Homeownership Rates by State for 2014

Curious how many people own homes in each state?   I knew you were.

I got the following numbers right out of the Census page on Housing Vacancy and Ownership

The home ownership rate per state in 2014 :

Alabama	72.1%
Alaska	64.9%
Arizona	63.5%
Arkansas	65.4%
California	54.2%
Colorado	65.0%
Connecticut	67.4%
Delaware	74.3%
D.C.	41.5%
Florida	64.9%
Georgia	62.9%
Hawaii	58.4%
Idaho	69.6%
Illinois	66.4%
Indiana	70.1%
Iowa	69.4%
Kansas	64.7%
Kentucky	67.6%
Louisiana	65.3%
Maine	71.0%
Maryland	66.2%
Massachusetts	63.0%
Michigan	73.8%
Minnesota	71.4%
Mississippi	73.2%
Missouri	70.5%
Montana	66.9%
Nebraska	66.7%
Nevada	56.0%
New Hampshire	72.2%
New Jersey	65.2%
New Mexico	66.3%
New York	52.9%
North Carolina	66.4%
North Dakota	64.5%
Ohio	67.3%
Oklahoma	69.3%
Oregon	62.8%
Pennsylvania	69.7%
Rhode Island	61.8%
South Carolina	72.9%
South Dakota	69.2%
Tennessee	66.7%
Texas	62.2%
Utah	70.9%
Vermont	73.5%
Virginia	68.7%
Washington	63.6%
West Virginia	75.6%
Wisconsin	67.8%
Wyoming	70.8%

The states with the highest home ownership rate are :

West Virginia	75.6%
Delaware	74.3%
Michigan	73.8%
Vermont	73.5%
Mississippi	73.2%

And the lowest are :

D.C.	41.5%
New York	52.9%
California	54.2%
Nevada	56.0%
Hawaii	58.4%

Basically I assume what we see here is that if housing is expensive fewer people own.    Or if states have more or less established populations you will see more or less home ownership.   That second
reason is why I think Nevada is low and Delaware is high.

The Census page has annual data going back to 1988.    Comparing 1988 to 2014 you can see some gradual changes in the home ownership rates per state.

States with the largest drops in home ownership were :

Kansas	-3.9%
Louisiana	-3.2%
North Dakota	-3.2%
Oklahoma	-2.8%
Arizona	-2.6%

And the states that saw home ownership go up the most were :

Alaska	7.9%
Missouri	5.7%
Alabama	5.6%
Hawaii	5.2%
Illinois	5.0%

I honestly can't begin to guess at reasons that would explain why home ownership would have gone up or down in those states.

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You Should Buy a House, (Unless you Live in San Jose, San Francisco, New York City, Boston or Seattle)

I'm going to make a broad generalization here :  You're probably better buying a house than renting in most of America.   Only a handful of cities with very expensive real estate are exceptions.   I'd also assume you're going to stay in a home for a reasonable period of time and assume generally average costs otherwise.

I will support this conclusion by looking at cost of housing vs rent in each city from my old article
Estimating Rental Investment Returns per Major Metropolitain Areas  And then I can take those and figure which cities favor renting vs buying.    The New York Times has a nice buy vs rent calculator to help you figure if buying or renting is a good idea.    So I simply take the figures for median home values and rents from my article and plug them into the NYT calculator.   To make it easy I started with the cities where being a landlord is worse deal which means that housing costs are high compared to rents.   I can do that by looking at the sorted list of lowest return for rent/housing cost.   San Jose is at the top of the list and the NYT calculator says for the $570,000 home cost there you are better off renting if rent is $2,066 or less.   But the average rents are $1,460 so yes in that city you're generally better off renting.   I went down the list and had similar results for San Francisco, NYC, Boston and Seattle.     #6 on the list is Providence, RI, where the houses cost $217,000.   The NYT calculator says you're better off renting if rent is $847 or less and the average rents are just a hair more at $849. 

So based on general numbers only the top 5 most renter friendly metros are better places to rent than to buy.   San Jose, San Francisco, New York, Boston and Seattle.   In those 5 cities its generally cheaper long run to rent.  The other 43 cities on the list are all better places to buy than rent.   I would also then make the assumption that the smaller cities and rural areas in the US are generally going to be better to buy than rent as well as generally housing is lower in small towns and rural areas.   Of course there will be exceptions out there.

Of course there are major holes in my methodology here.  I used the average figures in the NYT calculator and thats not something you can assume.  Property taxes, insurance, etc vary widely across the country so to get a better result I'd have to find and plug in the averages for each city.  But thats far to much work for a lazy blogger like myself to do.


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Homeownership Rates by Nation

In the US homeownership rates are now around 65%.   How does this compare to other nations?   Is our 65% a "good" figure?  Or is it too high or too low?   

I pulled the numbers off of Wikipedia and made a chart :

(click image for full size)

Sorry its hard to read the nation names there but if you click the image you can get the full size chart.


Compared to most nations the US homeownership (red) rate is relatively low.    I don't think this means too much.   I don't think homeownership rates really reflect the strength of a nations economy or qualify of life.  Compare Norway (purple) and Germany (green) both nations have strong economies and high  living standards but Norway has 85% homeownership and Germany is at 53%.   In fact more often than not the nations with stronger economies have lower homeownership rates, but thats a generalization with exceptions like Norway.   In general I'd assume that homeownership rates can be based on the cost of housing versus the income levels.   Homeownership may also vary based on how the nation handles debt and its cultural attitudes about housing.   

