The road to socialism

iVillage Member
Registered: 04-04-2008
The road to socialism
424
Wed, 02-18-2009 - 10:40pm

It's true that Mr. Obama is taking us down the road to socialism.

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iVillage Member
Registered: 04-09-2007
Sun, 02-22-2009 - 5:47pm

Actually, at this point in my life, I'm worried about NOT owning a home. Like it or not, the concept of personal wealth and security is based, in large part, on homeownership.

Investors may love to argue till they are blue in the face that home ownership isn't for everyone, that people shouldn't own a property unless that prop is making them money (how do you do this in a home you inhabit??), etc. I've heard this on so many investment shows where, if many people listened just to this advice, they would be worse off today than a few years ago - no doubt.

This concept works well for investors - the fewer homes that are owner occupied means that investors can swoop in and set prices, speculate, start bidding wars. But we've learned the hard way that having communities that are less than 50% owner-occupied, and having less than 10% of the population may be great for the guy who just bought 10 houses with nothing down, but cripples a community.

You talked earlier about having "skin in the game". Owner-occupied homes create that for communities. Cities and states need YOUNG families who want to plant roots, young workers to fill the jobs of retirees and take entry-level positions. Creating a situation where people can own nothing but maybe a car (loses equity immediately) and depend on their employer's 401k plan as their primary source of longterm wealth hurts those generations. Turning homes into "property commodities" and convincing an entire generation of new workers that they either couldn't buy, or that they had to buy the hype, is part of how this bubble was created in the first place.

It almost seems like prices had to crash to get back to basics.

One rule of thumb I have (since the housing boom started here in 1997) is I look at home prices in a particular area, and I add 10% a year to the selling price of the home. At an increase of 10% a year for 10 years, many home prices may have doubled but not tripled or quadrupled like they did here at 25-30% annual price increases. 6% is average, 10% is good, so I base it on 10%, giving the market the benefit of the doubt, and knowing that nothing significant changed in the area (like the Wyoming oil boom). If current prices are at or near my calculated price, then I know home is probably priced right. Less than that, and its probably undervalued, and more than that and I'm not interested.

We looked at one property that had great features, but would have probably taken between $25-$50k to make it house we loved. Again, not interested in that.

I'm still young enough to have a 30 year mortgage paid off before I retire. But while Hubby is home with baby, and his student loan payments are being deferred, its not the right time to own a home for us. I hope, however, we are not destitute in our 80's simply because we couldn't (wouldn't) buy in 2009. We don't need to vilify home ownership all together - we need to just not look at our homes as piggy banks. While not everyone can or should own a home, as a nation we need to have healthy owner-occupied ratios that don't find people either over-extended (when the percentage of home owners was too high), or where the cost of living skyrockets (which we see in places where homes are unaffordable or the percentages go too low).

iVillage Member
Registered: 12-08-2008
Sun, 02-22-2009 - 6:21pm

>>Actually, at this point in my life, I'm worried about NOT owning a home. Like it or not, the concept of personal wealth and security is based, in large part, on homeownership.<<

A worry based on false pretenses is a waste of a worry! You make it sounds like because society has deemed homeownership to be the only way towards personal wealth that it should be your goal. Maybe this will help: I started saving for my retirement with my first job out of college. I put away a mere $50 a month. In that first year my income was approximately $13,000 and I saved $500. That $500 is working for me in a retirement account still today (26 years later). Over those 26 years I have put approximately $18,000 of my own money in this retirement account (most all in the beginning) because I was also a SAHM for quite some time thereafter.

My $18,000 was most recently worth $225,000 (prior to the market crashing in October). Now it's at $150,000. While not thrilled, I believe it will recover and will likely be more conservative with my investments in the future. I also have awhile to go before I'd ever had to touch these funds.

I also bought my first house several years after college but it wasn't a home to live in. It was a way of diversifying my portfolio. I paid $42,000 for this home which I still own. At the market's peak it would have sold for $150,00 and now is likely worth $120,000. I have probably spend about the same amount on this house over the years as I put into my retirement account. The loan of course was paid for by the rent. Even with the market crash the retirement account has put me further ahead.

A house simply is not the only way to create wealth. It's just a means of FORCED savings because most people don't save on their own either early enough of often enough.

>>Investors may love to argue till they are blue in the face that home ownership isn't for everyone, that people shouldn't own a property unless that prop is making them money (how do you do this in a home you inhabit??)<<

Homeownership is not for everyone. It's not for many people. They simply are not prepared to pay for that new roof or air conditioner when it's needed and end up turning to credit cards or other means of debt--bad debt--just to maintain their homes.

