I'm glad I bought a house, because paying $1,100/mo (including tax and insurance) for a 3,000sqft home with a yard where I can mostly do what I want and have control over my living environment and get a tax break on about half of that monthly payment sure beats the $1,200/mo I was paying for a 1,000sqft apartment in which I had been robbed of $30,000 during a home invasion where the person had a key (maintenance crew, surely, who had access to the keys) and let themselves in while I was sleeping.
The rent/own ratio may be different in San Francisco (where I've lived) and New York, but there's a lot of other country out there that exists besides those two and Seattle. There's Portland, Denver, Chicago. Plenty of places. I live in a fairly expensive city (on par with Portland, where I lived most of my life). Still, my house didn't cost a lot more than the mount I'd already paid in rent during my adult life. I did the math and I have paid about $170,000 in rent. That includes apartments I've lived in in Portland, San Francisco and Denver since 1999 and is not adjusted for inflation. It includes the 400sqft hellhole in San Jose that I paid $1,200/mo for in 2000 and the 400sqft studio and 585 sqft 1bdrm in Portland, and the 1,000sqft 2 bdrm in Denver. The house I bought last year was only $25,000 more than that. Even if my home loses a ton of value (and it probably has and will), at least at the end of paying $200k into it, I'll have something worth something, versus what I have after about thirteen years of renting for $170,000 . . . which is nothing.
The real problem with the home market is that it's being artificially buoyed, to keep current home owners happy at the expense of houses dropping even more in price, so someone can reasonably eventually buy a home even if they're making an average income. After all, isn't that how the market is supposed to work? Stuff drops in price, other people get an opportunity to own that stuff who previously may have been priced out of participation.
Also, the article states that someone who just bought a house and lost 10% due to decrease in value plus commissions when selling is unlikely to enter the market again any time soon. Well, why are you buying a house just to sell it a few years later?
I bought my house so I could live in it. I would like it to increase in value, eventually, too. I'm not counting on it, but it would be nice. If it doesn't, at least I have a home to live in and will eventually own it (because I didn't buy the maximum house that my credit score and loanability would have allowed).
I don't know a lot about the housing market and I'm not an economist, but I do know that I'm glad I bought a house last year (with a rate under 5%) and wish I would have done so many years ago, instead of putting it off for a decade. (On the other hand, if I had done it a decade earlier, I probably would have taken a big hit over the last few years, so whatever).
Also, the other nice thing is that I'll be paying the same amount (except for tax changes) for the next 15-30 years that it takes me to pay off the house. In my apartment, I'd gone from paying $900 to $1,200/mo in only four years for the same unit. Oh, and I don't have people stomping on the floor above me 24x7, so I can't sleep. And I don't have to allow someone from the maintenance/leasing office come into my home nearly any time they want with a 24hr notice. And I can (and did) run ethernet in the walls. And I can (and did) setup my home theater and run it at 50% power instead of having neighbors complain when I ran it at 5%, before. And when I have a guest that stays for more than three days per year, total, I don't have to register them with the leasing office. And I know my neighbors and they have lived here for a couple decades and are friendly and helpful. I never even saw the neighbors at my apartment.
Well, why are you buying a house just to sell it a few years later?
Your post mentioned at least four different cities where you lived in an apartment. How would owning a house have changed your mobility? What would it have done to your overall cost of housing if you needed to sell one house and buy another?
I agree that owning a home limits your mobility and that is one reason why I put it off. In retrospect, I should have bought a home earlier, anyway. In fact, when I first moved to Denver, I started looking at homes and decided against it. After all, I didn't plan to live here forever. Only awhile. Next thing I knew, I had been here for five years and spent that whole time giving money to someone else.
The cities I listed as having lived in were actually three (I realize that I was unclear about California, where I worked in SF but actually lived in San Jose). I can break it down to under a year in one place and at least six years in each of the other two places. Even there, I actually could have probably found a way to not move, so it wouldn't even have been an issue. (I've had the same employer for almost fifteen years).
So, in my case, it was only a perceived need for mobility and unwillingness to say "I'm here, for a long time" that kept me from owning a home and it was probably not the best financial decision, looking back. I sacrificed a lot of income over the years for something I thought I needed, but never did.
