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The new breed of perma-renters

Joint Center for Housing Studies at Harvard University.

TEXT OF STORY

TESS VIGELAND: What if you didn't have to deal with the FHA at all? Or mortgage brokers? Or hiring a plumber to fix the faucet? Well, that would make you a renter. Home ownership used to be a given for, you know, grownups. But the down economy has spawned a new breed of financially mature specimens, the perma-renter.

Marketplace's Stacey Vanek-Smith has more.


Stacey Vanek-Smith: Milan Mashanovitch and his wife Rebecca Eggeman live in a three-bedroom house in Santa Barbara. They can see the ocean from their backyard.

Milan Mashanovitch: So here we have a couple of fruit trees, and then on the other side, you can see the Channel Islands.

Milan and Rebecca both have graduate degrees, high-paying jobs, excellent credit, a new baby -- and absolutely no plans to buy a house.

Rebecca Eggeman: I kind of got the impression that people felt sorry for us because we were renting. I'd say, "We're moving," and the response would be, "Did you buy a house?" You know? And I'd be like "Well, no, we're still renting."

Still renting. In a culture obsessed with home ownership, still renting makes Milan and Rebecca feel like social outcasts.

Mashanovitch: It has to make financial sense. I mean, look, we're not in some weird sect.

If they sound a little defensive, they have reason to be, says Nicolas Retsinas. He heads up the Joint Center for Housing Studies at Harvard University.

Nicolas Retsinas: Rent could be, not to be too glib, but really was a four-letter word. That, you must be dumb if you're still renting, you must be too poor. It was like, well if you did everything right, and you were smart and you worked hard, you should be an owner.

Milan and Rebecca have done all the math, and say it doesn't make sense for them to buy right now. And when I say they've done all the math, I mean, they've done all the math.

Mashanovitch: The median income for Santa Barbara is around $77,000 a year.

Eggeman: You shouldn't buy a house more than three times your annual income, with a 20 percent down payment.

Even though the numbers are on their side, even though they avoided the housing bust that stung many of their friends, and even though they did so much homework, they saw the crash coming and got their money out of the market before it tanked. Milan and Rebecca still sought out an online support group of die hard renters on sites like Dr. Housing Bubble.

Mashanovitch: One day I remember, I did a search, "housing bubble," and I realized I'm not crazy. I'm not alone. There are other people who see it.

Eggeman: It's like this underground, people in the same position that we were that just were questioning all the economists, people on Wall Street, the media, the spin.

People not swayed by government incentives and tax breaks that favor owning.

Personal finance expert Jordan Goodman says there are real financial advantages to renting.

Jordan Goodman: You're not subject to property tax increases. You also are more mobile, since you're not stuck in a home you can't sell. In many cases, rents are lower than what you'd have to pay for the combination of mortgage costs and maintenance.

And Goodman says, couples who rent can invest that extra money, instead of sinking it into a house that may go down in value. A quarter of homes in the U.S. are currently underwater; that number is expected to jump to nearly half this year.

Still that didn't deter new home owner, Matthew Bickell.

Matthew Bickell: I look at buying versus renting probably like 80 percent non-financial.

Matthew Bickell works in finance. He and his wife, Kim, just bought a house in Los Angeles. Like Milan and Rebecca, Matthew and Kim are in their mid-thirties, have high-paying jobs and a young child. But Matthew says even though this is the biggest purchase they've ever made, and he thinks housing prices still have a ways to fall, it wasn't about the money.

Bickell: It's the whole home aspect versus house or versus, I want to have an appreciating asset. It's the place to hang your hat, all those kind of silly old sayings. You call it yours, and there's a peace of mind that comes with that.

Kim Bickell, to daughter: Brigitte, do you want to go climb a tree?

Kim: I've already thought about how I'm going to decorate it and change it so that it'll be a nice place for her, and for us as a family and for me it was all about that and not at all about a financial investment.

That version of the American dream is changing as loans become harder to get and foreclosures continue to mount. The number of households that own in the U.S. is expected to drop from more than two-thirds to around half.

Eggeman: Last night, we saw the sunset over here. It was beautiful.

Milan and Rebecca stroll through an oceanside park just down the street from their house. They come here with their son almost every day.

Eggeman: It just makes so much more sense to rent, and to enjoy the lifestyle, and to be steps away from the beach and have money for retirement, money for our children's college fund. And to call the landlord if the sprinklers break down.

Milan and Rebecca say their rental house is home, but they'd still like to own someday.

In Santa Barbara, I'm Stacey Vanek-Smith for Marketplace Money.

