Two Americans emigrate to New Zealand from Colorado,
USA.
We share our Kiwi immigration story and talk about
our new life in Nelson, New Zealand
April 2008 | Blog home | June 2008
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We're back from holiday, with nearly a week of work under our belt and guess what ... we'd rather be on holiday ALL the time!! No shock there.
Day one of our trip looked very much the same as the final day: travel. We put a travel day on each side of our 8 days because trekking out of Nelson overseas, and then to the Gold Coast was going to take about 10 – 12 hours.
On day one we got started with a noon-time trip to the airport, but Don had started much, much earlier – the night before was party night for some unknown reason. We had our friend Wayne over for dinner and Don decided that three bottles of wine was on offer for the night and proceeded to drink himself silly. As such, he was massively hungover on Saturday, to the point of puking, yes. 
Sucks for him to have had to be on a plane, another plane, a train, and then an automobile. ETA on the Gold Coast? 9pm at night, WITH a 2-hour time change.
Taxi picked us up at noon and we waltzed through the highly secure Nelson airport and boarded the smallest plane I've ever been on bound for Christchurch. I'm sure this would be a violation of some sort worthy of losing one's hand in America, but Don snapped this shot of the interior of the plane as we just had to share. No door to the cockpit – this is the type of plane we think was involved in that crazy woman hijacking to Blenheim some weeks ago.
It was a Beechcraft 1900D, with the D standing for 'doesn't have toilets. Bare bones all the way to Christchurch over 45 minutes. It was cool to be able to watch the approach to landing out the front window, as the plane weaved to and fro and we somehow aimed for and got to the middle line on the runway for safe landing.
Still, I find myself more comfortable these days riding in a wee plane like this rather than a jumbo jet. I would be in my second jet since 2006 and all I can say is at least it had toilets. And a movie (National Treasure 2, sucked).
We landed Brisbane after a 4 hour journey (following a 2-hour layover) and headed to the train connect to take us on the 80 minute train ride in pitch black darkness to the Gold Coast. I could hardly keep my head up with that darned soft train rocking that had me so sleepy in no time.
We scavenged for food for dinner and got to the train station on the other end, thankfully into the cabbie that was waiting us (had booked a train/cab dual ticket) to take us to the front door of our apartment hotel by about 9pm. I crashed on the bed within about 2 minutes after entering the front door.
4 May: Day two of our Gold Coast vacationDay two (Sunday) started very, very early because the sun rises at about 6am and is full on by 6.30am, so much so that you feel like it's closer to 10am. But I was up after 9 hours sleep and we got a good look at our apartment, our amazing views, and the great deck that we ended up using a lot of the time. 
All in all with our windows and decks we probably had about a 300 degree view of the surrounds (high rises included, unfortunately) which were gorgeous.
This, clearly, is a composite of a few photos trying to capture the coastline, at least, but the photo below is one looking down one of the roads to the south or north (I'm directonally challenged).
My first trip, AFTER going to the deck and watching the early morning, was to the bathroom, as you do. Well I guess this hotel was not very well planned because there was about 1.5 inch metal step up into the bathroom that my long, skinny toes didn't quite manage to breach, and so I got a major toe stub and sprain that hounded me for the next several days. 
As this particular day progressed, and I was on my feet for much of it, the toe got purpler and purpler, then red, then green blue and yellow. It was stiff and numb and I thought I'd done more damage based on its look, but I could move it and wiggle it so it probably was just a bad sprain. We took the bathroom rug and laid it before the entry way to the door so I would have a bright reminder to LIFT my feet.
With both of us up and ready to go early, we headed down the road and found a Starbucks and grocery store to stock up, phew! We would be eating breakfast after all. Once we stocked up the kitchen and filled our bellies, we looked outside to determine what to do. As it would turn out, this first morning was our only cloudy/rainy time on the Gold Coast all week, and it was clearing early anyway. What should we do?
Of course, we would go shopping, indoors.
Pacific Fair is the much touted mega mall for the Gold Coast and it was indeed huge. It had indoor and outdoor shopping with many shops we were familiar with from both NZ and Sydney. But even better, it had a fabulous department store that really lived up to the name, and I spent waaayyyyy too much time there over the coming week. Really, an embarrassing amount of time.
But day one was for looking around the mall and determining the lay of the land for conquering on another day. We just wanted to scope it out. 