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How Fast is a Mortgage Normally Paid Down?

We've got a couple mortgages that we only recently got within the past few years.    The mortgages are both 30 year notes and so I'll still owe on them when I'm in my 60's and past retirement age.   I was curious how much I'd owe on the mortgages so I used the calculator at Mortgagecalculator.org to generate amortization tables.   

One might assume that when you're 15 years into a 30 year mortgage that you'd have it half paid down.  But thats not now it works.   Mortgages payments are mostly interest at the start and little principal is paid initially.   Then as the principal gradually wears down over the years when you get to the end of the original term the opposite is true and most of your payments are principal and (relatively) little interest is paid.

You can see the data below but roughly speaking, for a 4% loan you've paid down just 10% in the first 6 years, 20% in 10 years, 1/3 is paid off by 15 year point and 50% is paid off in 20 years then by the 24th year you've paid down 2/3.

I'm measuring the amounts in the % of original loan that is still owed.    So in the 1st year you still owe nearly all of the loan so its 99-100% (rounded).     I'm assuming the normal amortization repayment rate here and if you paid extra principal into the loan at any point that would accelerate the repayment and change the curve.

The 30 year mortgage pay off rates are shown in graphic form :

Here's a table for a 30 year mortgage at varying interest rates :

Year	4%	5%	6%	7%	8%
1	99%	100%	100%	100%	100%
2	98%	98%	98%	99%	99%
3	96%	96%	97%	98%	98%
4	94%	95%	96%	96%	97%
5	92%	93%	94%	95%	96%
6	90%	91%	93%	94%	95%
7	88%	89%	91%	92%	93%
8	85%	87%	89%	91%	92%
9	83%	85%	87%	89%	91%
10	80%	83%	85%	87%	89%
11	78%	81%	83%	85%	87%
12	75%	78%	81%	83%	85%
13	72%	75%	78%	81%	83%
14	70%	73%	76%	78%	81%
15	67%	70%	73%	76%	79%
16	63%	67%	70%	73%	76%
17	60%	64%	67%	70%	73%
18	57%	60%	64%	67%	70%
19	53%	57%	60%	64%	67%
20	50%	53%	57%	60%	63%
21	46%	49%	53%	56%	59%
22	42%	45%	49%	52%	55%
23	38%	41%	44%	47%	50%
24	33%	36%	39%	42%	45%
25	29%	32%	34%	37%	40%
26	24%	27%	29%	32%	34%
27	20%	22%	24%	26%	28%
28	14%	16%	18%	19%	21%
29	9%	10%	11%	13%	14%
30	4%	4%	5%	5%	6%
31	0%	0%	0%	0%	0%

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Easy Trash Disposal DIY, Saved $100

Our trash disposal stopped working this weekend.     When we would push the button it wouldn't do anything.  We were about to call a plumber when I remembered something about a reset button on the disposals.    Underneath the disposal is a red reset button.  I tried hitting that and then tried the disposal again.  Now the disposal would make a humming noise.   But it still wouldn't do anything.    Again we figured best to call in someone to look at it.  I figured we'd be in for a $100 service call bill.   Oh well, at least a disposal is something you can live without until its fixed.  I decided to take one more stab at troubleshooting it and looked up the manual for the disposal.   We have an insinkerator model disposal.  I found the actual service manual for the model in question and it said to try turning a manual crank on the disposal to clear a jam.   Insinkerator has a page with basic information on how to fix a broken a disposal. I had to find the little wrench for the disposal but once I found it and used it to turn the crank I could feel it grinding through something.   It was tough to move for the first turn or two but then it seemed to clear up.   After that I turned it back on and presto it worked again.

Now I'm not the first person to fix a trash disposal in this way and I'm sure many of you already  know these tricks.  If you don't know how to do this then you could probably look it up on the internet fairly quickly.      I did a Google search for "how to fix a trash disposal" and the first couple results were Youtube videos which walk you through the process.

Note: You do need to be careful when working on something like a trash disposal.   Make sure to follow proper safety precautions.

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10% off Today at Simplisafe

Today you can get 10% off of new system orders from SimpliSafe.     Use promo code CYBMON at the SimpliSafe site.    Its a Cybermonday sale so its only good today.

They also have a promo code BLKF40 for 40% off of extra keypads and freeze sensors.   I'm not sure if you can stack both CYBMON and BLKF40.

I wrote a SimpliSafe DIY Home Alarm System Review about a year ago.   Since we bought the system the glitches we originally had stopped and the system has worked fine.  I think we had a dead battery in one unit but that was about all.   Also they have since added monitors for fire alarm and carbon monoxide as well.  

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Why You Shouldn't Use a % of Purchase Price to Estimate Home Maintenance Expenses

"A general rule of thumb is that home maintenance will cost you 1% of the homes purchase price."

Have you ever heard this rule or something similar?   It seems kind of common.   Some people might make it a broader estimate like 1-3% or whatever, but you get the idea.     When I wrote the article What does home maintenance really cost? several years ago I had cited such rules as one opinion on the matter.

But theres a big problem with those fixed % of cost rules:    The cost of the land.     

The biggest difference in housing costs in the US are based on the value of the land.   Land in San Francsico is at a very steep premium compared to someplace like say Bismark, North Dakota.  If you had the exact same house in S.F. city limits versus Bismark it would likely cost over half a million dollars more in S.F. based on the difference in the value of the land. 

