SJ is right on target with remarks about present-market renting vs. buying. Financially speaking, it currently makes sense to rent and save, and wait for the prices to come down/income to rise to a comfortable level of affordability.
The notion of "throwing money away" is Realtor-talk to fluff clueless clients for the sale. Knowledgeable, rational renters have already crunched the numbers and know whether or not they can afford a home AND support a lifestyle of their choosing.
Here is an example of one such person who believes with all his heart that renting is "throwing cash in the trash:"
MORTGAGE MELTDOWN
Johnnie Pitts
Beaming with pride and talking a mile a minute, Johnnie Pitts stacked up piles of legal documents on his living room floor the Wednesday before Christmas. The San Francisco Muni driver had just returned from having his signature notarized on agreements that permanently modify his once-exorbitant mortgage to a reasonable interest rate, allowing him to keep the three-bedroom bungalow on Oakland's MacArthur Boulevard.
"It says right here what I have to pay for the life of the loan," he said. "Now I know exactly what I have to work with. Not like that adjustable-mortgage nonsense."
Pitts started off financially unsophisticated, but he now shows a shrewd grasp of how the system works.
"If you think your house is all yours, just miss a payment or property tax bill, and you'll find out who it really belongs to," he said. "We're not homeowners; we're renting from the banks and investors."
Earlier this year when he realized his mortgage was slated to reset to well over $4,000 a month - the same as his take-home pay - Pitts started speed-dialing his loan servicer, banking giant Chase, asking for a loan modification. "I called over and over," he said. "I was a pain in their rump roast. I was a wild hair up their gluteus maximus."
At the same time, he boosted his income by racking up overtime - an extra 10-hour day every week - to catch up on some missed mortgage payments and property taxes. "It's not like I was trying to shirk my responsibility and run," he said. "My family and co-workers said, 'Why don't you just do a short sale?' but this is my house. This is the major purchase of my life."
When Pitts bought the run-down house for $429,950 with 100 percent financing in 2005, his interest rate on the larger of his two loans from Chase was fixed at 7.2 percent for two years and then could reset to as high as 10.026 percent. New increases could come every six months. Now Chase has agreed to lock the rate at 6.75 percent for the 28 years remaining on the loan and has made similar modifications to the second mortgage.
Pitts skipped his October, November and December payments while negotiating with Chase; it agreed to roll those past-due amounts into the overall loan.
The package is a great deal for a subprime borrower, considering that the going mortgage rate for prime borrowers with good credit is 6.25 percent plus a half a point (0.5 percent of the mortgage total) up front.
It's also a better deal than the "teaser freezer" program touted by President Bush. That plan, which applies only to borrowers who meet a narrow set of criteria, freezes the initial interest rate for five years, not the life of the loan.
"We have been working with (Pitts) for many months and have adjusted the rate on his loan to make it more affordable," said Chase spokesman Tom Kelly. "If it's an owner-occupied house and the owner has been making payments and has been in contact with us, we will do all we can to work with them and come up with solutions."
Pitts' monthly mortgage will now be just shy of $2,800. Property taxes and insurance add another $700 a month. The $3,500 monthly total is still quite steep for a man whose base income is about $4,000 a month, although he can earn another $1,000 or so through overtime.
The new payments are fairly similar to those Pitts had for the first two years of the loan - which he struggled to make. Chase's Kelly said the bank only does loan modifications that make economic sense for the borrower. "We look at what the total payment is going to be and say, 'Can he afford it or not?' " he said. "Ultimately, if the borrower cannot afford whatever modification we do, then they cannot keep the house. Doing a patchwork thing might keep them in the house for three more months, but what good will that do?"
Does Pitt really want to continue working six days a week to keep a house that is now valued at about $330,000 - $100,000 less than he paid for it? He insists that he does.
"When it comes to renting, it's just cash in the trash," he said. "You can't win no way when you're renting, especially if you're single and in the 35 percent tax bracket. Owning a house is the best thing you can do for yourself. It's worth it to have some stability."
Now that the word "modify" has entered his vocabulary, Pitts frequently invokes it. "I'm going to modify my lifestyle," he said. "I shop at the dollar store; I buy in bulk and on sale. If push comes to shove, I may have to get a roommate."
His self-improvement mania extends to his health. He's lost 45 pounds in recent months by bicycling 5 miles a day.
Pitts said he took some ribbing from co-workers for being gullible when they read about his mortgage situation in The Chronicle. "Everyone knew my business, that I got taken to the cleaners," he said. "They said, 'You're so naive.' I said, 'No I'm not, I'm trusting.' "
Pitts seems to have boundless optimism about his home's prospects. He's loves doing fix-up projects, and there are plenty to tackle. "I want to bring the house up to code and standards so I can one day refinance," he said. "If I'm ever fortunate enough to have a family, the house is here for them."
Pitts is a New Year's baby, born at 12:02 a.m. on Jan. 1, 1965, the first newborn of that year in his Bustrop, La., parish.
How will he celebrate his birthday this year?
"I'll be working, the same as on Christmas," he said. "It's time and a half on the holidays. I'll take the money. Renters have a different mentality; they can party."
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