And while scoping it out we came across something we'd not seen in nearly 2 years: OMG, it was ice cream, REAL TRUE ICE CREAM from Baskin Robbins!! Gooey, chunky, goopy, yummy heaven. We ran to the stand. 
Although I wanted one of each of all 31 flavours, I contented myself to a 2-scoop (costing nearly $8NZ!!!) of Jamocha Almond Fudge and Peanut Butter Chocolate swirl. Two of my favourite 31 flavours. It was a big cup and huge scoops inside, and even though I thought I was game, I found myself floundering over the second scoop, which I "forced" Don to eat most of. He wasn't happy, but there was a job to do and he did it with gusto.
We sat for probably 30 minutes enjoying our ice cream and afterwards felt really sick to our stomachs. It had been awhile since we'd had something that rich, and although it was wonderful and we agreed to make the most of this access and eat ice cream daily, we came to find in the forthcoming days that we couldn't stomach it again until SATURDAY! The day before we left. It was simply too rich, we lost our taste for it. BUMMER! But truly we couldn't manage to order another, much smaller portion, for a week.
On Day 3 we decided to finally head the 2 blocks to the beach and actually have a walk along the water. Pathetic, right? Shopping first, second AND third, and only then go to the beach. 
Anyway, as I already mentioned the sun is up and away very early and it inspired us to be out and about in nature. So we took an early morning brisk walk along the water that was invigorating, and we got to see the zillion dollar homes in Broadbeach (our 'neighbourhood' in the Gold Coast) just a short way down the walk all wedged next to one another along the beachfront. Rich mega huge houses with massive security and high walls along the beach road. It reminded me of San Diego. Wealth just dripping onto every sidewalk.
Well, not every sidewalk. Looking down from our apartment, we could see the makeup of the area quite well. While the rich houses were toward the beach and a ways down, high rises scattered along prime real estate next to small apartment 
complexes in the prime tourist areas, and then tossed in randomly was the occasional house or duplex. Very odd setup, but I guess if you own property on the famous Gold Coast you'd not be too keen to sell it since the value is like ... well, gold. 
It made for an odd mixture in the neighbourhood, although I am happy the whole place wasn't completely high rises, it's bad enough as it is!
But as you can see from the photos, the beach there is lovely, who wouldn't want to live there? 
The waves look treacherous and we were not there on this day to go swimming. Some people were, the surfers here are active all day long and hang out very far to catch the biggies (one is swimming out in this photo, left). And of course the fishermen as well. Perhaps the waves will die down as the week goes on and we can actually dip our delicate derrieres in the agua.
What to do today, though? Don had his hand up big and tall with an idea. He wanted to go shopping (again!) but this time at Surfer's Paradise, the 'neighbourhood' about five kilometres down the road. I wondered why, but only for an instant as my mind naturally perked up with the idea of more shopping.
It soon became abundantly clear why we were going where we were going.
NOOOOO, silly people! Not there, not to the Condom Kingdom (appropriate for Surfer's Paradise as it's quite the party area, it had a spring break destination feel). The shop 
is just BEGGING to have its photo taken by tourists, don't you think?
No we were headed here, to the right. In case you can't see the sign, it's Pancakes in Paradise. You can't miss it. It's the place with the big plate of pancakes, covered in huge mounds of butter and dripping syrup. It's sculpture, art if you will.
Basically, it's your child's happy place. Full of fake baskets beneath fake hot air balloons that don't make it beyond the ceiling, this place was made for kid birthday parties.
Don was in heaven, even at his age. And guess what, the menu was all you can eat!! And eat he did. 
We both started with a stack of 3 pancakes but he was on the all you can eat plan, unlimited fun!! I managed to eat my 3 pancakes, but was pretty darn full.
Don moved through his like a shark rips through a bloody fish carcass. Well, not quite so vicious, but you get the picture. He's not had the all you can eat pancake special for some time now, as Nelson is not blessed with a pancake house of any sort. Look at his face as his first plate arrives, it's full of wonder and amazement at seeing a stack of perfect, golden flapjacks. Isn't he sweet??
Not so sweet anymore!
(Left) Here's Don getting his next stack, pancakes 4 and 5. He doesn't mind me taking his picture too much, but he's getting a little annoyed.
This next (and last, finally!) stack was delivered, pancake 6 and 7.
Now, he's really not happy with me, as his look of wonderment is gone and I'm getting 'the glare'.
