Is renting a better option for building a good credit score?

[OmCheeto]

From September 2013
...
Record Number of Americans Can’t Afford Their Rent
http://billmoyers.com/2013/12/09/record-number-of-americans-can’t-afford-their-rent/
December 9, 2013

There is an alternative to a mortgage, saving money, building yourself and building small.

hmmm...

So what is your ideal option of getting by while saving money?

1. Live with mom and dad and your 6 siblings into your 30's.
2. Get a roommate.
3. Live in the woods.
4. Rent.

I suppose there are a lot more options. I've known people who have prostituted themselves for years, in one way or another, just to get by.

 

[edpell]

Your first three option seem reasonable. #1 is what the vast majority of humans have done for the past 8000 years.

 

[Office_Shredder]

It doesn't change the fact that that is NOT what Americans in the past forty years have typically done. The thread is about the changing American dream, it is certainly the case that home ownership has become more difficult than it was for previous generations, occurring later and costing more money relative to wealth for people who do buy homes. Since the home ownership rate has not gone up significantly this indicates that there is some fundamental shift in the economy.

However I think that much of this shift has been undone in the past five years. For example

http://globaleconomicanalysis.blogspot.com/2012/03/how-far-have-home-prices-really-fallen.html

has some good graphs showing housing prices vs inflation. Since the early 90's housing prices spiked enormously, then crashed around '07, and recently came back down to their mid 90's pricing level relative to inflation. So while people had a lot of trouble getting houses in the past 20 years, it might be the case that moving forward this is not as much a concern.

 

[mheslep]

Census data:

 

[Office_Shredder]

mheslep, that graph continues to trend down and is now down to 65.3%

http://www.census.gov/housing/hvs/files/currenthvspress.pdf

which is incidentally lower than what it was in 1980.
So the claim is that somehow increasing the home ownership rate from 66% to 68% caused a massive shift in the home ownership market.

http://research.stlouisfed.org/fred2/series/HOEREPHRE

A graph of what percent of the house value is in equity, we can see that it has fallen dramatically. It recovered a bit after the spike down from the crash, but is still significantly lower than it was in 1980. A lot of that effect is because mortgages from the bubble are still being held, and this might level itself out back to the 1970-1980 level over time but at the moment there is still a significant difference in home ownership debt and ability of people to own their home compared to older times.Furthermore the home ownership rate for people under the age of 35 is 36.8% (see Table 6 in the first pdf of my post) which has been trending down every year since 2007. Compare this to historical data

http://www.census.gov/hhes/www/housing/census/historic/ownrate.html

in which the home ownership rate for people under the age of 35 is traditionally in the 40+% category. So the trend we are seeing is that for young people it is only in the past several years that it is becoming harder to own your home compared to historical averages.

http://www.pewsocialtrends.org/2011/11/07/the-rising-age-gap-in-economic-well-being/

We can also compare median net wealth to what it was historically. Older people are in fact wealthier now than old people in the 80's but young people have significantly less wealth. The numbers all add up to make it appear that younger people are more in debt and less able to afford to purchase and pay off homes than in previous generations.

 

[russ_watters]

Trending down or cycling down?

 

[Office_Shredder]

Trending down or cycling down?

It's irrelevant whether the total home ownership rate is trending or cycling. The point is that we are currently very close to the historic average; the historic high was not terribly larger than the historic average to make one think there should be very long term ramifications,

The young person home ownership rate has dropped below what it was before the home ownership bubble started in the 90s

http://pages.towson.edu/mchamber/IE...ers Garriga Schlagenhauf (3rd Manuscript).pdf

and the home equity rate (total house value minus total mortgages divided by house value) has been generally trending down for 60 years at this point. This is the biggest point I want to emphasize, that people are owning houses at about the same rate but their financial position in owning these houses is a lot more tenuous than it was at any point in the past 60 years.

 

[russ_watters]

It is relevant to me what it is doing and what you meant you think it is doing. The difference is that in one case it implies a problem in need of fixing and in the other will fix itself/isn't an actual problem to begin with. These sort of statements /interpretations are misused constantly in economic discussions, so I'm looking for clarity.

