Is homeownership an attractive option these days?

Eric Ringham October 25, 2011, 5:00 AM Oct 25, 2011

President Obama is announcing new measures to help people whose homes are underwater qualify for refinancing and a lower monthly payment. More than one in five American homes with mortgages are underwater – that is, their owners owe more than the homes are worth. Today’s Question: Is homeownership an attractive option these days?

About the blogger

Eric Ringham

eringham@mpr.org

Galen

We have never owned a home and we’ve been considering buying but owning a home feels really scary right now. It seems like with prices low it’s probably a good time to buy but there are so many unknowns (like unexpected repairs or a decrease in home value) that I’m not sure we’re prepared for.

Jim

I bought a house in Minneapolis 9 years ago, but the continuous need for basic maintenance and loss of market value made the place feel like a trap. I’m now a renter with no plans to buy another home in the foreseeable future, if ever!

Kathy

I’m a homeowner, and I have to say, I’m none too thrilled to be one right now. We’re under water, but are current on our mortgage payments, but President Obama’s plan doesn’t affect us because we have a private mortgage.

We never bought our home to be an investment, but we certainly didn’t want it to be locked into it forever either. But we are locked into it and will not get out of it any time soon.

GaryF

Bought my home 19 years ago and I am so glad I didn’t buy a bigger home 6-7 years ago like I wanted to.

1. Prices are never going to be lower.

2. Once the economy recovers, because we have printed so much money and borrowed so much from China, we are going to see some nasty inflation. So interest rates will rise.

Buy if you can.

Tim

No. It’s cheaper to rent than own. Not until the housing overhang and foreclosures work there way through the market. I would not touch housing for at least five years. It will take that long before we see the bottom in real estate prices.

Wade

My current home is the 3rd home I’ve owned in the last 10 years of adulthood. Plus I’ve got a rental.

If you do it right and get lucky home ownership is a breeze. I’ve always bought deals, fixed them up and sold high. That’s allowed me to take my time, shop smart and not overpay.

Plus with interest rates being so extremely low. We were just able to refi our mortgage and get a 15 year mortgage for less than what our 30 year was. We shaved 13 years off the life of the loan and pay less per month. Can’t beat that.

With the baby on the way, we figure we’ll stick it out in this house for 10-15 years. It’ll be paid off somewhere in that time. Then we have all the freedom we want to do what we please. Plus because I shopped and negotiated smart, this house actually appreciated a couple thousand in the last 3 years.

Sure doing your own maintenance is a pain in the butt. I’d rather be on the river fishing than mowing my lawn.

Considering banks are all but giving money away right now it’s silly not to refi or buy a home if you can afford it.

Carolyn

In Duluth it is cheaper to own rather than rent a similar quality home. My husband and I just moved to the area and with interest rates so low we’ve decided to make the plunge and buy. We move next week and couldn’t be more excited! We’ve been saving for years so the low rates weren’t the main thing that encouraged us to buy but they certainly didn’t hurt.

Sara

We own, but out of curiosity I checked into rental prices for a comparable house. The rent would be as much or more than our mortgage, and we would have nothing to show for our money at the end of our lease. Since we are staying put for the foreseeable future owning just makes more sense for us.

My grandparents never bought anything they couldn’t pay for with cash. They always rented, and they always lived in the most amazing old apartments with high ceilings, beautiful woodwork and tons of character. Places like that were a lot easier to find 40 or 50 years ago.

Emery

It’s that mentality – house is an investment – not as a place to live that gave us the bubble. Not as an item that can be paid off so one can live “rent free”. Not as an item that one can earn interest on their money if they make additional payments on the mortgage.

People now will buy houses because they want to live in them, without the delusion of obtaining both a current piggy bank and a pot of gold at the end of the rainbow.

Charlie

I agree with Galen – when you are a renter, you don’t have to worry about a lot of the things that homeowners get nickle and dimed with. There are so many other bills besides the mortgage payment, and it’s hard to justify moving into somewhere that may or may not be cheaper than rent, but in the long run, is more costly – and still view it as an “investment”, rather than just a money pit.

david

I bought my house in 2006. Pretty much at the peak of the bubble. Biggest mistake I ever made. I’ve lost between 47-53% of the value. If the value doesn’t change it’ll be more than 10 years before I’m no longer underwater.

