I have been renting for a couple years now because I saw this bust coming. Even today, I am still saving over $300 per month by renting after factoring the tax savings, maintenance, taxes, etc.

People say you are throwing your money away when you rent, but you need to look at the best use of your dollars. Right now, renting is saving me hundreds of dollar a year.

The problem with the quote "The three biggest declines in prices ever recorded have now come in the last four months." is that those declines are measured year over year. If December 2007 prices are 6% lower than December 2006 prices, then of course neighboring months are going to look bad too.

It's not like prices dropped 6% in 1 month! Sometimes those news people just forget about doing their own math.

THANKS CHICKEN LITTLES - IN AN EMERGENCY ARE YOU GOING TO BE ABLE TO TAKE OUT A RENTAL EQUITY LINE OF CREDIT OR LOAN? RENTING IS FOR LOOSERS, JUST ASK THE 19% OF THE COUNTRY THAT DO IT

Glad to know I'm a "looser," Jacko. It came across so clearly with all those capital letters. ;)

If the extra money people are paying goes into savings--then I don't think they'd need a loan as quickly as someone with a mortgage. Handy.

I think homes are emotional investments--which is some people are so anxious to bail out those in the subprime crisis...they see the emotional pain of losing a home as something to be prevented. My two cents.

Wow, Jacko. Now *that's* a convincing argument. HELOCs and loans are *not* good first steps to an emergency plan, even for homeowners. You should know that; according to your IP address you are accessing this site from a financial company that offers mortgages and loans.

lol @ Jacko, Mediocre troll attempt. The IP thing only makes it funnier.

Ha! The all-caps troll was funny...but then your response almost made me spit out my coffee. Oh well, hopefully his M&L co is paying him for "grassroots" advertising.

Owning a house is definitely an emotional topic. Many people see it as the final step to financial adulthood, and feel like the monthly mortgage payment is "going somewhere". Furthermore, people see real-estate celebs like Trump or Wynn and subconsciously convince themselves that the house they're living in is the first "stepping-stone" to owning multiple properties, getting rich, and retiring with warm weather and sandy Dom bottles.

I think it was GQ this month (could've been Details) that had an article from an upper-middle-class writer figuring out whether or not he should feel bad still being a renter. Although he is older than I am, we are in similar situations. I make a decent income, am young, am getting married soon, and would usually be considered a prime candidate to make a down payment in the coming months. But I'm not. There are factors of which the housing bubble is just one of many. I work in San Francisco, and buying a 2br-2ba flat in the parts of the city I'd want to live in long term would be over a million dollars. I think that people in between the coasts can forget what a huge, terrifyingly real number that is. Also, I am debt-averse and I wouldn't want to rely on a HELOC, ever, so that isn't a perceived value in my mind. I also don't agree with people that view their primary residence as an investment; people always joke "is your IRA going to keep the rain off your head?" But this is a fallacy; my IRA is real, liquid money, and if you only own your primary residence, to turn that into money you would have to sell it and therefore not have a roof either.

Don't get me wrong; eventually I want to own my own residence. But this will be for emotional, family reasons, and not as any sort of investment. Sure, I'll make sure it's in a market and neighborhood that is unlikely to rapidly depreciate, but I will consider it an entirely different category of assets than my retirement savings or emergency fund.

Whenever the general public thinks that a certain investment is a "sure shot", that it will "never go down", that creates a bubble. It happened in dotcoms, it happened with the Netsuite IPO, and now it is happening in the housing market.

I am in a 30 year fixed mortgage with payments lower than rent in my area. I won't ever rent again. If you know how to work the system, you get ahead. Let's just forget about appreciation for a minute and ask yourself, if you could own for less than rent and still have the right type of mortgage, why wouldn't you?

Why wouldn't I, Joshua? 1) Finding a place where you can buy for less than comparable rent (taking into account PITI and maintenance) is impossible in most of the country now. 2) OK, forget appreciation, what about depreciation? Prices have already dropped and will likely drop further in most places. Leverage can kill! Putting $10k down and then losing $100k in a few years is a real possibility. 3) I'm young and mobile. RE transaction costs and short-term risks are very high, and I would rather stay flexible.

This has been the biggest worldwide RE boom in recent history. I think it is wise for young people to take a few years to see how it plays out. For me, it's simple risk management.

Responding to your 1 and 2.

1. I said "in my part of the country." I knew someone would come back with, it's not like that in most parts. Read what I wrote. MY PART OF THE COUNTRY. Read left to right, not up and down please.

2. If the first thing I said is true, and I can own a home for less than rent, wouldn't renting be depreciation as well?

3. I'm 26 years old. If I need to move I've got at least 15 people in line wanting to rent my home. (granted that takes a lot of observation, but still, it's an option). I understanding not wanting to put money down, and again read the third sentence I wrote. "If you know how to work the system." I didn't tell you the rate on my loan, or the downpayment I had. I don't think I need too, but if you ask me I will tell you. I also take into account that I add additional payments for principal to my home each month.

I guess my part of the country is in the minority.