It is definitely a bigger concern, now, than ever before. I absolutely concede that point. My grandfather built his home and lived there for more than fifty years. I will be happy if I keep my home for ten or fifteen. Our lives and careers change too often, now. Buying a home now requires the added consideration of whether you'll still be here in five or ten years and how many times (especially in technology) has taking a new job also required moving? (By the way, I think they say it tends to require about five years of ownership to compensate for the costs of buying and selling a house - and that was back when houses were increasing in prices, instead of decreasing).
Of course, if home prices reached a naturally lower point instead of being artificially kept up, then the affordability may trump all the other concerns. Hell, if I could own a nice home for $100k, I'd buy one in all three of my favorite cities and never have to worry about uncertainties of live and mobility again!
I never get the mentality of renting being 'giving money to someone else'.
What do you think a mortgage is? The majority of your payments in the first 5 years go to interest, which is just giving money to a different person.
And on top of that you're paying more in hidden costs, stuff like estate agent fees, tax on any future house sale, home insurance, structural problems, boilers, plumbing, etc. which is giving money to more different people just not at a convenient monthly time.
I think the point is long-term thinking. As you mentioned, over the life of a 30 year mortgage, I'm likely to have paid about double what I bought the house for. However, that's $900/mo today and that'll be $900/mo in 30 years. In 10 years, that'll be worth $675/mo, in 20 it'll be worth $495/mo and in 30 it'll be worth $270/mo. Meanwhile, the unit I was renting will probably be $1,500, $2,136, and $2,760.
So, I think even the expenses I've incurred (I replaced the power junction box and ugpraded it from 50amp to 200amp, installed several dedicated circuits, and did tons of other work to this place) will seem small in the long run, as will the interest included in my mortgage. Of course, I only have a 30yr mortgage as a failsafe. So that "if things go really bad, I only am obligated to a certain amount per month". Unless things go totally awry, I'm expecting to pay it off in half that time, which will be an enormous savings. (Also, payment on mortgage interest is tax deductible).
And best of all, in the end, I have a house and property to show for it. So even if it came out to be on par with renting for thirty years, I don't end up owning anything at the end of those three decades when I'm renting.
Of course, in the meantime, I'm keeping my fingers crossed that something doesn't arise that requires me to move and spoil the whole plan. That would suck. But the long term game will be beneficial. That's an admitted risk I have to take, since just about none of us can ever be absolutely sure that we'll still be where we are in five, ten, fifteen, or twenty years.
You can't compare apples with oranges, the rent on your old place is a different place, so you can't use those figures. You could be renting the home you're in now, that figure is the only figure you should be using in comparison.
You also don't seem to be taking into account that interest rates are very, very low at the moment, you definitely can't plan around those rates. Sometimes renting is cheaper than your mortgage payments, sometimes its more expensive. It depends on interest rates.
A lot of lenders also have heavy penalties for early payment. If you don't it probably means that the lender has given you an overall worse rate to compensate for the fact that you're probably going to pay early.
They always get their money. That's how banks work.
Buying a house has been a disaster for some people, causing some serious financial difficulty because they bought when they couldn't afford to, ending up with interest-only mortgages and are now in negative equity.
All because they believed that renting is throwing money away. I just wanted to clarify that it's definitely not.
I also want to point out that the tax-break you're currently getting is by no means guaranteed to remain for the lifetime of your mortgage. Governments use that to encourage home ownership. After the recent disaster it's only going to be a matter of time before someone starts questioning why this amazing tax break exists. Abolishing it is also a politically easier way to raise tax revenues without actually raising the tax rate, which allows politicians to say they stuck to their promise of not raising the tax rate. Here in the UK it was got rid of long ago. This also applies to any capital gains tax relief you think you'll be getting in the future.
Buying a house can be just as expensive, if not more and in fact carries far more risk as you can lose all your initial investment if you end up in negative equity or suddenly find yourself at flood risk due to rising sea levels or whatever it may be.
"You also don't seem to be taking into account that interest rates are very, very low at the moment, you definitely can't plan around those rates."
That's what 30-year fixed means: you can plan around those rates for the life of the mortgage.
