I wonder about this with respect to the "housing crisis." I was never a big fan of the "Ownership Society" idea. In my head, houses and kids are for people with a steady income or with family money. Everyone else should rent and use birth control. Or if you want a house, move to Gary, Indiana. I think that the Ownership Society ethic is part of a weird entitlement zeitgeist where being a good American is somehow tied to owning-- or appearing to own by way of mortgage or loan-- nice things. My greater disgust comes with the positions people are willing to take in pursuit of this Ownership Society model. And now that such an outrageous amount of money and industry depends upon sustaining this ethical model, the Ownership Society morality has become even more problematic.
Posted by TomDavidson (Member # 124) on :
The Ownership Society ethic is tied to the belief that you will care more deeply about things you feel you have earned and for which you are primarily responsible.
I sympathize strongly with this, as I've certainly noticed myself that I do care more about those things for which I'm responsible.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:The Ownership Society ethic is tied to the belief that you will care more deeply about things you feel you have earned and for which you are primarily responsible.
I'm still not sure this is a good thing. Let's take the Iraq War. If you served in the military, were responsible for some town, and were promoted for your service in that town, your opinion about whether we should or should not have been there could be jeopardized for those same vague feelings of care and responsibility.
Posted by TomDavidson (Member # 124) on :
You're using the word "jeopardized." I think you should be using the word "informed."
Is it your belief that a dispassionate opinion is necessarily a better one?
Posted by DarkKnight (Member # 7536) on :
quote: I'm still not sure this is a good thing. Let's take the Iraq War. If you served in the military, were responsible for some town, and were promoted for your service in that town, your opinion about whether we should or should not have been there could be jeopardized for those same vague feelings of care and responsibility.
Serving in the military is nothing like purchasing a home. You cannot relate the two. Well, I guess you can but it is a terrible analogy. But to respond anyway, your opinion on whether we should or should not be there is irrelevant because you had to go there and would be there no matter what your opinion was <editted because I forgot words...>
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:Is it your belief that a dispassionate opinion is necessarily a better one?
No, but I do believe that if gaining responsibility comes with developing sentiments, then we should be careful about what responsibilities we assume, and not just preach responsibility for the sake of responsibility.
Posted by Rakeesh (Member # 2001) on :
quote:In my head, houses and kids are for people with a steady income or with family money. Everyone else should rent and use birth control. Or if you want a house, move to Gary, Indiana.
Why? As usual you're making lots of sweeping declarations as though they were self-evident, when nothing could be further from the truth.
Why are houses for people with a 'steady income' or family money? How do you get that steady income without being a part of your so-called 'Ownership Society'? Travel the nation selling poetry?
quote:I think that the Ownership Society ethic is part of a weird entitlement zeitgeist where being a good American is somehow tied to owning-- or appearing to own by way of mortgage or loan-- nice things.
In what way is the notion that being a good citizen will yield material rewards weird? Being a good citizen for material rewards is not a good motivation, but that's a different matter.
quote:My greater disgust comes with the positions people are willing to take in pursuit of this Ownership Society model.
Implying that you are disgusted even with the people who think that good things will come of being a good citizen? I would hesitate to make that characterization with most people, but you've said similar things in the past.
Posted by Rakeesh (Member # 2001) on :
quote:I'm still not sure this is a good thing. Let's take the Iraq War. If you served in the military, were responsible for some town, and were promoted for your service in that town, your opinion about whether we should or should not have been there could be jeopardized for those same vague feelings of care and responsibility.
I think I can barely parse the similarities you're trying to draw. Being in Iraq = bad, though that feeling may get muddled by those actually there charged with its defense because of their responsibilities.
If I understand you right, once again of course you're starting with a controversial statement as a given, and it becomes even more noticeable when you talk about home ownership. Owning a home = bad, though those owning homes may not realize it because of their sentimentality associated with that responsibility.
Why is owning a home bad?
Posted by ElJay (Member # 6358) on :
quote: In my head, houses and kids are for people with a steady income or with family money. Everyone else should rent and use birth control.
The problem with this is that homes are one of the best ways out there to accumulate wealth. Renting is throwing your money away every month with nothing to show for it. When you purchase a home, you are building equity, and the home is appreciating in value.
Yes, buying a home when you can't afford the payments is bad. But if you can afford to rent, and you're reasonably sure you're going to be in the same area for a number of years, buying a home with payments about the same as your rent would be otherwise is usually a better option. If everyone followed your model and rented, they would be paying their landlords' mortgages instead of their own. They also would be giving up a good deal of control over their surroundings. Basically, this is just handing money to the man, and I have no idea why you would consider it preferable to a culture of ownership.
Buying more house than you can afford = almost always bad. Buying a house = almost always good.
Posted by Mucus (Member # 9735) on :
Of course you have to take into account what proportion of your mortgage payment is interest and what proportion is actually going toward repaying the mortgage. (and how much you would pay toward maintenance, taxes, etc.) There is also the issue of whether you would get a larger (and more expensive) house than you would otherwise rent if you were renting. Also, you have to consider the opportunity cost of putting together a down payment and repaying the mortgage versus putting that money toward a retirement fund consisting of investments other than your house (and what tax sheltered room you may have left for investing). Also, different jurisdictions have different rules for tax treatment of mortgage interest.
The decision can get pretty complicated if you're trying to determine which choice is more economically optimal.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote: Renting is throwing your money away every month with nothing to show for it.
Except my time, my low blood pressure, my walking distance to work, and my full head of jet-black hair, not to mention the ability to move.
quote:The problem with this is that homes are one of the best ways out there to accumulate wealth.
People say that, and I'm sure that given the right other variables that's true, but I don't know. After seeing what the pressure of keeping up with property can do to people, and the decisions people make in the name of paying their mortgage and upkeep, I'm no longer sure "buying a home to accumulate wealth" should be prescribed as broadly as it is.
I think there was a time in America when anyone who could buy a house was smart to do so, no matter how stable their financial situation, within reason, but I'm not sure that's been the case for a while.
Posted by ElJay (Member # 6358) on :
Mucus, I specifically said buying a home with payments about the same as your rent would otherwise be.
