bostonbubble.com

[renterstill]

Do you guys who rent the place and are of age that you should rightly own get this question? "why don't you buy?" followed by the whole list of arguments for buying vs. renting? I do, a lot, from family, friends and everybody and their brother. I feel like I have to explain myself in front of people I barely know.
Yes, it makes me feel like a pauper and a second-class citizen at times (being an immigrant doesn't help matters either). I will print and carry this article and distribute to those asking me one more time "why don't you wanna buy?" Some probably figured I have not a penny to my name seeing me driving an ancient, beat up car, which I happen to love, brown-bagging my lunch, borrowing books from the library for our bookclub instead of buying etc. etc. Frankly, it empowers me knowing that we have accumulated sizable liquids, that the interest on our savings pays 35% of our monthly rent, but they do not know that.
Perphaps, that's a woman's thing that comes with a nesting syndrome, my Yankee husband, raised in a priviliged family, is completetly immune to such remarks.

Just wanted to vent, as I have heard it again this am and got me irritated. Wanted to ask back "and how much money do you have in your account?"
Where is that psychology forum?

http://messymatters.com/2009/06/01/buyrent/?ref=patrick.net

[john p]

I would see it as a rite of passage.

Once someone gets married they enter a whole set of experiences, they typically aren't out with the single crowd anymore chasing or getting chased. When someone asks "When are you going to get married", sometimes it's that they like you and want to share the same sets of experience with you. I don't see this as them wanting to rush you, but that they are most likely happy and want you to be in that happy place with them as well.

Once someone gets kids they enter a whole new set of experiences and the lifestyle totally changes. Same deal, people ask you "When are you going to have kids?" The people who typically say it are those that have kids and love it and want you to experience that joy.

As far as owning a house, people most likely are in that chapter of their life and most likely they want to talk about how much should you pay for a painter and what type of fertilizer do you use or did you rake the leaves and how bad it sucks that your neighbors leaves blew on your yard. This whole set of experience isn't shared if you rent and it is subject matter that isn't shared. It's no big deal, you can just talk about something else. I think people's first reaction when they hear that someone is renting is that people see them with a great opportunity to buy with low rates and cheaper prices. Moreover, people renting don't have the risk that homeowners have so people might be happy that you don't have to deal with the same set of concerns they have. Imagine stressing about your job and your roof or furnace goes and say we get a bad winter with oil prices? It is a safer bet to be renting right now.

[mpr]

As an immigrant, I also found the obsession with home ownership in the
US very peculiar, because there is obviously a moral component to it.
Being a "homeowner" versus a "renter" is regarded as a reflection on one's
character. Obviously I thought it was ridiculous, and the day I closed on
my place I joked to my girlfriend that I wasn't sure that my character
would be up to it at the closing.

A true story: a janitor in our building was complaing his wife had run off
with another man. Sneering, he said "he's a renter".
That was apparently the worst thing he could think of.

I wouldn't let it worry you.

[john p]

That is sort of an old school mentality.

To give you some insight on the regionality of that viewpoint, it kind of goes along with this:

You have exclusive "bedroom communities" like Lincoln, mixed city/suburb places like say Arlington, former industrial centers like Brockton and Lynn, and Boston. The more "exclusive", the more they tried to exclude. Thirty, forty years ago, places used to actually fight having commuter rail or MBTA stops in their town because they didn't want the "rift raft" or "city urchins" coming into their peaceful community. Places used to rewrite their zoning to exclude dense development and then they came out with Chapt. 40B which was originally called "Anti-Snob Zoning". It has since morphed into terrible policy, but originally it countered the prevailing snob mentality. Why do you think that people fought the Greenbush extension to the white collar suburbs on the South Shore?

