{"id":19329,"date":"2012-03-12T09:00:32","date_gmt":"2012-03-12T16:00:32","guid":{"rendered":"http:\/\/seattlebubble.com\/blog\/?p=19329"},"modified":"2012-03-12T10:18:02","modified_gmt":"2012-03-12T17:18:02","slug":"has-investor-psychology-turned-against-home-buying","status":"publish","type":"post","link":"https:\/\/seattlebubble.com\/blog\/2012\/03\/12\/has-investor-psychology-turned-against-home-buying\/","title":{"rendered":"Has “Investor Psychology” Turned Against Home Buying?"},"content":{"rendered":"

Here’s a comment that was left recently by a reader<\/a> that is a good example of an outlook shared by many people who sat out the housing bubble and have been waiting for “the bottom” or something close to it:<\/p>\n

\"Time<\/a>Any top or bottom call needs to mention “investor” psychology since I believe psychology is the force driving prices above or below fundamental value. When the last few bulls give up real estate as an investment, and when the average person argues that renting is better than buying, we will be close to a bottom. We’re not quite there yet. You basically watch people and when almost everyone hates housing, you\u2019re close to a bottom.<\/p><\/blockquote>\n

I mostly agree with this. Just like the infamous June 13, 2005 Time Magazine “Home $weet Home” cover was a strong indicator that we were (nationally) near the top, a good sign that we may be at or near the bottom would be a widespread sentiment that buying a home is a sucker’s game and renting is the way to go.<\/p>\n

However, is it true that “we’re not quite there yet”? As evidence that maybe we are<\/em> there, I offer the following recent articles in fairly major news sources around the country:<\/p>\n

Reuters: New American Dream is renting to get rich<\/a><\/p>\n

Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, “100 percent of the time it was better to rent, rather than own.”<\/p>\n

That’s right: 100 percent.
\n…
\nSo while home ownership may sound glamorous, you need a lot of money to make it work, without much guarantee of positive returns in a post-bubble era.<\/p><\/blockquote>\n

Bloomberg: Why Renters Rule U.S. Housing Market<\/a> (part 2<\/a>, part 3<\/a>)<\/p>\n

\"Bloomberg:The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.
\n…
\nDespite the collapse in prices, homeownership is still expensive relative to rentals, even as apartment rental rates rise and vacancies decline.
\n…
\nThe consumer retrenchment and recession I foresee for this year will only add to the lack of affordability of owning houses and to the attractiveness of renting.<\/p><\/blockquote>\n

The Atlantic: The End of Ownership: Why Aren’t Young People Buying More Houses?<\/a><\/p>\n

Between 1980 and 2000, the share of late-twenty-somethings owning homes had declined from 43% to 38%.
\n…
\nThe decline in young home owners is a puzzling trend. Interest rates have steadily declined over the last 30 years. Mortgage lending has loosened. Women have ascended in the workplace and supplemented their spouse’s earnings. How in the face of all of these positive developments did home ownership among the young keep falling?
\n….
\nMaybe not. But if the last 30 years have taught us anything, it’s that planning for the future is an act of faith. Supply chains and software eat our jobs. Financial wizardry eats our savings. The cost of insuring against these risks — that is, both college and literal insurance — is rising. “It feels like anytime we hit around $20,000 something terrible or some unexpected thing happens,” Steve Kinney, a Brooklyn resident, told the New York Times last year. He’s part of a new renters society, and rental prices are rising now that housing prices aren’t.<\/p><\/blockquote>\n

The Atlantic ran a follow-up to their piece a few days later: ‘We Wish Like Hell We Had Never Bought’: Voices from the Housing Crisis<\/a><\/p>\n

On paper, at least, my wife and I are perfect home-owner candidates: Married, taxable income hovering around $100K, parents of 2 children, owners of 2 dogs. We both hold master’s degrees, she owns her own business, I work a unionized job. Our only debts are our mortgage, one car payment, and a loan from my father that carries no interest. Between that latter loan and an inheritance I received, we put down fully one-third of the cost on our 1,100 square-foot, three-bedroom home in San Jose, California.<\/p>\n

And we wish like hell we had never bought.<\/p>\n

We are tied to a place that is prohibitively expensive to live, requiring both of us to work instead of one parent staying home. Homes require constant upkeep and expense. Psychologically, young buyers like us fail to truly do the math on property taxes, homeowners insurance, flood insurance, earthquake insurance, plumbing, yardwork, general maintenance, drainage, so on and so forth. Young couples buy what we can afford, not what we will need: our home is too small now that we have added a second child.<\/p><\/blockquote>\n

So does the average person still think that buying a home is always the best decision, or has the tide of public opinion turned against buying? Personally, I think we have already swung just about 180\u00ba from the “Home $weet Home” era.<\/p>\n","protected":false},"excerpt":{"rendered":"

Here’s a comment that was left recently by a reader that is a good example of an outlook shared by many people who sat out the housing bubble and have been waiting for “the bottom” or something close to it: Any top or bottom call needs to mention “investor” psychology since I believe psychology is…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[206],"tags":[750,671,29,307],"coauthors":[],"class_list":["post-19329","post","type-post","status-publish","format-standard","hentry","category-features","tag-emotions","tag-market-cycle","tag-psychology","tag-real-estate-psychology"],"yoast_head":"\nHas "Investor Psychology" Turned Against Home Buying? 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