OK so lets illustrate the problem here.   Lets compare two identical houses.   One is in San Francisco and costs $750,000 and the other is in Bismark and will run you $150,000.    The house itself is only worth $125,000 and the rest is the value of the land.   The little lot in S.F. is worth $625,000 and the Bismark lot is only $25,000.   All right... so lets use the 1% rule to decide our home maintenance costs.   That 1% rule would dictate we spend $7,500 a year to maintain our house in S.F. but only $1,500 in Bismark.   Clearly it doesn't cost 5 x as much to replace carpet, paint, fix appliances and maintain the roof for your house in S.F. as it does in Bismark, ND.   But using the 1% rule would make us believe so.     

Lets make the example even worse:  Lets compare a 2 bedroom condo in S.F versus a McMansion in Texas.   The Smith family buys a 1,200 sq. ft condo with 2 bedrooms in S.F. and spend $500,000.    The Jones family buys a 3,600 sq. ft. house with 4 bedrooms in Lubbock, TX for $370,000.    Following the 1% rule we'd get a maintenance budget of $5000 for that condo and $3,700 for  the  McMansion.   The 1% rule would have us believe that a 2 bedroom condo would cost about 1/3 more to maintain than a 4 bedroom McMansion 3 times the size.   Clearly thats not the case.

(note: my examples are ignoring different costs for labor and materials in different cities.  That matters but not in a way that validates the 1% rule.)

The 1% rule or similar rules based on proportion of the purchase costs of a home are skewed by the differences in land values across the nation.

The size of the house, the age of the house and its features are going to matter a lot more than the purchase price of the property.

Most houses in the USA are in the $100,000 to $300,000 range.    You can probably estimate just as well by figuring a rough $1000 to $3000 maintenance budget and do just as well as any 1% or 2% rule would give you.

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Most American Homes Have 3+ Bedrooms and 2+ Bathrooms

If you've been wondering to yourself how many bedrooms and bathrooms a typical American home has then today is your lucky day.

The American Housing Survey for 2009 has a lot of information on American homes.  Buried in their data in Table 1-3 is information on the number of bedrooms and bathrooms in homes. 

I pulled the numbers and here is the information presented in pie charts :

and

So over 60% of homes have 3 or more bedrooms and half of homes have 2 or more bathrooms. 

OK OK ...you caught me.     I'm probably technically wrong to say that most homes have 3+ beds AND 2+ bathrooms since that isn't really captured in the data and we don't have 100% overlap between the 2+ bathroom homes and the 3+ bedroom homes.  But close enough.

Now you know.

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How Much Does it Cost to Build a House?

A few years ago a friend of my dad had a house built for about $150,000.  He originally got a pretty wide variation in estimates and if I recall right other builders quoted him $200,000 or more.  Say you were to buy a piece of land like he did and hire someone to build a house for you -  How much would it cost?    Of course the quality of materials and the design of the house will impact the costs a lot.  

The price of home building is going to be so variable that its

not possible to set an accurate amount that would be useful across all situations.   There are too many factors that would impact the cost significantly.   Size of the house, local labor costs, local home building market, local laws, quality of materials chosen, etc.   All of these variables will impact the costs substantially. 

The National Association of Home Builders (NAHB) cited average costs for 2011.   They say the average construction costs for new homes in 2011 were $184,125 for a 2311 sq ft house.   That gives us a general rough average figure.  The numbers will vary a lot depending on where you live and the nature of the house. 

So how can you find out the cost of building a house in your area?  Again, there are too many variables to get a solid number but you could use some basic estimating tools to find a broad range of costs.   Below are 3 tools you can use to estimate home building costs.   You can then use those 3 tools to give you an estimate of the range of prices for your area.

Method #1
Building-cost.net has a calculator that you can use to estimate home construction costs.   They will let you pick a lot of detail about the size of the house, the design, the features the quality of construction and then specify the metro area that the house is in.  Then they give all the final results of the cost broken down including the materials, labor, and contractor markup.   I first chose the middle level quality of '3' and their figures for a typical 2300 house in my area came out to $391,000 which is very high.   New construction 2400 sq ft houses in our area are selling for closer to $300,000 already built.   I ran it again and chose quality level of '5' and it came out with a more realistic figure of $217,000 which is closer to reality.

Method #2
Buildingjournal has a simple calculator that estimates costs.   They only ask metro area, exterior finish, number of stores, basement, construction grade and the sq ft size.   They say a 2300 sq ft house in my area costs about $187,000.

Method #3
One way to figure out the cost of new construction in your area is to look at what new houses sell for.   You'll then have to deduct the cost of land.   That may be a little harder to figure but you can usually find vacant lots for sale in your city and figure out the land values from that.   So for example if a new 2400 sq ft house is selling for $300,000 in my area and a similar size vacant lot here sells for $50,000 then I could estimate the local construction cost to be closer to $250,000.   Of course thats not really exact either.   A builder may have a higher profit margin or they could even be taking a loss.  

Estimating a range of costs
Given the 3 estimating methods above I get figures of $217,000, $187,000 and $250,000.    Thats just about $217,000+/- 15%.   I could also say the range is $81-$109 / sq ft.   I expect this is in the right 'ball park' for the local home building costs.


