Is homeownership truly better than renting?

[evident]

this has probably been the most useful thread i've read on OT for a long time. i understand that patrick guy's website's point of view, but i am not truly convinced that renting is better than buying.

 

[DaWhim]

From this quote of his, "On the coasts, annual rents are 3% of purchase price while mortgage rates are 6%, so it costs twice as much to borrow the money than it does to borrow the house." tells me he doesn't have a clue. Annual rents are higher than 3% of purchase price and mortgage rates are a lot lower than 6%. He couldn't get these simply numbers accurate b/c it would defeat his argument.

Wow, good luck. You'll need it. The guy is making a general assumption when the market is very regionalized. RE prices for single family homes were up 16% last year in my city(Cambridge, MA) and based on supply/demand, don't see it falling.

you don't see it falling. let see...I stumped upon one of his link.
http://money.cnn.com/2009/12/08/real_estate/housing_outlook.fortune/?source=patrick.net

your area is on the list, #38.

 

[Capt Caveman]

you don't see it falling. let see...I stumped upon one of his link.
http://money.cnn.com/2009/12/08/real_estate/housing_outlook.fortune/?source=patrick.net

your area is on the list, #38.

Wow, you're in trouble if you don't do your homework better. I said single family homes. Based on the median prices used, that CNN list includes Condos.

Here's another link for you - http://www.bostonmagazine.com/best_places_to_live_temp/index.html

I hope you haven't made your investments based on that guy yet.

Or you could have been smart like me and invest in Visa when it went IPO.

 

[DaWhim]

Wow, you're in trouble if you don't do your homework better. I said single family homes. Based on the median prices used, that CNN list includes Condos.

Here's another link for you - http://www.bostonmagazine.com/best_places_to_live_temp/index.html

I hope you haven't made your investments based on that guy yet.

Or you could have been smart like me and invest in Visa when it went IPO.

oops, guess I missed that, but does it really matter?

There is a different between the link I gave you and the one from yo gave me. The prediction from CNN is written by an economist. the article from bostonmag is sponsor by Suburb Design Group? I see "conflict of interests" here, do you?

I really don't think I make a good investor, i see too much risk in everything I buy, either I sell too early or I buy it on the way down. mehhhh.....this doesn't change my view that I am getting pessimistic on US economy. Optimists are the ones generally happier, but pessimists are the ones usually right.

 

[Genx87]

Heh count me in as one of the idiots who bought at the top. Though I didnt do it with the intention of making money. My wife and I were getting married and we wanted a home for our eventual family. I didnt expect housing prices to continue to rise like they were, but I also didnt expect my house to plummet by 40% either. Starting off a life together about 80-90K in the hole sucks the big one. I may sometime in the future get to a break even point and possibly even sell. But this will never turn a profit for me. I could had taken that 80K and put it into T-bills and come out way ahead.

 

[Modelworks]

It is really dependent on who you are. If you are single, go out a lot or travel then renting is way better. If you have a family then owning is much better. You get a yard for the kids which they really need. So many kids sit inside apartments that never get out to play because they have to share yard space with neighbors . Owning is also good if you are the hobby type that likes to work on your car, woodwork, etc. If you are just someone who stays inside mostly then renting is much cheaper.

 

[Capt Caveman]

oops, guess I missed that, but does it really matter?

There is a different between the link I gave you and the one from yo gave me. The prediction from CNN is written by an economist. the article from bostonmag is sponsor by Suburb Design Group? I see "conflict of interests" here, do you?

I really don't think I make a good investor, i see too much risk in everything I buy, either I sell too early or I buy it on the way down. mehhhh.....this doesn't change my view that I am getting pessimistic on US economy. Optimists are the ones generally happier, but pessimists are the ones usually right.

Wow. If you can't differentiate the difference then I'm sorry. It's called breaking down the numbers. One has a limited supply and high demand, based on the location, it's not going to change that fact. You can't build more single family homes in an already developed area and you're always going to have a high demand due to the universities(Harvard, MIT) and companies (Biotechs, Google, Microsoft, etc). If you educated yourself, you'd be able to reduce your risk aversion.

