Better off renters
'NOHOs,' you know who you are
By Jack Guttentag, Monday, May 18, 2009.
Flickr photo by blmurch.Some people are not cut out to be homeowners. I call them NOHOs. What distinguishes them is not their income, their mobility, or where they live -- rather, it is how they live.
NOHOs live from week to week or month to month, depending on how often they are paid. Typically, they have nothing left at the end of the period, and if they run out early, they often borrow at high interest rates.
When they purchase durables, such as a TV set, NOHOs price the purchase in terms of the monthly payment, which they attempt to fit into their weekly or monthly budget. They never get ahead of the game, and if they run into an emergency that costs money, they are in trouble. Because homeownership is rife with such emergencies, NOHOs should not be homeowners.
NOHOs sometimes write me about buying a house because they have heard that owning is cheaper than renting. They would buy a house in the same way they would buy a TV set, by seeing if they can afford the monthly payment. They have no savings but have heard that it is possible to get a loan for 100 percent of the sale price. I try to discourage them by explaining the hidden costs and risks of homeownership, and by pointing out that as owners, they -- rather than the landlord -- are responsible for everything that goes wrong.
The bubble period 2000-2006 was extremely friendly to NOHOs. This was when lenders were offering 100 percent financing and turning a blind eye to the adequacy of borrower incomes. It is possible that more NOHOs became homeowners during this period than in the prior two centuries.
Even if the bubble had not been followed by a financial crisis, the foreclosure rate among MOHOs would have been horrendous. Any bump in the road is enough to throw home-owning NOHOs in the ditch. One who wrote me had calculated her monthly obligation net of the tax deduction on the mortgage interest, and fell behind on her payment because her tax savings did not become available until year-end.
A common bump in the road is property taxes. Another NOHO who wrote me was in serious trouble almost immediately because the property-tax estimate by the lender turned out to be $200 a month too low. The NOHO said he would not have purchased the house had he known the correct figure. The reason for writing me was to solicit advice on how to sue the lender. ...CONTINUED
All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.
You must login or register to post a comment.
Submitted by Robert A. Hulme on May 18, 2009 - 6:20am.
It is not easy to sift through First-time Home Buyers and find out who the NOHO's are. We just have to work hard to help educate and assist everyone understand what they need to do to be a successful home buyer. Once in the NOHO mode is very difficult to change, they are destined to remain renters.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.DavisCountyRealEstate.us
www.SaltLakeCountyRealEstate.ws
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on May 18, 2009 - 7:18am.
Great article, Jack. There is nothing more important for a buyer and for a professional Realtor than a comprehensive Buyer Consultation.
As a matter of fact, no buyer should be out shopping and no Realtor should be in a car driving anyone who does not:
1) Obtain a Pre-approval or Proof of Funds letter from their financial institution
2) Sign a Buyer Agreement - after all, there is no additional cost to buyers
3) Prepared to close within 30 days
A Buyer with the above in hand or willing to comply, will likely be able to choose the best Realtor to work with.
A Realtor working with a buyer who meets the above criteria, knows he or she is working with a "buyer" prospect, not a shopping suspect. An offer made is likely to be accepted versus one with any number of weaknesses.
In a buyer's market, buyers get to choose from a wide array of properties. But only those prepared to close and willing to work closely with a professional will secure the best deals before others do.
Above all...renters who are looking to buy for the first time, must pay attention to good advise and not get too emotional about their purchase without seriously examining their present and probable future financial picture.
Some have absolutely no savings as Jack suggests and are still looking to being able to borrow against the tax credit in order to buy. This is not an ideal way to get your foot in the door of your first home. Not if you are unable to save and may be one illness, car trouble or month without pay away from financial trouble.
http://MiamiRealEstateKing.YourKWAgent.com
Certified Distressed Property Expert
Miami-Dade County, Florida.
Submitted by Mike Parker on May 18, 2009 - 7:32am.
Mike Parker
mparker@theblackwatercg.com
The arrogant assurance that an entire class of people aren't worth the effort must be something learned in the ivory tower, becaue it could not be further from reality than the viewpoint of those who have always fed at the public trough, such as "professors."
Many people rent to buy; many people rent while saving for the down payment; many people should not be dismissed with the "superior air" of a retired know it all.
How many young people today, starting out, can put together $60K without prolonged saving periods or help from others? When you bought your house, did it even cost $60K? MY first house was $33,690 and I had to borrow $5k from my Grandmother to swing the purchase. I suspect that if you were in touch with reality you would know that the vast majority of young people today cannot buy a home without some form of assistance.
