What is so shameful about renting?

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newportnaturalmom_IHB

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I have come to realize that one of the first questions people want to ask me is where I live and if I own what I am living in. I know that the OC mentality has been scrutinized in the past on this blog, but I have experienced an increase in this question as of late. Many people in my generation (early to mid-twenties) are going out and buying condos right now. I have friends that have moved to Murrieta and have to commute to Huntington Beach or to The Preserve at Chino and have to preface their decision with..."It is just like Ladera Ranch once you get inside the community." Never mind the prison right across the street. And then another friend who has just quit his job and is house hunting. I think he settled on a 2bd/2ba condo for 1/2 a million. Is anyone else experiencing this strange behavior around them? Is it something to do with the lost feeling that most people my age feel? Or needing to spend your way into maturity? I just thought I would throw this out there because I am really perplexed. There is a lot of rationalizing (or irrationalizing) occuring amongst the people around me that are in my age range. Maybe they just need to lose money in order to learn...I'm thankful to learn by watching others lose money, while saving my own.
 
I have noticed your generation has an appetite for (or a tolerance of) a great deal of debt. Perhaps they are used to it because of the increased student loan debt, or because they were offered credit cards at 18. Maybe they all subscribe to the debt = wealth mentality. The crushing weight of excessive debt doesn't seem to bother them, or they don't know any other way. It is sad really.





The shame in renting will turn into the shame in owning in 3 to 5 years. I am a proud renter, and when everyone is ashamed of owning, I will become a proud owner.
 
I laugh at people who tell me that I HAVE to buy. Right now there is no shame, with cost of housing being WAY over inflated and the extra cost of owning a place still being close to 100% more than what I rent for, renting only makes sense. I just get the feeling that this area promotes you to be a mega consumer. "Saving those pennies for a rainy day is what poor people do...", I just don't understand that mentality, in good or bad times, I've always had a way out and credit wasn't it. Anyways good luck and don't work too hard.

-bix
 
newportnaturalmom, I'm 25 and experienced the same thing you have. When I switched jobs a year ago and relocated to Irvine, there have been numerous people telling me to buy. One of these people being a friend my age. He (B) and his brother(R) bought a home for their retired parents in Corona, I/O loan on a 600k+ house. Why retired folk need a 4 bedroom mcmansion to retire in is beyond me.. Not sure how much they put down but it's taking quite a bit of both of their incomes.





Well, my friend's brother (R) decides that him and his fiancee need their own home, so they bought a condo in Lakewood for 450k+, 100% financed. The fiancee gives money to her mother monthly, due to her mother buying a home in Temecula late last year. R and his fiance make north of 150k a year combined, yet can only have 500 dollars saved at the end of the month. No idea what will happen once their loan resets. Last time I talked to B I told him R will be in trouble, but B thinks they can just refinance. I told him no way. Even if they can refinance, I don't understand how borrowing more can help you pay off your debt.. And last I heard, R and his fiancee decide they don't need to save that 500 a month, and are now spending like there's no tomorrow.





All the folks named above are in aerospace. The brothers actually work for the same firm, and I keep hearing they are losing their funding, something like 20% of their budget was cut last year. When R can't pay his own mortgage, not only will he default his own home, but his parents home as well.. All 3 people named above have car payments. At least B has credit card debt in the thousands. They won't listen to reason, so the only thing I can do is sit on the sideline with popcorn in hand.








It was due to the talk with B a year ago that led me to realize that I don't understand enough about real estate to counter B's bullish talks. I never get into something I don't understand, and even though I won't be buying a long time from now, I realized I need to start learning now. So from there I found this site, Housing Bubble Blog, Calculated Risk, and Casey Serin's trainwreck. It is indeed sad that people our age are not saving, well people in general are not saving. Even the friends that aren't buying homes, have either huge credit card debt, or zero savings. Sad... just sad.





I have another friend that after repeated warnings, will drop money on a plot of land in Palmdale. He wants to hold it for a few years and then sell for profit.. I don't see how that will ever be possible. Aiye...
 
eek,





Have your friend read <a title="Permanent Link to Land Value 101" rel="bookmark" href="http://www.irvinehousingblog.com/2007/07/16/land-value-101/">Land Value 101</a> before making his purchase. If he buys raw land in Palmdale, he is almost guaranteed to lose 90% of more of his investment.
 