Photo by ArmchairBuilder.com
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SimpliSafe DIY Home Alarm System Review

We used to have ADT for our home security since my wife had signed up with them when she was single.   Finally we got out of their multi-year contract and we were happy to be rid of it.   After seeing some positive reviews on the net and doing some comparison shopping I decided to go with SimpliSafe for our new home alarm.

So a few months ago I bought and installed a SimpliSafe2 home alarm system.    The  SimpliSafe system is a simple wireless based do-it-yourself home installation with no contract commitment.  The basic alarm monitoring costs just $14.99 per month.  The alarm is monitored with police dispatch.   They use a cellular wireless signal so you don't have to have it connected to your home phone or even need a home phone.   This is a nice feature for us since with the ADT system we were stuck having a landline because the alarm system required a home phone to dial out on.

Great pricing

While companies like ADT often offer free hardware installation, you do have to pay to buy your hardware from SimpliSafe.   However its reasonably priced.

You can get a basic system for about $280 :
1 base station
1 wireless keypad
1 (free) keychain remote
2 motion sensors
3 entry sensors
1 yard sign
2 window decals

$278.92 with free shipping

I opted for the SimpliSafe2 system since it has more features like freeze and water alarm and plans for fire and carbon monoxide alarm.  The total cost I paid for our system was $463.55  That included the SimpliSafe2, 3 door sensors, 2 motion sensors, panic alarm, 2 keychains and a yard sign. 

The monthly monitoring cost for SimpliSafe starts at only $14.99 compared to the $42 and change that we were paying for ADT.   ADT quickly gets the money from the free hardware back by charging you significantly more for monthly service and locking you into a 3 year contract.

If you compare a basic SimpliSafe configuration with ADT you'll save hundreds of dollars over a three year period.  

	ADT	SimpliSafe
Hardware	$0	$280
Monthly	$42	$15
3 year total	$1,512	$820

Total savings = $692


Thats an apples to apples comparison of features from ADT and SimpliSafe.   You can spend more with SimpliSafe if you want more features.   The SMS text monitoring service is an extra  $5 per month and advanced online monitoring and other monitoring will be $25 total, but our ADT system didn't offer those features.

Super Easy Install
The installation was very easy and the monitors simply stick on the walls.   When you turn on the base station it has voice commands that tell you what to do.    SimpliSafe's site has a 5 minute video showing the installation.   It is really simple to install and get setup and you can do it in a matter of minutes.  
 
Glitches
I did have some initial glitches getting the system to be recognized by SimpliSafe and I decided to hoook the unit to our home phone. 

Unfortunately our home has very poor and undependable cellular signal and I think that is likely the cause of the problem we had, though I'm not certain.   I also have to say that one time my wife accidentally triggered the alarm and it didn't seem to call the police.   We're not sure why that happened.  I don't know if my wife ever found the time to call the SimpliSafe people to follow up and try and figure out what happened.  

Limited technical support hours 

One of the negatives I found with SimpliSafe is that their actual phone support has pretty limited hours of just Monday - Friday 9AM to 6PM EST.   Thats not convenient and not very good as far as I'm concerned.   I can't take off time from work to troubleshoot the thing and I went in assuming they'd have basically 24/7 phone support, but I assumed wrong.   Of course the monitoring system is 24/7 but if you need technical support then they are limited to bankers hours.  



Pros
- affordable cost
- no contract
- easy install
- portability
- cellular based monitoring
- wireless sensors

Cons
- support hours
- glitches when installing


Other sources :
I first recall reading about SimpliSafe at the review at MyMoneyBlog
Here is a YouTube review which shows the actual hardware as it comes in the box.   Another Youtube video shows some home installation.

Overall I would recommend SimpliSafe as I think the glitches we've seen are the exception to the rule and its a great value.


 -- This article may contain referral links which pay this site a commission for purchases made at the sites.

The Furniture Bubble of 1999 - Cost of Furniture from 1969 to 2012

The other day I found an old receipt for some furniture I had bought in 1997.   It was the furniture I bought for my first apartment I had when I initially started my current job.   I paid $658 total for the furniture.   I was wondering how much that might equate to today given the rate of inflation.   Somewhat surprisingly the cost of furniture is actually down from 1997 to today.   Apparently when I bought in '97 I got in just before the peak.    We still haven't recovered from the 'Furniture Bubble of 1999'.  

I got the data from the BLS CPI site.   You have dig into the database to get the figures for specific index and I used the 'furniture and bedding' price index.  

Here's the history :

As you can see the prices have been dropping since 1999.   In that year the peak hit 135 on the index and today its down to 119.   That equates to about -1% annual change or 1% deflation for the period from 1999 to 2012.   This is a distinct change in price trends from what we saw the previous 3 decades.    From 1969 to 1999 the price of furniture went up gradually as you would expect to see.   In that 30 year period furniture costs rose an annual rate of  about 3.4%.

Of course I'm just jokingly calling this a 'Furniture Bubble'. Just because prices go up and then decline does not qualify as a bubble.   It seems that sometimes people look at increasing prices and declare it a 'bubble' no matter the circumstances.  I think this is an example of how thats not true.  Rising prices alone don't equate to a bubble.

Why did prices drop in the past 13 years?    Your guess is as good as mine.   I'm thinking its due to us buying more stuff cheaply made in China or via Ikea.   Also, I didn't look into the methodology of the index so I don't know how exactly they are measuring the prices.   Its possible that the products we are buying are more often cheaper quality as well.    It also seems to me that every single furniture item I buy nowadays comes unassembled and there is certainly a cost impact associated with that.

