Thursday, November 1, 2007

You mean I'm not a 2nd class citizen anymore?

Wonder what the NAR has to say about this?

Yipee!! The Wall Street Journal now says renting is a viable option. And a viable option for those who are not scum losers, morons, cretins and downright financially un-savvy. It is now officially OK to rent. No more glares from people thinking "You're in your 30s and you rent, did something happen"? or "Geez what's wrong with this guy, doesn't he know renting means throwing your money away"? I think today is the day I just re-entered the status of first class citizen. Thank you WSJ, I can walk with my head proudly held high once again.

And as the article points out, it would be foolish to buy now. I rent my pretty sweet home for about 3/4 of what it would cost me to buy with 20% down. Add in the earned interest from my 20%, the fact I don't pay for maintenance, repairs or property taxes and it's closer to 60%. Yeah I don't get the tax break and that brings it up to 70%. Either way it is cheaper than buying. I live in the same house, I enjoy the same benefits. Except instead of writing a check to Countrywide every month I write a check for 70% as much to my landlord. Pretty good deal if you ask me.

Now certainly once prices start rising again - and they will some day, just not anytime soon - I'll once again buy something. Last home I owned, I sold for 60% more than what I paid. Owning can be very beneficial. But only if you sell at the right time and realize the gains. But buying only to buy in a declining market is financial insanity. Even in a flat market you're better off renting.

But what if interest rates go up? Let them. The more rates go up the more prices will fall as the affordability of houses decreases. Here is an example. $500,000 house with a $400,000 mortgage at 6.5% will cost $2528 a month. Say property tax is 1% of value so $5000 a year or $416 a month. Total cost is $2944.

Now rates go to 8.5% and the house drops to $425,000. My mortgage is now only $325,000 and even an 8.5% the payment is $2406. And since the value is only $425,000 my property tax is only $354 for a total of $2760. And it gets even better. Since I deduct interest from my taxes, I get a bigger deduction from the higher interest rate loan on the lower mortgage principle. It's a double win.

Ideally what I am hoping for is interest rates to get in the 12% range and annihilate the housing market. A repeat of the late 70s and early 80s. I then swoop in and buy a house with cash.

Either way, rates up, rates down, I'm covered and waiting out happily renting with a big stack of cash in the bank (well not in the bank since that earns less 5% these days, but invested wisely in low risk instruments).

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