Irami, even with the housing crisis, if I sold my home tomorrow I would clear over $100,000 for a 9 year investment of what I would have otherwise paid in rent. No down payment, remarkably little stress. You can argue that I've magically hit all the right "other variables," and there's probably an element to that involved. But I bought with in my means, and I had a home inspection before we closed so I wasn't surprised with a roof replacement the next year or something. I've only paid off about $9,000 of my original loan, but there is no other investment I could have made that would have had a tenth of the return in the time period that this one has. You will have a very hard time convincing me that buying a home to accumulate wealth isn't a good idea for anyone who can swing it and is planning on staying in the same place for at least 5 years.
Posted by fugu13 (Member # 2859) on :
I think it would have to be payments lower than what your rent would otherwise be. At very least, payments + property tax about the same as what your rent would otherwise be, and there should probably be some maintenance costs figured in as well.
ElJay: have you calculated what your mortgage payments + property tax + maintenance costs you would not have had when renting are, about? Have you compared that to current rents? Or are you assuming that you'd have paid about that much in rent.
And you have pretty much hit all the right other variables: you got just as the housing market started really skyrocketing, and you're looking at it just after its off-peak. That same 9 year period isn't going to happen for many decades. Also, you're assuming you can sell it (which might be true in your area, but is definitely not a safe assumption in most areas) at the value increase you're discussing.
It probably was a good choice for you, but I think the state of things right now puts the time one will be staying in one place at closer to six or seven year before leaving, and that's assuming the person will be able to stay in that place for longer, as they might well be underwater on their mortgage (as many are, currently, even in houses within their means, just bought too recently w/o much down payment, or in a place with really high depreciation) at that point.
edit: the location argument is probably the biggest variable between buying and renting in the greater than five year periods -- if there are just no affordable houses in a waking distance to where you need to be, but affordable apartments are, that's a big quality of life difference to many people.
Posted by Dagonee (Member # 5818) on :
quote:I think it would have to be payments lower than what your rent would otherwise be.
I think most people's "payment" on a mortgage includes property tax. All 4 of my mortgages have had escrow for insurance and property put into the monthly payment.
Posted by fugu13 (Member # 2859) on :
True, that's basically the standard in some states/with some lenders.
Posted by Mucus (Member # 9735) on :
Its not quite that simple since you control your house payments through the length of the mortgage and the proportion that is interest by your downpayment.
For example, if the mortgage term is long and the vast majority of your payment is interest and your comparison for rent is actually equal to that payment then you could easily actually be worse off than renting after considering maintenance costs, taxes, and that painful realtor commission
Edit to add: Bah, fugu covered most of what I wanted to cover while typing.
All I have to add is I could easily find at least five investments that could have made the same gain (or much bigger) in the same time, in retrospect The question is identifying them at the right time, a problem which is not entirely absent when investing in real estate. Long term, it is unclear to me if house prices in my area will rise faster or slower than the returns on a simple index fund.
Posted by scifibum (Member # 7625) on :
quote:Originally posted by Irami Osei-Frimpong:
quote: Renting is throwing your money away every month with nothing to show for it.
Except my time, my low blood pressure, my walking distance to work, and my full head of jet-black hair, not to mention the ability to move.
The lack of ability to move easily is one of the reasons ownership tends to influence people to improve their neighborhoods. If I own a house and we have a problem with break-ins in the neighborhood, I'm more likely to join a neighborhood watch than a renter - who is likely just to move elsewhere to a place with less of a problem.
Posted by Dagonee (Member # 5818) on :
quote:All I have to add is I could easily find at least five investments that could have made the same gain (or much bigger) in the same time,
How can you say that without knowing what ElJay paid at closing, for maintenance, and anything else in excess of the rent she would have otherwise paid?
To double in 9 years requires about an 8% annual return. It sounds like she paid much less than $50,000 in excess of what her rent would be (and that's without taking taxes into account). If she paid as little as 10,000 over what rent would have cost, she made better than 100% a year.
That's the power of leveraging. The gain is calculated by applying appreciation in real estate - even at historic levels, not the recent boom amounts - to the value of the house, but the rate of return is calculated against only the cash put into the house.
quote:Long term, it is unclear to me if house prices in my area will rise faster or slower than the returns on a simple index fund.
If house prices rise only half as fast as the index, most people will do far better investing in a house, even if they have to put 20% down.
Posted by MrSquicky (Member # 1802) on :
quote:Long term, it is unclear to me if house prices in my area will rise faster or slower than the returns on a simple index fund.
But you don't really have the option of not paying for housing. Could you come up with investments that would give you the same return as a house with the mortgage payments equal to the amount invested combined with the rent you would be paying?
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:The lack of ability to move easily is one of the reasons ownership tends to influence people to improve their neighborhoods. If I own a house and we have a problem with break-ins in the neighborhood, I'm more likely to join a neighborhood watch than a renter - who is likely just to move elsewhere to a place with less of a problem.
I'm sure there are quite a few positive externalities that go into home-ownership. I'd just be careful not to instrumentalize the process to serve some social good. People do the same thing with feminism, right? The argument being that if more women were in positions of authority, we'd live in a kinder, gentler world. Whether this is true doesn't address the issue on it's own merits.
Posted by scifibum (Member # 7625) on :
Mucus's point was that in retrospect it actually is easy to identify investments with huge returns, just like in retrospect Eljay made a good investment.
People who bought a house 2 years ago in a hot market might not feel like they made a good investment - they might not be able to break even by selling for 10 years.
However, the point being that you have a pretty good shot at some appreciation over the long term for money you'd be spending for rent otherwise is still a very good argument for home ownership, other factors being roughly equal.
Posted by Mucus (Member # 9735) on :
quote:Originally posted by Dagonee: How can you say that without knowing what ElJay paid at closing, for maintenance, and anything else in excess of the rent she would have otherwise paid?
Because of those two awesome words in my post before the : "in retrospect"
quote:If house prices rise only half as fast as the index, most people will do far better investing in a house, even if they have to put 20% down.
This was also very dependent on the words "in my area." I have very little confidence in my geographical area.
Posted by fugu13 (Member # 2859) on :
Related to what Irami just said, I generally view home ownership as a preferable alternative starting at something like six or seven years in a given location, all else being equal (that is, commute distance and the like). I do not, however, view it as something that should be subsidized. The financial benefits the government created for home ownership (in particular, for making payments on debt that is related to one's home) greatly encourage people to make that sort of investment rather than another, and to take on debt to do so. That didn't work out so well.
On a side note, in many areas, don't expect housing prices to rise half as fast as an S&P index over the next five years. There will be considerable variability, though. That's based on the experiences of other places that have had the bottom of the housing market drop out (such as Japan).
