Diary of a midlife crisis.

Diary of a midlife crisis.

This was going to be simple.

Just casually and caustically poke holes in a threadbare piece of thinking called "Why own when you can rent?" You may recognize the title as a play on real estate's old chestnut, "Why rent when you can own?"

"Why own when you can rent?" had been ensconced on the San Francisco Chronicle's Web site since September 2005, but I thought it was still timely. Not remarkable, certainly, just timely. From the first sentence—I'm making a killing in the housing market—as a renter—"Why own" is standard off-the-shelf bubble-think. But that's what I needed. Something typical, unoriginal, unremarkable.

Then I did a little research. Then I started peeling back the layers of meaning.

The writer of "Why own" will remain nameless because his identity isn't pertinent and because I'll shortly give him an identity that is. Some Googling would turn up a name you may not recognize despite a long and successful career in journalism. The Chronicle identifies him as "a senior writer for Business 2.0 and a journalism fellow at the German Marshall Fund". Poking around his Web site reveals thirteen years at The Wall Street Journal. He now "writes regularly for newspapers, magazines and journals, including Salon, Foreign Policy, the San Francisco Chronicle, the Wilson Quarterly, Fortune and Alternet". He's also "lectured on various campuses...(and) is a fellow at the Institute for Applied Economics at Johns Hopkins University."

In other words, the writer of "Why own" has carved out a nice niche as a professional Explainer, working for trusted name-brand media outlets. He may have attempted to explain to you some complex, nuanced aspect of "world affairs, immigration, race and identity and the dysfunctionalities and divisions in U.S. society" and, one would guess from his resume, business and economics. If he hasn't, one of his brethren has. Because while there's only one Decider, there are many Explainers. Many many Explainers. You depend on their sophistication and objectivity. When you read them, you feel the warm glow of the well-informed.

Let's outline in short-hand the highlights of "Why own". In some ways it's the latest in bubble-think. In others, it's the old old story.

Middle-aged Explainer coming out of divorce. As part of settlement, Middle-aged Explainer sells his share in "spacious Berkeley home". Middle-aged Explainer finds compelling reasons—"sky-high property taxes, mammoth mortgage"—not to invest proceeds in another house. Decides instead to cash out and "reap the benefits of renting".

Middle-aged Explainer decides that at age forty-nine he "loosely fit(s)" the profile of someone who should sell "investment" now before its value will "fade into thin air": someone "approaching retirement age" or with "a lot of equity in a home". Middle-aged Explainer aged forty-nine apparently pointing toward early retirement, apparently unaware that reverse mortgage allows older homeowner to withdraw most of equity while living in own home.

Middle-aged Explainer uses proceeds from fifteen years of homeownership to become "premier customer at Wells Fargo". Benefits of "premier customer" status not explained but left novelist-like for reader to imagine. Perhaps incorrigibly crusty manager cracks smile as Middle-aged Explainer saunters into branch.

Heroic-quest like, Middle-aged Explainer surmounts two challenges: 1) Denied full fruits of perspicacity because new spouse and two children from previous marriage rule out apartment, dictate "stand-alone house". 2) Berkeley "stand-alone" houses "didn't pencil out". Classic bubble-code for "I'm unwilling or unable to pay the freight".

Middle-aged Explainer forced to widen search to less-expensive cities. Middle-aged Explainer fails to explain why these cities less expensive. Reader too polite to ask. Besides, goal of Middle-aged Explainer is to "make a killing as a renter, not find the best possible house...".

Or best possible neighborhood. Middle-aged Explainer will now settle for "decent" neighborhood.

After intense but futile search, Middle-aged Explainer gets "exciting lead" on "stand-alone" house that shares yard with cottage. Cottage occupied by landlord, not conducive to renter hanky-panky, but rent cheap. Further upside is that landlord is Buddhist, and Buddhists "famous for honesty, tranquility and infinite patience". Middle-aged Explainer, looking for "more balance between the personal and the professional", rubs hands "selfishly" in anticipation of getting some of that fine Buddhist "honesty, tranquility and infinite patience". Reader wonders if one Buddhist's "infinite patience" about to be tested.

