vacancies increased most sharply for the year in Tucson, Ariz.; Charlotte, N.C.; and Lexington, Ky.
Vacancies are tied to unemployment, because many would-be renters move in with family members or double up during a downturn. Apartments have been squeezed because younger workers, who are more likely to rent, have experienced the brunt of job losses during the downturn.
Landlords were also hit last year by competition from a wave of new supply that hit the market. The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis.
Many of those developments had secured financing before credit markets seized up. The credit crunch has frozen most new development, which means that new apartment completions should fall by half in 2011. That's one potential silver lining for apartment owners: The limited new supply should give them the ability to boost rents quickly whenever job growth returns.
"If you are renting a place, now might be a good time to renegotiate that lease," said Victor Calanog, director of research for Reis, who added that the sector could see a recovery in the second half of the year, buoyed by either job growth or at least the perception that the economy was turning around.
Such oversupplied markets as Florida, Phoenix and Las Vegas are hurting, even though housing sales have picked up. "Landlords aren't benefiting because jobs aren't recovering," said Hessam Nadji, managing director at Marcus & Millichap, a real-estate firm.
Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months. The report forecasts Washington, D.C., will be the healthiest rental market in 2010 for the second straight year.
Government efforts to prop up the housing market also threaten the apartment sector by making it easier for some renters to buy homes. Some landlords have reported a slight uptick in renters moving out to buy homes. Around 13% of Camden Property's move-outs last summer left to buy homes, up from 11% at the beginning of the year. But that is still roughly half of the rate seen during the housing boom, when mortgage standards were much looser. "During the housing boom days, you had people who weren't qualified to rent but could buy a half-million-dollar home," said Alexander Goldfarb, an analyst at Sandler O'Neill & Partners LP.
Thanks to falling home prices and record low mortgage rates, it now costs less to own than it has in the past decade on a mortgage-payment-to-rent basis. But falling rents are expected to offset some of the recent improvement in affordability, making renting more attractive than owning in some markets.
Wednesday, January 6, 2010
Three Housing "Truisims" That Make No Sense
Morgan Housel at the Motley Fool offered up some housing "truisms" that fail the sniff test. We couldn't agree more. And a tip of the hat to our friends at patrick.net for the heads up on this article.
1. Homeownership is superior to everything else.
Last winter, U.S. Rep. Barney Frank analogized that not having a foreclosure moratorium before implementing a mortgage modification plan would be like being killed in combat before hearing news of a cease-fire. The Wall Street Journal gave a brilliant retort, writing, "Readers who don't equate moving into a rental with death in combat should direct their comments to Mr. Frank's office."
If you listen to most politicians, you might think there are only two places to live: in a house you own, or in a box under a bridge. As a happy renter, I find this hilarious.
The fact is, many people shouldn't own a home. They belong in the rental crowd. There's nothing morally or sociologically wrong with this. Ensuring that everyone has a roof -- not a mortgage -- over their head should be the goal of public policy.
In 2002, President George W. Bush remarked, "I believe when somebody owns their own home, they're realizing the American Dream." This mentality was taken so seriously that putting no money down and having an interest-only mortgage constituted "ownership."
Owning a home makes sense if you can put down a large chunk of money, have a fixed-rate payment that's a reasonable portion of your income, still have a large emergency fund, and vow to remain in the home for many, many years. But most people can't do that. They shouldn't be ashamed. It doesn't make them bad people. But we've created a culture that refuses to accept that many of us could be better off renting. Many renters might even come closer to that American Dream Bush talked about, which is simple financial security and peace of mind.
As Niall Ferguson writes in his best-selling book, The Ascent of Money: "It's not owning property that gives you security; it just gives your creditors security. Real security comes from having a steady income." Bank of America, Wells Fargo, and JPMorgan Chase don't want you to believe this, but it's true.
2. Tax-deductible mortgage interest helps homeowners
Most interest paid on your mortgage is tax-deductible, subject to a few restrictions. This, we've come to believe, is wonderful, making housing more affordable and homeownership more attainable.
But tax-deductible interest doesn't make homes more affordable; it makes mortgages more affordable. That actually increases prices. In effect, homeowners are highly incentivized to drown in as much debt as possible, while equity is penalized. It's one of the most dangerous "gifts" to homeowners.
As New Yorker columnist (and former Motley Fool writer) James Surowiecki notes, "Advocates of the mortgage-interest deduction ... claim that it increases homeownership rates. But it doesn't: in countries where mortgage deductions have been eliminated, homeownership rates haven't dropped. Instead, the deduction simply inflates house prices."
Yes, removing the deduction would raise taxes. But if you've seen the budget deficit lately, you might find that a good thing. Yes, it would also lower home prices. But that would make homes more affordable for those who attempt to own, not just finance, a home.
3. Nonrecourse mortgages are a great thing
Flexible bankruptcy and recourse laws are vital to entrepreneurship and capitalism. If at first you don't succeed, tell your creditors to shove it and try again.
