To Buy or Rent—Now That Is a Question

I remember when I was in my late twenties the one thing I wanted most was to own a home. My wife had always rented so she, while understanding, was somewhat ambivalent. I persisted and just after we turned thirty we bought our first home in… San Francisco. Yes, the small town on the west coast where home price are now totally and completely nuts. In fact the home we purchased in 1979 was recently sold for 11.66 times the price we paid—yes, totally insanity. (In fact, no improvements have been made to the house since we sold it in 1990, now that’s sad  on many levels.)

But we, like millions of other across the United States, have weathered the ups and downs and the vagaries of the housing marketplace and survived, and most have prospered. Much of our collective net worth is in that humble assembly of stick and stucco. Our hopeful retirement fund is not in some stack of bonds and stocks, but covered by a new composite roof. Such is the state of the financial world in the United States. Much of the rest of the world is confused by this American institution—considering that to pay rent is the norm—not home ownership.

So why aren’t home sales bursting through the roof? There are more potential buyers out there than at any time since the years following World War II. They are wealthier (or have access to family capital), they find that interest rates are incredible low (more than half what we paid in 1979), and depending on the region, reasonably priced.

Some say it’s the amount of debt that the under thirty crowd carries over from college. This may be true. Some say it’s the fear of what they and their families have just gone through during the Great Recession; this may also be true. And some say the culture has changed, ownership means being tied down, beholding to a bank and to sticks and bricks. This may also be true. My guess is it’s all of these and more.

There are changes in automobile ownership; reports are that some in the younger generation are opting out of buying a car. They rent one when they need one—other than that they take the bus or the train. For some this is a smart move—we all certainly know the costs of car ownership. In fact there is a growing trend of renting everything among the youth—thus reducing the baggage that we older types carry around with us. They may be into something here, but this also leads to not saving. And not saving leads to having little left at the end of the month and the end of the year, and most especially the start of retirement.

It is very hard to put your finger on the problem, as this Wall Street Journal article on renters pointed out yesterday. There it is stated that the real reason for not purchasing is lack of money (down payment), income, and debt. I’m shocked; in more than thirty years the reasons for not buying a home are exactly the same reasons we were faced with. Much of what happened in the Naughty Aughties when the government, banks, and builders foolishly messed with market forces and over built, over lended, and then over extended themselves and came very close to collapsing the economy, is now being averted. Steady pacing of construction, more prudent lending, more stringent controls for loan qualifications, and renting will do more to quite economic fears than any government program.

Stay tuned . . . . . . . . .

What’s With Housing?

One would think with the growing American population and a return to some semblance of a normal economy that housing would be expanding. In both worlds, for sale and rental, everything seems contrarian. While banks and lenders sit on piles of non-earning cash, they lend out dollars like they were being pulled from their own pockets. Then again who would want to lend at the low rates that now rule the marketplace.

The banks make more by buying treasuries than lending and building the country – so why bother with us consumers. And while they are all eager to write up the paper work when you walk in, when it’s kicked down into the dark recesses of the back office producers chances are you will be turned down. Especially if you are self-employed – yes, they do hold what happened to you from 2008 to 2011 against you. Even though it was all their fault. There should be a sign over their entry: For loyalty get a dog!

But we are talking housing here, housing on a national scale. Not the housing as practiced in California where prices have risen more than 25% the past year in Oakland. Yes Oakland, a city more dysfunctional than Detroit. All due to the spillover from the crazy-crazy housing market of San Francisco where houses have twenty back up offers, all cash (small unmarked bills please). I remember the auction phase a few years ago when tracts of homes were being unloaded at catered events in the Central Valley – anything to sell the inventory. Now I can foresee auctions that will be run by Sotheby’s and Christie's that will rival art sales in London. “Sold to the couple with the step-van full of money.”

For my readers in the rest of the country count your blessings. Sure who wouldn’t want their 1,050 s.f. once dream home sold for $2,500,000. But then again who would want to buy it? Only insanity governs all this. And of course the San Francisco politicians scream about the inherent greed of the homeowners who are obviously fleecing their buyers. There’s a movement currently afoot to restrict the ability to even sell your house within a five-year window without some form of a penalty – paid to the city. No capitalistic moneygrabber homeowners wanted here. And soon everyone will be able to vote to approve or deny almost any housing anywhere in the city. In a city that needs more than fifty thousand housing units of all flavors. One can only shrug their shoulders – you get what you want.

From my perspective this national homebuilding issue is beginning to come into focus. It is a marketplace problem. The dream that your home was both your castle and savings plan has been shattered since 2008. For the most part that rat has worked its way through the snake. What we are left with is a cynical buyer, a reluctant banker, a out of whack government writing regulations daily, and a weary country with few expectations for the future. And home buying is about the future and expectations. Renting is about marching in time to the drummer, not moving forward. To think about a home and a mortgage is to dream of the future, about what can be. We take on that ownership responsibility because we are responsible adults – then again that may be an issue as well.

Home buying is intricately woven into the fabric of this country. Institutions are built and survive on the hopes of their customers – even Jimmy Stewart talked about that in, “It’s a Wonderful Life.” His little trust and savings company against the Potters and big banks of the world.

This housing issue will not go away. The current malaise is created from a misshapen cloth of student loans, unemployment, low expectations, debt carried over from the Naughty-Aughties (my term for the years 2000 to 2009), and a weariness of war and misaligned government programs. Little can be accomplished without an expectation for the future. The American citizen and family is being pulled in so many directions it is no wonder they have pulled the cover over their heads.

Stay tuned . . . . . . . .