American Middle Class Continues To Lose Ground (loan, foreclosure, credit)

[ncole1]

Originally Posted by Hemlock140

What difference? Our median priced home would have a mortgage payment of about $2,400/month with 20% down, and would rent for $3,000. Oh, yes, the down payment is the difference? Still costing them $600/month more, doubt they would make that much in the stock market on the down payment.

Opportunity cost of down payment (otherwise invest in low-cost stock mutual funds, domestic or foreign)

Opportunity cost of not investing in stocks while accumulating down payment funds

Opportunity cost of closing cost

Property taxes

HOA dues

Insurance

Maintenance and Repairs

Possible increased commuting cost (gas, vehicle maintenance and added depreciation)

Depreciation and Opportunity cost of Furniture

Cost of keeping with current style if eventual resale is needed or wanted

Opportunity Cost of your own time spent on the house (i.e. what you could otherwise earn with that time)

[Ultrarunner]

I renting is better than we should all be renters... it is very much the European model in my cities... renters greatly outnumber individual homeowners.

Fundamentally, America is a place where an everyday Joe and Jane have the opportunity to own...

One side of the family comes from generations operating a small dairy farm... the land is EVERYTHING to them.

I'm not knocking renting... without renters I would not have been able to grow my business.

[ohio_peasant]

Originally Posted by Larry Caldwell

...there are a lot of fast talking investment con artists trying to convince people that they should just rent and put their money in paper instead. This investment strategy meant many retirement accounts lost 50% of their value between 2007 and 2009.

My investments are mostly in equity index funds (US and international). Like other such investors, I lost around 50% between the market peak in October 2007, and the nadir in March 2009 (not counting additional deposits made during that time). However, since March 2009, the market has appreciated some 180%. Today my equity investments are doing vastly better than they were in 2007.

Meanwhile, my house today is worth about 20% less than it was worth when I bought it - years before the start of the housing bubble.

So which is the better investment?

Originally Posted by Larry Caldwell

If you get 5 to 7 years in one location, rents will have increased at least 50%.

Not in my area! Apartment-rents are up around 20-30% since I first moved to this region, about 20 years ago.

Originally Posted by Larry Caldwell

I pay a whopping $1400 a year on property worth half a million.

I pay more than double that, on a property worth less than a third of that... and I'm in an unincorporated, rural township (not a big city with big-city services). In fact my property tax, maintenance and insurance are comparable to the cost of renting an apartment! With a paid-off mortgage, my net housing costs are comparable to those of renting. And money tied in in my house is money that's not working in the stock market.

[AngelWingDesigns]

Originally Posted by ncole1

Opportunity cost of down payment (otherwise invest in low-cost stock mutual funds, domestic or foreign)

Opportunity cost of not investing in stocks while accumulating down payment funds

Opportunity cost of closing cost



Property taxes

HOA dues

Insurance

Maintenance and Repairs

Possible increased commuting cost (gas, vehicle maintenance and added depreciation)

Depreciation and Opportunity cost of Furniture

Cost of keeping with current style if eventual resale is needed or wanted

Opportunity Cost of your own time spent on the house (i.e. what you could otherwise earn with that time)

Renters still need insurance

Many don't buy in HOA for that reason

You can be wise and buy in a low property tax state, and be paying much less then rent

Renters need furniture too or do most sit on the floor? Also buy furniture for your home, antique etc can be heirloom and you don't have to buy again for awhile. Those who rent are constantly buying, selling and needing different for different places usually at a loss.

You still have to pay for somewhere to live, the chance you buy wise and then later have a paid off house, equity to sell, or better have saved tons on a low cost mortgage payment that even with tax and ins would be much less then renting is great. As well as having your privacy and making choices rather then a landlord, priceless. What you save you can invest.

Many don't have the wisdom to differentiate a want and need. A good budget, or financial skills, let alone investing. Investing is wonderful and a great vehicle to wealth, even those who buy houses can invest and do. I do. To me you can't beat being debt free, owning your own home paid off then using savings to investing.

Secure investments vs speculation. As long as you pay the bills you can't lose your home, roof over you ahead.

[Malloric]

More to do with consumption culture.

I make a fairly moderate amount of money, about what the median household makes. I'm in my 20s. And yet somehow, with very few years to accumulate money, my net worth is already above the median. I've never owned a house, and don't really have plans to. I like the flexibility of renting. There was a brief period in 2010/11 where I seriously looked at buying (mostly condos I could rent easily after leaving without dealing with a lot of the landlord hassles) simply because it was so much cheaper to make the mortgage + HOA payments than renting. Around that time is when equity buyers flooded into the market and quickly arbitraged out that immediate rent/buy disparity evaporated. It's now once again pretty difficult to find properties you could buy up with a small down payment and turn a positive cash flow on here in the Sacramento area.

Unfortunately, it was very difficult to get loans in 2010/11. For me, it was an impossibility. I had just become self-employed and stated-income loans are just now becoming available again for those with impeccable credit and large downpayments.

[boxus]

Originally Posted by ncole1

Opportunity cost of down payment (otherwise invest in low-cost stock mutual funds, domestic or foreign)

Versus the cost of losing your money each month in rent? At least with ownership you are gaining equity, renting you are not gaining anything and making someone money.