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Foreclosure Trends per State or County at RealtyTrac

The RealtyTrac site captures a lot of data on foreclosures.    When you hear about the national trends for the foreclosure rate from the media that may be very different than the picture in your own area.   Some states and cities have been hit far rose by foreclosures than others.    Real estate is a very local market so its best to check the trends in your own city.  If you want an idea of how things are in your own city then you can find that at RealtyTrac too.  

Here is the data from Realtytrac:

Click to go to source at Realtytrac

I tried to use their embedded widget for this article but it didn't fit right so I resorted to a static picture.

The national map shown above is at the RealtyTrac trend site.

If you click on your state then it will take you to data for your state. From your state level you can then drill down into the county level numbers.   So for example you can see the the trends for Nevada then Clark county then Las Vegas where you can finally see the numbers broken down by individual ZIP codes.


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Why You Should Get Rid of PMI

If you buy a house with less than 20% down payment then you generally have to pay PMI or Private Mortgage Insurance.   Simply put, PMI is extra insurance you have to pay to protect the bank from potential loses.

PMI can be costly.   

I talked before about how much PMI costs and I briefly touched on how it how the true cost of PMI is often significant as a percent of the equity in question.   I think its a pretty important point so I wanted to elaborate on it.


If you're looking at paying $50 or $100 in PMI per month that may not seem like a huge amount.   Its just one of the various things you pay to buy a house.  You might have an $800 mortgage payment, $200 towards property tax, $50 for insurance and $50 for PMI.    But the thing is that PMI is really only based on the short fall in equity so this $50 or $100 charge is kind of like paying extra interest on the extra money you borrowed.     So if you go with a 10% downpayment instead of 20% on a $100,000 home then the difference is $10,000.   The PMI charge is an extra cost for that $10,000 difference.   $50 extra on a monthly payment for a $100,000 house doesn't seem as bad as $50 a month to borrow an extra $10,000.


Consider an example : Lets say you want to buy a house for $200,000 and only have $25,000 to put down.   Thats a large chunk of money but its only 12.5% rather than the 20% down you need to avoid PMI.    For such a loan you would end up paying monthly PMI of about $90.   That would cost you $1,080 over a year just for PMI.  If however you had an extra $15,000 in the bank that you could put into the loan you'd avoid that $1,080 annual PMI cost.   Effectively this means you're paying $1,080 yearly for that $15,000 difference.  This equates to a 7.2% cost on that money for PMI alone.   If you then add in the mortgage interest cost you're looking at another 4% for the mortgage you pay based on borrowing the extra $15,000.

Between the mortgage interest of 4% and the PMI costs equating to 7.2% you're losing 11.2% on the short fall in your down payment.    PMI is effectively costing you 11.2%.   Thats a horrible rate.

Worse yet, PMI doesn't go down as your equity increases.   So the % amount you pay on your equity short fall only gets worse and worse.   Lets say you get this loan with 12.5% down and keep making payments for a few years.   4-5 years from now you'll have made some principal payments which reduce the loan and increase your equity.   If you look 3.5 years down the road you may be on the verge of having 20% equity.   Looking at an amortization table in 3.5 years you would have a balance of about $163,000 which is just $3000 short of 20% equity on the original mortgage.  However you're STILL paying the same $90 per month or $1,080 per year PMI charge.   That means that you're paying 36% in PMI charges on the equity shortfall.   With the 4% mortgage interest you'd be saving 40%!  

So just 3 years into the loan and your PMI is costing you 40% on your equity short fall.  Would you voluntarily pay someone 40% interest?   Thats not a good idea.

It only gets worse from there.   Move forward 9 months when you're about 4 years and 3 months into the loan and you now owe about $161,000 on the loan.   Now you're only $1000 short of getting 80% equity.   That means you're $1000 short of being rid of PMI.    Yet you're still paying $90 per month on your PMI bill.   This is effectively 108% interest for the PMI on that $1000 difference in equity.   Plus the 4% mortgage interest charge and now at month 51 of the loan the  PMI is costing you a whopping 112%!    Clearly at this point it makes a LOT of sense to pay that extra $1000 towards your principal and get out from PMI charges.


Like I said before... PMI can be costly.

I should point out that 80% is not really a magical point that you get out of PMI.   I just used 80% to illustrate the example.   Getting rid of PMI is another story.  You may have to get an appraisal to prove the value of the home and your home would have to maintain its value or go up in value.   I'll cover more on how to get out of PMI in another post.

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Should You Sell a House at a Loss or Rent it Out?

Unfortunately a lot of people have homes where they are underwater on their mortgages.   Something in the range of  30% mortgage holders are underwater.    This can present a large problem if you are in a situation where you need (or want) to relocate.   One common solution to selling a home at a loss is to rent out the home.   However renting an underwater home can also result in negative cash flow.   In addition many people do not want the hassle of the extra work of being a landlord or simply aren't suited for the job.

Lets say you are underwater on your home and you are going to move.    How do you decide if its better to sell at a loss or to rent out the property?     

Lets look at a comparison

WE have two options.   First of all is to sell now at a loss.   This option is fairly easy to figure the cost due to simply counting the difference in equity.  For example, lets say your house is currently worth about $100,000 and you still owe $125,000.   Then you would take a loss of about $30,000 to close assuming a 5% Realtor commission.   