Isn't there always a "Joshua" around?

If your little part of the country is "in the minority," why do you espouse your situation as the gospel truth? It seems the situation is such a remote possibility for anyone else unless they live directly in your town, yet you feel the need to continually reinforce how possible it is. *shrug* I don't get it.

As for your response to the flexibility angle... You pay extra in principle every month, on a mortgage you imply has a great rate - why? That money could return much better if your rate is so stellar, and that would provide MUCH greater flexibility (such as a down-payment on a house where you move) and if you intend to rent out the house you own now, with that great rate and payment, your rent should more than cover your first mortage. That equity in your rental property does you no good unless you put a financial value on bragging rights. You moving away and becoming a landlord DEFINITELY decreases flexibility - if you had ever been a landlord, this would be more meaningful to you - higher taxes, higher income, property maintenance, the list is beyond long.

Of course, it would appear that you are 26 years old, and thus have the world figured out completely, so perhaps I should be taking notes.

Sounds reasonable, Joshua, I'm not arguing with your situation specifically. IF the buy/rent ratio was in-line at my location, I would be thinking very hard about it. Unfortunately, that's not the case here. My point is that most people in the country can't relate to your situation.

No, renting is not depreciation. Renting is a specific cost each month for a specific service. You own no asset, so you don't participate in run-ups or downturns. No reward on the upside, but no risk on the downside.

Here's a scenario assuming a reasonable price/rent ratio like you'd find in your location. If I sign a 1-year rental lease for $1200/month, I know my annual cost is $14,400.

But let's say I buy a similar $144k house (120 times monthly rent) instead on a 30-year 6%. After one year, let's say I get laid off, transferred, etc. and need/want to move to a new town.

At this point, I suppose I could rent it out if the ratio worked. Not everyone wants to be a landlord, though, and doing it long distance can be hard and expensive.

So let's say I sell. Surprise, the local market has declined 7% in the last year.
So my sale price now is $134k. Loan balance is still $142k (I've only kept $2,000 in equity the first year), so I'm short $8,000 plus $8,000 for realtor commission. Let's hope I had a down payment to cover this!

Not only that, but I've "thrown away" $8,500 in interest, ~$2,000 in taxes and insurance, and probably some in maintenance.

Total amount lost from owning for a year: $27,000+. Mortgage interest deduction could bring that down below $25,000. But compare to total outflow of $14,400 for renting.

Things get worse if the depreciation continues several years and then you need to sell. Or if the sale price is more like $300,000, you can lose a lot in a hurry. Now multiple years of depreciation are not common, but they have happened and you need to plan for them.

Renting is definitely not always better, but it can provide excellent short-term risk management in uncertain times like these. Especially for young people who are not able to absorb huge losses.

Perhaps, someone needs to get the last word in.

Just for clarification, I wrote the first "Brian" comment, but am not the "Brian" that wrote the second comment.

Looks like the name is popular enough around here to warrant me putting a tagline in my posts. :)

- bk

I rent. It is cheaper in my area for me to do so. I am also waiting/was waiting for the prices to drop or at least stablize. The only thing I could afford was a tiny condo for double my rent or to move 30 mins away from my job. I have no need for a commute, so that was out. I wasn't going to buy a condo because I didn't want to be stuck with it for 10+ years. The condo market was getting over built in my area. In my profession, I also know about a lot of condo projects that were taken off the tables around 2005/2006.
I have a lot of friends who bought in 2004/2005 thinking they were going to stay for two years and then make a ton of money. That isn't going to right now.
The only bad thing about the building market going down is it affects my profession and thus my job.

With friends in the Real Estate business and the mortgage business, I am hearing more and more cases of people who got home equity loans or 100% loans and are now upside down in their homes.

In Northern VA, a home valued at 500,000 two years ago, might now be valued at 400,000 or less. These folks can't sell, can't refinance and a lot of them are in trouble. Foreclosures and short sales are driving prices even lower.

It's truly unsettling.

I'm a little late to the party, but I have an observation/question for everyone based on Da's example above.

Why is no one including the "usual" 20% down payment in their calculations of rent vs. buy?

In Da's example, that would mean the buyer would have put down $28,800 for the home (20% of $144k) so they would still have $1,800 in equity after that year of declining home values. The renter on the other hand, would still be out $14,400 and have no equity to show for their outlay. Plus, unless the renter invested all their "savings" in exceptionally resilient stocks, they would probably have lost any money they invested during the interim (using the current market conditions as my basis).

Am I wrong in my assumptions?

GeekMan -

I'm thinking you need to do the math again... your homeowner laid out $28,800 in a downpayment, plus $8,292 (@6%) in mortgage payments. That's $37,092 paid out after one year, and taking your example, they only have $1,800 in equity after declining values. That is a HUGE loss - out $37,092 with only $1,800 in equity to show - a realized loss of over $35,000.

In comparison, your renter is out $14,400 flat. Assuming they had managed to save $28,800 while renting already, they could have continued that savings and had an even more sizeable downpayment when they are ready.