We bought some 5 acres of land in Landcaster few years back, around 1987-1988. I am still waiting for development to get close to our land so we can sell it for a "profit".
 
<p>Owning a home as opposed to renting has long been an important social signal in American society. It's not only a right of passage into adulthood, but also a sign that you "have it together" financially because you have a good stable job and have been able to save up a down payment. People who own have typically had higher incomes and better financial positions in general. They also tended to be less mobile and have more stable positions in the community. If you are a renter it means that you lack some of these qualities or don't "have it together" yet. Society tends to develop these stereotypes about the differences between renters and owners because there is some real truth to them.</p>

<p>Of course all of these rules flew out the window a few years ago. With the easy credit bubble and 100% financing, owning no longer implies that you are more financially responsible than someone who rents. Likewise, renting no longer implies that you are not in a good financial position so much as it implies that either 1) you live in a bubble area and are temporarily priced out or 2) you understand the economics of the situation and have decided to wait until prices revert. However although the situation has changed very much in the last few years, societal attitudes are very slow to change. Thus, society has vestigial attitudes about the buy vs rent question that no longer apply. Since most people are not active market participants in bubble areas it is understandable that attitudes are slow to adjust.</p>

<p>My father lives out of state; he moved away in 2000 before prices here in So-Cal became insane. Frequently when I talk to him he asks about my housing situation and wonders why I am not considering buying. All of the young people my age (mid 20s) he knows and works with tend to buy a house once they have good jobs. I get the feeling that he sees my unwillingness to do so as a lack of maturity. In a way I can understand where he is coming from, because where he lives that might be a valid assessment of my situation. I try to explain the housing bubble but he doesn't understand economics and will probably never fully get what is going on. I just try my best to assure him that I know what I am doing.</p>

Sadly, the game has changed. It used to be that you could just go out and buy a home once you had reached the point in your life where it was appropriate to do so. You could count on a home being a good long-term investment, and that whatever fluctuations took place in the market price where relatively unimportant compared to the convenience of buying when you were ready. Now you can't just do that. If you don't watch the market and educate yourself about the national and even global forces at work, you can easily pay (or forego in savings) hundreds of thousands of dollars.
 
nnm - I would add to the above posts that the herd mentality needs others to conform in order to validate that which the herd does not completely understand, or "safety in numbers". If someone successful or intelligent goes against the herd, the herd must make the oddball wrong in order to feel good with the herds direction. Oddly enough, most folks would rather feel a part of something than make money, if making money means being different or identified as different.
 
You're not alone. I'm in my mid-20s and sadly, the majority of my friends fall into the debt = wealth mentality. Despite our efforts to explain the market situation, many are already waist deep in debt. Others are too lazy to research the market and blindly listen to the bullish talk of friends and family.
 
I am 25 and a homeowner although not in SoCal. I actively encouraged all my friends NOT to buy houses in SoCal and was puzzled why some bought houses north of $500,000 in Victorville. The prices in Southern California never really made sense with regards to rents in the 2004-present time frame. My landlord loves that I always pay early and was puzzled at my 740 FICO 0x30 when he ran a credit check. My landlord has a juicy 530 FICO and loses several thousand per month renting to me. Do I mind paying $800/month including utilities 2 blocks from the beach? Nope not at all!





My favorite bit is I went out to dinner with my landlord and he told me he projects where I live is appreciating 2% per year. If thegross rent for this place is 0.3% of its value per zillow per month there is no way this place is above a 3% cap rate. I can quickly add that 3%+2% < the 8%+ he is paying in mortgage. I am thankful my landlord is so lacking in financial knowledge!
 
Often time I think it is only because there are so many people who are willing to pay for the INCORRECT price that RE investor can make any money. People sell when the price is too low and buy when the price is too high. If the market is completely efficient, it will be very very difficult to make any money in RE investing.
 
Hi Nnm, I would specifically echo awgee's comments and say that, next to home owners, renters are financially going against the herd. As an owner, you want others to "throw down" money in your neighborhood because that actively supports their asset by driving the price higher.





I also think that there is a widespread blanket ideology that renting = throwing money away. While this might be true in many circumstances (like upmarkets) at a time when the loss trajectory of a given asset (house/condo) is on a steeper course than whatever "rent" would equal then you're not throwing away. Owning is throwing away!





I cringe when I hear that people around your/my age are getting in on some condo. Rent! (Or, if you can, even more shamefully, live at home like me!)
 