Posted by ElJay (Member # 6358) on :
fugu, when I bought I was renting a small one bedroom apartment for $425/month. My mortgage payments, including tax and insurance, weren slightly more than that, I think they started about $550 a month, for a 2 bedroom house considerably more than twice the size of my former apartment. (Twice the size finsihed, plus basement and garage.) They are now up to $695/month, with the increases in tax and insurance. I could not rent a (considerably smaller) two bedroom apartment in the area for $700/month.
If I had sold at the peak of the market, I would have cleared way, way more than $100,000. People in my neighborhood are currently trying to sell for amounts that, put into my situation, would net me around $150,000. Thus I am confidant that if I put my house on the market for $50,000 less than the comprables I would be able to sell. I don't intend to, of course, I intend to wait until the market recovers and I actually want to move.
I have run the other numbers you talk about, too, although not recently. What I've paid in repairs and improvements have mostly been paid back in increased energy efficiencies, but isn't more than about 3 grand total for the 9 years anyway.
Mucus:
quote:All I have to add is I could easily find at least five investments that could have made the same gain (or much bigger) in the same time, in retrospect.
But if I had not bought the house, I would not have been able to put the equivilent money into an investment every month, because it would have been going to rent. So I do not believe that you can show me one investment, much less five, that would have paid me $100,000 from February 1999 to today with no initial investment and no monthly contribution.
Posted by MrSquicky (Member # 1802) on :
quote:The financial benefits the government created for home ownership (in particular, for making payments on debt that is related to one's home) greatly encourage people to make that sort of investment rather than another, and to take on debt to do so. That didn't work out so well.
But the change wasn't due to the government changing the situation, was it? It was largely a market failure because people and financial institutions made foreseably very poor decisions. Absent these decisions, we wouldn't be having these problems no matter what the government did. With similar decisions, but without the government interventions, we still be screwed.
Posted by ElJay (Member # 6358) on :
Even with your two magic workds "in retrospect." Posted by TomDavidson (Member # 124) on :
quote:The lack of ability to move easily is one of the reasons ownership tends to influence people to improve their neighborhoods.
*nod* This is what "Ownership Society" basically means. Posted by Mrs.M (Member # 2943) on :
I think a bigger problem is that many people buy houses that they cannot comfortably afford. We have friends that put every penny they have into their mortgage payments and are charging everything else. I could never do that - I'm too compulsive. I think the problem is more of an entitlement one - everyone feels that they deserve a house with granite counters and 4 bathrooms and a 3-car garage.
Andrew and I could have literally bought 2 of our houses for the mortgage we qualified for, but we chose to get a house that met our needs within reason. We're already made about $40K in a little more than a year (the Richmond housing market is still fairly strong). We plan to stay here until our youngest children graduate from elementary school, which should double our money. Additionally, we try to make 1 extra mortgage payment per year and we're not going to renovate beyond our neighborhood.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:I think the problem is more of an entitlement one - everyone feels that they deserve a house with granite counters and 4 bathrooms and a 3-car garage.
In your class, it's the difference between people buying a big house and those buying a small one. In my class, it's people buying a small one when they should just rent and find their dignity somewhere else. It's same entitlement, just played out on a different register.
Posted by MrSquicky (Member # 1802) on :
quote:In your class, it's the difference between people buying a big house and those buying a small one. In my class, it's people buying a small one when they should just rent and find their dignity somewhere else. It's same entitlement, just played out on a different register.
No it isn't. In Mrs. M's example, people can't really afford the house that they bought with other people's money. In yours, people are very likely to at the very least break even buying as opposed to renting.
Posted by TomDavidson (Member # 124) on :
quote:In my class, it's people buying a small one when they should just rent and find their dignity somewhere else.
You realize that renting is usually more expensive than owning, right? That's why landlords exist.
Posted by fugu13 (Member # 2859) on :
The situation is very much of government creation.
First, the divide of subprime from everything else, and why they need to be bundled together (but wouldn't be bundled with better loans) is because the FMs will buy any loan above a certain level. Every other loan is subprime. Because of this, the only combinations it made any sense to securitize were these riskier loans.
Second (and much larger), it wasn't even legal to make most subprime loans until around 1980, and wasn't viable (due to certain legal restrictions) until 1986. That alone might have caused something of a bubble around the same time period, as it takes awhile before financial markets adjust to new instruments (as subprimes basically are).
Third, the tax advantage combined with the availability of subprime mortgages makes it much easier to get someone into a house they can't afford. Were there not such big tax advantages, the amount of house someone who couldn't make a down payment and could only barely make a monthly payment on would be tens, maybe hundreds of thousands of dollars less in value. Less home value would have meant much less value to lose in the current financial turmoil. It would also have greatly reduced the value of the securities that are now being marked to market at zero.
Fourth, due diligence reporting enforcement dropped considerably in the late 90s and early 2000s. This made fraud much easier.
Fifth, the Federal Reserve kept interest rates far too low, not allowing the dollar to adjust against the renminbi and creating incentives to over-invest (which is the dual of savings) (and a lot of people were told they were being alarmist for saying this). This is exactly the mistake that made Japan's crash huge.
Number two was probably a good idea, though it is a change gov't made that the current situation could not have happened without. Numbers one and three through five all greatly aggravated the eventual bubble; there probably would have been one, but it isn't clear if people would have noticed much, since it would have been much smaller, if two or three of those factors hadn't been in place.
And the decisions weren't foreseeably poor. As you can see from the experience of numerous people who got in near the beginning of the subprime boom (a bit over five years ago), even with the current situation, their situations have greatly improved by having a subprime loan. It was pretty clear something would have to burst at some time, but it was far from clear that it would be soon, or how much it would be. Many of the people who got subprime loans near the peak would have been well off had the situation lasted a few years longer.
As for the lenders, several of them have said that even with marking to market many of their portfolios to nearly zero, they overall made a slight profit on the whole ride.
