posted on Jul, 29 2007 @ 03:45 AM
I just wrote a long article for you, and lost it just before posting, grrr.
In a nutshell then:
Youy and average Joe are in the same situation, both do the same job, earn the same, both have 50K saved as a nestegg. Average Joe buys a house now,
and feels good. You rent now, and save or invest the 50K. You have nothing (except 50K available at any time), average Joe has a house! He must be
doing better than you, why didn't you buy a house you think.
Then the market corrects. Money leaves the marketplace, jobs disappear as a result as companies try to keep profit levels up or losses to a minimum,
reducing moneyflow in the public sector. This creates less demand, especially for bigger investments like cars and houses and such. Demand drops,
therefore prices drop, and because some people lose their jobs and have to sell to prevent foreclosure, house prices drop even more.
Meanwhile, cost of living goes up as inflation tries to counter what has happened in the marketplace. So, let's stop here and look at where you and
Average Joe are 12 months down the track.
You have both miraculously managed to keep your jobs, so you have a fixed income. Good news. Average Joe's house is worth 50K less, and therefore in
reality he has nothing but a mortgage to pay for a house that is 0% his own). He is committed and may as well be renting.
You on the other hand have been renting, and now that the house prices have gone down, you can use your 50K to purchase that home, and because the
price is lower, have a smaller mortgage to pay off. You may actually end up buying Average Joe's home.
In a bad situation where say both of you lose your job, Average Joe's situation gets even worse, and you are glad you have that 50K available for you
during this time between jobs (which may be some time).
So who has less worries overall? You do, and why? Because you rented now instead of purchasing.
So what is the moral of the story? It is not what you do, but when you do it that determines your fate.
Of course I am presenting this from a macro perspective, and peoples individual situation may cause above example to vary or differ, but it does hold
a sense of logic that may be worth a thought or two.....
Would it help if I said that I am renting now too. I don't need to, but I would rather do that and protect the money I have worked so hard for, than
let it disappear into thin air because of a market factor I have no control over?
Owning a house makes us feel something that renting does not give us, I admit, but it is not always associated as much with independence and financial
security as we would like to think.