My reason for buying was to have it paid off by the time I retire, and was very tired of apartments and moving all the time. I was able to refinance a couple months ago so now at least my payment is a little less then renting an identical house, so I feel a lot better about it now.

Kari

Honestly, even if I wanted to I don’t think I could buy a house right now. Because I put myself through undergrad and am just finishing my Master’s- I don’t think it would be smart at all to buy with all that student loan debt. I know quite a few people from college who did just that and are now trying to sell their homes. I know I took on the large amount of debt (since this question isn’t about student loans/college tuition prices, we’ll save that tangent) so I feel I should pay it down before I think about buying. Owning a home is a big responsibility- you have to take care of a lot more than if you rent. When you’re just graduating it just doesn’t seem like the right time- focus on getting a good job and setting a good base. The houses will still be around when you’re ready.

Craig

Build to replace is the current paradigm in construction. Many homes built in the last twenty years age poorly; a prospective owner should consider the unpleasant possibility of a knock-down sale at the end of their ownership when considering the purchase price.

Nicole

It is but I still don’t have any money for a down payment so I know I am missing out on the low prices and interest.

Steve the Cynic

Attractive? Lots of things are attractive that aren’t really good. Getting high all the time is attractive, but it won’t increase your long-term happiness. Owning things is attractive, too, but it doesn’t necessarily improve one’s well-being.

Philip

You know what’s attractive? Grabbing my dog and gun and moving up to the Northwest Territories of Canada away from “civilization.”

Rich in Duluth

Yes, if you’re thoughtful about it and consider it your home.

Buying a home is a big responsibility and a commitment. The buyer should be realistic about his ability to pay, have a budget and know how to stick to it, understand the terms of the loan and how the payments fit into that budget now an in the future. Also, houses have to be maintained. Can you do it yourself or hire out the work. Does that fit in your budget? Are you young and going to have kids? Budget, budget…

People who are “underwater” have a responsibility to the rest of us, who share this economy, to stay in the home and keep making the payments. Otherwise, whether it’s through government guarantees or bailouts or through higher bank fees, we all pay for those homes.

suestuben

I’m a baby boomer so the idea of being a homeowner is deeply ingrained in me. I raised my kids in a wonderful home in Fridley for 20 years. Then I sold it to buy an older home in 2003. I then became chronically ill and had to go on disability and found myself ‘trapped’ in this home due to the recession. I now have almost no income, have constant medical bills, and am rapidly spending down by retirement savings. I’ve tried to sell this house twice but cannot get enough to cover the mortgage. I live in fear of surviving my retirement porfolio and becoming a burden to my children.

Still, I would love to see my son buy a home in this low-cost market. I think a younger person could buy a fixer-upper for next to nothing, do a basic remodel, and sell for a $20-40K profit. I believe that home-ownership is a key step on the ladder to upward mobility and now is a wonderful time to jump in. Buy a cheap house and spruce it up, sell it and buy something more to your liking. The market is poised to improve in the next 5 years so it would be difficult to lose money on the deal.

megseeds

My husband and I will close on our first home at the end of the week. After enduring a dozen rental leases, we look forward to embracing all parts of home ownership, from the asset to the additional responsibility. We feel fortunate to be able to buy at a time when prices and mortgage rates are low but look at this combination as a way to save additional money on our purchase rather than to buy a larger house or try to flip a foreclosure (we don’t have those skills!). We decided we’d be foolish to purchase anything we couldn’t physically and financially stay in for a minimum of 10 years. Sure, prices will eventually bottom out, but I doubt the next phase of the market will again encourage frequent move-ups by folks jumping into ever-larger homes every 5 to 7 years (and hope it doesn’t). Our new house will provide us with options to expand if we want to, but sufficient space to live a small-sized life as long as we need to. And, if an unforeseen event were to require us to uproot, we won’t have positioned ourselves to quickly be in the deep-end of the mortgage pool.