The second option is to rent out the home.   This will result in a cash flow that may or may not be negative.   To figure the cash flow you'd have to add up the pluses and minuses.  
Roughly speaking we could figure cash flow by adding up :
rent + tax benefit + principal pay down - mortgage payment - expenses = cash flow

Lets say the home in question has a mortgage of $1100 and would rent for $1000 a month.    Lets assume 95% occupancy.   Your mortgage is $900 for principal and interest and $200 for taxes and insurance.  You bought the house in 2003 with a 30 year mortgage at 6%.     Principal paydown is currently about $3000 a year.   Expenses run roughly $3000 a year typically and thats assuming some larger expenses in some years.   Your tax benefits would add up to something around $1500 a year.   Altogether that would give you :

$11400 rent + $1500 tax cut + $3000 principal - $13200 mortgage - $3000 expenses = -$1900

Option 1 : Sell today and lose $30,000 out of pocket.
Option 2 : Rent the house and lose $1900 per year.

To me this seems like a clear cut choice.   I'd much rather lose $1900 a year than give up  $30,000 today.   The choice is even easier if you don't have $30,000 today as most people don't.  

But what if you can afford the out of pocket loss today?    What if the annual cash flow for renting is much higher like say $4000 a year or $6000 a year?

If the cash flow loss from a rental is a significant portion of the up front out of pocket  loss from selling then that might making selling a clear option.   For example I'd much rather sell at a $10,000 loss today than take a $7000 annual loss by renting.  

Lets consider a situation where its not quite as clear whether the equity loss from selling or the cash flow loss from renting is better.

Sell : Take a $30,000 out of pocket loss
Rent : Annual cash flow loss of $5000

For this situation its important to figure how long till the house is hits positive equity.   You don't know this for sure since you can't tell how fast housing values will change.   We'll have to make an assumption about future home values.   To tell what the loan balance will be in the future you would have to look at an amortization schedule.  You can do that using a mortgage calculator.   Lets say that housing prices gradually appreciate at 2% a year and the home is currently worth $100,000 but the loan is $125,000.   You might hit positive equity in about 6 years in such a scenario.   This means you could be losing about $5000 a year for 6 years until the property has gained enough value and you've paid down the mortgage such that you can sell it and break even on the sale.  

Sell today : Take a $30,000 out of pocket loss
Rent and sell in 6 years : Annual cash flow loss of $5000 for 6 years.

This appears roughly equal.   However the Net Present Value (NPV) of $5000 over 6 years is lower than $30,000 today.

If it would take 8,9 or 10 years till the equity is break even point then renting for that long would be a larger over all financial drain than simply selling today.

Non financial issues

Of course renting out a property requires some work.   You may not be suited for being a landlord.   If the financial choice is not too different between selling and renting then many people would prefer to simply not rent.   Do you want to be a landlord?   Would this property be a good investment property if you weren't underwater?  Probably not.   

Risks of renting

There are various risks with running a rental property.   Your tenants may not pay rent or may damage the unit.   The property may require significant repairs over time such as replacing a heating system or putting on a new roof.  

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STILL House Shopping 18 months later

My wife and I started house shopping in Sept 2010.  We were still shopping in March 2011.  Our home search continued in Sept. 2011.   We're still looking after about 18 months. 

The market was fairly slow over the winter months and the house shopping slowed down since nothing much appealing came up for sale.   There were a few houses that came by that were interesting but not a lot.    In the past month or so the market has really started to get more active and we're seeing several homes put up for sale each week. 


One failed offer

After many months of searching we actually finally made an offer on one house only to end up being outbid by a competting offer.   That experience was a little frustrating.  We actually looked at the house then didn't make an offer fast enough before someone else made an offer and a sale went pending.   Losing it disappointed us, but then a few days later that deal fell through and we were able to put in our offer.   But the day after our offer the original deal was back on and we lost out.   It was a nice house in a great neighborhood.   The price was around $450,000 and I don't recall exactly how much we offered.   Since it was priced pretty low, I don't think we offered much lower than asking.

Loan pre-approval


This week we finally gathered up all the documentation required to get a pre-approval on a loan.   I submitted the documents to our mortgage broker earlier this week and I'm waiting on the results.  We have had a pre-qualification for a long time but thats not the same as a real pre-approval.   The pre-qualification is more of a 'rough estimate' on our qualifications.   At least thats my view of it.   The pre-approval however is an actual approved mortgage amount.    We wanted to get pre-approved for a couple good reasons.   First it will help us make a quicker purchase.    Second, having the pre-approval already done will also tell us how much of a mortgage we can actually qualify for.     The broker indicated we'd qualify for a loan much larger than we really want, so I don't expect a problem.  

More cash, cheaper houses, lower interest rates

The whole time we've been looking our cash balance has gradually grown.   At the same time the prices of homes have gone up and down a little bit.   Today interest rates are at 30 year lows at around 3.7% level.   Combined these trends have made a house more affordable as far as impact to our bank balance and in terms of the monthly mortgage payment.