Indeed, if it is currently cycling down it could still be true that the long term trend is up!

Considering that most people agree by now that most of the 1990s prosperity was due to bubbles, I find it difficult to consider the bursting of that bubble a "trend" that holds bad news for the American Dream.

 

[russ_watters]

More...
On equity rate:
It is also true that home prices rose for a long time and household sizes shrank, so the fact that the equity rate is falling seems an indication that people are buying more than they can afford, but not necessarily that they can afford less.

On home ownership rate for the young:
Yes, it's been going down for the past few years. That is to be expected because the economy hasn't yet recovered to "average" from the recession, particularly with respect to unemployment rate, which particularly affects the young.

The one worrisome trend I see (in terms of its effect on the American Dream) is the is the cost of college tuition. The last time tuition dropped from one year to the next as a fraction of median income was 1980 and since then it has gone up 250%. http://politicalcalculations.blogspot.com/2012/02/rising-unaffordability-of-college.html#.UuKrM9Io5ig

That really is a long term trend and one that has significant potential to damage standard of living, including homeownership, especially for younger people.

 

[edward]

And speaking of rising college tuition it just drives up student loan debt.

There are baby boomers who will reach retirement age still owing on college loans.

Baby boomers may die with college debt.

Student loan burdens are growing fastest among the over-60 crowd, many of whom sought graduate degrees during the recession.

It looks like unemployed middle age people going back to school to increase skill levels didn't work out so well in the long run.

Baby boomers are easing into retirement, but some may find their golden years are haunted by student loan debt that could follow them until they die.

It's not their children's debt, however -- it's their own. Many boomers returned to graduate school during the recession to bolster their skills, reports the Chronicle of Higher Education.

http://money.msn.com/now/post.aspx?post=6fe668fd-0119-4caa-8f4e-661a9da41a58$44 billion in student loan debt is owed by people over 60.

http://www.newyorkfed.org/studentloandebt/

 

[mheslep]

...
http://research.stlouisfed.org/fred2/series/HOEREPHRE

A graph of what percent of the house value is in equity, we can see that it has fallen dramatically. It recovered a bit after the spike down from the crash, but is still significantly lower than it was in 1980. A lot of that effect is because ...

The reduction in equity occurred because it was allowed to occur i) by lenders (visibly) w/ reduced equity requirements and no-doc loans, and by ii) easy money policies from the Fed. The combination led to speculation in house prices. Home loans with http://www.chron.com/news/article/No-down-payment-loans-now-available-5112277.php down payment are still available from several government agencies (FHA, Dept of Ag, Veterans Admin, etc) and aggressively marketed. Documentation requirements are also slipping again at the source, Fannie Mae

 

[edward]

The reduction in equity occurred because it was allowed to occur i) by lenders (visibly) w/ reduced equity requirements and no-doc loans, and by ii) easy money policies from the Fed. The combination led to speculation in house prices. Home loans with http://www.chron.com/news/article/No-down-payment-loans-now-available-5112277.php down payment are still available from several government agencies (FHA, Dept of Ag, Veterans Admin, etc) and aggressively marketed. Documentation requirements are also slipping again at the source, Fannie Mae

There was speculation because those no down no doc loans sold for a premium price on the mortgage market. On the other side there were hedge funds and banks betting against those same mortgages, Goldman Sachs included.

A lot of money was made from the housing crash.

http://www.npr.org/2011/05/02/135846486/how-some-made-millions-betting-against-the-market

Edited

Those three agencies you mentioned have always had low down loans. I don't currently see any aggressive marketing. They don't even carry the mortgages, the loans are carried by the private sector and the three agencies only insure a portion of each mortgage.

Aggressive marketing was when there were two full pages of offers by, new on the block, mortgage companies in the Sunday paper, and four or five a week in the mail.

 

[mheslep]

There was speculation ...

I was referring to speculation by the home buyers, the house flippers.

 

[mheslep]

Those three agencies you mentioned ... They don't even carry the mortgages, the loans are carried by the private sector and the three agencies only insure a portion of each mortgage.

Since 2009 most all mortgages in the US are immediately resold and bundled up into securities held by the US government in the form of one or more of those companies (Fannie, Freddie, FHA) or other govt. agencies.