For the ones who are in particularly bad shape, the mortgage brokers, many of the bad decisions that led to their doom were less foreseeably poor and more decidedly illegal. Numerous loans were accepted due to the bank conjuring or accepting obviously fraudulent numbers for income. That's not a market failure, that's a law enforcement failure.
edit: you can read a good coverage of some of the above here: http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf . And no, given the same sorts of decision making, we wouldn't still be screwed. It wouldn't be possible for people to take out as large a loan without the mortgage tax subsidy, so the crisis would be smaller. It wouldn't be advantageous for a company to bundle just subprimes together instead of a mix of subprimes and better loans if they couldn't sell all their better loans to the FMs at excellent terms, meaning the prices of securities would be better supported, so the crisis would be smaller. Interest rates wouldn't be so good if the Fed hadn't kept rates artificially low and the dollar so artificially strong, meaning people wouldn't be able to buy as big a house even if they and the lenders made just as bad decisions (plus the lender would have a lot less incentive to make such bad decisions), so the crisis would be smaller.
also, another reason: instruments were rated by agencies that also saw decreasing oversight; they were only being traded by some institutions because they had such good ratings. In a longer term view, the gov't requires the person issuing the security to obtain the rating . . . which means there's an incentive to collude to obtain a better rating. It is clear that happened a lot during the past five to ten years.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:quote: -------------------------------------------------------------------------------- In my class, it's people buying a small one when they should just rent and find their dignity somewhere else. --------------------------------------------------------------------------------
You realize that renting is usually more expensive than owning, right? That's why landlords exist.
We both know that's not necessarily true, especially regarding banks, downpayments, variable loans, insurance based on credit rating, start-up and service fees. Maybe it's a matter of vernacular. Don't consider it renting, considering it outsourcing to a third-party vendor who has an institution set-up to minimize costs.
Posted by katharina (Member # 827) on :
That depends a great deal on the market. It certainly is not always true.
Landlords exist because not everyone is transient, as well. If no one ever moved, there wouldn't be a need for temporary housing or housing when you are only going to live in a place for a year. Landlords also exist because buying takes a steadier income and bigger start of capital than renting does.
The choice between renting and buying is not always so clear cut that buying is better. If you're not ready to stay in one place, the renting is infinitely better.
Posted by MattP (Member # 10495) on :
Over time, renting a given property will likely be more expensive than owning it, but the initial mortgage payment of a new property can exceed what the market will support for rent. One reason that rent is more expensive long term is that rent can creep up with inflation while the mortgage payment will remain at it's initial amount.
When we bought our house 10 years ago or so, the mortgage payment was pretty close to a fair rent payment, so in our case the bigger barrier would have been the down payment. Now our house could rent for several hundred more than our mortgage payment.
Posted by Mucus (Member # 9735) on :
ElJay: Seriously? You're literally challenging a time machine. Even with only a $125 (550-425) difference between mortgage payments and rent at the beginning, in the worst case scenario one could simply buy a lottery ticket for a $1. Or one could use one of a combination of (buying Nortel low to high, shorting Nortel high to low, shorting one of the insurance underwriters that went bankrupt after 9/11, buying Google low to high, shorting Bear Sterns) to easily reach $100K.
None of this minimizes the amazing call you made to purchase a home in 1999 with a 0% downpayment (??!!) in your particular area and if I had the chance to do the same in 1999 that would have been cool (or maybe I would have bought an apartment in Beijing, Dalian, or Shanghai).
But now? In a different geographical area? The magic 8-ball is blurry.
Posted by ElJay (Member # 6358) on :
Dude, that's not "an investment." Like you said, that's a magic trick. Buying real estate, even now in this market, is going to pay off over time if you can keep it for long enough. (5 - 10 years.) Even if you don't make a killing, you're not going to lose money, because the money you put into the mortgage would have been spent on rent anyway. It's an incredibly safe investment, if you do it properly. (Don't buy more than you can afford, don't make sub-prime loans if you're a mortgage bank.) The vast majority of people who buy a house are going to make money on it. Even today. The vast majority of people who buy a lottery ticket are going to be out a buck.
Posted by BandoCommando (Member # 7746) on :
quote:Originally posted by Irami Osei-Frimpong:
quote:The Ownership Society ethic is tied to the belief that you will care more deeply about things you feel you have earned and for which you are primarily responsible.
I'm still not sure this is a good thing. Let's take the Iraq War. If you served in the military, were responsible for some town, and were promoted for your service in that town, your opinion about whether we should or should not have been there could be jeopardized for those same vague feelings of care and responsibility.
Has there been an update to Godwin's Law saying that debates will inevitably invoke either Nazi Germany or the Iraq War? If not, there ought to be an update; the evidence seems pretty clear. Posted by Mucus (Member # 9735) on :
Dude. You have no problem with a *time machine* but you challenge the validity of a lottery ticket as an investment? When it comes right down to it, if you have a time machine, shorting, derivatives, buying futures on a prediction market, buying a lottery ticket ... whats the big difference?
We're getting *incredibly* side-tracked here anyways, my initial point before this very odd tangent was simply that there are many different factors that have to be considered to determine whether buying is better than renting, not just a simple comparison of rent versus mortgage payments. Period.
I didn't say anything about the relative safety of a home as an investment OR whether the majority of people make money on it.
Posted by ElJay (Member # 6358) on :
I was challenging all of your examples as an investment, actually. What you were saying and what I thought you were saying were very different.
Posted by ketchupqueen (Member # 6877) on :
I don't see what having kids has to do with buying a house. One of the ways we're able to support our kids at this time in the area we've chosen to be in is to rent instead of owning. In a couple of years, when we've got a different cash flow, it may be better for us to buy. But linking the two does not make sense, in my mind.
Posted by scholarette (Member # 11540) on :
Wheras one of the ways we're able to support our kids is by owning. Our rent was higher then our mortgage and with the baby, we would have had to upgrade to a 2 bedroom apartment. Of course, with the increased cost of gas and the increasingly bad traffic, it might work out the same now.
Posted by fugu13 (Member # 2859) on :
And on the subject of governments causing housing market problems . . .
Something fairly obvious is that there are a lot of available houses right now, and are likely to be for several years.
Well, the new housing bill earmarks $500 million, starting in 2010, to be distributed to the states to support . . . building more housing, in the aim of helping people with low incomes. This might provide some small marginal benefit to people with low incomes, though there should be no shortage of houses for those who desire and can afford them (and those who can't afford them don't suddenly become able to afford them because the gov't builds a few more) . . . but the addition of that much housing stock will be enough to lower the values of hundreds of thousands of homes by noticeable amounts, decreasing the assets of hundreds of thousands of homeowners.
Posted by Mucus (Member # 9735) on :
ElJay: Probably. I probably could have explained better and avoided this, I apologize for that.