In regards to the sales numbers, do you think they just made up the numbers or took actual sales numbers? If you searched properly, you'd find other sources that confirm my numbers.

 

[bignateyk]

The only thing that isn't nice about owning a home is that there is always something that needs fixed. Which isn't bad in and of itself, it just starts to drain your free time.

 

[2Xtreme21]

you don't see it falling. let see...I stumped upon one of his link.
http://money.cnn.com/2009/12/08/real_estate/housing_outlook.fortune/?source=patrick.net

your area is on the list, #38.

Yay for being the only city whose houses' values are projected to rise despite the economic downturn!

So I guess owning a house makes a helluva lot more sense to me than it does for others. I think what people are missing in this thread is that property values are not consistent in all areas. If I was in the market for a place to live in California or Florida, I sure as hell would consider renting a lot more.

 

[Elbryn]

While it's true that mortgages are front-loaded with interest payments, it's those interest payments that, when deducted on your income tax filings, that allows most people to get into itemizing their deductions....health expenses, continuing education expenses, state/local taxes, etc.

If you don't have mortgage interest deductions, you typically won't get any benefit from itemizing deductions, better off to just take the standard deduction.

Comparing the two avenues over the decades of home ownership we've had, we've come out much further ahead with owning. We own our land outright and have less than 7 years of "normal" payments left on our mortgage.

the deduction is true but keep in mind that for every dollar in interest you pay on your loan, you're only getting a deduction of 25 cents or whatever your tax rate is and you dont gain any benefit from interest up to the standard deduction level. make no qualms, you definitively pay more to own a home. As you pay the home off, you correspondingly pay less interest as well.

inflation on the other hand works in your favor as a homeowner. inflation will drive rent prices up on a year to year basis whereas your proportionally spending in real terms on your mortgage. if your mortgage payment was 300 bucks a month, it'll still be 300 bucks a month 29 years from now. your rent will have more than doubled in that time assuming ~3% inflation. your property taxes will also go up though, levies and the like will add to the cost.

 

[vi edit]

Yay for being the only city whose houses' values are projected to rise despite the economic downturn!

So I guess owning a house makes a helluva lot more sense to me than it does for others. I think what people are missing in this thread is that property values are not consistent in all areas. If I was in the market for a place to live in California or Florida, I sure as hell would consider renting a lot more.

I don't think a lot of people are missing the point that values vary greatly, it's just that their local situation validates their decision.

 

[dullard]

This recent bubble & burst isn't something that's historically common. Over the life of a 20 year mortgage, unless you managed to buy at the peak of the bubble, you're still going to gain equity. In fact, even if you DID buy at the peak of the bubble, I'm pretty sure that after 20 years, your home will be worth more than you paid for it.

You will in most cases be right. But I do want to add some historical data to your arguement. Here is an article that came out just as it was becoming apparant that the housing bubble is going away: http://money.cnn.com/2005/09/19/real_estate/buying_selling/price_declines/index.htm

Ignoring inflation, most housing markets recovered in 6-10 years. Meaning the peak price was once again reached 6-10 years later. But, if you do include inflation in your calculations, it isn't quite so rosey. The article mentions Oklahoma City which took 15 years to recover and Houston took 22 years (and counting) without yet recovering at the time of the article (I assume it still hasn't recovered).

So, with inflation, even 20 years down the line you might not break even.

 

[KCfromNC]

That's a great calculator. I came into this thread just to post it and was glad to see that others know about it as well.

Thanks. It's really easy to forget about all of the money which goes into owning a house, which is why people usually fail when they compare it to paying rent (which is just 1 number maybe plus insurance). Just the fact that I see "just put more money down" as a way to get housing costs equivalent to rental costs tells me many people don't understand the numbers or opportunity costs of buying. Hopefully the calculator will help a bit.