"A lot of lenders also have heavy penalties for early payment. If you don't it probably means that the lender has given you an overall worse rate to compensate..."
I think that's fairly rare now. There are plenty of reasons that buying a house might be bad; but in this environment, bad loan terms are not one of them as long as you shop around.
"All you can lose renting is your deposit."
It's more complicated than that. Rising rents can be a risk, too, because you need to live somewhere. Also, there are costs (financial and otherwise) if you are forced to move by the landlord.
The interest rate risk on a house isn't just the mortgage payment. It's also the value of the house itself.
House prices tend to move inversely to interest rates. When interest rates are low, then new home buyers can afford a bigger principal values on a loan of a given monthly payment. The market adjusts to accomodate this, and house prices rise to take up that principal value. When interest rates fall, new home buyers can't afford to take out as big a mortgage, so the supply of cash available in the market declines, and prices fall accordingly.
In 2006, when interest rates were at historic lows and home prices were at historic highs, I worked out who was making the profit from all of this. Obviously, existing homeowners who sold into that market were making a killing; where was the money coming from? It wasn't coming from the people who bought the house: they were paying the same monthly payment, for the same loan terms, as people who bought in the not-so-bubble years before. It might've been coming from the banks, but ultimately their profits were indifferent too, because they were just passing along their low borrowing costs. Trace the money all the way back, and it was being injected directly into the economy by the Fed, through low discount rates. That reduced the banks' borrowing costs, which reduced their mortgage rates, which increased the size of the loan that could be written for a given monthly payment, which increased the amount of cash in the housing market, which made housing prices go up.
And then I wondered what would happen when this system went into reverse, interest rates started to rise, and cash came out of the system. This started to happen in 2007, but then the system froze up, the Fed panicked, and the floodgates opened again. It will probably happen again at some point in the future, unless we get full-on hyperinflation.
Anyway, the obvious losers are people who bought houses with inflated mortgages for inflated prices. With high interest rates, new home buyers can't afford as big a mortgage for the same monthly payment, so house prices must come down for anyone to be able to buy. But who are the winners? Not (really) banks, who're just passing along the borrowing costs from the deposits they have. It's actually people who are holding cash right now and looking to buy in the near future. They're acting as a mini-bank in their own right: if you can buy a house with cash (or put down an absurd down payment like 50+%), then you're effectively acting as your own bank, but without any borrowing costs. Any rise in interest rates goes straight to your pocket.
tl;dr: Falling interest rates are good for homeowners, ambivalent for mortgaged buyers, and bad for people with cash savings. Rising interest rates a bad for homeowners, ambivalent for mortgaged buyers, and good for people with cash savings.
> A lot of lenders also have heavy penalties for early payment.
I've had at least 5 mortages (in the US) and have never seen a prepayment penalty. That's not to say that they don't exist, but I'd like to see some evidence for "a lot of lenders". More specifics please.
Yes, but when you pay off the home, it's yours. Sure, you still have to pay maintenance, taxes, and insurance, but a home warranty can solve many of the problems associated with the first, and you have to pay insurance anyway (renters).
I moved to FL and we're renting out our NC home while paying rent in Florida, and I loathe being a renter again.
Would be curious to hear why you were modded down. The fact is, cash-strapped states and municipalities are going to see property owners as sheep primed for the shearing over the next several years.
As a homeowner you may be able to avoid paying rent, and you may even be able to avoid paying interest, but good luck avoiding the property-tax increases that are probably coming your way.
You need sources, as does the down-voted comment. Cash-strapped states does not equal "eminent domain" on random suburbs. Some tax-levels on property taxes are going down or neutral (Utah) while others remain the same (California, both () examples are personal experience) and can't be used as a broad paint-brush stroke.
Interest is a tax write off, many states are suing for home-owner protection, the very large fraud lawsuits against mortgage lenders, etc.
Property tax increases will hit renters just as hard, since they pay them as part of their rent. Maybe even harder, since rents are often calculated as a percentage above fixed costs.
By definition, as a renter, you pay those same costs plus a small proft margin plus a premium to cover the times it's not occupied. Unless your landlord is a moron.