Still more upside: "I...save $1400 a month by renting...the Buddhist landlord maintains the yard and hot tub, and I get the benefits of both. And that's only for starters. There's also the peace of mind I gain from watching my Wells Fargo accounts grow...The windfall from selling after years in the market and then renting is too good to pass up." Mentions another cashed-out homeowner who's "literally laughing all the way to the bank". Reader wonders if Middle-aged Explainer and professional wordsmith has just misused word "literally". Or perhaps cashed-out homeowner carries cylinder of laughing gas with him to bank?

Alas, some downside to renting. Missing out on rising home values "to some degree" (entirely, looks like) "but will prices continue to rise?". Astutely points out that "respected real estate analyst...ranks San Jose, the East Bay and San Francisco among the 10 U.S. housing markets most likely to suffer a broad decline in home prices over the next two years". Middle-aged Explainer also lives with "small fear that our one-year lease won't be renewed". Might also live in "small fear" that Buddhist landlord is only Buddhist not "famous for honesty, tranquility and infinite patience". Might also live in "small fear" that his rent will go up.

Now let's wave fond farewell to renter Wonderland and return to reality. You may have detected a faint trace of irony. Do I fear that "Why own" will release a flood of cashing-out homeowners? Maybe I just don't want it to get out that it's a good time to get out?

I'm a firm believer in the idea that the media doesn't create ideas, it repeats them. Idea-creating is the heavy lifting of writing. Middle-aged Explainer, on the other hand, speaks for a small but significant trend. During the real estate boom it was mostly buyers who tried to time the market, waiting...waiting...waiting for the right time to strike. Now, as the market shifts, more homeowners are trying it. Does this make market timing a good idea? Informed opinion says that we should never try to time a market unless we know something no one else does, and we never do. But sometimes we think we do.

Market-timing may pay off in some markets around the country, and as always a few people may simply benefit from dumb luck. Or not. A bet against real estate is a very big bet indeed, and the potential downside—getting priced out of your own neighborhood—is huge. I wouldn't try it, but then I live in an area that's built-out, has historically strong appeal nationally and internationally, can see prices leap ten or fifteen percent in one spring, and is in the throes of economic recovery. But then, so does Middle-aged Explainer.

Of course, I could be wrong. I don't have Middle-aged Explainer's burning conviction that he knows where Bay Area home prices will be in ten or twenty years. I do know that I enjoy living in my own home. And as a former property manager who's worked with dozens of landlords and hundreds of tenants, you can't kid me about renting. It can be okay, but it ain't all sweetness and light.

Still, who knows? But I do have a few real problems with "Why own". One is technical and, like most economics arguments, dry and essentially meaningless, but if I don't mention it you may wonder why. Middle-aged Explainer doesn't explain that the size of his "savings" from renting depends on the size of his loan. The scenario of 100 percent financing he uses conveniently makes his loan payments as large as possible compared to his rent payments. Using the proceeds from the sale of his home as down payment would cut his loan payments in half. Challenged by this, Middle-aged Explainer would explain that by putting his proceeds in 4 percent Certificates of Deposit he's guaranteed a rate of return, while the housing market offers no guarantees. In fact, he has it on good authority that real estate prices will go down. "Most experts say that the days of soaring appreciation are over..."