 

[vi edit]

Regional costs aren't just the only factor in rent vs. buy either. I rented an incredibly nice apartment when I lived in Phoenix a few years back. It was a 1200 sq/ft, 3BR/2BA with an attached garage that was gated and could have doubled for a luxury retreat.

I paid $1200 a month for that and could enjoy it almost year round. Houses in that price range in the area had a postage stamp sized yard and likey a 2nd stall to the garage.

Up in the smaller cities in the midwest apartments like that don't exist. But the prices are the same. They are usually old, run down dumpy things with Section 8 renters or lower income renters with the stereotypes that accompany that. Plus with the winters as they are here you pretty much can't do anything outside the apartment for 4-6 months out of the year.

On the flipside, for $1200 a month(including taxes) I can get into a nicely maintained home with the same if not more sq/ft and a decent sized yard. Home rentals really aren't that popular in many of the small/mid sized cities I've lived in around the Midwest.

 

[Zebo]

What's funny is many of you think housing prices have hit bottom when that "home equity bailout bill" $8000 is still out there floating market and alts have yet to hit. Y'all have seen nothin' yet take that to your insolvent bank.

 

[DaWhim]

Wow. If you can't differentiate the difference then I'm sorry. It's called breaking down the numbers. One has a limited supply and high demand, based on the location, it's not going to change that fact. You can't build more single family homes in an already developed area and you're always going to have a high demand due to the universities(Harvard, MIT) and companies (Biotechs, Google, Microsoft, etc). If you educated yourself, you'd be able to reduce your risk aversion.

In regards to the sales numbers, do you think they just made up the numbers or took actual sales numbers? If you searched properly, you'd find other sources that confirm my numbers.

duh, you are talking somewhere local specific. what make you think the demand is going to be there next year? let alone it will cause 15% increase in housing price next year. oh...that article was sponsored by a company that has skin in the game. Please factor in the probability the $7500 credit will be expired by the end of april and Fed can't keep the rate at 0%~0.25% forever.

educate myself to reduce my risk aversion? I am not sure about this, I think this comes from knowing too much. I have wall street journal daily, the economist weekly, now bloomberg magazine monthly. I guess I should stop reading too much.

 

[jinduy]

that's a nice calculator. a crummy 3 bed home in my area is 500k, so looks like i'm renting for life

 

[Zebo]

that's a nice calculator. a crummy 3 bed home in my area is 500k, so looks like i'm renting for life

No you won't median family income for almost any area can't support 500K homes.

 

[Capt Caveman]

duh, you are talking somewhere local specific. what make you think the demand is going to be there next year? let alone it will cause 15% increase in housing price next year. oh...that article was sponsored by a company that has skin in the game. Please factor in the probability the $7500 credit will be expired by the end of april and Fed can't keep the rate at 0%~0.25% forever.

educate myself to reduce my risk aversion? I am not sure about this, I think this comes from knowing too much. I have wall street journal daily, the economist weekly, now bloomberg magazine monthly. I guess I should stop reading too much.

/facepalm

Wow. You really think the numbers are made up? A google search would validate the numbers - http://www.boston.com/realestate/specials/mass_housing_gains_losses/.

Yes, please educate yourself when you believe guys blog where he posts that mortgage rates are 6% on Dec 11, 2009. You are the one that doesn't understand the difference in prices between a condo and single family home and the supply/demand of both Right there, it tells me that you're not educated enough in the subject.

Your arguments in this thread are based on generalities, national trends and not understanding that markets vary based on the region. You talk about how someone who buys a house in NY is stuck there for 30 years when in reality, they are not.

And the tax credit was not in effect then.

 

[Zebo]

duh, you are talking somewhere local specific. what make you think the demand is going to be there next year? let alone it will cause 15% increase in housing price next year. oh...that article was sponsored by a company that has skin in the game. Please factor in the probability the $7500 credit will be expired by the end of april and Fed can't keep the rate at 0%~0.25% forever.

educate myself to reduce my risk aversion? I am not sure about this, I think this comes from knowing too much. I have wall street journal daily, the economist weekly, now bloomberg magazine monthly. I guess I should stop reading too much.

