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

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/

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."

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