 

[edward]

I was referring to speculation by the home buyers, the house flippers.

Are you sure it was just the buyers and house flippers?

Observers and analysts have attributed the reasons for the 2001-2006 housing bubble and its 2007-10 collapse in the United States to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan".[3] Other factors that are named include "Mortgage underwriters, investment banks, rating agencies, and investors",[4] "low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance"[5] Politicians in both the Democratic and Republican political parties have been cited for "pushing to keep derivatives unregulated" and "with rare exceptions" giving Fannie Mae and Freddie Mac "unwavering support".[6]

http://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble

 

[edward]

Since 2009 most all mortgages in the US are immediately resold and bundled up into securities held by the US government in the form of one or more of those companies (Fannie, Freddie, FHA) or other govt. agencies.

Nice chart notice the low involvement by Fannie and Freddie just prior to the crash. It was under 50% of the total market.

They are certainly active now or there would be no market at all. Fannie has Home Path and Freddie has Home Steps. They are programs to eliminate the backlog of foreclosures. People are looking at money down or a big mortgage insurance premium or both if they purchase these homes.

Although I have noticed that Home Steps by Freddie is starting to look like a scam and a sham using a single prime contractor method on all homes by region. Speculators get a big break on their program.

So who is buying up the foreclosures? Hedge funds and some of the same banks involved in the sub prime crisis.

http://www.newrepublic.com/article/112395/wall-street-hedge-funds-buy-rental-properties

I wouldn't exactly call being able to rent back a home a person once owned the American dream.

 

[Vanadium 50]

Actually, what that plot is showing is the exit of banks from the mortgage industry (particularly first mortgages). They can't compete with the Feds and make money - not with a 10% delinquency rate (2010). (Even in 1990, banks were not the primary lender) Second mortgages, refinances and HELOCs have been the bank's mainstays: less risk, so they have more margin.

As far as college costs go, college is expensive. There have been three significant changes in the last ~25 years. One is a decrease in subsidies, a second is an increase in administrative costs, and the third is an increase in majors and departments. The wide availability of student loans made students less cost sensitive than they would otherwise be.

 

[Astronuc]

http://news.yahoo.com/face-food-stamps-working-age-americans-155417479.html

WASHINGTON (AP) — In a first, working-age people now make up the majority in U.S. households that rely on food stamps — a switch from a few years ago, when children and the elderly were the main recipients.

Some of the change is due to demographics, such as the trend toward having fewer children. But a slow economic recovery with high unemployment, stagnant wages and an increasing gulf between low-wage and high-skill jobs also plays a big role. It suggests that government spending on the $80 billion-a-year food stamp program — twice what it cost five years ago — may not subside significantly anytime soon.

Food stamp participation since 1980 has grown the fastest among workers with some college training, a sign that the safety net has stretched further to cover America's former middle class, according to an analysis of government data for The Associated Press by economists at the University of Kentucky. Formally called Supplemental Nutrition Assistance, or SNAP, the program now covers 1 in 7 Americans.

The findings coincide with the latest economic data showing workers' wages and salaries growing at the lowest rate relative to corporate profits in U.S. history.
. . . .

Hmmmm. Doesn't seem that the fundamentals of the economy are very good - still.

 

[Vanadium 50]

I'm not sure that total dollars spent on SNAP is the best metric, for two reasons. One is that the benefit levels were increased by the ARRA bill, and the other is that there was a substantial effort on the part of the government to enroll new recipients. From a public policy point, these may well have been good ideas, but they do spoil the metric of total dollars spent on SNAP as a measure of poverty.

 

[edward]

I'm not sure that total dollars spent on SNAP is the best metric, for two reasons. One is that the benefit levels were increased by the ARRA bill, and the other is that there was a substantial effort on the part of the government to enroll new recipients. From a public policy point, these may well have been good ideas, but they do spoil the metric of total dollars spent on SNAP as a measure of poverty.

The issue isn't just about the total dollars spent. It is about the changing demographics of those using food stamps.