Bill

My wife and I earn above the Median Income in the Twin Cities (according to Wikipedia http://en.wikipedia.org/wiki/Household_income_in_the_United_States ) and we bought a smaller 1950s rambler in St Paul, which we feel has been a constant battle of upkeep. We got a good price for the home compared to the other 20+ homes that we looked at and couldn’t imagine what may be involved with one of those junk piles, but we feel against the ropes with this house and it has really eaten into our lifestyle. We knew going in that the mortgage would be roughly 60% higher than our rental payments, but other costs are constantly on the horizon. My parents recently remortgaged their home to have their roof re-shingled and that seems outrageous; our own upcoming expenses, more than just a new roof, will require a remortgage or a loan. We were just talking that had we stayed renters, we would have thousands of dollars to life a fun, full life now rather than the American concept of ‘building equity’ for our older years.
kimMN

Home ownership also gives a mortgage interest deduction to offset one’s federal income tax but this Obama new plan for lowering mortgage payments for the solvent owners makes no sense.

Then again, did his plan for spending stimulus money create situations for lasting American jobs as he promised it would? Nope_

They just spent $7 million of stimulus money on the Oregon Forestry plan..and it created jobs for 247 workers, but_ all of 247 jobs went to foreigners! No different than the stimulus money used for bailing out his friends at GE; created a thousand new jobs for China, but not jobs for Americans that we paid for anyway.

It seems that any jobs plan or housing plan approved by Obama has absolutely no transparency of how and where the money goes at the time it is set. Should we assume his new ” Help home ownership” plan is any different from the failed HARP program?

Saving a few hundred a month for the solvent home owner really costs who to subsidize that money? Is is from the Renters with income to be taxed? Does it also benefit his large campaign contributors such as the Wall Street banks just as he took from them in 2008?

If he really wanted to create jobs and not pay back his supporters, then we would see stimulus money for real conditions, NOT going for maintaining the high union pensions. Michigan lost police officers because their Union leaders wouldn’t settle for a lesser pension system..union leaders would rather see fewer cops on the street than lose their status with 6 figure incomes to manipulate union workers. I know some won’t want to hear that but it is a fact..check the Michigan protective service workers discussions and agreements signed. so sad.

At this current rate of government waste and excess spending by the government, our taxes will continue to climb and that has to be considered when buying a home. Had the government’s liberal based Community Reinvestment Act never been made, then banks would not have made such bad no interest loans, credit default swaps would not exist and the banking mortgage bubble would not have occurred. More government interference using the “social justice” ideology only creates more distress for all, sooner or later. If the government would abide by the Constitution, we wouldn’t have these crisis’ they create by circumventing or embellishing their power…in Obama’s words today, ” We can’t wait for Congress..” spoken like a pure dictator. No wonder the polls show so many Independents have fled from his ranks in the past years.
Kurt

We bought a crap house in a nice neighbornood about 15 years ago because thats what we could afford. Spent a lot of evenings fixing it up. Even with the decline in home values it is worth considerably more than what we paid. Now it can hold its own with the other houses in the neighborhood. It was the best financial decision we’ve made. If you have the means to buy, and can fix a place up yourself (or a decent share of it) I should think this would be a great time to buy.
Chris

I think, if you’re smart about it, understand the potential costs involved, and plan on staying put long enough, home ownership is still a very attractive option. But one has to understand the situation/arrangement into which they are entering. Personal budgeting and responsibility are key to home ownership.
T

Boy, you step a way for a few days and this place falls apart (Question of the Day). Might I suggest MPR either moderate to keep on topic or shut this down. Scrolling through the last week or so of questions is a joke on civility, insight, and focus.

Until this page improves, I’m out of here.
Jason

In comparison to the past, maybe not. This is such a turnaround from the traditional ideal of the American dream. I grew up with the given that owning a home was the ultimate goal in stability and independent living. Now for some it is looking like a trap and a possible waste of money.

What worries me is how this is tied to the whole economy. If in order to find work one must stay mobile, then the concept of home ownership (ie putting down roots) becomes less sensible. While driven by simple economic reality, I don’t think this country was meant to be a constantly shifting mass of vagabonds.

Then again, we’ll find a way. This is a bad time to own for only some people. But if you have a good, steady income for the long term and have as I did a passion to own, then the time couldn’t be better for you. In 10-20 years we’ll all be saying: Can you believe how cheap a home was, and that interest rates were only 4%?
Occupy Home

Home is where the heartmind is, occupy that.