>>This concept works well for investors - the fewer homes that are owner occupied means that investors can swoop in and set prices, speculate, start bidding wars. But we've learned the hard way that having communities that are less than 50% owner-occupied, and having less than 10% of the population may be great for the guy who just bought 10 houses with nothing down, but cripples a community.<<

Investors who buy houses with nothing down are fools. They end up losing too as they also do not have the funds to maintain their "investment". I had to put in three new central heat/AC systems last year and a new roof this year already. One of my worst enemies are other landlords who do not care about their investments or who they put in them. I care about my investments and only rent to quality tenants who will add value to the neighborhood. You could never pick any of my houses out as rentals. There is a right way to be an investor and a wrong way. The right was is to care about your investment, treat the tenants as your customers and value the neighbors and neighborhood.

>>You talked earlier about having "skin in the game". Owner-occupied homes create that for communities.<<

So do non-owner-occupied homes. I have always paid cash or financed with nothing less than 20% down on any of my houses. I have far more "skin in the game" than most any young family who is living in an owner-occupied home.

>>Cities and states need YOUNG families who want to plant roots, young workers to fill the jobs of retirees and take entry-level positions. Creating a situation where people can own nothing but maybe a car (loses equity immediately) and depend on their employer's 401k plan as their primary source of longterm wealth hurts those generations. Turning homes into "property commodities" and convincing an entire generation of new workers that they either couldn't buy, or that they had to buy the hype, is part of how this bubble was created in the first place.<<

I disagree. Creating an environment whereby folks believe home ownership is the only way to growth their wealth has created this nightmare. My tenants live in quality homes that they can rent for far less than they could buy. This gives them excess funds to save for their retirements or for a future home purchase that they can make one day with an adequate down payment. And every single one of them was glad not to be paying for that new air conditioning system--and the lady who got the brand new refrigerator was very happy too!

>>One rule of thumb I have (since the housing boom started here in 1997) is I look at home prices in a particular area, and I add 10% a year to the selling price of the home. At an increase of 10% a year for 10 years, many home prices may have doubled but not tripled or quadrupled like they did here at 25-30% annual price increases. 6% is average, 10% is good, so I base it on 10%, giving the market the benefit of the doubt, and knowing that nothing significant changed in the area (like the Wyoming oil boom). If current prices are at or near my calculated price, then I know home is probably priced right. Less than that, and its probably undervalued, and more than that and I'm not interested.<<

Home prices historically have barely kept ahead of the inflation rate of about 3%. It is unrealistic to ever expect them to gain 10% in value per year. The home I've owned sine 1986 took 15 years just to double in value. The biggest spike was abnormal and occurred between 2001-2005 and has been dropping since.

>>We looked at one property that had great features, but would have probably taken between $25-$50k to make it house we loved. Again, not interested in that.<<

I have learned over the years to take the costs you estimate fixing up will be and pretty much double it. It always costs a lot more than you anticipate it will--unless you can do the work yourself. We can't.

>>I'm still young enough to have a 30 year mortgage paid off before I retire. But while Hubby is home with baby, and his student loan payments are being deferred, its not the right time to own a home for us. I hope, however, we are not destitute in our 80's simply because we couldn't (wouldn't) buy in 2009. We don't need to vilify home ownership all together - we need to just not look at our homes as piggy banks. While not everyone can or should own a home, as a nation we need to have healthy owner-occupied ratios that don't find people either over-extended (when the percentage of home owners was too high), or where the cost of living skyrockets (which we see in places where homes are unaffordable or the percentages go too low).<<

I think that was well-stated. You won't be destitute in your 80s unless you fail to plan. Quite honestly from hearing your thought process I don't find that to be very likely. You sound like you've given the situation a lot of thought and aren't about to make a foolish choice. Just don't let yourself be tricked into thinking that homeownership is the only way to create wealth. And go in thinking about how you'd carry those costs in the event you had a job loss or had to relocate and couldn't sell. You take a big risk when you buy something you can't rent out without losing.

iVillage Member
Registered: 01-06-2009
Mon, 02-23-2009 - 11:41am

(Most people do not live way beneath their means...do not have six months to a year of savings saved for emergencies before doing something idiotic like "buying a house they're trapped in" or having children or a variety of skills to fall back on.....wait until they've saved enough to buy a car, etc.....)


Kim

iVillage Member
Registered: 01-06-2009
Mon, 02-23-2009 - 11:46am

(I do have no sympathy for anyone buying homes costing hundreds of thousands of dollars. Not when there are so many less expensive options elsewhere.)


Kim

iVillage Member
Registered: 01-06-2009
Mon, 02-23-2009 - 11:55am

(No one was expecting home prices to drop as much as they have.

Kim

iVillage Member
Registered: 09-08-2006
Mon, 02-23-2009 - 12:33pm

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iVillage Member
Registered: 01-06-2009
Mon, 02-23-2009 - 12:40pm

(Do you not understand the times people are faced with now?

Kim

iVillage Member
Registered: 04-09-2007
Mon, 02-23-2009 - 1:04pm

It was isolated to 3% just a few months back.

iVillage Member
Registered: 09-08-2006
Mon, 02-23-2009 - 1:17pm

Really?


 

iVillage Member
Registered: 01-06-2009
Mon, 02-23-2009 - 2:10pm

(Then please explain why the world is having an economic meltdown and much of

Kim

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