The new report shows that 50.2 percent of US households receiving food stamps since 2009 are made up of adults between the ages of 18 and 59 (or nonelderly, working-age adults). In 1998, the portion of such households getting food stamps was 44 percent, according to the report.

In addition, the findings show that the percentage of food stamp households headed by someone with a four-year college degree has increased from about 3 percent to 5 percent since 1980, and the share of beneficiaries who have at least some college training has leaped from 8 percent to about 28 percent. Households headed by adults with at least a high school diploma have jumped from 9 percent of food stamp recipients to about 37 percent over the past three decades, the report says. Thirty years ago households headed by high school dropouts accounted for the biggest chunk of food stamp recipients; now they account for about 28 percent of enrollees in the program.

http://www.csmonitor.com/USA/USA-Up...are-college-grads-half-are-working-age.-video

 

[Vanadium 50]

Yes, but if the government goes on an advertising spree to try and enroll more people, how do you know what the cause of the changing demographic of recipients is?

 

[russ_watters]

The issue isn't just about the total dollars spent. It is about the changing demographics of those using food stamps.

http://www.csmonitor.com/USA/USA-Up...are-college-grads-half-are-working-age.-video

Those stats just tell me that the program is way, way too big.

 

[edward]

Yes, but if the government goes on an advertising spree to try and enroll more people, how do you know what the cause of the changing demographic of recipients is?

Lets be realistic. We know what the cause of the changing demographic is. JOBS or lack thereof and Low Pay.

My neighbor is an electrical engineer. On November 15th he and 224 other engineers unexpectedly received their pink slips at Raytheon Missile Systems Tucson. He had been at Raytheon since 2006.

He is living off of his 401 K. He will have to leave town to find work. His home will not bring in nearly enough rent to make the payment and he certainly can't sell it for what he owes on it. If he goes through a foreclosure he will lose one of his most valuable assets, his security clearance.

More than 33,000 food stamp recipients hold accredited PhD or JD degrees in USA

http://www.examiner.com/article/mor...ipients-hold-accredited-phd-or-jd-degrees-usa

edited

 

[SixNein]

http://news.yahoo.com/face-food-stamps-working-age-americans-155417479.html
Hmmmm. Doesn't seem that the fundamentals of the economy are very good - still.

Honestly, I think it's very hard to tell because we are experiencing a major change in the way the world works. And as such, it's very hard to predict where we are going. But there are a few problems that do merit attention. Of particular concern, the rising inequality is a serious problem. But the availability of cheap goods and easy credit seems to have dampened the social response. At the same time, a great deal of credit is being used to prop some of it up. For example, a lot of people cannot afford a college education; however, they are obtaining it with credit. And in a lot of cases, it turns out to be an unproductive use of credit.

 

[klimatos]

In many European countries life-time renting is the norm, it's not the end of the world not to buy a house.

You are absolutely correct. Most Europeans, even the middle and upper-middle classes rent. However, home purchase is more difficult there than here. Mortgages are difficult to obtain, and usually require a substantial portion of the purchase price down. Houses are expensive. My youngest daughter lives in London, and her house in Radlett would sell for about five times her purchase price here in northern California.

Also, land ownership is more complicated there. Many British homeowners do not own the land their house stands on. It is owned by some noble family, and they pay an annual lease fee. The lease is usually transferred with the house title. The contracts are often for 100 years, and few home buyers can be found when the lease nears its termination date.

 

[SixNein]

Lets be realistic. We know what the cause of the changing demographic is. JOBS or lack thereof and Low Pay.

I made a thread on this topic a very long time ago, and I'm going to resurrect the gist of it here since its relevant to the discussion.

First and foremost, I don't think the cause of the changing demographic is jobs and low pay; instead, I think that is just a symptom. The real cause, in my opinion, is our ability to replace people with code, computers, and some engineering. For example, a lot of people complain about the loss of manufacturing jobs in America. Many are under the impression that those jobs are going some where else like China; however, they are simply disappearing. Robots are taking the places people once held. Automotive companies for example are getting closer and closer to fully automating the construction of their cars. The process of constructing those cars use to require a lot of people, and now it only requires a small amount. As companies shed these jobs, the people end up competing for what is left, and so labor prices drop.