I can tell you what the real estate community doesn't need right now: pompous retirees putting down an entire generation of homebuyer. Let's just offend the people we are trying to sell! And, I think it is a pretty sure bet that your specialty wasn't marketing or sales in your teaching days. "They have no bread? Then let these renters eat cake!"
Please keep your smug "knowledge" of how a large group of people are no good to yourself in the future. I suspect that the rest of us will continue to try to cultivate buyers from wherever they come from, financially set, or not.
Submitted by Sal Antsipenka on May 18, 2009 - 8:23am.
Homeownership becomes a headache when people get in trouble financially. That by the way can affect anybody these days, not necessarily shortsighted or poorly real estate educated.
There is a bunch of multi millionaires who lost their homes as well because of economy, overspending, sickness etc. and I am sure they were as poorly advised as anybody else and thought that they can contain their lifestyle forever. What can help with homewonership is not proclaiming "home, sweet home dream" but good education what homewonership brings into your financial life - good and bad. However, I am definitely wasting my time saying this, cyclical nature of our economy will bring more ups and more downs.
The lesson of today's situation is exhuberance and excessive optimism are not necessarily good -a good grain of cynisism and insight into financial matters are better most of the time.
Sal Antsipenka
Century 21 Mike Miller Realty
Naples, Florida
http://www.naplesrealestateseller.com
International Real Estate Marketing
http://www.realestatefair.net
Submitted by Eliese Pivarnik on May 18, 2009 - 2:38pm.
Interesting comments. There will always be those that live above their means, and the last decade trained a whole generation how to do it.
Tightening credit standards will hopefully give people a wake-up call how to manage money and get out of the live-for-today mindset.
Steamboat Springs Real Estate Blog
Submitted by Paula Coxon on May 18, 2009 - 4:23pm.
Paula Coxon
REALTOR
San Diego, CA
The gentleman who is so engraged needs to take a deep breath. I understood your comments to be directed to "some" people who are renters, not the entire universe of potential first time buyers. That said, the nose-dive in prices in the San Diego market, at least, has in large part created the impression among renters that they are now entitled, and able, to buy a home. "Someone" a very long time ago promulgated the idea that owning a home is a right, not an earned privilege, and the vast majority of renters we speak with not only have never saved a dime, but don't intend to start now in order to buy a home. They are not willing to carpool and make do with one vehicle, have grandma watch their preschooler instead of paying for private care, rent a smaller, cheaper apartment in a less attractive location, take one less vacation a year or spend less on entertainment. In short, they look at us as if we're speaking in tongues when we ask what they plan to do in order to save for a house. This can be done, by the way, regardless of today's home prices versus those of the past. It just means you buy later - in your 30s for example - and start saving and living frugally as soon as you start working. You also don't expect your first home to be a palace. At San Diego prices, even in a depressed market, first time buyers will NOT get what they expect for their money when they do qualify for a loan. When we educate them about the recurring and unexpected costs of homeownership they are in disbelief because, as renters, all of their needs have been taken care of. One of our most challenging issues, if they do qualify for a loan, is to get past their expectation of a fine, 3 bedroom 2 bath detached home with a yard and picket fence in the best part of town on a budget that will buy them a small bank owned condo that is in bad shape. More often than not, these people will not bite the bullet, swallow their pride and buy a home that is not as nice as they rental they currently occupy, so their apartment with the pool, gym, happy hour parties and concierge doesn't look so bad after all. It is no reflection on a family if they rent; rental income is an essential component of the economy, at least in San Diego and I suspect elsewhere as well. Some of us build the buses and some of us drive them. There's a necessity for both. Parents and schools need to teach the economics of home buying early and the Age of Entitlement needs to end. It's not a REALTOR's job to ensure that everybody who wants a home gets a home.
Submitted by Marty Boardman on May 18, 2009 - 6:52pm.
There are those who should buy and those who should rent. There are those that are fit to be parents and those that are not. There are plenty of people with driver’s licenses who have no business being on the road. But, we live in the United States of America. This means we were given the freedom to buy homes we can’t afford, have kids we don't really want and drive cars we can't control.
The bottom line is that as long as there is money to be made the lenders will lend and the buyers will buy. Will there be mistakes made? Of course. Will we have to pay for them? Absolutely. If my neighbor, who put nothing down, walks away from his home, my house value will take a hit. If an unsafe driver slams into my car and puts me in the hospital, I pay for his mistake. If a deadbeat father abandons his family they probably end up on welfare. That costs everyone.
Ultimately, the decision to buy, sell, rent, or modify lies with the client. All we can do as real estate professionals is act with integrity and provide honest, objective information to our clients. We have a responsibility to them, not for them.
Marty Boardman
Choice Loan Consulting
mboardman@choicelc.com
480-264-7191