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On the home mortgage interest deduction - Abe pays $X rent, I get the $11.4k standard deduction (married, 2010). Bob pays $X mortgage + >$11.4k interest to get a deduction bigger than Able's. So Bob spends $11.4k in interest to get $1k more in a tax deduction. Spending $11.4k to get $1k. Hmmm. But wait, Bob says, I get to deduct property tax too! Bob pays $5k to get $5k as a DEDUCTION - i.e. to lower his tax bracket (not a dollar for dollar CREDIT), and since a tax bracket is a range, it might not even work. Bob spent $5k to maybe save a few $k, Able spent nothing, and invested that $5k at 6%. When Able wants to move, he just moves. When Bob wants to move, he pays 6% of his profit. Profit is sale price minus what he paid...after accounting for interest, insurance, taxes, repairs. An effective rate of 200%? Doubtful.

If we continue to allow our United States jobs to be shipped to foreign countries,our landlords will be foreign countries. We should vote to give tax breaks to companies that keep jobs in the US, and charge high TAX penalties to companies that ship our jobs to foreign countries.

Normally I love your program. However, this story was more than a bit misleading. I you failed to mention that Santa Barbara is one of the most expensive housing markets in the country. I'm quite sure your SB couple would be in the market for a home if they lived in the mid-west or even the California Central Valley. Your premise was that people are increasingly making the decision to rent "permanently. Talking to a couple in Santa Barbara does not prove this assumption. Let's wait a few years and see what the national data says. Sloppy reporting I'm sad to say.

But overall, you guys do a great job!

cheers,

debbie lefkowitz

I don't understand why you excluded singles from this story. We are facing the same decisions of owning v. renting as couples. Please include us in your coverage. Thank you, Christine G.

There are so many more reasons to rent in my area (California Bay Area) than to own, it's just silly that anyone would do anything different. Compare rent to price if that number falls below 25 then it makes sense to rent. Even with house prices plummeting the ratio has not even come close. Even for a cheap, fixer upper, my monthly outlay for housing goes up by at least $500 a month. That means I need to pay $17,142.85 in interest and taxes to just break even. And folks interest and taxes on your property are going to "the man" I'd rather take the difference and invest in the market that averages 7% post tax and inflation long term than in a house that averages 0% over the long term when accounting for inflation. Finally, if I invest my $500 a month and you put it in your house and we both lose our jobs, I have my money while your money is locked up in your house and you need a loan to get at it. Who is going to loan you the money when you don't have a job? If I take my money out of the market it is mine, while when you take your equity out of your house, you pay someone interest for the use of your money. None of that makes any financial sense to me.

I think the problem is that we always see this things as all or nothing. Yes, renting is sometimes the best solution. You want to be flexible, you expect to move anyway in a few years. You're disciplined and you're putting the extra money into investments. But my eighty year old neighbor had been in her house 40+ years. At the top of the market (when rents elsewhere weren't reasonable) her landlord decided to sell. So now, she had to move with two month's notice, find a new place and have her rent double. I can guarantee you that she was not putting that extra money all those years into other assets. Do I think it makes sense to buy at the top of the market with no money down just so you can say you own? NO. But do I think I would have saved up enough to buy my current house if I hadn't built equity in a smaller one for 15 years? NO.

We own (as in are paying a mortgage on) a house with a purchase price of twice our combined incomes. Of course, we have to hire a plumber to fix the faucet if it breaks. Then again, unlike renters, we won't be paying a landlord monthly rent when we're in our 80s.

Renting seems to make sense if the monthly rent is substantially below the fully loaded (mortgage, taxes, expenses) average monthly payments of owning, and then you take the difference and invest it (and earn money back on your investment, which is not a given these days). Otherwise, given increasing life expectancies, you could be paying the "the man" for your home decades after the average owner has burned the mortgage, without having offset the cost.

i currently own my home and i do mean i OWN it, as it is paid off. i see this as the only means to benefit from being a home owner. all i have to pay is property tax (cheap here in long beach, California), insurance, and the occasional fix. so it is a good thing to own if and only if you pay it off fast, less than 10 years in my case. however; i am thinking about selling in the future and renting where ever i want to live in retirement as i can move around and see the country "hassle free."

I love it when people justify their house purchase because of the tax break. That's only good sometimes and for just a few years. You're better off investing money and then buying when you have the cash to do it.

I'm a single, 57, and female. I have experienced the "joys" of homeownership and am watching a friend in her mid 40's struggle with the same and shake my head. I rent a lovely 1475 sq ft 3 bdr townhouse just outside Olympia, WA for around $1,200 a month. I even have a small, private back yard and attached garage. (Mine is the smallest back yard in the complex and I love it that way.) Granted, taxes are included in the rent, but I don't have to plan for them or mess with them. The same goes for water and storm drains. If something needs fixing, I call the office and it is done the next day. I feel secure and don't worry about things if I am going to be gone for a bit. I'm not chained to a piece of property in the event I want to relocate or downsize. Like someone else said, I decorate freely, deposit be damned. Besides, I don't plan on moving for a long, long time.

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