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Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

patrick.net

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Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#51

Post by keating »

timr wrote: post #44
keating wrote: post #6

Earlier quoted context omitted.

> For instance, there's no guarantee a 400k house in Sacramento will be worth 800k in five years Sure, but based on historical events with housing in "great" areas, this can and does happen. If you buy right before a bubble, it can even happen sooner -- in a couple years. A 6% fund is not going to even have the chance to do that. > In markets with a lot of excess inventory, some landlords can't find tenants. A given,…

Sure, but based on historical events with housing in "great" areas, this can and does happen. If you buy right before a bubble, it can even happen sooner -- in a couple years. If you buy a good stock right before a bubble, you can double your money quickly, too (ask me about INTC or CSCO or AMZN in 1998). The point is, what's going to happen under likely circumstances? More importantly, what's going to happen in a ra…

> The point is, what's going to happen under likely circumstances?

In high-demand areas, it's likely housing prices will see another bubble.

> it's not guaranteed that your home is going to double in value in five years.

We're all in agreement on that.

The point I was making is that real estate bubbles recur and so there's always the possibility of a large, rapid gain, which doesn't happen with mutual funds (correct me if I'm wrong there).

> In fact, in some parts of the country, there's a real chance that your home will be worth 50% less in five years' time.

The article specifically stipulates a "great" area. So we're not talking about parts of the country that aren't in demand. :)

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#52

Post by timr »

pchristensen wrote: post #47
timr wrote: post #43

Earlier quoted context omitted.

It's not that rare in Seattle -- a renter here is paying something like 30-50% less per month than an owner of an equivalent space. This is one of the principal arguments that the local housing market is overinflated. You can't take out a mortgage to pay rent, so it tends to be better reflect economic fundamentals.

But that only applies to landlords buying new properties now. A landlord who bought their property 5 or 10 years ago has VERY different cost structure than someone who bought last year. They can offer rents lower than a landlord with a new mortgage. Don't assume everyone has a new mortgage at full market prices!

Okay...if you're arguing that the majority of landlords bought a long time ago, and therefore are profitable, I can't really dispute that point (don't know one way or the other).

That said, I don't see that as being the most important metric. Today, in Seattle, it's cheaper to rent than to buy. It might be cheaper to buy ten years ago than to rent today, but that doesn't have much bearing on a rent/buy decision tomorrow.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#53

Post by axod »

timr wrote: post #52
pchristensen wrote: post #47

Earlier quoted context omitted.

But that only applies to landlords buying new properties now. A landlord who bought their property 5 or 10 years ago has VERY different cost structure than someone who bought last year. They can offer rents lower than a landlord with a new mortgage. Don't assume everyone has a new mortgage at full market prices!

Okay...if you're arguing that the majority of landlords bought a long time ago, and therefore are profitable, I can't really dispute that point (don't know one way or the other). That said, I don't see that as being the most important metric. Today, in Seattle, it's cheaper to rent than to buy. It might be cheaper to buy ten years ago than to rent today , but that doesn't have much bearing on a rent/buy decision tomo…

You're still looking at it in the short term. A decision to buy/rent should be made based on the fact you might actually spend a few years there. By which time your repayments will be far less than the rent you would have to pay.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#54

Post by alps »

Try explaining this "logic" to a family with a newborn when the landlord decides to kick them out! Owning a home is security. Also, as noted by tesla, at year 31 you no longer have a house payment. I hope the people who advocate renting for life like paying rent after they are retired!

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#55

Post by pchristensen »

timr wrote: post #52
pchristensen wrote: post #47

Earlier quoted context omitted.

But that only applies to landlords buying new properties now. A landlord who bought their property 5 or 10 years ago has VERY different cost structure than someone who bought last year. They can offer rents lower than a landlord with a new mortgage. Don't assume everyone has a new mortgage at full market prices!