Renters were also considered "fly-by nights", people say that the transient nature in areas of Florida is a turn-off because if someone comes in to say lay tile in your home, you want some sense that the person is rooted there and won't be a gypsy and screw after they do a bad job and rip you off. People sometimes run from a bad reputation and relocate and others speculate as to why someone wouldn't want to live around their loved ones in the area they grew up. Most people assume immigrants are here for a better opportunity. I heard a story that someone told me back in the mid 80's about a sign in this poor area that said "Lowell Massachusetts has the best welfare program in the US". So, many speculate as to why someone comes here, whether it is to come to work hard in a meritocracy or to come and be a parasite. Let people speculate, there are so many cool people out there you just don't have time to get through to meet a tiny percentage of them, so just don't waste any of your time worry about what an idiot thinks.

The other thing is that sometimes people have emotional defense mechanisms. Basically, if people think someone is in a place temporarily, they fear getting too attached. If they get a sense that they are "all in" and invested in a place, as home ownership suggests, people feel that they have more at stake and have more of a vested interest in the fate of a place. I've worked with people that give the impression that they were just there for a short period, and many times people don't give them opportunities and invest in them. The flip side is that some people are afraid of local competition and often times bring in foreign people as opposed to creating local competition that will remain in their region.

[Boston ITer]

[WestCoastXPlant]

LOL, try having kids -- that question gets asked twice as often...Maybe it's more obvious you ARE of age when you "should" own.

What's funny is that I myself seem to be falling into this US mentality. My spouse and I had the following conversation:

S: "I was talking to the Johnsons today and it turns out they rent too. They're looking for a bigger place because they have guests for months at a time".

Me: "They rent? That's odd, they seem to be in their 40s and with the kids...But anyway, we should ask them when they're moving cause their house is awesome -- it would be nice to take over their lease"

S: " Yeah right, have you seen their cars? They both drive BMWs, that place has got to be expensive"

Me: "Why the heck do they rent then?"

Yes, I am ashamed of myself Now I'm thinking maybe we should continue renting and buy a BMW or two

[renterstill]

We do have a kid approaching kindergarten age, and I often feel like a negligent parent for not providing a "stable" environment. Being raised Catholic my middle name is "guilt" . My MIL is especially good at it with he "I wish you....."

Last year when we were moving to a SFH in one of those "immune towns" on a small street we were told that the neighbors got really concerned that there would be renters moving in. Well, you don't see a BMW in my driveway. Beware!!!!

I never felt a particular inner pressure to own if I dissociate myself from the society, but when all of your friends from the graduate school, get married, etc. etc. and then there follows kids parties, and barbacues and other cook-outs you want to reciprocate. They show us their new kitchens in their new homes that they all bought during the bubble, and we show them our new, dated rental unit..... which we call home. This does not always feel right.
We probably have more family time instead

johnp, bostonITer - interesting perspective.

[john p]

My mother was the travel agent of guilt trips.

If your friends are "showing off" their material possessions, I would look for new friends. If you are manufacturing the impression of "showing off", you should try to purge that mischaracterization that guilt has framed and enjoy your friends for what they really are.

Part of the nesting instinct isn't just having a nest, but building a nest in a safe environment, and the economy is pretty turbulent right now and not being in a house during this storm is a good thing.

Being civilized and understanding when that little voice is just an instinct is what separates ourselves from New York Yankee's fans.

[john p]

Red Sox's vs. Yankee's this week, it's on like Donkey Kong!

[balor123]

I hope my children get a sense of humbleness from growing up in, albeit nice, rental units. We seem to be attracted to settling down in one place but there are definite disadvantages to this and I hope that when my children to settle down it will feel like a luxury to them rather than satisfying a need. Or I could just be rationalizing an undesirable thing

[balor123]

I don't know if you all saw this OFHEO report in the comments. It's a little dated (3rd quarter 2007) but it has an interesting chart (p19) showing house appreciation since 1980. Guess who tops the list? Looks like prices appreciated 6.9%/yr in that time frame. Browsing the web for a while, I was able to find out that the per capita income in MA in 1980 was $22,006 and in 2007 it was $53,749, or 3.4%. This is not a measure of affordability of course as interest rates declined during this time. In 1980 the average 30-year rate was 13.77% and in 2007 it was 6.32% so as a percentage of income housing rose 31%. In other words, of the 604% increase in home price during that time, 460% can be attributed to the increase in income, 44% to increasing debt, and 100% due to the drop in interest rates. In nominal terms, price of housing in 2007 would have to drop 17% to be just as unaffordable as it was in 1980. Case Shiller shows that we're almost there but futures show that we won't reach that point again through 2013 maxing out at about 15%. If futures are right, then looks like we'll be stuck with at least some bubble pricing for the forguessable future.