In response, I'd explain that:

"most experts" said the same thing about the stock market in 2002, when the DJIA bottomed at 7286; it just closed at 13,264
"most experts" should be dragged kicking and screaming from their ivory towers and given two years' hard labor in the field they claim to know well enough to analyze
real experts acknowledge that real estate markets are local, which rules out broad generalizations like "the days of soaring appreciation are over"
lost behind the smoke and headlines is the fact that even in late 2006 there were still local markets seeing "soaring appreciation"; according to NAR, 71 of 149 metros nation-wide saw prices increase, with 14 of them in double digits
even moderate inflation will cut the rate of return of his CDs by half or more, while home prices have typically outpaced inflation
a forty-nine-year-old in decent health has an ample twenty years or more to ride out a real estate market downturn in his own home before selling and shuffling off to Shady Acres

Next let's see what the Berkeley real estate market that Middle-aged Explainer abandoned in 2005 has been up to. According to the Berkeley MLS, the median Berkeley single-family home closed in Q3 2005, when "Why own" appeared, at a sales price of $782k. As this is written, not every sale in the most recent quarter, Q1 2007, has closed, but the median sales price for Q4 2006 was $710k, a decline of 9.2 percent. Aha! Middle-aged Explainer was right to bail! Absolutely, if he left the Berkley-area housing market forever. But he didn't, and he won't until he either leaves this area or this earth or starts sleeping under a bridge.

And buying and selling real estate isn't like e-Trade. Let's calculate the typical selling costs, or what might be called the "exit costs" of homeownership: 6 percent commission; fix-up costs; moving costs; and the nuisance of having your home on the market. Then, if you rent for the rest of your life, you're done. But what if renting gets old? Let's calculate the "re-entry costs" of homeownership: buyer's typical closing costs of 1 to 2 percent of the purchase price, varying by loan, county and city; plus fix-up costs if the seller didn't pay for them, or even if he did; plus more moving costs; plus the time and nuisance of being in the market. You do the math. That's a mighty slim profit margin and a lot of work to get it.

But what about that $1400 monthly "killing" Middle-aged Explainer makes as a renter? Read "Why own" and you'll find hints that he's paying for that "killing", as anyone familiar with the idea of risk/reward would expect. "The decision to rent seemed wonderful until I started looking for a place." When Berkeley doesn't "pencil out", Middle-aged Explainer lowers his expectations to a "decent neighborhood", which he knows implies a diminished quality of life, which accounts for all that hullabaloo about the wonders of "rubbing shoulders with Buddhists". But the renter's road is still a rocky one, even as it leads to spiritual enlightenment. He goes from a "spacious" house to a "small" house. "I ran into the problem of...landlord deceit...I had not wanted to share a property with anyone...landlords don't like badly behaved kids...Of course, I live with the small fear that our one-year lease won't be renewed after it expires." Or that his lease will be renewed but at a higher rent, since Bay Area rents have climbed 15 percent since "Why own" was written. Or that by leaving homeownership he's insulating himself not only from any future market loss but from any future gain.

So instead of making a "killing", Middle-aged Explainer is quantifying the premium homeowners are currently willing to pay to eliminate the drawbacks of renting. Let's review those drawbacks. There's the quality-of-life drawback, the lack-of-privacy drawback, the deceitful-landlord drawback, the landlord-who-doesn't-like-my-bratty-kids drawback, the where-will-I-live-in-a-year drawback, and the how-much-will-I-pay-for-housing-in-a-year drawback. And by taking himself out of the market, Middle-aged Explainer has taken himself out of contention for any gains real estate will see over the several market cycles that will occur over the next twenty years or so.

By quantifying the real cost of homeownership Middle-aged Explainer makes a useful contribution to the literature, however unintentionally. What he does next is less useful. Middle-aged Explainer gives us a new-and-improved definition of the American Dream that, God help us, probably is the more relevant version for many: "renting a home prettier than any I ever owned". No-o-o, I don't think that's what's driven seventy-plus years of social engineering. Whatever the American Dream is, its homeownership component was and still is a politically progressive attempt to get the little guy out from under the thumb of the landlord and into the ranks of the financially self-sufficient. It was and still is a powerful symbol of empowerment and the good life, a deliberate attempt to broaden the base of the democratic state that traces its genealogy back to Jefferson's eighteenth-century independent yeoman farmer and the "forty acres and a mule" promise of the Homestead Act of 1868. The concept predates the 1920s, when the stock market opened its gates to the little guy, and its execution dates to 1934, when the stock market had long since bit the little guy in the butt hard. Sure, homeownership has its share of burdens, but there's no free lunch. Not that some people won't think they've found it.