Not to mention banks are holding paper which should be foreclosed on but don't want to go into insolvency, again. Hoping, preying for some miracle before next quarter. Aint gonna happen - those houses will be glutting market by spring one way or the other.
http://www.thestreet.com/story/1064...-foreclosures-for-30-days.html?cm_ven=GOOGLEN

Then you got people hitting UE lines 475,000 a week clip still and most not gettng them back.

Then as you say interest rates CAN NOT stay 4.5% - any upward shift lowers home prices.

It's simple math incomes do not support debt ratios. Either incomes must rise or debt lowered - usually done via a strategic default - like banks do all the time incidentally.

" Dec. 17 (Bloomberg) -- Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.

&#8220;This isn&#8217;t a default or foreclosure situation <uh huh>,&#8221; Barnes said. &#8220;We are going to give them the properties to get out of the loan obligation.&#8221;
"

So don't feel so bad folks when you walk from these upside down losing assets we call homes.

 

[DaWhim]

/facepalm

Wow. You really think the numbers are made up? A google search would validate the numbers - http://www.boston.com/realestate/specials/mass_housing_gains_losses/.

Yes, please educate yourself when you believe guys blog where he posts that mortgage rates are 6% on Dec 11, 2009. You are the one that doesn't understand the difference in prices between a condo and single family home and the supply/demand of both Right there, it tells me that you're not educated enough in the subject.

Your arguments in this thread are based on generalities, national trends and not understanding that markets vary based on the region. You talk about how someone who buys a house in NY is stuck there for 30 years when in reality, they are not.

And the tax credit was not in effect then.

OOPS! my apology. for one thing, I was talking about the predicting housing price in the coming 2010 will be dropping even in your area and then you were actually showing me the sale figure from 07-08. This is how I got confused.

You can keep praying that the demands will be there when you need to sell your house. Even during the Great Depression, the market did bound back a little before plunging again. we could very well be at that point.

It does get more and more meaningless to argue at this point. if things go well, economy recovers and I was wrong, we are all happy. on the other hand, if the economy will get worst beyond your imagination, what are you gonna do?

I have my exit strategy just move to asia/europe and I won't take a loss because my bet on the asset price went wrong. Well, I hope I am wrong.

 

[Wudemaya]

Thank god I already paid my condo off in cash..didn't have to deal with loans/mortages like most of you.

 

[JS80]

It is really dependent on who you are. If you are single, go out a lot or travel then renting is way better. If you have a family then owning is much better. You get a yard for the kids which they really need. So many kids sit inside apartments that never get out to play because they have to share yard space with neighbors . Owning is also good if you are the hobby type that likes to work on your car, woodwork, etc. If you are just someone who stays inside mostly then renting is much cheaper.

I rent a house with a pretty big yard.

 

[Arkaign]

Heh count me in as one of the idiots who bought at the top. Though I didnt do it with the intention of making money. My wife and I were getting married and we wanted a home for our eventual family. I didnt expect housing prices to continue to rise like they were, but I also didnt expect my house to plummet by 40% either. Starting off a life together about 80-90K in the hole sucks the big one. I may sometime in the future get to a break even point and possibly even sell. But this will never turn a profit for me. I could had taken that 80K and put it into T-bills and come out way ahead.

Eh, it will come together for ya, and the economy can't be down forever either. Are you handy? Adding things like decks, upgrades to kitchen/bathroom, etc, can really add value to a home as well. Hopefully you got a decent enough deal + decent down payment (and not one of those god-awful ARMs) that your mortgage payment is pretty close to an average rent payment for the same class of home.

Remember, you're building equity, even if you currently owe more than the home is currently worth, you'll still end up with more than somebody who rents for an extended period of time.

 

[JS80]

No you won't median family income for almost any area can't support 500K homes.

Not necessarily. In premium areas like Santa Monica and West LA there is a huge premium to home ownership because there is no new housing and homeowners never sell.