Originally Posted by ncole1

Opportunity cost of not investing in stocks while accumulating down payment funds

Same as above, a renter is not gaining any equity. After 20-30 years a person can own a home, while a renter at that some time will not own anything. The owner thus can live without any more payments while the renter will have to continue forking out the money; what about that opportunity cost?

Originally Posted by ncole1

Opportunity cost of closing cost

See above.

Originally Posted by ncole1

Property taxes

Renters get hit with property taxes more due to the lack of homestead exemption. You really think taxes are not part of the rent costs?

Originally Posted by ncole1

HOA dues

Part of the rent, the renter is paying.

Originally Posted by ncole1

Insurance

Part of the rent, the renter is paying. Even better, besides paying for the insurance through rent, the renter also has renter insurance on top of that.

Originally Posted by ncole1

Maintenance and Repairs

The amount of repairs needed on a home is negligible, landlords would not be landlords if maintenance costs more than they made renting the home out. Some people act like the AC/Heat, roof, appliances, etc need replaced every year.

Originally Posted by ncole1

Possible increased commuting cost (gas, vehicle maintenance and added depreciation)

As if renters do not have commuting issues?

Originally Posted by ncole1

Depreciation and Opportunity cost of Furniture

Renters do not have furniture?

Originally Posted by ncole1

Cost of keeping with current style if eventual resale is needed or wanted

What does this mean? You do not think renters encounter rent hikes when a landlord refurbishes?

Opportunity Cost of your own time spent on the house (i.e. what you could otherwise earn with that time)[/quote]

Oh yes, because everyone has a Saturday afternoon lined up to make money, but could not because they had to fix a sliding glass door. Fact is most people have no other income other than their job and some investments. You act like everyone has the option to make money when they want, and having to do something like fix a door on a Monday evening will prevent them from making that money.

With your own home, you have the potential to make even more money because you can operate a side business out of your home, something most landlords do not allow. You can also rent a room out which is something most landlords do not allow. You can actually do a lot of things with your own home a landlord would not allow you to do.

[mathjak107]

Boxus ,You are grabbing at straws and dreaming up all kinds of hypothetical situations and scenerios.

Homes are expenses ,they are consumption items. They may improve cash flow by cutting housing costs. But all they do is represent your housing costs. They they have been historically poor as vehicles for growing money.

Other asset classes have left housing appreciation well in the dust historically.

I have rented and invested in commercial real estate and the equities markets for decades. I can tell you none of my housing costs have come close to rising as much as the money we have made.

If you want to argue a point in favor of buying argue the fact most americans suck at investing or anything financial for that matter.

Home ownership is about cash flow.ask most retirees what let them retire and the answer is homeownership cut housing costs so they could make do with less income.

That isn't to say a renter who goes from a 3 bedroom apartment to a one bedroom at retirement wouldn't see the same improved cash flow. They sure would.

[stoutboy]

I agree, homeowner arguments are so tired. They've been completely bamboozled and brainwashed by the banks and mortgage industry. If the goal is to build net worth, renting will win out over homeownership in almost every scenario, IF the renter is disciplined enough to invest in equities. Homes are a giant expense pit. Data doesn't lie: the returns on home ownership result in about a 1% return above inflation after factoring in ALL costs of home ownership. For equities: 6-7% return above inflation.

So if wasting your spare time puttering away at some pathetic home improvement project is your idea of paradise, have at it. But don't try to tell me a home is a great investment, because it isn't.

[mathjak107]

Like i said owning can be a so so investment in comparison but it can be a great cost cutter improving cash flow.

We are no longer working the deals and investing as aggressively as i get ready to retire early starting in july by going part time and stopping in a year.

Now cost cutting is taking center stage so we may buy a co-op if rents vs our returns get much closer.

Up until now we have generated big returns on the money we didn't have tied up in our house anymore. But now we are tapering that investing down.

It may be worth giving up the 14k investment income from a muni bond and reduce costs down to 12k from about 18k for rent now.

[armory]

Originally Posted by Larry Caldwell

By this graph, the median American is now worse off that the citizens of just about all other developed nations.

Middle class Americans: Not so wealthy by global standards - Jun. 11, 2014

The primary reason Americans aren't worth much is the low rate of home ownership. Unstable economic conditions mean that finding a new job often means moving to a new city. That turns a home into an anchor holding you back. Additionally, there are a lot of fast talking investment con artists trying to convince people that they should just rent and put their money in paper instead. This investment strategy meant many retirement accounts lost 50% of their value between 2007 and 2009. Another factor is the huge amount of consumer debt Americans carry.

It's easy to blame the lack of good paying jobs. Indeed, the people below median net worth are often struggling just to survive. There is no Section 8 for home ownership. If they can't pay rent, there is no way they could float a mortgage. However, there is a herd mentality that says if your friends aren't doing it, you shouldn't do it either. There are a lot of lower income people who should be buying a home instead of paying rent.

I wasn't aware of the fact there was a true "middle class" any longer. I have always thought we were the group who worked our A$$es off for others to live comfortably.
Where are we hiding?