If you're staying in the same place for ~10 years, that is right. However, if you are NOT staying long term, you pay that + a profit margin to your landlord, but avoid the (usually 6%-8% all things considered) friction that goes to real estate agents, etc.
If you live in NYC, and your studio apartment is worth $500K, that's $40K in friction costs -- rent for 16-18 months for the same unit. Ammortized over 10 years, it is not a big deal. However, if you move after 3 years, that brings your "owner equivalent rent" up by 50%.
Circumstance is everything.
In a city like NYC or SF where most people can't afford a house larger than they need at the moment, the introduction of kids forces you to move -- thus, if you're planning kids in the next few years, you're better off renting even if you know you'll stay in SF for the next 20 years.
False. Your landlord could have purchased the place at an advantageous time many years or decades before you would have been ready to purchase a home. Thus the landlord could charge less than a current or recent homebuyer could charge while still profiting or at least covering costs.
I'd probably just rent my house out. Over the years I've purchased enough of the principle (by overpaying on the mortgage, the difference buys down the principle) that my monthly payment is about the same as the rental rate for a home this size in my area. Even if I lose a little bit every month, I'm just buying more of my own place with somebody else's money.
Something the parent mismentioned is not that he'll be paying $1000/mo 5 years from now while rental rates will simply go up, but you can actually reduce that rate now and free up more of your income for later. It's actually the sole reason I've been able to fund my co-founder to work on our startup full-time while I work a regular boring old day job, I've paid down so much of the principle the past few years that, along with pay raises from my day job, I have enough cash on hand to float another person for the foreseeable future.
"I'm just buying more of my own place with somebody else's money."
At the cost of incurring risks including but not limited to:
- Property damage by renters and others.
- Property damage by acts of god (flooding/fire/subsidence).
- Default on payments & long eviction periods.
- Low occupancy/months without rent.
- Downward price movements in the market as a whole.
- Downward price movements in your location due to ghettoization, tax increases, service/school decline, structural unemployment or other factors.
Could be worth it for the gain in equity, but it's something to think about - especially as some of these risks can't be insured against.
You are also forgoing returns on your existing equity if you invested it elsewhere. Risk free interest rates for retail deposits here in the UK are currently above 3% for example.
In addition to that you also have the costs (in time and money) of:
- Management time/effort.
- Time to deal with renters and searches.
- Organizing maintenance.
- Costs of credit scoring etc.
All good points. You have to figure in costs of use when renting. As it turns out in my locale, you can reduce your taxes when renting under the assumption that renters are beating your place up and thus reducing the property value.
I'm fortunate enough to live in an area where finding renters will never be a problem should I end up that route, but you make an excellent point about that.
Also, eviction periods are not too bad in most parts of the U.S., you can write terms into the lease that also help short fuse eviction on non-payment if many places.
The biggest concern I have above all others is just managing the renters. There are services you can hire to handle all that and maintenance, but they consume some not insignificant part of the rent as payment.
I pay 10%/month to a rental company to handle most of that for me. As to the first - this is why you take a deposit, and why you have money in the bank just in case something goes wrong.
The first list is full of what if's...
As a renter:
What if the landlord gets foreclosed on and you are forced out
What if they don't pay to fix anything
What if the building burns down and you lose everything
etc
In the year that I've owned my home, I've toyed with the idea of renting out a room or two. I have three bedrooms and I don't use any of them. I live in my basement. I know, I know. That sounds stupid. I have a basement that is the size of all but the largest apartment I've rented and it is where my sweet home theater is as well as my home office (I telecommute). Since it's where I spend so much time, I threw a sofa and a futon and an enormous bean bag down there (and a fridge and microwave). Now, I never even go to the top floor where the bedrooms are.
I could rent out all the bedrooms, including the master bedroom (with its own bathroom). I don't even know what the right price would be and I've heard plenty of horror stories about renting to people, but if I renteded even two of the rooms at only $350/mo, I'd have two thirds of my housing costs covered!
And, if I ever need to move, I could buy a house somewhere else and keep this one to rent it out. Again, I hear being a landlord sucks - but I have a handyman nearby who could do on-site work for me and once the house is paid off, the renters would basically be paying the mortgage on my second home.