Maybe it's because I nibbled on a few bits and pieces, but either way, I think he'd call it a very, very successful vacation day.
First off, we need to shout out to JOE AND DEANNA, Don's parents, who landed in New Zealand yesterday for a four week trek around both North and South Islands. We'll be spending time with them in early June. VISITORS!!!! It's so exciting! I hope they have a wonderful time here.
AND, we get to meet blog readers Lindsay and Gareth from Phoenix who are out here on holiday scouting out the lay while their application process is underway. They are in country, we'll meet them later this week when they hit Nelson after doing the Abel Tasman.
Sooo, now back to Australia.
Boy, did we shop. I mentioned before, I'm embarrassed to say – and remember I consider myself expert at this activity – that we shopped pretty much all the time. And it wasn't just me, Don was very into it as well, for a variety of things, not just clothing which is my forte.
On Sunday we spent hours at the mall, hours. I think we were there from 11am until closing at 4.30pm. And we hadn't seen all the shops by the end of the day. Perhaps we were basking in the possibilities and the massive variety we'd not seen for so long.
As it turns out, after spending more time with all those shops, there really isn't so much variety after all. The Gold Coast is much like Florida or SoCal with only one or two climates, so it was beach wear and surfer wear galore. So many shops carried beach gear and I wasn't really interested in that.
They have a Target though, with the same name and franchise logo, but it was a different store, entirely. Far more like a Kmart and very sloppy, not the cool organised Target we're used to. BUT, they carry my Cover Girl lip gloss, so I grabbed a couple.
As if massive Pacific Fair wasn't enough, we took the bus down to another part of the Coast to assess its shopping worthiness, but we were disappointed. Then Don said that there were outlet stores and another mall that we could go to, so we rented a car on Thursday for the day to see other parts of the Coast and to visit other malls as well. Pathetic!!! I know. But I'd probably do it again.
As it turns out the outlet mall had some really good shops and we found a few goodies there to add to our collection. Although very into shopping, Don wasn't much into buying during the week. He does a lot of scouting, and by the end of the week we decided to leave time on Saturday for revisiting Pacific Fair (where we had been on Sunday, Monday, Wednesday, and Thursday—sometimes more than once in a day, ps. they were closed on Friday or we would have been there that day too). We wanted to make sure not to miss any last minute purchases, and Don needed to drop a few bucks on something, anything! We were there shortly after it opened at 10am and left after shopping and some ice cream by early afternoon. For some reason, Don had a hankering feeling around 3.30pm that day – 2 hours before the mall closed – and he wanted to go back. He had spied a pair of shoes.
So for the second time that day we hauled our asses over and I realised the key to Don actually buying something, versus just lollygagging around, is to have me with him. He dropped a bit of money in that last 90 minutes of our shopping adventure, and got a few really cool things. Of course, I had already spent our joint budget myself, so we have to make amends for Don kicking us over the top. Not my fault, though!! I never wait to last minute, you wait, you lose, I say.
Don and I figured this racket out more than a year ago now. Why renting is better than buying. We still own our Colorado home, and in doing some analysis this past weekend about our gain from selling it (WHEN we sell it, that is!), we feel we've re-learned a valuable lesson: it doesn't pay for us to own a home as an investment, period (or full stop, as said here) Remember, I said as an INVESTMENT. Read our original blog where we came to this realisation.
The New Zealand Herald featured an article last Sunday that coincides with the New Zealand property market's early bust stages right now, and it echos what we've thought all along.
It's coming very real for us as we've recently learned we are likely to be moving in mid-July. Our lovely house will no longer be ours, not by our choice, but by the choice of the owners who have expressed an interest in renewing us only until this November. Hmmm, sounds like something's up with that, doesn't it? But no one will tell us. So we are taking matters into our hands and will look around and see what's available next month. The bad news: we have to move again. But we have known this would be the life of a renter, it's really the only down side. The plusses far outweigh the minuses. The good news: among other things, we are excited to try something new, and who knows what it will be! We'll buy one day, but probably only when we can buy outright if possible, it's the only way to not lose your shirt.
New Zealand Herald
May 11, 2008
By Alice HudsonEXCERPTED FOR BREVITY, but still long (Click here to full story.)
Potential homebuyers are choosing to remain long-term renters - freeing up their savings for less volatile investments. Industry experts say even tenants who can afford a deposit and mortgage repayments are taking advantage of market conditions and enjoying a less stressful life.