Posted by Tstorm (Member # 1871) on :
I'll chime in and say I'm a renter. It's the correct decision for me, given the local housing market, my income, and career plans. Other than that, I have nothing to contribute that hasn't already been stated clearly by everyone else. Posted by Bokonon (Member # 480) on :
We just got preapproved yesterday for a loan amount, and low end mortgage (in amount), after PMI and the like (I live in metro Boston, where prices haven't gone down much) is still $750 more than what our rent is.
And we'd have to outlay a chunk of change to get that mortgage.
There are markets where the rent vs. mortgage level is very out of whack, because if rents reached mortgage levels, you'd lose a ton of renters, but since there isn't a ton of new construction anymore, there isn't as much downward pressure on housing prices.
-Bok
Posted by BannaOj (Member # 3206) on :
Irami, the problem in Chicago is that King Daley wants all of the rif-raff (which include most people who need affordable housing) south of his border. They are *supposed* to be creating affordable housing in other areas, but from all reports this is more lip service than anything else. And he really wants those @#$@# poor folks out now, because of the Olympics bid. The South Side of town, has noticably upscaled even in the 6 years I've been here. But not to the benifit of the working poor.
I know New York has some sort of rent control policy that may help things more. But it is also consderably larger than Chicago as far as actual city limits go, so it is harder for a New York mayor to rule things like Daley does.
Posted by Belle (Member # 2314) on :
The right idea, of course, is to buy land, and build a house.
Naturally, because that's what I did and of course I'll find a way to justify that my decision was best.
But really, we bought our land, paid it off in two years, then built a house. In the two years we were paying on it, it appreciated in value by more than 70%. Then, we built the house as inexpensively as possible, including some luxuries but not everything we wanted - whirlpool tub yes, granite countertops, no, etc.
Now, almost ten years since we closed on it, our house is worth 2.4 times what we built it for. Our mortgage on a 5 bedroom, 3.5 bath house is considerably lower than what most people pay for a 3 bedroom 2 bath in the same area. We may have slightly too much house for the area, in that most homes in our subdivision are not as big as ours, but then again, we have 7 people living under our roof so the excess room is necessary for us.
For us, owning vs. renting was an easy call - we have saved a ton by owning and have definitely increased our investment. Renting a place big enough for all of us would probably entail renting a house, and the monthly rent on even a 3 bedroom house would be $300-$500 more than our mortgage payment. We've had no major repair costs and the only major improvements we've done is to replace carpet. We did spend a bit finishing our basement so my mother could move in with us, but she contributes to the household income so that probably broke even. And because we did the vast majority of the finishing work ourselves and added the fifth bedroom and third bath, it added more value to our house than it cost us.
At any rate, I certainly wouldn't want to have been renting all these years. We love owning our home and are very proud of it. We plan to live here until all four kids are through school, then once they've left home, move to something smaller and more appropriate for empty nesters. If my mom is still with us, we'd like something with a finished basement like we have now so she can have her own space. But, we plan to stay in this home for at least ten more years. At that time, even if it doesn't appreciate any more past the point it is right now - we will have made a lot of money and enjoyed a large, beautiful home for 20 years. We might make enough to buy our next home for cash, especially seeing as it will be much smaller.
Posted by Mrs.M (Member # 2943) on :
quote:I know New York has some sort of rent control policy that may help things more.
Actually, it doesn't. The rent control policy was changed a while ago and it's basically now non-transferrable, unless you are a relative who has lived in the residence for more than a certain number of years (I think 2). Landlords are very aggressive about making sure that policy is strictly carried out.
New York does have some subsidized housing, but the waiting lists for the decent places are insane and there's very little turnover.
The rent on our tiny 2-bedroom Queens apartment is the same as our mortgage payment on our house here in Richmond.
Posted by Irami Osei-Frimpong (Member # 2229) on :
I'm not anti-house; I just think that they are over-prescribed to people who would be better served renting small and saving, or just renting and worrying about something else, besides the value of their house.
It's not a local problem with Chicago, it's a greater social issue with how people conceive of success and what constitutes "making it" in America. Problems with sprawl, pollution, and traffic would be better addressed, I believe, with a change of lifestyle habits and ideals.
Posted by fugu13 (Member # 2859) on :
Yep, NY's rent control has been fairly well studied: it mostly subsidizes better off and more influential residents, and leads to very little rent reduction among those it is alleged to be for, people with lower incomes.
It also significantly reduces the incentives to put up new housing, so it is quite likely many rents would be lower without rent control. I also suspect that the benefits of subsidized housing could be had by simply reducing zoning restrictions so companies are able to build more, more dense housing.
Posted by Dagonee (Member # 5818) on :
[ August 01, 2008, 01:45 PM: Message edited by: Dagonee ]
Posted by Mucus (Member # 9735) on :
quote:Originally posted by Belle: The right idea, of course, is to buy land, and build a house.
Honestly, if I really had that option, that would be awesome. For me, I think the intangible benefits of such a decision would trump many of the economic reasons that have been mentioned in this thread.
Posted by fugu13 (Member # 2859) on :
Dagonee: Rangel Posted by Dagonee (Member # 5818) on :
Right. Sorry.
Posted by Belle (Member # 2314) on :
Building is normally a great idea if you have any experience or knowledge of one or more of the construction trades. For us, it was a no-brainer because our plumbing labor was completely free. We also painted it ourselves and did some of the finish carpentry. A friend of ours traded labor with my husband so running the electrical wire costs us nothing except my husband's time.
However, you have to look at what the market is like in your area. right now it would be foolish to build in Bham because we are in a housing slump and there are tons of existing homes for sale at good prices. You would have to do a lot of the work yourself to justify building, because the cost of building materials has gone up so much. And forget about putting in copper pipe for your plumbing! Copper is sky high. Though, most plumbers like my husband have switched over to PEX pipe anyway.
Anyway, if I were looking for a house in our area today, I'd buy an existing home over building one. But, you have to judge how things are where you're looking to build or buy.
Posted by Dan_raven (Member # 3383) on :
Irami, I have never rented.
I lived in my Grandmother's old home. Then bought my first house for under $60k, and recently moved to a second house to cut my commute and have more space.
I have never worried about the value of my home unless I was trying to sell it, or needing to adopt (when I needed a statement of financial worth).
Sure, the cost of spazzing out over the value of your home is terrible. So is the cost of spazzing out over the value of your stock portfolio, or spazzing out over the next rent increase, or anything.