Okay...if you're arguing that the majority of landlords bought a long time ago, and therefore are profitable, I can't really dispute that point (don't know one way or the other). That said, I don't see that as being the most important metric. Today, in Seattle, it's cheaper to rent than to buy. It might be cheaper to buy ten years ago than to rent today , but that doesn't have much bearing on a rent/buy decision tomo…

It's because landlords bought pre-boom that it's cheaper to rent now. It has nothing to do with what you should do today, just a little background to the situation.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#56

Post by aardvarkious »

If you want to play with numbers, the New York Times has an excellent tool:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP...

It allows you to play with multiple variables and then tells you how many years you need to own a home for in order for it to become profitable.

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#58

Post by timr »

axod wrote: post #53
timr wrote: post #52

Earlier quoted context omitted.

Okay...if you're arguing that the majority of landlords bought a long time ago, and therefore are profitable, I can't really dispute that point (don't know one way or the other). That said, I don't see that as being the most important metric. Today, in Seattle, it's cheaper to rent than to buy. It might be cheaper to buy ten years ago than to rent today , but that doesn't have much bearing on a rent/buy decision tomo…

You're still looking at it in the short term. A decision to buy/rent should be made based on the fact you might actually spend a few years there. By which time your repayments will be far less than the rent you would have to pay.

...or perhaps not. If you bought in Seattle five years ago, you'd still be on the wrong side of the rent/ownership equation (rents have risen about 5% per year here, whereas houses were expensive relative to rent even in 2003).

I grant you that if you own long enough, your costs will someday be lower than renting the same space. But that's a tricky calculation, and your break-even point depends heavily on your assumptions for inflation, rent increases, interest rates, etc. And over the five-year timespan that most Americans own a particular home (very few people spend 30 years in the same house anymore), it's not even worth considering -- you'll lose far more money to interest payments in the first five years or a mortgage than you'll gain in savings over rent.

My point is that we can both be right. Eventually you'll break even on monthly costs, even if you buy at today's bloated prices. The question is, how long is "eventually"?

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#59

Post by nazgulnarsil »

nazgulnarsil wrote: post #57

1. pay downpayment 2. let other people rent from you, pay mortgage with that rent 3. profit. the downpayment you made gets paid back into the equity on the house within the first couple of years. everything after that is FREE EQUITY.

also: I blame this partly on the attitudes of today's generation. they can't seem to distinguish between owning and borrowing.

Is music DRM preventing people from making good financial decisions in other aspects of life?

Re: Homeowner vs. Renter: Why Should You Ever Buy a House (at all)?

#60

Post by geebee »

The economist and the financial times started recommending renting a few years ago - and they acknowledge that this was a remarkable turn of events.

That said, I think that deliberately renting is a short term play - one that paid off for folks who stayed out starting 2004 or so. These people will probably be in a stronger position to jump in later (though it's incredibly hard to know exactly when... and I suspect this bust will go on for a long, long time).

That said, when I was looking for apartments in SF a few years ago, I met people over the age of 50 who were losing their rent controlled apartments. They were truly shocked at the prices, and were angry about it. Of course, I'd never actually come out and say this, but I thought it: "you've been in SF for 25 years, was there really never a good time to buy?"

Maybe not. I grew up in SF, and over the course of my life, housing has gone from quite expensive ( early 70s) to very expensive (late 80s) to brutally expensive (early 00s). I actually think that a lot of people just never quite managed to get a toehold, and I feel bad for them.

Personally, I'm making payments on an expensive 1200sqft house with a little yard in an unfashionable corner of the city. It may well be worth less than I paid for it, but I locked in a 30 year fixed loan, and I'm not struggling to pay the morgage (though it is a big chunk of my pay).

When I bought, I actually would have predicted a downturn as well. But I don't really act on those beliefs - any more than I get into and out of equities based on where I see the stock market going. My best guess is that housing has a lot further down to go (something I believed as early as 2002 or so) - but my guess is no better or worse than what any other astute reader of the business section could come up with. But I'm a lot more confident in my belief that when I'm 55, I'll be glad that I own my hous and that I'm not worrying about whether I'll lose my rent controlled apartment.

I still think that starting early, investing in stocks and owning your own house, is by far the winning long term strategy.

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