<p>hi. i graduated from uci in 2002. at that time, my cousin insisted that i buy a home. he told me that his home value was going up at a rate of 3k a month. being ignorant and inexperienced, i did not take his advice. by 2005, he had gained over 200k in equity. however, by then, i realized that renting is much more affordable than owning. i also realized that the opportunity has already passed. my friends, on the other hand, decided to buy in 2006. one fella bought a new condo in irvine with his girlfriend. the other bought two investment homes in murrieta. [we're all in our 20's]</p>

<p>needless to say, the first friend is struggling now. both his gf and he work in the escrow industry so business has slowed significantly for them. and their house hasn't gone up in value. i don't think they bought because of greed though. but rather, the two of them were just financially flourishing during the boom years of real estate and mortgage lending. they didn't anticipate the drop in their income.</p>

<p>the other friend, however, was just greedy. he figured he can make an easy 100k in a year from his investment. but clearly, that's not the case. my point is... for our generation, we have been inundated with real estate tales... the profits... the low interest.. the easy financing. all of this makes it hard for us to not want to be homeowners.</p>

<p>i regret not buying in 2002. i'm glad i couldn't buy in 2006. and i'm pretty happy now that i live with my girlfriend who had bought her tustin condo for only 200k. </p>

<p>i have friends who have been renting for 5 or 10 years now who feel that they should buy by now. and true, it's typical to buy after so many years of renting. but they need to realize that we are not in a typical real estate environment. i'm urging all my friends to just keep renting until things normalize.</p>

<p>personally, i think a starter condo should only be around 300k and a starter house should be around 500k. a good payment for a condo should be under 2k a month, while a house should be under 3k a month. isn't true that most apartments rent for under 2k a month? so if you're a new buyer, you should only expect to pay 2-3k, right? i think it's ridiculous that some of my friends are paying 4-5k a month for their first home. what's worse is that a friend went from paying $500/month to rent a room to paying $2000/month for a room in his condo. doesn't he think that's a little extreme in terms of change in housing expense?</p>

<p>when i was in college, i paid $300-$400/month. after college, i paid $700-$800/month for housing. i would hate to pay over 1k/month. so i don't know why some people are comfortable with paying over 2k. that's equivalent to a new plasma tv every month. that's more than most older homeowners pay for their mortgage for a house for a family of 4!</p>
 
<p>It is not necessary a generation thing. I am an Y, but I max out my 401k and save an additional 30% in our investment portfolio. I have no debt other than fixed rate student loan, which I believe is actually getting smaller on its own due to inflation. I look at housing just like any other class of investment. Right now, this investment does not make sense, but I believe in 6 to 7 years, it will once again make sense, then I will buy, along with positions in all major home builders. Value buy is the name of the game. It has served us well so far. (We brought Boeing after 911, Merck after the Vioxx, etc) . Having said that, I also believe in the saying money owned is money spend. So we do buy luxuary items within our means (Mercedes, designer bags, etc), but we set a budget and we don't go over that budget. </p>
 
<p>Again, no shame in renting, its just not a good idea now. Buying into a depreciating asset is acceptable only when you have a need for something like this to offset your earnings (WAY more than I make, <250k/yr). Like other's said, i just max out the 401k, the IRA and the 529B's (for those of you who might have kids). In the meantime we just save for a house, so far out savings are pushing 30-40% of a new home in cash and at least another 30-40% in funds available. So we just need a little push from the market and then we'll be able to afford a home. We will see.</p>

<p>-bix</p>
 
I think what most People tend to forget is unless they write a check out for the full amount of the Purchase price they still don't "own a Home", the Bank owns it, and if you don't believe me, try not paying the Mortgage for a few months...



This means the only difference between "owning" and renting a Home is that one Day, you MAY own the purchased one eventually..but so many things can happen in life to prevent you from doing so...right now it's better to be in a place that is owned by IAC than Countrywide IMHO.



I know People who are within 5 years of retirement and still have probably 20+ years of mortgage payments left with probably very little equity left...



If a stranger asks whether you Rent or "own" it's none of their Business, if a Friend asks and it bothers them if you rent then they're not real Friends...



I have 5 friends right now that are entering into "buying" Homes because they reckon that NOW is the time...I've tried dropping hints by suggesting they wait but they won't listen...
 
I need to ask. Anon, how did you go about finding this thread to post that link in, and how long did it take you? That's some digging!



Sad to see some previous regulars who no longer post much.
 
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