Here's the trend in finances over the period we've been looking :

	Feb-11	Mar-11	May-12
Cash on hand	$120,000	$150,000	$175,000
Cost/ sq ft	$164	$166	$161
Cost for 2500 sq ft	$410,000	$415,000	$402,500
Mortgage rates	5.10%	4.00%	3.75%
Down payment	$82,000	$83,000	$80,500
Mortgage payment	$1,780	$1,585	$1,514
Cash left	$38,000	$67,000	$94,500

The cost / sq. ft. figure quoted above is the median for the ZIP code we're looking in.   The actual homes we've looked at vary quite a bit.   In the past coule weeks we've seen homes that would come in at $148 / sqft versus $193/ sqft.    The first was a foreclosure that needed some work and the other was a pretty nicely updated home in a nice neighborhood that was probably over priced.

Looking for 2700 sq ft up to $500,000

Right now we've mostly settled on a home of around 2700 sq. ft. in size.   It seems that what we want in a home fits at that size roughly.     We've also gradually increased the price of homes we've looked at up to the $500,000 level.   As we looked at more and more homes and failed to find what we want, we gradually looked upwards in price.   This is of course not a great trend, I'd of course much prefer that we could find a home we want for dirt cheap.   But we're found that the kind of homes we want are closer to $450,000 to $500,000 range.    The lower interest rates and more cash in our bank account has made it feasible for us to consider spending a bit more.


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Energy Costs versus House Age

Modern homes are built in more energy efficient ways.   New homes usually have better insulation, more energy efficient double pain windows, more efficient furnaces or air conditioners and other energy efficient improvements over older houses.   It then only stands to reason that newer homes should be cheaper to heat and cool. 

Of course newer homes are often larger than older homes so some of that efficiency gets masked by the higher energy costs of a larger home.   Therefore the best way to compare the energy efficiency based on age and improved building practices is by the average cost per square foot.

I found information on average energy spending per homes from the US Energy Information Administration and they broke it down into the decade the home was built.   The numbers are from 2005 which is the most recent covering this information.

Here's the data :

Year of Construction	$ / sq ft
Before 1940	0.88
1940 to 1949	0.88
1950 to 1959	0.86
1960 to 1969	0.90
1970 to 1979	0.89
1980 to 1989	0.85
1990 to 1999	0.76
2000 to 2005	0.68

Interestingly there aren't t major differences in the amount spent on the homes from 1940 to 1979.   It seems that the biggest efficiency improvements kicked in after the 1980's. 

If you were looking at a home built in the 1960's versus one built after 2000 then you could expect to see about a 24% decrease in average energy expenditures.

I should point out that this analysis is not perfect since this is just the amount people spent and not necessarily an indication of the different quality of home building per decade.   In other words its feasible that people who own older homes are more likely to waste energy or something like that.   I haven't proven a cause - effect here.   Also the data doesn't take into account other variables such as who owns the homes, where they are built, etc.  Its also possible that more of the new homes are built in states with lower energy costs.   However I think its pretty reasonable to take national spending averages and then assume that the differences are related to building practices based on building age.  

It should also be noted that these are just national averages and individual spending will vary greatly in different climates and other factors.    

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IKEA Furniture Starter Bundle

LACK table just $20

When you start out in life after school it is pretty common to have an apartment.   In order to furnish that apartment you may very well need to buy a fair amount of furniture.   Most people, I'd assume, leave their parents homes with little furniture other than a bed typically.  

Personally I'm of the opinion that when you first set out on your own that you should keep your household furnishing spending on the cheap side.   This is often necessitated by the cost, its not as if most people can afford a lot of expensive stuff with the wages from their first job.  However you may start with a reasonably good salary and have enough money to spend on nicer stuff if you choose.   So if you have the funds I think its smart to limit the spending initially.   Couple key reasons for this are 1) you may get married later and then end up duplicate furniture items or your spouse may have different tastes in furniture and 2) You are likely to move later and your initial furniture purchases may not fit well or match the style of your housing later in life.  

Used furniture is one way to keep costs low.  You can find a lot of good furniture for reasonable prices on Craiglist or at thrift stores.   If you have some time to prepare for a move and acquire stuff then I'd strongly recommend shopping for used bargains first.   When I first moved into my apartment when I got my current job I bought used furniture from a furniture rental store.  The furniture was good quality and only slightly used.  But a lot of people don't have the time to shop around for example if you get a job offer and you're faced with a cross country move to start a job in a couple weeks.

You can also get some pretty good new furniture at IKEA. If you don't have time to shop around for used stuff then this is a reasonable way to go.   I've honestly never shopped at IKEA myself.   But its one of the only nation wide chains that sells furniture and their prices are good.   They seem to have a pretty good reputation but again I can't say with first hand.

Here is an example 'bundle' of furniture from IKEA that would be suitable to furnish an apartment for a single person :

sofa bed $200
coffee table $20
chair $30
dresser $40
dining table $50
dining chairs $10 x2 = $20
mattress $100
bed frame $50
bed base $30

delivery fee = $49

total cost = $589 plus local tax

LYCKSELE LÖVÅS
sleeper sofa for $200

Of course you can pick your own choices in furniture to meet your personal preferences and needs for style and function.   This is just an example list to demonstrate how you can relatively cheaply furnish an apartment with new basic quality items.

One big negative about IKEA is that their furniture is almost all "assembly required".  However if you shop around at many other places, this is not uncommon for cheaper furniture.  I've had to assemble most of the furniture we've bought over the past few years.


Images from IKEA website

Homeowners versus Renters by Income Groups

I got the data out of the BLS Consumer Expenditure Survey.   They break down their numbers by income quintiles so thats a handy way to see some status broken down by income groups.

