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James Surowiecki asks a question I have also asked (and that Dan Gross has long been pondering): What did the housing bubble give us? He reaches a conclusion similar to my own, though I picked on Las Vegas instead of Phoenix:
The housing bubble was unique, and uniquely awful. Each of the previous waves had come in response to a profound shift in the real economy. With the housing bubble, by contrast, there was no meaningful development in the real economy that could explain why homes were suddenly so much more attractive or valuable. The only thing that had changed, really, was that banks were flinging cheap money at would-be homeowners, essentially conjuring up profits out of nowhere. And while previous booms (at least, those of the twenties and the nineties) did end in tears, along the way they made the economy more productive and more innovative in a lasting way. That’s not true of the past decade. Banking grew bigger and more profitable. But all we got in exchange was acres of empty houses in Phoenix.
But wait: On her blog, Megan McArdle calls this analysis too full of “a sort of post-hoc, ergo propter hoc reasoning”—bloggin’ in Latin!—and that we still don’t know what the benefits of the housing bubble will be. Ezra Klein says that if we didn’t spend the money on housing, we probably would have wasted it on something else. And Ryan Avent adds levels of complication about exchange rates and global trade imbalances and deficit spending. I will not attempt to summarize.
All I can say is this: If one benefit of the bursting of the bubble was supposed to be reasonable prices for houses in places where people may actually want to live, then I'm not seeing it. Not yet anyway. And yes, we're still looking.
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Sorry for the long delay in posting. To answer the question many of you—OK, several of you—have been asking: No, we haven’t yet bought a house. We almost did. (This one, if you’re interested. And this one was also tempting.) And we’re getting closer. But we remain renters.
Part of the issue, obviously, is that we haven’t found a place we’ve both liked enough to want to spend most of our life savings on. But part of the issue is also, I admit, a lack of urgency (mostly on my part).
(On mine, too. I’m happy with our apartment, our neighbors, our friends here. I like apartment living—being able to leave our door open and run down the hall to feed our neighbor’s fish or have that very same neighbor watch Joe while I’m running home from work. So what if the people upstairs use their exercise machine at 9 p.m.?—Nora)
Note I did not say a lack of desire: We’d like a bigger place, and will need one, and it makes sense for us, at this point in our lives, to buy. We have a pretty good idea of what we want, both in terms of house and neighborhood. We have savings. We have loan approval. We have a lawn-care catalog.
So what are we waiting for, you ask. (And if you’re a realtor, you don’t so much ask as shout it.)
A few reasons. One, prices are continuing to fall, and I don’t think we’re hurting ourselves by waiting. (Though I don’t think we’ll wait until 2010, despite this forecast.) Two, as Nora said, we like our current neighborhood, and we certainly can’t afford to buy here. But we can enjoy the sidewalks. Three, and most important, we have to find a place that all of us feel comfortable in.
(Michael, you might as well fess up: By the time we get into this place, there will be four of us.—Nora)
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Nora and I did see a few houses last weekend, about which more later. In the meantime, here are a few odds and ends I have come across. I will try not to get too technical.
—Thought experiment: You have been saving for more than a decade to buy a house. When you finally start looking, however, even though you're in the midst of one of the greatest real estate busts ever, the housing market still seems ludicrous. In fact, in most cases it's still cheaper to rent. Meanwhile, the stock market has crashed and is at historic lows. Do you take the money you have been saving for a house and put it in the market? Keep looking for that house? Both? Or just buy an annuity from AIG? As usual, Felix Salmon's perspective is worth reading.
—Which leads to my second point: The price of a house is no reflection on its owner. It is simply a function of the market. I am surprised, as a first-time would-be homebuyer, at how emotional people get about the value of their house. (This is different from getting emotional about the house itself, which I completely understand, especially if you have lived in it for a long time.) It's a piece of property. It may not be worth as much as you would like it to be. That's OK. Most of your other possessions aren't, either. I know, I'm a buyer, I would say that. But really, it shouldn't be this hard for a real estate agent to tell his client that his "mid $300,000 range condo" is worth about $60,000 less than he thinks.
—I know you were joking, Nora—weren't you?—when you suggested we move a house from Washington to Pittsburgh, where it would be cheaper. But maybe you're on to something: Deborah Sarnoff and Robert Gotkin just moved a house, designed by Robert Venturi, no less, from the Jersey Shore to Long Island. And they only paid $1 for it. (Moving, of course, was extra.)
If anyone has a house they'd like to sell us for $1, even from an unknown architect, leave a note in comments, and we'll get back to you.
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Nora, maybe we've been going about this all wrong. We're focused on this binary buy vs. rent decision, consulting complicated interactive charts and calculating the difference between monthly payments, when there is a third option: swapping.
Yes, swapping. It's not just for vacation homes anymore! We could move to Seattle. Or Houston. Or even near Disney World.
Apparently this kind of swapping is becoming more common. (Actually, the story doesn't say whether it's becoming more common. But it's good copy!) The one catch, of course, is that we don't own anything. But I have a plan.
What we can do is buy a nice, spacious house in, say, Tampa or Phoenix—beach or desert? So long as it's a place where the market is at rock bottom—and then swap that for a similar-size place here. Or maybe we can do one of those player-to-be-named-later trades, except it's a house-to-be-named-later swap, and the house we get is the equivalent of David Ortiz and the one we name later is like Doug Mirabelli, both of whom were involved in player-to-be-named-later trades and both of whom played for the Red Sox, although they were not the players eventually named and one of the trades did not involve the Red Sox. The key would be to get a good house now and convince the buyer that the house we intend to swap later is a positive influence in the clubhouse, I mean neighborhood, and can come through in the clutch, even if it doesn't look great on paper.
Still, I'm sure you see where I'm going here. How complicated can this be?
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Our dig for that elusive bargain continues, with a curious twist: We've recently come across a nice home in a desirable area that's being offered for sale and for rent at prices that seem at odds with each other.
If we were to buy this house—which, I might add, has minimal green space and a third bedroom in the basement—we'd be working with an asking price of $850,000. That price seems exorbitant, especially considering that comparable sales in the area are about $100,000 lower. But maybe the sellers are betting on their location, which is in a good school district and just a few blocks from the Metro.
Why, then, are they also offering the house for a much lower—if still out of reach for us—rent of $3,250 per month? Let's say we bought the house with a 20 percent down payment and a 30-year mortgage at 6 percent. Our mortgage payments would be $4,077 per month. It doesn't make much sense to buy. A 5 percent interest rate would bring our monthly payments to $3,650. Closer, but that's still $4,800 per year more than renting—and doesn't count things like insurance, property taxes, etc.
Or look at it this way: Let's say our monthly payment is $3,200—but we don't rent, we own. At 5 percent, that means we could get a loan for $596,000. With that loan, and adding our 20 percent down payment, that leaves a final purchase price of ... $745,000! Which is more than $100,000 less than the sale price of the house. (Changing the interest rate on the loan to 6 percent works out to a price of $667,500.) Another house we had our eye on recently came with a similar dissonant price tag: $688,000 for sale or $2,800 per month for rent. It was rented. (To finance 80 percent of that house at 5 percent, your monthly mortgage would be $2,954.)
I know, all of you homeowners are going to tell us about all of the tax benefits we would get from ownership, not to mention what a wonderful investment this property would be. But do you really think we'd be able to sell it in 10 years for more than the equivalent of $850,000? We'd rather pay rent and invest in something more stable—like, say, newspaper companies.