Andrew King, of the Auckland Property Investors Association, said renting was "extremely good value" at the moment and believed the number of long-term tenants had been rising for at least 18 months. King said maintenance, rates, and insurance cost landlords up to $10,000 a year, per property after tax - and that was $10,000 a tenant didn't have to pay. "Renting is a very cost-effective thing do to," he said. "It's not even just the cost of the maintenance, you also don't have to do it, you can just ring the landlord."
King said the doom and gloom surrounding the housing market had seen more rental properties become available, especially in the last month. Finding properties weren't selling for the price they wanted, homeowners have been renting them out while the market corrected. But King said the "slight oversupply" didn't mean you were likely to get a rental property on the cheap, especially in Auckland. Some landlords, facing rising costs, were putting up rents by as much as 15 per cent, forcing some tenants to move.
Property investment consultant Tanya Kwasza, of Auckland-based Catalyst 2, has been a long-term tenant and said it could be a better bet than saving for a deposit. After returning to New Zealand from overseas, she invested her savings in other properties while still renting, holding off buying a home for herself until she was in her 40s. "I was able to rent where I wanted to live, in an area I couldn't have otherwise afforded to live in, while also getting tax relief from my other properties and building up my portfolio."
Her business partner, Nikki Connors, said the idea that a freehold home provided financial security for later in life might be untrue. "We have a lot of people who have paid off their mortgage coming to us at retirement age and they're officially on the New Zealand poverty line, the Government pension," said Connors. "They face having to sell and downsize, or take out a reverse mortgage on the very house they have spent all those years paying off just to retain their lifestyle."
Connors knew an entrepreneur with several businesses who was renting a $4 million home off Auckland's pricey Paratai Drive. Although his rent was high, it was less costly than a $2 million mortgage and freed up funds to invest in his businesses and rental properties. "It's something I have considered myself," said Connors. "I don't know why I own my own home when I could be renting a fabulous place. That [mortgage] money could be topping up two or three rental properties."
Tradition isn't the only thing dictating whether a person buys or rents.
John Grant, director of New Zealand business for GE Money Home Lending, said whether or not you aspired to owning a home was "a lifestyle choice these days". "The attitude towards home ownership isn't the same for generations X and Y as it was in the baby boomers' time," said Grant.
It is important to be a highly-disciplined saver if you wanted to rent long-term and invest in shares rather than property. "Property tends to be a lifetime asset you would be reluctant to sell just so you can go on a big holiday. But it's far easier to sell a few shares off."
HAPPY TO BE MORTGAGE-FREE
Rachel Rae is a renter - and she's happy to stay that way. The Auckland web developer has lived in rented accommodation for 15 years. Despite having a good income and the ability to get a mortgage, the thought of never owning her own home doesn't bother her.
The single 36-year-old shares a flat with her landlord in Herne Bay, Auckland. Rae loves to travel and she is disciplined enough to save a good chunk of her income for other investments. "I prefer to have the availability of more savings," she said.
"If you own your own home, you can get in the situation where you have to come up with quite a lot of money in a short amount of time. "I'd rather make other investments that don't require me to come up with $5-10,000 in maintenance every year."
Rae said she normally allowed her savings account to grow to between $10,000 and $15,000 before investing the money through her bank. "It's safe and easy, and the money can be made available if it's really needed."
She's lived in eight rental properties over 15 years and has never had a bad landlord. In one place, the landlord decided to raise the rent by more than she thought reasonable, so she moved. Another time the house she was living in was sold so she moved. "If you have to move, you have to move... the only major disadvantage [of renting] for me is not having the ability to put in gardens."
RENTING VERSUS BUYING
RENTING - THE PROS:
RENTING - THE CONS:
BUYING - THE PROS:
BUYING - THE CONS
Source: Get Rich Slow by finance writer Mary Holm
Friday. It was a Friday … I'll never forget that. Never!!
It was the Australia and New Zealand Army Corps day, or ANZAC Day, is a national holiday in both New Zealand and Australia. It commemorates all New Zealanders killed in war and honours returned soldiers. It occurs on 25 April each year.
The actual date marks the anniversary of the landing of New Zealand and Australian soldiers – the Anzacs – on the Gallipoli Peninsula in 1915. The aim was to capture the Dardanelles, the gateway to the Bosphorus and the Black Sea. At the end of the campaign, Gallipoli was still held by its Turkish defenders and thousands lost their lives including 8500 Australians and 2721 New Zealanders, almost one in four of those who served on Gallipoli from NZ.