Posted by Tatiana (Member # 6776) on :
Irami, the reason I have a house is because it makes good financial sense. You can pay rent all your life and end up with nothing to show for it. A house is investing your rent money into something that ends up having a lot of worth. Houses also appreciate usually over the long run, plus they give you a good tax deduction on mortgage interest. Rents usually go up by $10 or $20 a month every year. So with my fixed rate mortgage, 20 years from now when rents on small apartments are $5k a month or whatever, I'll still have my $1500 a month house payment. I think, in general, owning a house is much smarter than renting.
Posted by AvidReader (Member # 6007) on :
Belle, does renovating really cost more than building from scratch, assuming you're in an area with plenty of land (like the South)? I had assumed renovating would have to be cheaper since you're not building everything from scratch, but anyone I've mentioned it to says otherwise.
Posted by ketchupqueen (Member # 6877) on :
quote:Rents usually go up by $10 or $20 a month every year.
Really, in the places I have lived/looked at houses and apartments, it is very unusual for rent to go up every year. It usually has only happened every three to five years in my experience, if that.
This is another thing that varies by area. For instance, you just can't get a mortgage on anything here, even now, for less than twice what you would pay renting per month.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:You can pay rent all your life and end up with nothing to show for it.
If all you have is a house to show for your whole life, I think there are deeper issues at play.
quote:Rents usually go up by $10 or $20 a month every year. So with my fixed rate mortgage, 20 years from now when rents on small apartments are $5k a month or whatever, I'll still have my $1500 a month house payment.
My rent hasn't gone up in three years, as to the 5k number on a small apartment in my neighborhood. If that ends up the case, then something profound has happened to the dollar.
Posted by TomDavidson (Member # 124) on :
quote:My rent hasn't gone up in three years...
That's incredibly surprising, but I'm very happy for you.
Posted by AvidReader (Member # 6007) on :
Our rent went up $15 in four years. Then the complex got sold and the next owners wanted to raise it $100. We managed to find a quieter complex in a nicer part of town for the same (higher) price with 250 extra square feet. Apparently, location is everything.
Posted by Rakeesh (Member # 2001) on :
quote:If all you have is a house to show for your whole life, I think there are deeper issues at play.
*rolleyes* I think you're addressing a point she wasn't making, and I think you know it.
Posted by ketchupqueen (Member # 6877) on :
quote:Our rent went up $15 in four years. Then the complex got sold and the next owners wanted to raise it $100. We managed to find a quieter complex in a nicer part of town for the same (higher) price with 250 extra square feet. Apparently, location is everything.
Hmmm. Our complex got sold but we have rent control (of a different kind than NYC's) here. They did raise the rent but they raised it $5 less per month than the allowable yearly raise, AND the new managers actually do something, and they also replaced the washers and dryers that kept breaking down with brand new ones that work much better and have higher capacities (and only raised the cost of washing by $0.25/load, no increase on the dryers) and painted and stuff, too.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:"If all you have is a house to show for your whole life, I think there are deeper issues at play."
*rolleyes* I think you're addressing a point she wasn't making, and I think you know it.
I don't like pretending that we can compare owning and renting and set everything else equal. The pressures of owning a house would have changed my lifestyle, even political actions, in a profound way. Part of what I've accomplished in my life is a matter of not having my choices bogged down with the responsibilities of property.
Posted by MattP (Member # 10495) on :
quote:I don't like pretending that we can compare owning and renting and set everything else equal. The pressures of owning a house would have changed my lifestyle, even political actions, in a profound way. Part of what I've accomplished in my life is a matter of not having my choices bogged down with the responsibilities of property.
You have a unusual level of knowledge of alternative timelines. *stares suspiciously*
Posted by TomDavidson (Member # 124) on :
quote:Part of what I've accomplished in my life is a matter of not having my choices bogged down with the responsibilities of property.
Which may be why you dislike the idea of an "Ownership Society." Just a thought. Posted by Irami Osei-Frimpong (Member # 2229) on :
I agree. I also think that there is something wrong with the phrase "buying a house," when that's not necessarily what's going on. There is a slippage of language with the word "buying" that seems to work in the bank's favor(Big Surprise).
I'll be the first to say that if you have money to buy a house, buy a house, but I think that in general, we should be more sophisticated in our collective aspirations and ethic when we talk about housing given the situation of 2008 America.
quote:You have a unusual level of knowledge of alternative timelines. *stares suspiciously*
The future and human affairs are unpredictable, but there are things one can do to hedge one's bets (exercise, eat vegetables, birth control, sun screen) and can mitigate some untoward situations.
[ August 02, 2008, 11:49 PM: Message edited by: Irami Osei-Frimpong ]
Posted by Tatiana (Member # 6776) on :
When you pay rent, you're buying someone else's property for them. You pay all the costs, you just don't own it when you're done. It's much smarter to buy than to rent, unless you're planning on moving soon.
Posted by TomDavidson (Member # 124) on :
quote:...can mitigate some untoward situations...
Untoward situations like having responsibility for things?
Posted by Rakeesh (Member # 2001) on :
quote:I'll be the first to say that if you have money to buy a house, buy a house, but I think that in general, we should be more sophisticated in our collective aspirations and ethic when we talk about housing given the situation of 2008 America.
What on Earth does this mean?
Posted by ketchupqueen (Member # 6877) on :
quote:Originally posted by Tatiana: When you pay rent, you're buying someone else's property for them. You pay all the costs, you just don't own it when you're done. It's much smarter to buy than to rent, unless you're planning on moving soon.
Again, this really, really, really depends.
We could be in a one bed/one bath (with our 3 kids), for about twice the price per month that we're paying for a two bed/two bath. (Up to 2 1/4 times, if it was a condo.)
Totally, totally smarter to rent right now.
Now, when you talk about renting 4 bedrooms or above, the dynamic changes drastically, since rent is about 80-95% of a mortgage payment around here (if you got a good deal on a mortgage and an average deal on rent.) At that point, yeah, probably wiser to buy, especially since it's hard to find those rentals. But 3 bedrooms and below? Your money can be doing so much more renting. (Not to mention, many people can't afford more than the rent on a 2 or 3 br apt. for housing costs and still make ends meet...)
