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The real cost of owning a home

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Re: The real cost of owning a home

#241

Post by stego-tech »

This is an excellent post for folks just getting into the homeownership racket: what is pitched as a necessity for wealth creation and an “easy” transaction with nothing but upsides is - unsurprisingly - a nuanced and complicated financial transaction that has no guarantee of upside.

A few things I’d note to add more data points to the pile:

* Property tax caps like the OP discusses are likely to go away in the near future. Having been artificially capped for so long with so much uncaptured asset appreciation, communities are having to face either serious cuts in services or to seek permission in raising property taxes. If you’re buying a “forever home”, ask yourself if you could still afford it with 2x or 3x the property tax bill; if not, you might not be ready to weather the disruptions ahead

* Rent has skyrocketed alongside home prices, making both untenable (local housing jumped 50% in home prices during COVID, while rent has appreciated about the same over the past ten years; wages have not kept pace with either). Some states have tried forcing higher density housing near mass transit, but those have been blocked or lawyered around; now tenants are pushing to rent caps, terrifying landlords. The point is that pricing in the near future is going to be incredibly volatile as asset prices and rents adjust to meet what workers can afford instead of what financial models spit out, and that’s going to impact your own home prices accordingly

* The primary benefit of home ownership going forward isn’t likely to be asset appreciation so much as stability. For those of us who want to put down roots, owning our homes is critical; for folks happy to move around and explore, renting is far preferable. I would strongly caution against the old adage of “buy if you’re living there for 4+ years”, as there’s no guarantee you’ll come out ahead anymore and may be better off renting

* Most “affordable” housing stock will require repairs anywhere from 20 to 50% of its purchase price, especially in older regions of the country. Do not waive inspections when buying a home or you’re likely to miss a five or six-figure repair - like an oil tank that’s leaked into the foundation, for instance.

Re: The real cost of owning a home

#242

Post by pdonis »

jedberg wrote: post #164

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or ow…

The control benefit isn't just psychological; it can have real financial consequences. If you own your home, you can't be told by a landlord that their pet policy has changed and you will have to move out. You also can't have your landlord sell the place where you're living out from underneath you and inform you that the buyer doesn't want to rent the place out any more and you will have to move out. Both of those things have happened to me, and at pretty short notice (about a month to find a new place and move both times), and they were significant costs that I did not expect to have to pay.

Re: The real cost of owning a home

#243

Post by IAmBroom »

webdood90 wrote: post #200
tim-tday wrote: post #167

Earlier quoted context omitted.

If you can buy low and sell high it’s worth it. Especially if you’re positioned to buy when you can lock in low mortgage rates. Above 6% you might be better off putting your down payment into the stock market and renting. It’s also more likely that you’ll feel good about spending money to improve the home if you think you can get the money back when you sell. (And then you get to live in a more pleasant place for yea…

It's okay to do things that don't maximize your return. Everybody is so obsessed with squeezing out the maximum amount of money from everything, it's exhausting.

Squeezing out the expected amount of money, making it even more exhausting.

Guessing what your yearly house-owning costs will be, and what the market will be when you sell, is in the realm of crystal ball scrying. Sure, you might be able to guess "reasonable" estimates, but individual instances aren't necessarily near the mean value.

Re: The real cost of owning a home

#244

Post by ThrustVectoring »

strongpigeon wrote: post #175
jedberg wrote: post #164

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or ow…

> You don't have to worry about rent increases I'd also argue there are financial advantages (on top of the psychological ones) to the price stability as you don't have to hedge against your housing cost shooting up as much.

Owning the asset is an advantage in a bull market and a disadvantage in a bear market. If a dominant employer or industry in an area has mass layoffs, that can cascade into the housing market, driving your property underwater at the same time your job vanishes. This happened to a large number of autoworkers in Detroit in 2008.

Re: The real cost of owning a home

#245

Post by rustystump »

jandrewrogers wrote: post #168
jrflo wrote: post #153

A lot of discussion of the cons without discussion of the pros. For example: 1) your home is a hedge against inflation, your $2000 to interest sounds terrible when rent is $2500, but doesn't sound so bad if rent rises to $3500. If you live in your home for long enough, this is all but guaranteed. 2) your home is a leveraged investment. You may only be getting 4% per year in appreciation, but that's 4% gains on the to…

> your home is a leveraged investment Which means the potential losses are leveraged too. Plenty of people have ended up in that position. It isn't all upside.

Generally prices go up if the location doesnt tank. There are other benefits in itemization that for higher earners make it even more compelling.

For sure though, there are real risks esp if you shop at the edge of your affordability

Re: The real cost of owning a home

#246

Post by rwmj »

vikingerik wrote: post #197
jedberg wrote: post #164

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or ow…

Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent.…

But the same argument applies to landlords too. Why are they willingly losing money?

Re: The real cost of owning a home

#247

Post by carlosjobim »

bloomca wrote: post #223
jrflo wrote: post #153

A lot of discussion of the cons without discussion of the pros. For example: 1) your home is a hedge against inflation, your $2000 to interest sounds terrible when rent is $2500, but doesn't sound so bad if rent rises to $3500. If you live in your home for long enough, this is all but guaranteed. 2) your home is a leveraged investment. You may only be getting 4% per year in appreciation, but that's 4% gains on the to…

The biggest advantage of buying a house is that it forces people to actually put money into a giant savings account which is not easily accessible. Otherwise people just spend the vast majority of the money they have. As an investment, houses are historically mediocre outside of some hot areas.

Why is that good? That is horrible for economic development and employment. It is worse for a country than being nuked.

Re: The real cost of owning a home

#248

Post by SirMaster »

oxag3n wrote: post #233

Renting won't match home ownership for few reasons. First one already mentioned in the comments is you can be kicked out at any time within your rental agreement. I was "lucky" enough to get our rental sold two years ago and then again this year. Packing and looking for another rental with 2 months notice is not fun (and boxes smell). Another difference is location and place itself. You'll have much fewer rentals in…

I pay only 650/mo for rent though. My friends with homes around me pay about what I pay in rent in their home property taxes alone... Or especially once you add in some utilities, like my heat is included in my rent and I can have my place at like 75F all winter if I want.

Also yes they replaced the dish washer and refrigerator with new ones before they broke or died while I've been there.

Re: The real cost of owning a home

#249

Post by xnx »

stego-tech wrote: post #241

This is an excellent post for folks just getting into the homeownership racket: what is pitched as a necessity for wealth creation and an “easy” transaction with nothing but upsides is - unsurprisingly - a nuanced and complicated financial transaction that has no guarantee of upside. A few things I’d note to add more data points to the pile: * Property tax caps like the OP discusses are likely to go away in the near…

The ponzi scheme of property-values-always-go-up only holds when population is increasing. In the US, immigration and fertility changes are bringing population growth to a halt. Good news: We may yet enter an era of housing abundance!

Re: The real cost of owning a home

#250

Post by julianeon »

hunterpayne wrote: post #228
01100011 wrote: post #123

Earlier quoted context omitted.

Rent control changes the math on this. Obviously location dependent but it can have a significant effect.

The markets with rent control have astronomical increases in rent when compared to markets without rent control. Also, you lose supply when there is a unit that it doesn't make sense to renovate because the future rent won't be high enough to cover it. So it remains unrented instead.

Sure, but from the perspective of the individual renter (who arguably doesn't have the power to change rent control law anyway), their point stands.
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