Of course, now the market has dropped and some renters are gloating and singing: I told you so! Others are thinking about bargain-hunting. That's the gist behind this recent article from the Wall Street Journal.
The WSJ article has a great chart (from Fannie Mae) about the pros and cons of renting versus home ownership.
My vote for the smartest renter goes to Dean Baker --of Washington, D.C. -- who bought a place, sold at a huge profit, then rented for a while.
Dean Baker, an economist, believes that the slump validates his decision to sell a two-bedroom condo in Washington's Adams Morgan neighborhood two years ago. Mr. Baker says he received $450,000 for the unit, which he had bought for just $160,000 in 1997. Since unloading the condo, he and his wife, Helene Jorgensen, also an economist, have been renting an apartment nearby for about $2,300 a month. -- Source: WSJ
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4 comments:
Sharon,
Thanks for this posting on renters and the housing bubble. The truth is that one can't judge the impact of owing a house based purely on property values alone. The tax benefits and impact of mortgage paydowns on one's net worth should also be taken into consideration.
Thanks gain for this informative posting.
Best,
James
I don't think that guy sounds smart at all... payment, insurance, and taxes on a property that he paid $160,000 for should be WAY, WAY less than $2,300/month -even with the tax hike due to increasing property values. And he would have been building equity at a good rate since he'd already been paying on it for a while.
Owning real estate is a hedge against inflation. Now that renting is gaining popularity, rents will rise. Those with fixed rate mortgages will won't care what happens with property values as long as they don't have a reason to sell.
I respectfully disagree. In 2005, I sold my massively over-inflated starter house (which is now worth $35k less than I sold for), invested a sweet $300k in a jumbo CD at 5.9%, and moved into a brand-new rental in a less expensive part of the country. Best part is that the interest from that CD more than covers my rent, and someone else pays the maintenance. Additionally, my new state's taxes are substantially lower than I was paying. No regrets here!
It doesn't matter how "smart" you are if you don't have the money to take advantage of market opportunities, e.g. if you can't buy a home in the first place, you're never going to be able to sell at a huge profit.
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