The real question imo is what to do with with the growing human population in a world of automation.

 

[Dotini]

The real question imo is what to do with with the growing human population in a world of automation.

The last thing needed is for a growing population of surplus humans to grow restive and begin to make trouble. Accordingly, it may be wise to continue the trend for high quality entertainments, drugs, rich foods, sports and pastimes to be made available for purposes of distraction. Prophylactic surveillance and gun control measures would appear to be appropriate. Some shepherding of the self-help industry and religious belief system may be in order.

"a peaceful land, a quiet people" --- creed of Lord Roose Bolton, A Game of Thrones

 

[edward]

First and foremost, I don't think the cause of the changing demographic is jobs and low pay; instead, I think that is just a symptom. The real cause, in my opinion, is our ability to replace people with code, computers, and some engineering. For example, a lot of people complain about the loss of manufacturing jobs in America. Many are under the impression that those jobs are going some where else like China; however, they are simply disappearing. Robots are taking the places people once held. Automotive companies for example are getting closer and closer to fully automating the construction of their cars. The process of constructing those cars use to require a lot of people, and now it only requires a small amount. As companies shed these jobs, the people end up competing for what is left, and so labor prices drop.

The real question imo is what to do with with the growing human population in a world of automation.

I can agree with everything you say above. However we got hit with a terrible economic blow right in the midst of it all.

In this thread we had gotten off on to the food stamp program and I wanted to show how some well educated people are having to use it now as an example of a changing demographic.

As far as global competition we have to adapt not surrender. We set around wearing clothing ,right down to our underwear, that is made in a communist country and yet complain about government programs meant to help people weather the storm, being too socialist.

The investment banks were bailed out and are doing fine. That is not true for the middle class.
The stimulus was a bust. Much of it apparently went to the wrong organizations.

I mentioned Whirlpool sending refrigerator production to Mexico putting thousands out of work. And they did it right after receiving millions in stimulus money.

We need to spend the money in the right places. Germany has done the best at adapting so far. And they did it by training workers, not sending money to big companies hoping that they will hire unskilled workers.

The last bastion of journeyman level trade workers are still coming from what is left of the unions.

https://www.google.com/#q=unions+train+workers+to+journeyman+level

That wasn't meant as a plug for the unions it was an example of what the government needs to do if we are to compete in a global market, and give us back our American dream.

 

[SixNein]

I can agree with everything you say above. However we got hit with a terrible economic blow right in the midst of it all.

In this thread we had gotten off on to the food stamp program and I wanted to show how some well educated people are having to use it now as an example of a changing demographic.

As far as global competition we have to adapt not surrender. We set around wearing clothing ,right down to our underwear, that is made in a communist country and yet complain about government programs meant to help people weather the storm, being too socialist.

The investment banks were bailed out and are doing fine. That is not true for the middle class.
The stimulus was a bust. Much of it apparently went to the wrong organizations.

I mentioned Whirlpool sending refrigerator production to Mexico putting thousands out of work. And they did it right after receiving millions in stimulus money.

We need to spend the money in the right places. Germany has done the best at adapting so far. And they did it by training workers, not sending money to big companies hoping that they will hire unskilled workers.

The last bastion of journeyman level trade workers are still coming from what is left of the unions.

https://www.google.com/#q=unions+train+workers+to+journeyman+level

That wasn't meant as a plug for the unions it was an example of what the government needs to do if we are to compete in a global market, and give us back our American dream.

But what I'm saying is that there isn't too many safe jobs out there. Automation can replace what most people do. For example, there is a lot of business analysis people who may over time find themselves unemployed thanks to machine learning algorithms. Why hire a bunch of them when a computer can do the job faster, better, and cheaper? Computer science is just now shifting over to a data prospective. And a lot of people who currently think their safe might find themselves competing for that fast food job.

http://www.technologyreview.com/featuredstory/515926/how-technology-is-destroying-jobs/

And it's important to realize that even dirt cheap labor is unable to compete with automation. If china is shedding manufacturing jobs to automation (link in other post above), there isn't much chance of an American doing any better.