In the 1990s, Silicon Valley practically encouraged a culture of failure. That ultimately spawned Google, eBay and Amazon.com in a way not possible had failure been strictly punished. No doubt, loose recourse laws can be a wonderful thing.
But should they apply to real estate? No way.
Many states have nonrecourse mortgages. If ol' Mr. Market kicks you in the groin, just hand the keys back to the bank and walk away. Banks can't go after your other assets, garnish your wages, seize your firstborn ... nothing. You're free to try again.
Some defend this, touting the business benefits of accepting failure. But houses aren't businesses. The meaning of homeownership can't be improved through innovation or entrepreneurship. A thousand years ago, a home was a place to live. A thousand years from now, it'll be the same. As soon as we forgot this, the economy soiled itself and banks like Citigroup were obliterated -- not exactly something to be proud of.
Nonrecourse mortgages don't promote useful innovation; they promote speculation and amplify downturns.
The prospect of full-recourse mortgages freaks many people out. But just about every other industrialized nation has them, and they do just fine. People think twice before buying a home. And as I showed in this article, countries with full-recourse mortgages are less susceptible to housing booms that lead to crippling busts. Some might say that's a good thing.
1. Homeownership is superior to everything else.
Last winter, U.S. Rep. Barney Frank analogized that not having a foreclosure moratorium before implementing a mortgage modification plan would be like being killed in combat before hearing news of a cease-fire. The Wall Street Journal gave a brilliant retort, writing, "Readers who don't equate moving into a rental with death in combat should direct their comments to Mr. Frank's office."
If you listen to most politicians, you might think there are only two places to live: in a house you own, or in a box under a bridge. As a happy renter, I find this hilarious.
The fact is, many people shouldn't own a home. They belong in the rental crowd. There's nothing morally or sociologically wrong with this. Ensuring that everyone has a roof -- not a mortgage -- over their head should be the goal of public policy.
In 2002, President George W. Bush remarked, "I believe when somebody owns their own home, they're realizing the American Dream." This mentality was taken so seriously that putting no money down and having an interest-only mortgage constituted "ownership."
Owning a home makes sense if you can put down a large chunk of money, have a fixed-rate payment that's a reasonable portion of your income, still have a large emergency fund, and vow to remain in the home for many, many years. But most people can't do that. They shouldn't be ashamed. It doesn't make them bad people. But we've created a culture that refuses to accept that many of us could be better off renting. Many renters might even come closer to that American Dream Bush talked about, which is simple financial security and peace of mind.
As Niall Ferguson writes in his best-selling book, The Ascent of Money: "It's not owning property that gives you security; it just gives your creditors security. Real security comes from having a steady income." Bank of America, Wells Fargo, and JPMorgan Chase don't want you to believe this, but it's true.
2. Tax-deductible mortgage interest helps homeowners
Most interest paid on your mortgage is tax-deductible, subject to a few restrictions. This, we've come to believe, is wonderful, making housing more affordable and homeownership more attainable.
But tax-deductible interest doesn't make homes more affordable; it makes mortgages more affordable. That actually increases prices. In effect, homeowners are highly incentivized to drown in as much debt as possible, while equity is penalized. It's one of the most dangerous "gifts" to homeowners.
As New Yorker columnist (and former Motley Fool writer) James Surowiecki notes, "Advocates of the mortgage-interest deduction ... claim that it increases homeownership rates. But it doesn't: in countries where mortgage deductions have been eliminated, homeownership rates haven't dropped. Instead, the deduction simply inflates house prices."
Yes, removing the deduction would raise taxes. But if you've seen the budget deficit lately, you might find that a good thing. Yes, it would also lower home prices. But that would make homes more affordable for those who attempt to own, not just finance, a home.
3. Nonrecourse mortgages are a great thing
Flexible bankruptcy and recourse laws are vital to entrepreneurship and capitalism. If at first you don't succeed, tell your creditors to shove it and try again.
In the 1990s, Silicon Valley practically encouraged a culture of failure. That ultimately spawned Google, eBay and Amazon.com in a way not possible had failure been strictly punished. No doubt, loose recourse laws can be a wonderful thing.
But should they apply to real estate? No way.
Many states have nonrecourse mortgages. If ol' Mr. Market kicks you in the groin, just hand the keys back to the bank and walk away. Banks can't go after your other assets, garnish your wages, seize your firstborn ... nothing. You're free to try again.
Some defend this, touting the business benefits of accepting failure. But houses aren't businesses. The meaning of homeownership can't be improved through innovation or entrepreneurship. A thousand years ago, a home was a place to live. A thousand years from now, it'll be the same. As soon as we forgot this, the economy soiled itself and banks like Citigroup were obliterated -- not exactly something to be proud of.
Nonrecourse mortgages don't promote useful innovation; they promote speculation and amplify downturns.
The prospect of full-recourse mortgages freaks many people out. But just about every other industrialized nation has them, and they do just fine. People think twice before buying a home. And as I showed in this article, countries with full-recourse mortgages are less susceptible to housing booms that lead to crippling busts. Some might say that's a good thing.
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