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Renting a Home is Good for Job Security

19 Nov 2013

Posted by Joseph Coupal

Many nations encourage home ownership, and it is something that most young people still aspire to, but a new study has pointed out this might not be such a good thing. It has found that encouraging people to purchase homes could lead to higher unemployment levels in the future.

The research was carried out in the UK and at Dartmouth College in New Hampshire, and the study found that when the rates of homeownership increase in countries then unemployment can begin to rise a few years later. Settling down in a home that you own makes many people reluctant to move just for the sake of the job.

In addition researchers found that homeownership could lead to longer commutes to work, wasting money and time. Neighborhoods with high levels of homeownership are also more likely to be opposed to new businesses opening up locally, something that can stifle entrepreneurship.

Researchers based their study on data collected in developed nations including the US. The study does acknowledge that high levels of unemployment are connected to other factors, but in spite of this it feels there is a clear link with homeownership and that the effects can be considerable. According to the report in CNN Money.com, doubling the rate of homeownership in an area could lead to the unemployment rate doubling as well. Apparently this trend has been particularly apparent since the 1980s, and researchers in the study are calling for people to become less obsessed with homeownership. They feel it makes the labor market much less flexible, and over time could cause jobs to gradually disappear. As an example, researchers compared Spain and Switzerland, as both homeownership and unemployment rates are particularly high in Spain, while levels are particularly low in Switzerland.

It’s easy to think from the tone of the report that the authors are against homeownership, but apparently this isn’t the case. They point out that older workers often want to own their own home in preparation for retirement, and in this case it would have little effect on the employment rates. In countries such as Switzerland and Germany people tend to purchase homes towards the end of their working life, something the researchers feel is efficient. However when people are young it makes more sense for them to be mobile and rent a home.

Realty Biz News

Rent or Buy? More Choosing to Rent

05 Aug 2013

Posted by Joseph Coupal

Homeownership has always been held up as the American Dream. But it took a major hit during the Recession, slamming home values. As a result, despite a rebound in much of the country, even some affluent homeowners are weighing whether it makes sense to become permanent renters - and are asking planners for guidance.

Many former owners have already joined the ranks of renters. According to a March report from the Federal Reserve, 16 million Americans became homeowners between 2000 and 2006, while 700,000 became renters. However, in the five following years, 1.2 million left the ranks of homeowners, while 4.2 million new renters emerged.

The report also found that an apartment building boom followed. Remarkably, the report added, this happened "even with housing affordability near historic highs."

The fact that people flooded the rental market during a period when one might have expected a rise in ownership, due to a combination of depressed home prices and historically low interest rates, indicates that other factors are at play.

CHANGING THE MATH

Homeownership still makes sense for many affluent clients. Yet given the economic and political climate, "the prospect for increased taxes, decreased deductions and slow growth in housing is driving many people to consider the rental alternative.

While buying has many advantages,  homeownership requires a substantial down payment, typically 10% to 20% of a home's purchase price, and will generate an annual property tax bill as well as hefty annual maintenance costs - anywhere from 1% to 4% of a home's total value, according to HSH.com, a real estate publisher.

That changes the math for some. Because the cost of buying and selling a home can be close to 10% of its value, ownership makes sense only if a client plans to live there five to 10 years. You need enough time to ride out a market cycle if necessary to cover these costs.

Of course, it's not always possible to coordinate market cycles with the need to move - so there's no guarantee that homeowners who stay put will recoup their costs or do better financially than if they had rented.

GENERATIONAL SPLIT

Renting is more common among younger adults - 43% of people younger than 30 rent, compared with 22% of those 45 to 64, and 16% of those older than 65. But while young adults in the past might have stretched to become homeowners as soon as they were able, they are now more cautious.

Some consider renting to be a long-term lifestyle choice that gives them more mobility and freedom from maintenance chores. Having reached adulthood during the Recession, they saw home prices plunge and carry no illusions that appreciation is guaranteed.

Younger affluent clients tended to concentrate on the relative difference in net after-tax payment between buying and renting.  Now, many are more pessimistic, and are "factoring in either zero or negative short-term growth."