That was a nice history lesson right? So, it was a holiday in both countries, with pretty much everything closed.
Because everything was closed, we were enjoying the warm weather and gorgeous sun from our apartment deck. We sat down to watch a movie that we brought with us after walking on the beach and dipping our feet into the ocean. Don switched on the television, I was out on the deck. He changed the channel a few times. And then it happened.
There was a light, I remember the light. Bright and blinding. For a moment we couldn't see anything, but when we uncovered our eyes and the light eased, on the television we saw …
Avalance at Detroit, game 1 of the second series of the NHL playoffs.
In AUSTRALIA. In the middle of this historic national holiday. Ice hockey (yes, here they REALLY call it ice hockey, as the Canucks always made fun of Americans for doing).
We said in unison, "oh my holy f***ing shit." Please let it be the first period, please let it be early in the game. It was our first hockey in nearly 2 years. And it was our team, OUR TEAM. Playing the red wings. The hated red wings. It was truly glorious.
There were only 2 minutes left in the first period. Okay, we can deal with that, that leaves 2/3 of the game left. The Avs were down 2-1 and then by early minutes in the second period they were down 4-1. Hmm.
I said to Don as the realisation hit, "this is the best f***ing day of my vacation, period (full stop)."
Soon it was 4-2, the Avs were clawing back. "Osgood sucks!" we shouted. "RED WINGS SUCK" we shouted.
I didn't think I'd ever say it again, it always sounded so lame in regards to this rivalry, but I was glad to say that those red wings sucked.
Inexplicably, the TV station obviously had recorded it because it kept fast forwarding through parts of the game where nothing happened –according to them of course – so we knew when we were back into the action that something would be happening. Indeed, the Avs scored to make it 4-3. To commercial, then back and we were down to the last 13 minutes in the 3rd, we'd skipped 7 whole minutes, ARRGGHHHHH!!! But what could we do, we take what we can get.
Unfortunately the Avs lost game 1. Then games 2, 3, and 4 we read. Time to change coaches! we shouted, and they agreed. It was all Quenneville's fault, CLEARLY.
Anyhoo, it was truly the best day of my vacation, and it had NOTHING to do with shopping.
And for preventative care ... it's like the world has gone topsy turvy.
Nelson to get health check-up
The Nelson Mail, by Tom Hunt, Wednesday, 21 May 2008
SHORTENED FOR BREVITY
The entire population of the Nelson region will receive free doctor checks for killer diseases in a $4.5 million initiative which is a New Zealand first.
Cardiovascular and kidney disease, strokes and diabetes - which kill almost one in two Nelsonians - will be targeted under the scheme, which is being described as "absolutely huge" by the health official who will lead it.
First in line to receive the free checks, during the first 18 months, will be the 33,500 people deemed most at risk of developing the deadly diseases. The rest of the region's population - which totals just over 90,000 people - will then be checked.
The Nelson Marlborough District Health Board unanimously agreed on Tuesday to spend $887,960 each year over five years on the initiative, which could significantly reduce the high mortality rates from the diseases.
The board's general manager of planning and funding, Sharon Kletchko, ... could not say exactly how much money would be saved through early diagnosis of potentially fatal health problems, but said some studies had shown that for every dollar spent on this sort of initiative, $3.25 was saved.
The project had been on the boiler since December [Amazing how quickly things turn around here! This would take years to finagle in the States with their bureaucracy].
If it was discovered that a patient had diabetes, they could be treated before they developed serious complications. Those with heart conditions would not only have access to medication but would see specialists faster, as well as being educated in proactive ways to deal with their condition.
So there we were heading to work the other day when lo and behold I had a police car tailing me with his lights a flashin’. I’m not speeding so what the heck can this copper want? Angela knew pretty much straight away and told me it was because she didn’t have her seat belt on. Well no way was I going to let this Barney catch us and interrogate us to no end. I hit the gas and the car bolted forward, this five-oh was going to have the chase of his life. Fifteen seconds later as I approached 40kms/ hr, I noticed the traffic was bumper to bumper so I eased off the gas and pulled off in the bus stop zone. If I was going down, it would be on my terms. I reached for the cold steel handle of the 9mm Beretta under my seat in preparation and watched him approach in the rearview mirror. Slowly, but authoritatively, he pressed on towards the passenger window and on towards his certain death.