Also, I plan to pay down the principal, too. I'm not making any extra payments just yet, but I am putting money in a savings account. If I have an emergency, I have access to that money today. If I don't have an emergency, then once I have enough saved up, I can pay off a hell of a lot of my house at once.
Owning a home can be a hassle. God damn, I sure as hell learned that right out of the gate. (I did a lot of remodeling to fit my lifestyle and my electrical needs, among other things). One thing it gives you, however, is more options. More choices, even if not mobility.
Just seconding - being a landlord can REALLY suck, and is full of hidden obstacles. You need to be committed to it, get proper legal advice and do everything by the book. In principle (though I don't know specific state laws in the US) - tennants have a lot of rights. It's their HOME - even though you own the structure. You may not be able to evict them because you want to move back in. You may be liable for all kinds of things.
And that handyman close by? That's great - until he has a family emergency and isn't available - then it's 100% on you to fix.
I'm not saying the renting-to-pay-other-mortgage is bad idea - it's not, it's a valid strategy - but it's something to be taken really seriously, not something you should try to just pull out of a hat.
Let me say that we just moved into a rental unit and the landlord is pretty dang carpy. He is too cheap to pay a qualified person to fix anything. Stuff is falling apart all over. He resents us for asking for simple repairs that cost less than a tenth of what we paid to move in. He calls the neighbors to try and get them to do it for free, and if they won't do it, he comes over on the weekend to try and fix it himself (usually failing, always doing a "ghetto fabulous" job).
We are on the verge of asserting my state's statutory process to compel the landlord to fix things because he is too cheap to use a qualified repair person, even on complex or potentially dangerous tasks like the gas stove, and even when there will be a long lag time on repairs if he doesn't.
My advice is that if you're going to be a landlord, get familiar with some of the maintenance companies in your area and don't be too cheap to call them out. I have been following this discussion with some interest, but I really believe any position, renter, owner, or landlord, can make sense in the correct set of circumstances. You just have to think things through and do it the right way, and it will save everyone involved a lot of headache.
You should really convert the basement to a seperate residence, so you can independently live there, while also providing the same conveniences to the renter upstairs.
Rent to a family.
Being a landlord does suck. I have worked closely with a real estate investor managing 30 residential rental properties.
I would say the two biggest issues are the quality of tenants and the quality of homes.
Central A/Cs die. Whole homes need to be repiped. Roof leaks.
Tenants do not pay or will have 5 people in a 2 bedroom home. Eviction is costly and time-consuming.
The only real estate I would consider as an investment right now is something commercial/industrial, like a group of warehouses or office suites, something with multiple renters.
One pretty much has to assume that your property is going to need a repainting/recarpeting/other repairs when the tenants move out and price accordingly. Most renters (not all mind you) will do all sorts of bad things to your property. Taking that into account is important when renting out.
Unless I moved out of my home, I'd actually be more likely to just rent out rooms. I think there's far less risk and legal complication if you're essentially renting out a room to a "roommate" versus giving over your entire home to another person or family.
I feel compelled to reply. You're basically saying that by paying extra money for years you now pay about the same money as a renter next door. What a terrible way to invest your money. You could have been taking that extra money you were paying in principle payments for years and investing it in conservative investments and making 6-7%. Instead you've wasted it on a depreciating asset that only requires repairs, costs taxes every year, and isn't likely to appreciate in value for the next 3-4 years.
Take all of the extra principle payments you have made - calculate what they would have made at a 5, 6, or 7% interest rate. Then, look at your home equity, subtract the amounts you have paid in repairs and taxes, and ask yourself which number is larger. Chances are you have been foolish with your money.
Instead you've wasted it on a depreciating asset that only requires repairs, costs taxes every year, and isn't likely to appreciate in value for the next 3-4 years.
I'm not sure you understand the difference between a depreciating asset and an appreciating asset. With very few exceptions, a car is a depreciating asset. It's worth less tomorrow than it is today. A house (with few exceptions) is not a depreciating asset. With the singular exception of 2007-2010, home prices tend to rise.
Also, I'm sorry to say, unless your definition of "conservative instement" includes a money printing machine, no conservative investment vehicle since the end of 2008 has broken even 3%, and 5% since 2007 let alone 6%.
