Tag Archives: Home ownership

Rent vs. Buy Analysis for Home Owners

A Story in the Wall Street Journal illustrates the recent decline of home ownership

I came across an interesting story about a major demographic shift among home owners and home builders in the USA recently. The article was written by Yahoo Economics Editor Daniel Gross, The story appeared in the May 5-6, 2012 edition of the Wall Street Journal.

Mr. Gross notes that single family new home starts have dropped from over 1.1 million in 2007 to just a bit over 400,000 in 2011. He also reports that home ownership has dropped from 69% in 2006 to 65.4% today. Mr. Gross points out that, according to Moody’s, in 72% of metropolitan areas, it was cheaper to rent than to own, up from 54% a decade ago. In 2011, single-family housing starts fell 9% from the year before, starts of structures with five or more units were up 60%. In the first quarter of 2012, starts of multifamily housing structures were up another 27%, while single family starts were up only 16.7%.

Mr. Gross also points out that builders increasingly intend to rent out what they build. In 2007, only 62% of the housing units in buildings with two or more units were built for rental. In 2009, 84%of the units in such buildings were built for rental. In 2011, 91% of the units in such structures were aimed at the rental market.

Many of you with whom I have met have heard me recently speak of a shift towards renting. Mr. Gross echoes some of my thoughts on this point in his story.

We all know that life is about change. For example, your job may disappear, you may need to relocate if your company pulls out of the area and offers you a relocation, you may need to travel to another part of the country to help a child raise a sick or needy grandchild, you may need to relocate to take care of the affairs of an aging relative, some parts of the country may recover economically faster than where you are currently living, potentially offering you greater opportunities somewhere else.

If you feel the need for some flexibility in your living, employment, and relocation opportunities, then you may consider renting for a while. In most areas, housing prices are not increasing. Taking a break from home ownership to rent and to put your financial house in order might not be economically harmful. Renting might be a prudent choice in some cases.

If you need to get out of your underwater house, your underwater mortgage, or you want to discuss your rent vs. buy analysis and how the decision may be affected by your bankruptcy filing, please, give us a call at 253-383-1001. We are here to help.

Underwater in your house? The pros and costs of “walking away,” known as “strategic default,” as a financial planning tool in Washington

A recent New York Times Article, “No Help In Sight, More Homeowners Walk Away”, published February 2, 2010, suggested that more homeowners than any time in recent history are electing to walk away from real estate that has no equity, or more often, negative equity.

The article, suggests that the psychological threshold is often 75%, meaning that when the value of the house falls below 75% of the amount owed on the house, homeowners quickly decide to walk away. At this point, it becomes much easier to overcome any emotional attachment to the home, and much more difficult to rationalize that the home may eventually go up in value.

Homeowners are faced with the difficult decision of continuing to flush money down the toilet for an estimated 10-40 years waiting for the market to recover to the point that the homeowner breaks even, or walking away from the property and renting for much less while they rebuild their credit.

The article, published nationally, did not include the consideration relevant to Washington, that in many cases anti-deficiency laws protect the homeowner as to the first mortgage, which precludes the first position mortgage company from seeking to collect the deficiency. However, the problem is that when there are second and third position mortgages, the anti-deficiency laws in Washington may not protect the homeowner “walking away” from the house for a deficiency claim from the second and/or third mortgage holders after the first mortgage holder forecloses out the interests of the second and third mortgage holders, leaving the second and third mortgage holders unsatisfied and still owed some or all of their debt. Even when the anti-deficiency laws do not apply such as to the second and third position mortgage holders, the homeowner can file for bankruptcy and have any deficiency or potential deficiency discharged along with credit card debt, medical debt, repossessed car deficiency debts, and other unsecured debts.

The article estimated that 4.5 million homeowners had home values that were at or less than 75% of the value of the home, and it was projected to climb to 5.1 million by the middle of this year. In other words, 10 percent of all homeowners would have homes valued at or less than 75% of the amount owed on the mortgage or mortgages.

If you find yourself in a situation where you are under “house arrest” because you are unable to sell your house for what is owed, please contact our office to discuss your options, including bankruptcy, and determine a strategy to get you back on your feet. Special thanks to Phoenix attorney J. Tyler Martin for much of the drafting and analysis used in this post.