Here are the numbers in a table:

	All	1st	2nd	3rd	4th	top
with mortgage	41	12	23	41	57	71
without mortgage	25	28	31	27	21	18
Renter	34	60	46	33	22	11

In general the lower income group folks are more likely to rent and the higher income people own more often.   That follows from the simple fact that higher income makes it easier to buy and afford a home.   Also, younger people are more likely to have lower income and less likely to have settled down and bought a home.   So I figure some of this is correlated to age as well.

I find it interesting that lower income people are more likely to own a home without a mortgage than higher income people.   28% of the people in the bottom  quintile own a home without a mortgage compared to only 18% of the people in the top quintile.    I would hazard a guess that this is due to lower income people owning homes through inheritance or gift more than not.   Homes can be passed down from generation to generation and if you're lower income you're more likely to keep an inherited home, whereas higher income folks are more likely to go out and buy a more expensive home.   But again, this is just my theory.

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How Common Are House Fires?

A relative of mine currently has no home insurance.   If his home burns down then he's just out of luck.   He's taking a risk by not paying insurance.   Since he doesn't have a mortgage loan he can get away with not having insurance, plus he is in a very good financial situation so he could withstand a major loss.   While this is risky for him, going without insurance is saving him over $1000 a year.   For most people insurance is required for your mortgage so its not an option.   Even if your mortgage is paid off its usually not a good idea to go without insurance since the risk of a major loss would be a major financial hardship.

The major risk my relative faces is a house fire.  How common are home fires really?

[edit: I should point out that home owners insurance covers a variety of things other than fires.  Having homeowners insurance is almost always a smart move.  So don't follow my dads example ]

Image by dvs

I do not personally know a single person that has had their home burned down entirely.   I do know a couple people who have had minor home fires.  One person was smoking and had a small fire in his room and another relative had a kitchen fire.  In both cases the damage wasn't very significant.   But of course my own anecdotal evidences from my personal experience doesn't tell us much. 

The FEMA U.S. Fire Administration keeps stats on fires

In 2010 there were 362,100 residential fires in the USA.     In total the fires caused $6.65 billion in damages.

According to the Census there are 131 million housing units in the US and 114 million households.

As far as frequency you could figure that 0.317% of households experienced a fire in 2010.   Or we could say that 0.276% of housing units had a fire in the year.

With 362,100 fires and $6.65 billion in damages that means the average property damage from a fire was $18,365.

Clearly damages of $18,365 would not indicate the average fire causes the home to be destroyed or "burned to the ground".    Most of the fires are more more minor in nature and likely include many kitchen fires which result in smoke damage and minor structural damage.    Of course $18k is a large bill and most people can't afford that, but its much better than having to replace an entire home.

I could guesstimate the portion of homes that are actually burned to the ground.  First I'll take a wild guess that replacing a home costs $150,000 on average.  With $6.65 billion in damages and assuming that $150,000 replacement cost then the maximum number of homes that could be burned down totally would be about 44,333.   This is just a guess of course.   But I think it is reasonable to assume that only 10-20% of the homes that have a fire are totally ruined to the point of needing complete rebuilding.     If one in 10 fires results in a destroyed home then 0.03% of individual homes are destroyed by fire in a year.  That would mean that the chances of having a home burned down would be approximately 1 in 3000 ballpark.

Another way to look at the cost of fires is the average cost from fires per year per household.   Since theres $6.65 billion in damages if you average the cost over all the 114 million households the average cost per household is just $58.33.   If you're deciding if insurance is worth while then this is the figure I'd use compared to an average cost home.  If the average home costs about $170,000 then we're talking roughly 34¢ per $1000.   In other words a $200,000 home would have likely fire damage of 34 x 200 = $68.   I would estimate the fire insurance costs at roughly 34¢ per $1000 home value.    Keep in mind this is really just a ballpark estimate.  Insurance costs vary greatly from state to state based on local costs and varying likelihood of damages.

Of course the risks will vary based on several factors like age of the house, whether or not you smoke, how much you cook in the kitchen, etc.   The amount of property damage caused by a fire will be proportional to the value of the house as well.   It costs a lot more to replace a fancy kitchen in a  large house then to fix a few cabinets in a squalid apartment.  

What causes home fires?

FEMA's US Fire Administration site also has data on the causes of fires.   Here are the causes of residential fires ranked by %.

Cooking	46%
Heating	13%
Electrical Malfunction	7%
Other Unintentional, Careless	7%
Open Flame	5%
Intentional	4%
Equipment Malfunction	4%
Other Heat	4%
Appliances	2%
Smoking	2%
Exposure	2%
Natural	2%
Other Equipment	1%
Investigation with Arson Module	1%
Playing with Heat Source	1%

Looking through that list, there are not a lot of causes that you can easily avoid.  Not smoking and not intentionally burning down your own home only accounts for about 6% of the fires.


Cooking is by far the #1 cause of fires in the home.   That makes sense.   Who doesn't know of someone who's had a kitchen fire and probably had something on their stove catch flame once or twice?   Ok maybe I'm not a very good cook, but I think fires in the kitchen are not very uncommon and they can certainly turn into major fires.

Notice that smoking is the cause for just 2% of fires.   I would have guessed that number would be higher but only around 20-25% of adults smoke in the US.
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