The day had begun like any other. Get up, breakfast, shower and then, after sweeping the car for explosive devices, head off to work. We had just pulled out of our block and on to the main road when we passed a police car headed in the opposite direction. Sure enough, he must have seen Angela without her belt on so he flipped around and quickly caught up with us.
As Johnny Law reached the window and directed his questioning to Angela I realized it was about her not wearing a seatbelt. I slowly slipped my 9 back to its home under the seat. Another day Khaki Kutta.
Yes, it is a law here to wear a seat belt in the front seat and police will pull you over if they notice you not wearing one (I’ll get into why this is such an absurd and illogical law later). This is the 3rd time Angela has been caught without wearing one but has gotten off with warnings the previous 2 occurrences. This time she gets smacked with a $150 fine. What? Can’t believe that? Ridiculous you say?
Let me start by saying that I am a firm believer in wearing seat belts. I know it is proven that they save lives. But Angela brings up a good point – why should the government have the right to force people to wear a seat belt? I’ve thought about this a bit and realize she is right.
I discussed with several people at work and no one was able to make a valid argument as to why we should be forced to wear seatbelts. The most common response I get from people is – “it saves lives.” Ok, true but that isn't the issue. The government hasn't outlawed smoking and that kills many more people than car accidents. By not wearing a seatbelt, you are only endangering your own life, not someone else. Why should you be forced to click in? You shouldn't, the people should be allowed to decide.
The other argument is that the law is in place to keep medical costs down (i.e. if you are wearing a seatbelt the chances are medical costs will be lower – fewer deaths, less severe injuries, etc). Again, see smoking as one easy argument against this. I'm sure in practice the costs wouldn't be much higher if this wasn't a law, most people would probably still wear their seatbelts anyway.
There are many things that are much more dangerous on the roads today that aren't outlawed – people using their mobile phones, older drivers, younger drivers, parents worried more about disciplining their kids in the car than driving, people eating in the car, and so on. Heck, these are all things that lead to accidents and could in fact hurt someone else. 
I still wonder why seatbelts aren’t even required on public transportation – wouldn't you think a school bus would be a good place to start mandating use.
Can't the police find more important things to spend their time on? If anyone out there can make a good argument, I’d be keen to hear it.
Anyway, Angela is already out $150 when the next one arrives. She gets a $30 ticket for speeding in a school zone.
She was clocked doing a whole 7kms over the speed limit (3 mph) when school wasn’t even in session. Seriously? Not to mention that 7kms isn’t going to make any difference if you hit a kid – I've heard the slower you go, the better the chance that you drive the car over them; faster speeds are better so they roll harmlessly over the top.
In any case, wouldn’t you think the fine would be more that $30 considering the $150 fine for not wearing a seatbelt? Exactly, it doesn’t make much sense. I’m glad you now all see the light.
As Home Prices Drop Low Enough, a Committed Renter Decides to Buy
By DAVID LEONHARDT Published: May 28, 2008
For the last few years, I have been an evangelist for renting.
I’ve told my sister-in-law and her husband that they would be crazy to abandon their reasonably priced one-bedroom rental in Brooklyn. When two of my colleagues were moving to Los Angeles, I e-mailed them a spreadsheet that helped persuade them not to buy a house there. That same spreadsheet was the basis for an article in 2005, when I argued that “renting has become a surprisingly smart option.” Last spring — like any good evangelist, comfortable with repetition — I wrote a similar article.
The case for renting has been simple enough. House prices rose so high in the first half of this decade that you could often get more for your money by renting. You could also avoid having a large part of your net worth tied up in a speculative bubble.
All this time, I have been a renter myself, first in the New York suburbs and then in Manhattan. But my wife and I will be moving to Washington this summer. And the housing market has, obviously, changed quite a bit since our last move, in 2005. Nationwide, prices fell 14.1 percent from early 2007 to early this year, as Standard & Poor’s reported Tuesday. Home prices almost certainly still have a way to fall, but they’re now well below their peak.
So my wife and I began our search with open minds, willing to consider renting or buying. We ended our search by signing a contract to buy a house.
This is the story of my conversion.
