Buying a house

We've been renting a house since we moved from SoCal to Penn last year. Renting was a good choice, as we needed to get to know the new area, and make sure the schools and neighborhood would work for us.

We rented our old house to a family moved down from NorCal to SoCal. They rented out their house too.

So for the first time in my life, I've become both a landlord and a tenant at the same time. It was quite an experience.

We tried to be open and communicative to our tenants, and stayed on top of all necessary repairs. I let them know all the things they should know to live in our house comfortably, especially anything that may become a safety issue. In turn, our tenants have done their best to take care of our property. We appreciate their paying on time and being proactive on any repair issue. In a difficult year, this relationship worked out quite well.

Our landlord, on the other hand, had been avoiding direct communication at the outset. If there is any repair issue, they would rather not be bothered... eventually, as one would expect, this kind of relationship ran into problems. We paid a generous above-market rent for them, in return we got almost no help from the owners who had lived here for a long time. Moreover, when it was time to renew the lease, they wanted to raise our rent, despite the softening market.

These problems pushed us towards buying. That aside, the economics appears to become more and more favorable for buying: home prices have been dropping steadily over the last year, mortgage rate has hit historical low and got lower. For a bigger house in the same neighborhood, our rent would more than cover the mortgage payment. With tax savings taken into account, we would be roughly ahead by the amount of principal payment we would pay against the house. That is, with a little bit of work as a homeowner, we would be building up equity every month. That equity would be totally gone to the landlord if we continue to rent.

In other words, if we buy the house we're renting now at market price, and rent it out as an investment property, we would be generating a small positive profit at year 1. Bear in mind this is one of the best neighborhoods in this area. Usually people tend to want to own, not rent. In such neighborhoods, it's usually hard to break even with rentals at the beginning. So this is a clear sign that it's about time to buy if one has a stable job. The housing may not have hit bottom yet, but it should be fairly close.

We found several houses we like. As we got into the market and started making offers, I quickly realized how thin the market was. You rarely see multiple offers. Very few buyers. At one point, our withdrawal on one house affected the pricing of some nearby properties immediately... Sellers have to price it right, or risk sitting on the market for months after months, and going through multiple reductions.

We didn't get the home purchase tax credit. Interstingly, the expiration of the tax credit have benefited us far more than $8000: The market had become markedly softer and the mortgage rate had gone down even more dramatically since June.

As I write this, we're getting ready to settle this week. After this local move, the turmoil of 2009 which had affected us in a big way will finally be behind us.      

Job creation as the leading indicator

Another Friday employment situation report, another disappointment.

Private-sector employers added just 71,000 jobs in July, according to a report released Friday by the Labor Department, fewer than the 100,000 plus jobs that economists were hoping for. Moreover, it also said private firms hired fewer workers in June than it had previously reported, as it revised that estimate down from 83,000 to 31,000 jobs.

The small increase in private-sector employment was more than offset by the loss of 143,000 temporary census jobs, and the nation's unemployment rate remained unchanged at 9.5 percent. Overall, the nation shed 131,00 jobs in July.

Remember when this measure, private job creation, fell off a cliff in May (reported early June) the stock market took a dive. Today's report also added pressure on the market which has been recovering quite well in July.

Recovery in housing market and consumer spending is now largely dependent on jobs. It's only logical that private job creation had become something of a leading indicator for the current economic recovery.

Corporate profit no longer seems to indicate job creation. And there aren't obvious leading sectors to point to that are creating many jobs.

Overall this year, private-sector payrolls have grown by 630,000 jobs, but about two-thirds of that increase occurred in March and April. After that, corporations have become more cautious in hiring.

Meanwhile, the strained state and local governments have shedded 48,000 jobs in July.

The sluggish job recovery is adding pressure to deflation.