I don't know where you're getting your numbers from, but even Treasury I bonds were returning 5.93% (according to the calculator at http://www.treasurydirect.gov/BC/SBCPrice).
In any case, "home prices tend to rise" doesn't make sense if you're trying to justify buying one as an investment. Borrow ten times your net worth and buy a house hoping it'll appreciate. Not exactly a brilliant investment scheme.
Also, you could argue that a house is a depreciating asset. Shit breaks and you have to maintain it. If you were a business you'd actually have to account for depreciation on buildings.
"In the United States, residential rental buildings are depreciable over a 27.5 year or 40 year life, other buildings over a 39 or 40 year life, and land improvements over a 15 or 20 year life, all using the straight line method."
Basically the only thing that will appreciate when owning a house is the land it sits on. A really nice house in a crappy area is going to lose value until the demand for the location starts going up again.
Sorry, we don't have those in the U.S. Our equivalent is called a Certificate of Deposit (CD) and those have just finally climbed above the 1% range after a few years sporting near 0% ROI. Put another way, they weren't even worth the time it took to go down to the bank to buy one.
Now...if you have something over $100,000 USD burning a hole in your pocket that you won't need to touch for a while, you can purchase something called a jumbo CD, and the 5-year instruments will just break 2.3%.
Chalk up another dumb one here. Owning a home is the best thing I've ever done. I don't own it as an investment and it's value doesn't mean squat to me on a daily basis. It only matters when I want to refinance it to move to a lower interest rate and shorter term. Or when (if?) I eventually sell it in the LONG TERM.
Housing isn't a short term investment. If you need to be mobile, rent or surf couches. But when you are ready to settle down nothing beats having your own roof over your head and 20 years of fixed payments ahead of you.
The article must be comparing house vs. apartment rental prices to get their 30:1 ratio, even in Seattle. If you rent a house you're paying the mortgage for the owner + a bit more so there is no way you can rent a comparable home for that much less than buying.
If you rent a house you're paying the mortgage for the owner + a bit more so there is no way you can rent a comparable home for that much less than buying.
This is one instance of a classic fallacy. Let's call it the steady-state fallacy:
If X is impossible over the long run, then X cannot really be happening.
In the housing market the second-order factor is speculation: During bubbles, like the one that is deflating now, people overpay for housing, way more than the equivalent rent, on the assumption that the house would appreciate. When housing prices fell instead, these people ended up owing more on their mortgage than the housing was worth. But it's better to collect 60% of your mortgage in rent than collect 0% of your mortgage on an empty house, or to live in your house in a town where you have no job.
So there are lots of houses and condos that rent for significantly less than they cost to buy. Pretty much all the ones in Boston, for example, at least until very recently.
Right, renting is a related but partially separate market from buying. There are various pressures that affect the market value of the home you're interested in renting, and you may not be able to charge rent+expenses and actually get any decent tenants.
If you could buy a business that was guaranteed to make you 1k-1500/month every year for the rest of your life, while also having someone pay most or all of the loan required to buy said business, would you do it? I sure as hell would (and did).
There's that word again -- "guaranteed". Not that making assumptions is a bad thing as the worst case scenario is bankruptcy along with everyone else, but never assume the market is going to remain where it is. $1k-1,500 a month when your neighbor is renting out at a discount is not going to fair well.
There were no less than 10 houses for rent in my neighborhood when I moved, and it's been full ever since. The market for some place to live is endless, and arguably more competitive than the buying/selling market.
I think that the difference between us and the people that they are referring to in that article is that we consider a house to be a place to live and not merely a medium-term investment.
I think that the thing that really lead to the housing market bust was that a ton of people started buying houses just to sit on them for a few years and then sell for a profit. The speculation fed on itself until it became unsustainable, then it fell apart. It is just a shame that this had an impact on regular long-term homeowners as well.
I thought that was what they were referring to, also, but they keep referring to the rent versus ownership ratio as well as the maintenance work issue. I think they're talking about actual homeowners buying homes to live in, because of the way they keep basing it on that. Though I guess they could be using those to draw a basis for why nobody will buy the houses an investor is stockpiling?