[balor123]

That 17% analysis assumed interest rates stay at 2007 levels of 6.32% by the way so if you bought a house when interest rates were at 4.75% then you would gotten a 16% discount, still not quite 17%.

By snapshotting only 1980 and 2007 I've ignored a lot of the detail in between. Incomes really rose in the mid-80s and late 90s so people who bought in those times likely got the best deals. Of course, as you all know by now, IMO Boston wasn't a good deal in 1980 and it isn't a good deal today. Maybe I would have a different opinion in one of the better periods but I've wasted enough time digging up figures

[GenXer]

This analysis assumes that house prices project 'annualized' increases on par with inflation. This is not the case in reality. Price moves follow a power law (I've done the analysis for the Case Shiller index). The cumulative distribution function is in the form C*X^(-alpha), where alpha is estimated to be about 3. This is right on the border where variance of this distribution is close to infinity (or is undefined). Hence, it is possible to get WILD deviations from the 'mean'. Interest rates and some other variables also seem to behave as power laws (a bit more tame, it seems, but I need to do more analysis).

Here's what we know. Many of the economic variables (i.e. the ones which are not fixed or controlled to behave 'nicely') follow power laws. Finding relationships between these varialbles is very tricky and should not be attempted without a good toolbox of statistical tools (and a clear head). You better believe it that it is IMPOSSIBLE to predict a variable dictated by a power law! Hence, futures are useless to predict anything.

The highest deviation I see in the housing data is 4.375 sigma, where sigma (standard deviation) is calculated from the data. The probability to have values >= 4.375 sigma is 6*10^-6 if your data is normally distributed. It is 0.0086 given the Case Schiller data. Thus, you are 3 orders of magnitude more likely to see a deviation of 4.375 sigma than a normal distribution would suggest. In other words, if you do a Monte Carlo simulation with the abovementioned power law and not the normal distribution, you would get much higher deviations the longer into the future you will try to 'predict', leading to extremely unstable results the futher out in time you try to carry your analysis.

[john p]

Baylor, that post was awesome, and Gen X-er, you're just way to freaking smart, I wish I understood the mathematical mechanics like you.

Anyway, I think the way Baylor compared 1980 to now was very good analysis.

Two other points I'd add are that one: you compared per capita income, we know that there is a much higher percentage of women working now so dual incomes is becoming the norm, and women are making a lot more than in 1980 (remember the movie Tootsie?). In fact, aren't fewer women unemployed than men right now?

Second, Massachusetts is a much different State today than in 1980. Massachusetts was a gritty, working class State that was suffering from a combination of three things, first, capitalism with respect to manufacturing had migrated due to Unions, and cheaper labor down South (which has now migrated overseas). Second, the culture of the families in these depressed areas were still accustomed to having large families, so you'd see a family in South Boston or Lynn having seven, eight kids when jobs were leaving Massachusetts. Third, people were neglecting properties because there were nice towns and bad towns. If someone came into wealth, they'd move to a nicer community versus invest anything in a home in a bad area. This made the housing stock fatigue because people weren't maintaining the properties. Rent control and government protection of deadbeats made rental units unattractive so we didn't build more units. Snob zoning limited growth/supply in suburbs. Boston becoming a college town increased demand on rental units, and the higher educated population led us to becoming more of a white collar area and we started to pump a lot of wealth from other areas of the world.

Lots of people seem to think that the party is over in Boston and areas like Texas and Virginia are entering that sweet spot where you have a low cost of living and a growing educated workforce.

These two points, the dual income, and the change for Massachusetts from blue collar to white collar are contributing factors to the analysis.

Thanks, again, great post.

[Boston ITer]