For clients 45 and older, the primary concerns may be different. At midlife and beyond, people often make the decision to buy or rent based on lifestyle preferences or health issues rather than financial concerns, particularly if they already have substantial assets.

For older clients in particular, renting may also offer estate-planning benefits. "Trustees and estate executors are alleviated from having to sell a property, which can require improvements in preparation for sale, selecting an agent, negotiations and differences in opinion among estate beneficiaries.” "Renting also alleviates a potential liquidity drain if the house doesn't quickly sell."

Excerpts – Financial Planning

Rent or Buy Your Next Home?

10 Apr 2013

Posted by Joseph Coupal

Many people consider owning your own home the American dream, but no dream is one-size-fits-all.
 
While owning a home can increase your net worth, there are potential downsides as well -- additional labor, hassle and cost, to name a few. In many cases, renting an apartment makes sense.

How can you know which is best? Here's what you need to consider:
 
The minuses of homeownership: Owning a home is a huge time commitment. When you rent, maintenance is someone else's problem and repairs are solved with a phone call. When you own a home, you take on the rolls of maintenance and gardener. When something breaks, you need to fix it.
 
Homeownership also limits flexibility. When you buy, you should plan to keep the house at least five years, because transaction costs -- agent commissions and other sales expenses -- are high. Sell too soon and you won't recoup those costs.
 
The pluses: One of the joys of homeownership is investing time to make it yours and make it worth more. What you can do to customize a home you own is limited only by your imagination, budget and local zoning restrictions.
 
The bottom line: If you want to stay mobile, if you don't enjoy home improvement projects, rent. If you're staying put and watch a lot of HGTV, buy.

Money
The minuses: If you rent, you'll pay the first month's rent, a security deposit, and maybe a pet deposit. Buying means a down payment, closing costs, and other major expenses, not to mention the additional expense of repairs and maintenance when you own a home.

In 2010 the average annual homeowners’ insurance premium was $909. Property taxes vary widely depending on where you live, but run from hundreds a year to thousands.

The bottom line: If you don't have the money and/or credit score necessary to buy a home, the question is moot. But if you can afford to own a home in a desirable area with an expanding population, you'll probably be rewarded financially.
 
One way to run the numbers is to use buy vs. rent calculators. But, while those are certainly helpful, the answer you get from a calculator will depend on the information you provide -- some of which you can't possibly know.
 
For example, among other variables, most calculators will ask how much the house you're buying will appreciate annually, as well as how much equivalent rent will increase over time. These are questions you cannot answer.
 
Buying a home? Don't get in over your head, keep these thoughts in mind:

  • To lower the risk of homeownership, buy only what you need, not the most expensive house you qualify for. The average house in 1950 was less than 1,000 square feet. Today it's more than twice that. Remember that whatever you buy, you're going to have to furnish, heat, cool, insure, clean and maintain it.
  • If you have bad credit and only qualify for a high-interest mortgage, it will cost you tens of thousands of extra dollars over the life of your loan.
  • The more you put down, the less you borrow and the less risk you take.
  • Finally, if you decide it's time to buy, hope for appreciation, but don't count on it. However, if the community you're living in has both expanding employment opportunities and population, prices are likely to rise over time.  


MSN Money

The Hidden Costs of Owning a Home

23 May 2012

Posted by Joseph Coupal

Low mortgage rates and more affordable home prices are creating an interest in homeownership by those who live in apartments. However, potential buyers who are unprepared for the true cost of owning a home may be shocked by the bite homeownership can take out of their wallet in addition to their mortgage payments.

Inspection and Appraisal Fees
Before you purchase a home, you need to pay for a home inspection, and an appraisal, possible even inspections for pests or radon. The costs of these inspections are borne by buyers and are a necessary protection to avoid buying a flawed property or paying too much.

Closing Costs
Buyers need to be prepared with the cash for anywhere from 2% to 4% of the mortgage balance depending on your area.

Taxes
As a homeowner, you'll need to pay property taxes, which are generally part of the escrow you pay into each month. Remember, even if you have a fixed-rate home loan, your property taxes could go up and increase your monthly housing costs.