One of the big lies of the real estate business is the idea that renting a home is tantamount to throwing money away. It’s a useful fiction for real estate agents, because they make vastly bigger commissions on house sales than rentals. But the comparison isn’t nearly so straightforward for the rest of us.
Renting involves one obvious, recurring cost that can never be recouped: the monthly rent check. Buying, on the other hand, involves multiple expenses, some of which aren’t so obvious. On top of closing costs, there are repairs, property taxes, mortgage principal and mortgage interest. (The mortgage-interest tax deduction reduces this last cost but doesn’t eliminate it.) When you own, you also lose the ability to invest your down payment elsewhere, like the stock market.
Of course, owning also brings benefits that have nothing to do with money. You can settle into your home, confident that no landlord will kick you out. You can repaint the walls and redo the kitchen. All else being equal, owning seems far preferable to renting.
Knowing all this, my wife and I were willing to buy a house even if it was ultimately going to cost us a bit more than renting. We just weren’t willing to have it cost a lot more than renting.
Over the last several years, I’ve come to like a simple, back-of-the-envelope way to compare the costs of renting and owning. You find two similar houses, one for sale and the other for rent, and divide the sale price by the annual rent. You can call the result the rent ratio.
The concept will probably sound familiar to stock market investors. It’s the real estate market’s version of a price-earnings ratio — a measure of how expensive an asset is, relative to the underlying economic fundamentals. Like a P/E ratio, the rent ratio provides something of a reality check.
Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006.
And while home prices — and rent ratios — have always been higher on the coasts, they reached whole new levels recently. In the Washington area, the ratio went above 20. In Boston, New York, Los Angeles and south Florida, it topped 25. In Northern California, it approached 35, higher than it had been in any city, at any point on record.
In concrete terms, a rent ratio above 20 means that the monthly costs of ownership well exceed the cost of renting. At current mortgage rates, for example, a $500,000 house would typically bring monthly expenses of about $3,000 (taking into account taxes, repairs, a typical down payment and, yes, the mortgage deduction). When the rent ratio is 20, that same house could be rented for only about $2,000 a month.
There are two problems with buying a house in this situation. The first, plainly, is the extra $1,000 you’re paying each month for the privilege of owning, on top of the thousands of dollars you spent on closing costs. The second problem is that a rent ratio above 20 is a good indication of a bubble. When the prices of houses get out of line with the competition’s prices — that is, those in the rental market — a correction is coming.
The question facing my wife and me was whether we were entering the market before the correction had gone far enough. I really didn’t know what the answer would be. So as we looked at houses, I started calculating rent ratios.
In the neighborhoods where we were looking, two-bedroom condominiums were selling for $400,000 and being rented for about $2,100 a month, which makes for a rent ratio of 16. Four-bedroom houses were selling for $700,000 and being rented for almost $4,000, which makes for a rent ratio of 15. No matter the price range, pretty much every apples-to-apples comparison produced a similar ratio.
Historically, this is still a bit high. But it’s very different from where the market was just a couple of years ago. With house prices having fallen over the last two years and rents continuing to rise, the decision became a much closer call. We would now have to spend only a little more each month for the privilege of owning.
This month, we found a house that we really liked, and we made an offer. It was accepted.
I’m still not sure how good our timing was. Based on the backlog of houses on the market, I fully expect that our new house will be worth less in six months than it is today. I’m also not sure that we would have been willing to buy in Boston, New York or much of California, where the rent ratios remain above 20, according to data from Moody’s Economy.com.
In fact, if you’re now renting — almost anywhere — and do not need to move, I’d probably recommend that you wait to buy. The market is still coming your way.
But it’s O.K. with me if our timing wasn’t perfect. After several years of reporting on the housing market, I’m convinced that the most common real estate mistake is viewing a house first as a financial investment and only second as a home. [SHOULD I ENTER HERE AND SAY THAT I TOLD YOU ALL THIS VERY THING ONLY A COUPLE WEEKS AGO! INDEED I DID :) ] That’s one big reason we ended up in this bubble-induced mess.
Most of the time, the decision whether to rent or buy should be based above all on life circumstances. Do you expect to move again in a couple years? Or is there a good chance that you’re ready to settle in — and stop worrying about real estate for a while?
The housing bubble, unfortunately, forced a reconsideration of this standard, because houses became so overvalued. But they’re slowly coming back to reality, which means that buying has again started to make sense for more people. Apparently, I’m one of them.
For the full article, with some multimedia demonstration, click here!