In a basic nutshell, I don't think it's as simple as spending or saving money. America could try to be a leader in technology by making some real infrastructure upgrades and breaking up the regional monopolies over the internet. But it doesn't seem to be going in that direction; instead, net neutrality itself is in danger. And as I said before, computer science is turning into a data centric field.

But even if America sets up well for the shift in CS and attracts international business, I don't see a big boom from it. America will be attracting companies with robots as opposed to companies needing to hire local people.

 

[mheslep]

I've worked in robotics and machine learning, and I don't think it is remotely true that automation has reached a point where it can, *today*, replace what the majority of humans do. Instead, automation will likely continue to enter at the margins as it has, accelerated when and where wage levels are artificially raised.

Even so, history has produced waves of machinery driven employment shifts in the past. A 150 years ago, it was true that machinery could replace the majority of labor when the majority the US population was engaged in agriculture. What happened instead is that agricultural productivity grew while agriculture labor did not, enabling new population growth to exist off the farm in other occupations previously not imagined.

 

[Astronuc]

This may apply locally or regionally, but - Jobs, yes, but they're mostly low pay
http://www.poughkeepsiejournal.com/story/news/local/2014/08/31/high-pay-jobs-shrink/14915087/

"For every one job created that pays below-average wages, Dutchess County lost 2.5 jobs that pay above-average private-sector wages," said Christy Huebner Caridi, an economics professor at Marist College and head of its Bureau of Economic Research.

Specifically, during the six-year period ending in 2013, there was job growth of 2,404 jobs in sectors that had below-average pay scales. But there was a loss of 5,935 jobs in the above-average categories.

For the Hudson Valley region, the story was similar, with 1.4 high-pay jobs lost for every lower-paying one created.

The Hudson Valley extends from north of NY City to somewhat north of Albany. It used to be a main manufacturing area in the nation. Much of the manufacturing moved south to less expensive areas in Carolinas, SE and Gulf Coast.

 

[edpell]

Astronuc, there used to be 33,000 full time regular IBMers in the Hudson Valley. Now 3,000. There are more part timers, retired coming back to work for less pay, H1B visas. The Indians who can not afford cars walk in large groups to and from work. The board manufacturing that used to happen in Endicott NY (more the Mohawk Valley) is now done in Mexico. The mainframe manufacture that used to make machines of 1000sqft area now makes machines of 10 sqft area and much more compute power. There are far fewer parts and it takes far fewer workers and it is no longer done in Poughkeepsie, NY. Not clear where it is done now, that seems to be a secret. Storage sub-systems are manufactured in Slovakia, shipped to Puerto Rico, where a label that says made in America is added, then shipped to US customer. Welcome to the global village, more like the global slum. IP that was paid for by DARPA is domiciled in the Cayman Islands so when foreign subsidiaries (i.e. IBM UK) pay patent royalties to IBM they are not taxable.

 

[edpell]

For me the big issue is the cost of primary energy. With Goldman Sacks saying $120/barrel is needed for the oil companies to breakeven. Capex of oil companies is up 300% over the last 10 years.

 

[edward]

For many, and that means millions, they will never recover what they lost during the recession.

Rutgers University researchers found more than a third of workers report their finances have been permanently injured by the recession, with 16 percent of Americans, or 38 million people, reporting they were financially devastated and expect that damage to be permanent.

http://www.post-gazette.com/busines...ing-ground/stories/201408310128#ixzz3CE1uBJOh

Another report by the Economic Policy Institute, a Washington, D.C-based policy research group, issued in time for the Labor Day holiday found American workers haven’t had a pay raise in 35 years. A look at wages since 1947 found that, from 1947 to 1979, annual family incomes grew across the board between 2.2 percent and 2.5 percent.

Then, from 1979 to 2007, those in the bottom fifth of household income saw no change, adjusted for inflation. The second, third and fourth-fifths saw their income grow at less than 1 percent a year.

There is a link to the Rutgers study in the posted link above.

 

[russ_watters]

For many, and that means millions, they will never recover what they lost during the recession.

...or, at least, they don't think they will. Of course, another way to look at it would be that they only lost what they gained in the '90s...and are now getting the gains back (2013 numbers out later this month).