Insurance
Your lender will require home insurance, the cost of which depends on factors including the construction materials of your home and the location. Even if you have renter's insurance, you'll find that home insurance costs more because you are paying for the ability to rebuild your home in addition to replacing your personal possessions. Insurance costs will rise over time, and you will need supplemental insurance if you live in a flood zone.

HOA and Condo Fees
If you buy a home within a homeowners' association or a condominium association, you'll be required to pay a monthly or quarterly fee. These fees can rise, or your association may need to charge a special assessment for projects such as repaving the parking lot or repairing a roof.

Utility Bills
Depending on where you live, your costs for electricity, gas and water could be higher when you move into your own home than when you live in an apartment. You may also need to pay for garbage collection along with your Internet, cable and phone bill.

Furniture
While this is essentially a discretionary expense, most people who move from an apartment to a larger home need to buy at least some new furniture.

Lawn Care
Whether you handle your yard work yourself or hire a professional, you will have to pay something to keep your landscaping in check. Lawn equipment can be costly and you may need a snow blower or a leaf blower, too.

Maintenance
Home maintenance costs time and money. While you may be able to change your furnace filters, clean your gutters and keep your appliances running smoothly yourself, you may also need to hire a contractor to clean and inspect your chimney and to keep your heating and air conditioning system in top shape.

Repairs
While maintenance tasks can be predictable, the most costly part of homeownership typically comes with unexpected repairs such as replacing or repairing the roof, removing a tree, or paying for mold mitigation in a damp basement. The list of possibilities is endless, so homeowners should set aside savings for an emergency. Experts suggest budgeting for 1% or 2% of your mortgage balance as a yearly maintenance and repair fund.

The Bottom Line
Buying a home costs more than you think. If you don’t expect to stay in your home for at least seven to 10 years, for more information visit HHHunt Rent vs. Buy.

SF Gate

The New American Dream Through Renting

16 May 2012

Posted by Joseph Coupal

In the American mind, renting has long symbolized striving rather than achieving. But as we climb our way out of the Great Recession, it seems something has changed. Americans are getting over the idea of owning the American dream; increasingly, they're OK with renting it.

Homeownership is on the decline, and renting is on the rise. But the trend isn't limited to the housing market. Across the board, Americans are increasingly acclimating to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to a Rentership Society.

The unsentimental fact about the American dream is that Americans never really owned it in the first place. For the past three decades, especially, consumers haven't so much bought their quality of life as they've borrowed it from banks and credit card companies.

Now consumers are following the example of corporations, becoming more efficient. And it starts at home.

Housing is the biggest single component of consumption in the U.S. economy and the source of much of our present misery. The typical consumer spends about 32% of his or her budget on shelter. In the last decade, that generally meant borrowing a lot of money to take "ownership" of a home.

During the boom, the home ownership rate grew steadily, peaking at a record 69% in 2006.

Ownership-boosters failed to note that homes purchased in 2005 and 2006 with no-money-down, interest-only mortgages weren't really bought. They were simply rented until the "owner" flipped them or walked away from the mortgage.

In the post-bust climate, renting has emerged as a much more economically efficient way to pay for housing. A one-year lease represents a far less onerous financial obligation than a 30-year mortgage. It's difficult to get into too much financial trouble as a renter. The home ownership rate has fallen from its peak in 2006 to 65.4% today.

For an increasing number of Americans it makes more sense to rent. According to Moody's, by late 2011 it was cheaper to rent than to own in 72% of American metropolitan areas, up from 54% a decade ago. And the more people who do it, the more socially acceptable and desirable it becomes. The decline in the ownership rate means that about three million more households rent today than did at the height of the bubble.

It's tempting to view the rise of renting as an economic step backward. But many would argue the rise of renting is a sign of a system adapting to new realities.

The U.S. economy needs the dynamism that renting enables as much as, or more than, it needs the stability that ownership engenders.

And the rising popularity of renting is hardly contained to the housing market.

Finally, perhaps, Americans are absorbing a piece of wisdom from Thoreau: "And when the farmer has got his house, he may not be the richer but the poorer for it, and it be the house that has got him."

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Wall Street Journal


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