I think general statements do not universally appply in every housing market. Each market is going to have its own point at which it's better to own than to rent. In some markets, that's 1 or 2 bedrooms, at some, much higher, but it's going to really depend on the rental and house price market.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:Untoward situations like having responsibility for things?
Yep. I think those kind of monetary responsibilities are a gateway to becoming complicit to all manners of behavior I find is unseemly. I start to hear excuses like:
"I have to work for that firm because I have to pay off my Law School loans."
"I can't stand up to my boss because I need this job, and I took this mortgage assuming that I would keep this job."
"I can't stand up for my co-worker because I need this job, and I took this mortgage assuming that I would keep this job."
"I have to stay in this marriage..."
"I can't move..."
"Can't go back to school, I'd have to take a pay-cut and that won't let me stay-up with the mortgage."
"The pill helps me concentrate, and I need to be able to concentrate to do my job and keep up with my mortgage."
"I can't exercise because I have to spend more time at my job to keep up with the mortgage."
[ August 03, 2008, 02:50 AM: Message edited by: Irami Osei-Frimpong ]
Posted by AvidReader (Member # 6007) on :
Of course, excuses are just that. There are a large number of people out there who either have problems with change or lack the will to take action. But they don't like feeling bad when you do something different, so they make excuses.
I was the first girl on the wrestling team at my high school. Apparently, every other girl in school either wanted to be on the team but had some reason she couldn't or had already gone out for the team but got thrown off. The guys hit each other in the crotch if they think they can get away with it. You didn't get thrown off the team for that, I promise.
My favorite work excuse is probably "It's like that anywhere." Really? All bosses break the rules and abandon bank tellers in the lobby alone for hours on end? All companies claim to promote from within, dangle a promotion in front of a manager, and then always fill the management openings from outside?
Some jobs really are at an unacceptable level of wrongness and you should find something else. Yes, you'll always have that coworker you don't get along with. Yes, you'll always have something you have to do that you don't enjoy. I have no idea why the vast majority of people make excuses for the behaviors that fall well outside that, though.
Next time someone gives you a lame excuse, just smile and nod. I doubt they'r telling you the real reason for their actions, and the excuse makes them feel better. It's just what most people do.
Posted by TomDavidson (Member # 124) on :
So how's your job going, Irami?
Posted by Darth_Mauve (Member # 4709) on :
Ownership is the key word here not being discussed. There may or may not be financial reasons for owning a house. That depends on the situation.
There is a socio-historic drive for land ownership, to be the King of one's own castle. Owning land was historically a sign of wealth and power. Originally only land owners were allowed to vote.
However, the main reason that Ownership is considered a society is control.
As a home owner I have much more control over my surroundings than as a renter. While rental agreements are different, new paint, new construction, a new window or a better roof are all up to me, not the landlord.
With that control, of course, comes responsibility. I have to get that new roof when its needed. I have to paint the house when needed. I get to choose the color, but I have to do the work.
Stress has best been described as having the responsibility for X without having the ability to effect X. The biggest stresses in home ownership are that I am responsible for a lot, and I am unsure of my ability to manage them all.
Time management and money management usually solves those problems.
Renters, however, do not have as big a list of X. On the other hand they don't have as many options. To cut global warming more efficient water heater is needed. As an owner, I can do my part for the Earth by getting that. As a renter, I can petition the land lord, but other than that, not much.
There is a lot of discussion of the ability to leave an apartment more easily than from a home. This is treating the property as a commodity, to be dropped when it is no longer usable. Ownership requires a better stewardship of the land, making it usable, making it something more than just a commodity.
Posted by Belle (Member # 2314) on :
quote:Originally posted by AvidReader: Belle, does renovating really cost more than building from scratch, assuming you're in an area with plenty of land (like the South)? I had assumed renovating would have to be cheaper since you're not building everything from scratch, but anyone I've mentioned it to says otherwise.
Per square foot cost on renovating an existing space is always going to be higher than building from scratch. Usually your renovation cost includes demo, and there is always difficulty in installing new electrical and plumbing fixtures in to an existing system.
To take a simple example - windows. If you are building a new house you have to buy new windows and have them installed. Your contractor has framed in all your window casings to the exact specifications you provided when you picked out your windows, so unless your framer screws up, they fit. If you are renovating an old house, you have to buy windows, pay to have the old ones removed, pay to have the old ones hauled away to a dump or to a salvage yard, and THEN pay for the installation. Now, even if you buy windows the same size, labor is going to cost more for that installation because it's harder to install new windows in to casings that have already been used - you usually have to scrape, repair, then repaint. All that costs money.
Now, there are exceptions - finishing an existing basement is usually pretty cheap, but that's mainly because you work with what is already there and you compromise on things like installing drop ceilings instead of sheetrocking ceilings. Of course, if you go all out, you can certainly spend a lot finishing a basement, just most people don't.
As crazy as it sounds, there are cases where you can buy a house, and it would be cheaper to tear it down and start from scratch than renovate it.
Posted by The Rabbit (Member # 671) on :
Irami, The draw backs you list to owning a house aren't really drawbacks of ownership at all. They are drawbacks of having financial obligations. While some financial obligations may be questions of personal choice, some reflect basic human need.
Space and shelter are basic human needs. Even the most primitive human tribes build shelters and protect territories. As with all basic human needs, if you don't own or control your own space, you are necessarily subject to those who do. As a result, ownership gives one a degree of autonomy otherwise not attainable.
Unfortunately, for most people owning a home means trading trading being subject to a landlord to being subject to a mortgage holder. Many people consider that trade off worthwhile because it is a path towards greater autonomy in the long run even if in the short run it means longer term commitment and sometimes (although not always) a larger financial burden.
I should also add, that many if not most people are willing to trade their autonomy for material comfort and so willingly assume debts that have little to do with their real needs. But that isn't an argument against owning a house any more than its an argument against buying a TV or eating at restaurants.
Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:So how's your job going, Irami?
Good. Posted by Mucus (Member # 9735) on :
quote:Originally posted by Tatiana: ... they give you a good tax deduction on mortgage interest.
In general, we don't have this in Canada (unless you count a Smith Maneuver). Depending on your POV, this may be a good or bad thing.
quote:Originally posted by ketchupqueen: I think general statements do not universally appply in every housing market.
Indeed.
Posted by Kwea (Member # 2199) on :
I agree...most of those issues don't necessarily have to do with home ownership. I know just as many people who make those same excuses even though they are renting.
There is no shortage of excuses in the USA, you know. I doubt there are shortages of them anywhere else, either.