You might think that landing a featured role in the American Dream co-starring Mom and apple pie would be a real career move for homeownership, but it's also made it a lightening rod for the alienated, the rebellious and the know-it-alls. Here we've come to the biggest problem I have with "Why own": I think I see a subtext in it that Middle-aged Explainer himself doesn't see. Let's revise the outline of "Why own" in light of that subtext.

Middle-aged Explainer is coming off a bad divorce. He doesn't flat-out say so in "Why own" but reader senses it and is not surprised when Middle-aged Explainer confesses in another article, "Is marriage rational?", that he had "the most painful divorce in human history". Okay, stuff happens. But this might explain why "Why own" is all about Our Hero landing on his feet cat-like and beating the system like a big bass drum. It also raises the question of who its target audience is. The ex-Mrs Middle-aged Explainer? Middle-aged Explainer himself? Their mutual friends?

Maybe Middle-aged Explainer didn't have the best attitude to marriage going in: as "a child of the '60s counter-culture, I equated marriage with the Vietnam War—some sham ceremonial act..." War as ceremony? Marriage as death? That's heavy baggage. But if we assume that other aging hippies are happily married (with more than a few living in Berkeley) then maybe Middle-aged Explainer's cynicism doesn't come solely from "'60s counter-culture". He remarries after his divorce "though once again cynically, in order to help my new life partner gain permanent residency." Marriage has its uses, Middle-aged Explainer admits, but what really bugs him is that it "permit(s) government to validate our most personal relationships". Okay, now we're making progress. Middle-aged Explainer is telling us he won't let Big Brother, the Establishment, middle-class convention, or anything else or anyone else tell him what to do. Still fighting the good fight forty years later. Break out the tie-died t-shirts.

So where am I going with this amateur psychoanalysis? Middle-aged Explainer's attitude reminds me of the big-name bubble blogger who blurts out "I'm sure as hell not going to buy a home just because some realtor tells me I should". Right on! But I can't help but wonder about adults who have to run their rugged individuality up the flagpole every morning so we can salute it. What are they trying to prove? To whom? And shouldn't that have been proven back in high school?

That's the subtext I see in "Why own". It's the subtext I see in the bubble blogs.

In both cases it's buried under bravado: "I know all the angles." "Everyone else is just a lemming going off a cliff." "They're lying again." "Owning a home is all about conspicuous consumption. I'm into keepin' it real."

What I'd like to see just once is some bubblehead take a long deep look into his soul and tell us what he sees. "I don't want the commitment." "I'm priced out and mad as hell." "I'm a chronic market-timer who gets a rush out of making big bets." "Any house I own isn't a home, it's an investment." "I've never been interested in owning my own home, and I don't understand anyone who is." Or if you're Middle-aged Explainer, "I'm a middle-aged guy who's been there, done that, was never sure he wanted to, and is real sure he doesn't now. Today my only goal is getting my head straight. I think shucking a few bourgeois responsibilities will do that for me."

It's either tragic or just ironic that even I, a guy who doesn't get paid unless people buy homes, think that all the above are legitimate reasons not to buy a home. I may not agree with every single one of them, but so what? At least they're honest. The other stuff is just embarrassing.

Especially when it comes from an Explainer. Even when he's writing about his midlife crisis.

Here's a modest request I'd make of any Explainer. Leave the transparent rationalizing, self-justifying and me-Tarzan chest thumping to the bad autobiographical novelists, and to the citizen journalists, bubble bloggers and other amateurs who might also want to avoid this stuff but aren't professionally obligated to do so.