They refer to the rent-ownership ratio and the maintenance work, but they also implicitly dismiss the longer-term argument for owning a house. They keep talking about the costs of home ownership with no talk of the benefits that can result from owning vs renting - painting a picture that home ownership is a really dumb thing to do.
To me, by not discussing the long-term benefits of home ownership they are looking at the issue all wrong. Their analysis is focused only on the short to medium term and the valuation of the house itself.
They are discussing homes in a similar way to how one would look at any investment - ignoring that a home should be considered differently because of the non-monetary values that come along with home ownership.
Of course, a home is an investment and it can provide capital gains, but there are other, not easily quantifiable, benefits to home ownership that make it attractive. To ignore these benefits is to miss the picture completely.
A home may or may not be an investment - investing in a property for investment gains and buying a home as a place to live are not necessarily, and nor should they be, the same thing. Most people don't ever see the distinction.
The article focuses on the bad things, sure, but there are already a ton of articles written out there about why "renting is stupid, buying (mortgaging) you can't lose!)
I rented for a long time. Proudly. People told me I was throwing my money away. I ignored them, I liked the simplicity and mobility.
And the savings.
Then one day I bought (not mortgaged) a home. I bought it not primarily as an investment but as a home, for my family. Some day I'll probably sell it and move on to something bigger, but whether that means I take a loss, a gain, or whatever isn't the point - the benefit is that, for now, I don't have to worry about dealing with landlords, and my expenses on a monthly basis are lower, so if I lose my job or otherwise come into financial hardship, my home won't be on the line (and no I'm not ignoring taxes and other stuff - I'm well aware of my local obligations where I live)
All that said - speaking vaguely of the "benefits" of home ownership doesn't communicate much - perhaps you can elaborate on what you see as those benefits? I know what mine are - but it's subjective.
And to re-iterate - many people get mixed up when deciding whether to mortgage a home - they can't or don't find a way to properly evaluate the financial benefits and risks -vs- the "soft" lifestyle benefits and risks - two very different things.
Well, see... That's the thing... I spoke vaguely because the benefits themselves are ambiguous, subjective. They are hard to quantify because their intrinsic value varies based on who you ask.
However, just because they are not easily quantifiable does not mean that they have no value. You are right. It is easy for me to sit over here and criticize them for not discussing something that was probably outside the scope of their article.
With that said though, it may be possible - one day - for someone to figure out some way of approximating these things (no landlords, lower fixed monthly costs, more control over your own property) and giving them some type of monetary value.
One thing that could be done is to look at the difference between rent and ownership prices and build an econometric model in an attempt to tease some numbers out of it. Maybe someone has already tried it, but I am not certain. There would be some selection bias though - the kind of people that own homes are probably not exactly the same as those that rent apartments. I'm not sure how to deal with that...
Just something to think about, I have taken some classes in Urban economics and all of these professors talk about how incredibly stupid it is to own a house. Then, over the course of the semester, I would realize that they owned houses myself. When I ask them why, none of them has a decent answer.
Maybe the answer is something really sort-of fuzzy. It seems to me that people tend to buy a house when they want to lay down "roots" in a place, but then that wouldn't explain why so many people just rent for a long time despite not needing the mobility.
There are probably hundreds of factors that creep into the decision to own vs to rent. I guess being aware of this is why I feel repulsed at articles claiming to compare the two but not even trying to factor in the preference-related factors and how they cloud this type of analysis.
Disclaimer: I am an economist-in-training at this point in time. My thesis involves an application of a hedonic pricing model. Too much work with hedonics and you may become delirious - believing that everything can be quantified if you just tinker with the model long enough...
I think a very core issue when discussing this is the fact that the majority of people aren't buying a home - they are mortgaging it. Borrowing money, and the additional costs that entails, have become the accepted norm for people to purchase a house. I do realize this is realistically the only way many people may be able to ever "own" a house - but if you spend the rest of your life paying it off, do you ever really own it for practical purposes?
The primary issue for me is that, in current society (talking us/ca here) - paying a financial institution an arm and a leg for the privilege of having them lend you enough money to "buy" a home as the standard way of doing this is the root of the problem - change our financial habits as a society to reduce this need in a few generations and things will change.
