Real Estate: Many People Should Rent Not Own
The real estate market is on fire. We are seeing prices shoot up all over the United States. In fact, this is a situation that is replicated in many of the developed countries throughout the world.
We are seeing a major craze with the exodus out of urban areas. The "burbs", the area around major cities, is simply exploding. In spite of the rising home prices, we are seeing huge demand, with many offers coming in above ask.
Which begs to question who are all these people and how long will this last?
Basically, to some degree, we are seeing a repeat of 2006-2008. In the runup to the last housing collapse, we had people out there pushing the "American Dream". The joys of home ownership are espoused by many politicians, government leaders, and, of course, the real estate industry. They all promote the idea of how home ownership is part of the American Dream and the pathway to financial success. After all, renting is just throwing money out the window.
This is the mantra anyway.
Home ownership is often promoted as a Normal Rockwell painting. People make it out to be something spectacular. In fact, they push it to the point that it is almost orgasmic.
Of course, the reality is much different than the television commercial. Millennials have been buyers of late and they are finding that they were lied to (again) by the mainstream.
There is a lot to upkeep on a house. We have the regular maintenance that has to be done in addition to mowing the yard and tending to the flower beds. There are the inevitable "surprises" where something breaks such as an appliance or pipe bursting. Then we have taxes and insurance which always seem to rise. And finally, we have the utilities which can run into a tidy sum with the size of these homes.
Here is the response of a few home owners:
The first is from one who made a sound financial decision, buying a home on a short sale. The finances worked out yet the individual would still prefer to rent.
I bought a short sale as part of the 2008 crash. One of the best financial decisions of my life. I wasted a ton of money on rent before that. Taking care of a house is a tremendous amount of work, though. If we had a functional economy, I'd much rather rent.
And then we have this one:
The supply is terribly mismatched to the population. I live alone in a 4 bedroom house. It's super expensive to heat and a pain to keep clean. I'd really like a 1 bedroom or 2 bedroom (something about 25% the size of what I have). But, I'm surrounded by 4-6 bedroom $750,000USD McMansions with pools and 3 car garages.
This is not surprising. In the United States, the average square footage of a new home is 2,300. This is up for 900 more than 60 years ago. Sadly, most homes are not occupied by the 2 parents along with their 3 kids. Instead, like this individual, we have a single person living in a home that was built for 5.
Of course, this is all targeted at the upper middle class. There is a shortage of homes that the lower middle class can afford. This pushes people to buy more than is within their budget, causing further financial issues down the road.
Is it any wonder why so many cannot afford to keep their mortgages current? The slightest hiccup results in a major financial setback.
The reality is that not everyone is cut out to own a home. Many people are better off renting. A major investment is something that many people are not cut out for. All of this gets compounded when dealing with all the vultures in the real estate industry. It is one that is filled with many financial decisions (and documents), something that most are not astute in dealing with.
A decade and a half ago, we had a President standing up there touting how home ownership was the pathway to financial freedom and part of what every American should strive for. Thus, it was the government's job to open up that pathway for as many people as possible.
We could say that it achieved that end. Sadly, most of those who were put into homes ended up having them foreclosed on. What many of these people do not realize is that the banks do not operate on fancy lines or false promises. They go back to the paperwork which says if you don't pay, you will be removed.
And many people were surprised by this. It is astounding how people felt that they were going to be gifted the home.
In the end, the entire market collapsed. We saw the biggest pullback in real estate prices in the history of the country. Similar results were seen all over the world. Very little was spared in this regard.
Real estate is a very complex situation. There are a lot of variables to buying and selling successfully. Anyone who operates in that area as an investor could provide a laundry list of things that can go wrong which will wipe one out financially. Naturally, one has a different motive when buying a property to live in yet the same expenses, pitfalls, and dangers exist.
How many are really prepared to deal with all that?
The answer is very few. Most do not know what it takes to be a homeowner nor do they have the resources set aside when things do go awry. How many times have we heard of someone who cannot afford to buy a new air conditioner when the existing one goes to hell. Of course, few can instantly lay out $6,000-$10,000 on a moment's notice. Fortunately all the A/C companies have credit plans that one can utilize.
As always, rack up more debt.
The idea of owning a home as a lifelong dream is something that people should put out of their minds. Certainly, if that is a goal of many, then they should do the research, learn what is involved, and move to an "expert" level. With the information that is available today, one can easily do that.
However, do not get enamored with the "Greeting Card" moment with home ownership. The toilets still need to be cleaned and when a house has 4 bathrooms, that is a lot of porcelain to clean.
Perhaps if more thought about this type of stuff, their dream of home ownership would not turn into a nightmare.
In the end, a vast majority of the population is better off renting.
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