"Maybe the answer is something really sort-of fuzzy. It seems to me that people tend to buy a house when they want to lay down "roots" in a place, but then that wouldn't explain why so many people just rent for a long time despite not needing the mobility."
Wouldn't this come down to the risk appetite of renters vs. homeowners? Perhaps long-term renters overestimate the risks/trouble of homeowning and overvalue their mobility. In a sense, renters may be willing to pay a perceived premium (i.e. "you're throwing your money away") because they feel that they are safer. This feeling would only be reinforced if they've had favourable historical renting experiences.
I can't help drawing an analogy to buying insurance; you hope nothing bad happens, but buy insurance anyway.
The argument for renting presupposes low inflation for the time you live there, which is, at this point, an absolutely crazy assumption. If you have a 30 year fixed mortgage in times of high inflation, after a decade or so your payment is virtually negligible.
I remember a neighbor making his last mortgage payment in the mid 80s. $25.
Another thing you might consider about the difference between a 1000ft apartment and a 3000ft home is heating bills. While there's no guarantee a smaller place will be cheaper to heat, it's very likely. If you are on the lower end of the income scale that can be a significant portion of monthly expenses.
> paying $1,100/mo ... sure beats the $1,200/mo I was paying
Yeah, but you have a huge pile of debt hanging over your head. Before you could punch out anyone who needed punching at work, or at least gone all Jerry Mcguire. Now you're kind of a slave to the wage.
The rent/own ratio may be different in San Francisco (where I've lived) and New York, but there's a lot of other country out there that exists besides those two and Seattle. There's Portland, Denver, Chicago. Plenty of places. I live in a fairly expensive city (on par with Portland, where I lived most of my life). Still, my house didn't cost a lot more than the mount I'd already paid in rent during my adult life. I did the math and I have paid about $170,000 in rent. That includes apartments I've lived in in Portland, San Francisco and Denver since 1999 and is not adjusted for inflation. It includes the 400sqft hellhole in San Jose that I paid $1,200/mo for in 2000 and the 400sqft studio and 585 sqft 1bdrm in Portland, and the 1,000sqft 2 bdrm in Denver. The house I bought last year was only $25,000 more than that. Even if my home loses a ton of value (and it probably has and will), at least at the end of paying $200k into it, I'll have something worth something, versus what I have after about thirteen years of renting for $170,000 . . . which is nothing.
The real problem with the home market is that it's being artificially buoyed, to keep current home owners happy at the expense of houses dropping even more in price, so someone can reasonably eventually buy a home even if they're making an average income. After all, isn't that how the market is supposed to work? Stuff drops in price, other people get an opportunity to own that stuff who previously may have been priced out of participation.
Also, the article states that someone who just bought a house and lost 10% due to decrease in value plus commissions when selling is unlikely to enter the market again any time soon. Well, why are you buying a house just to sell it a few years later?
I bought my house so I could live in it. I would like it to increase in value, eventually, too. I'm not counting on it, but it would be nice. If it doesn't, at least I have a home to live in and will eventually own it (because I didn't buy the maximum house that my credit score and loanability would have allowed).
I don't know a lot about the housing market and I'm not an economist, but I do know that I'm glad I bought a house last year (with a rate under 5%) and wish I would have done so many years ago, instead of putting it off for a decade. (On the other hand, if I had done it a decade earlier, I probably would have taken a big hit over the last few years, so whatever).
Also, the other nice thing is that I'll be paying the same amount (except for tax changes) for the next 15-30 years that it takes me to pay off the house. In my apartment, I'd gone from paying $900 to $1,200/mo in only four years for the same unit. Oh, and I don't have people stomping on the floor above me 24x7, so I can't sleep. And I don't have to allow someone from the maintenance/leasing office come into my home nearly any time they want with a 24hr notice. And I can (and did) run ethernet in the walls. And I can (and did) setup my home theater and run it at 50% power instead of having neighbors complain when I ran it at 5%, before. And when I have a guest that stays for more than three days per year, total, I don't have to register them with the leasing office. And I know my neighbors and they have lived here for a couple decades and are friendly and helpful. I never even saw the neighbors at my apartment.
So, yeah. I guess I'm dumb enough.