Posted by AvidReader (Member # 6007) on :
Thanks, Belle. It makes sense when you put it like that.
Posted by Darth_Mauve (Member # 4709) on :
After reading over this thread, I've decided that the difference between owning and renting is the difference between marriage and living together.
Living together/renting is more convenient, especially if you plan on a more transient lifestyle. It saves the headaches of legal problems in case of either party leaving. And it is a good recourse for those not wanting to make commitments, or who were burned in a previous marriage/ownership situation.
Owning/Marriage is a more permanent answer to the situation, more likely to be chosen by those raising children, and more conservative. In deed, some are so enraptured by their choice, the consider those who choose renting/living together to be living in sin.
Posted by JennaDean (Member # 8816) on :
Good analogy, Darth Mauve.
Unless you're going to move a lot, owning makes more sense. You're going to have to pay for housing every month whether you rent or buy; but at the end of the lease, you're left with nothing. If you own a house and sell it, you get something back.
The same people who have to keep their job to pay their mortgage would have to keep their job to pay their rent. If their mortgage is so high they're in over their heads, they've bought too much house. But that isn't an argument against ownership, just an argument for living within your means.
Posted by Tstorm (Member # 1871) on :
quote:You're going to have to pay for housing every month whether you rent or buy; but at the end of the lease, you're left with nothing.
I'm left with nothing EXCEPT:
1. The money I saved by NOT BUYING*
* May be unique to my situation
I like Belle's input on building a house versus buying a house. It's cool that everything worked out so well in their situation. Posted by Irami Osei-Frimpong (Member # 2229) on :
quote:Unless you're going to move a lot, owning makes more sense.
There are a few more "unless"es, like not being able to buy in the same neighborhood. Now we are talking about moving neighborhoods, and a few other quality of life issues, not to mention that one can rent without dealing with banking rules.
If you think this is wild, I actually think that, depending on the stability of your financial situation, it's better not to have a bank account and just pay a three dollar check cashing fee, twice a month. I've seen what banks can do to people on the margin, and I've also seen financial disasters hit with the speed and ferocity of a hurricane in the form of overdraft fees. To a lot of people, the latter advice sounds stupid, but I've seen what I've seen.
Posted by AvidReader (Member # 6007) on :
And yet overdraft fees can be entirely avoided by keeping a checkbook register and not spending any more once you've spent what you put in. People being irresponsible isn't the bank's fault. (Says the bank employee sick of people coming in to complain about fees who don't keep track of what they spent.)
Posted by TomDavidson (Member # 124) on :
quote:If you think this is wild, I actually think that, depending on the stability of your financial situation, it's better not to have a bank account and just pay a three dollar check cashing fee, twice a month.
And where WOULD you be storing your money? I'm not opposed to putting your money somewhere with a better return than your typical bank (or buying hard assets with it), but it's pretty darn stupid to stick it in your mattress.
Posted by fugu13 (Member # 2859) on :
Overdraft fees can become unreasonably high, but that a person incurs them over and over again is a personal failing, not some issue with the bank. Some people might be better off paying a check cashing fee, but not because of lack of a stable financial situation, but because of lack of personal ability to plan and control spending.
edit: this does not apply, of course, when incurred overdraft fees are truly outside a person's control, as sometimes happens. I suspect that rarely happens over and over to most people, though.
[ August 04, 2008, 07:58 AM: Message edited by: fugu13 ]
Posted by katharina (Member # 827) on :
quote: it's better not to have a bank account and just pay a three dollar check cashing fee, twice a month. I've seen what banks can do to people on the margin, and I've also seen financial disasters hit with the speed and ferocity of a hurricane in the form of overdraft fees. To a lot of people, the latter advice sounds stupid, but I've seen what I've seen.
I agree with this. "Personal failing" or not, banks are vicious on those who live on the margin. That "personal failing" could be other people not cashing checks on time or needing $30 for a doctor's copay.
Once you start a few hundred in the hole, when you're living on the margin and spending your whole tiny paycheck every two weeks, it can be death to recover. Bank overdraft fees make that worse, not better, and they know it.
I think overdraft fees should be a percentage of the amount it was over. It is absolute robbery to slap a $40 on someone when they went $2 over and their average balance is less than $300.
[ August 04, 2008, 09:52 AM: Message edited by: katharina ]
Posted by fugu13 (Member # 2859) on :
Whereas at $3 a paycheck every two weeks you're guaranteed to pay $78 a year, minimum, just to have access to your money. And instead of being able to pay $30 for a doctor's copay and incurring an overdraft, you just wouldn't be able to pay. I'm not sure how that's better, unless a person is having these out of their control overdrafts more than twice a year, in which case I refer to you my post about not being very good at managing money. And people not cashing checks on time are annoying, but can be wholly accounted for.
While $40 is too high for $2, the cost incurred by the bank when someone has an overdraft is not a percentage of the amount over. Every overdraft is a surprise occasion where they need to loan someone money for the short term, with no interest paid except as is collected by fee. Each individual person might not be a big deal, but across the number of customers a bank has, an overly high number of people overdrafting can seriously decrease cash on hand.
Were I to set up a policy, I'd probably not charge any fee for overdrafts up to $10, charge $10 for overdrafts up to $40, and then charge $40 for overdrafts greater than that. Something tiered along those lines, at least.
Posted by TomDavidson (Member # 124) on :
The "hole" is the danger. As Katie notes, once you're in it, it's very difficult to get out. My first priority, back when I was poor, was to scrape together enough money -- $3000 was the goal at the time -- to just sit in the bank, doing nothing. And the only reason that money was there was so that it'd be available to cover emergencies.
It seems in retrospect like an obvious thing, but it felt at the time like something very difficult. It was probably the first real financial decision I ever made.
Posted by katharina (Member # 827) on :
That would be better than what happens now. For those that regularly overcharge, you could make it so the third tiny overdraft is treated like the next tier up.
Posted by Orincoro (Member # 8854) on :
quote:Originally posted by Mucus: All I have to add is I could easily find at least five investments that could have made the same gain (or much bigger) in the same time, in retrospect The question is identifying them at the right time, a problem which is not entirely absent when investing in real estate. Long term, it is unclear to me if house prices in my area will rise faster or slower than the returns on a simple index fund.
This is what troubles me about the idea of buying a house (other than my age). My parents didn't buy a house until they were married at 35. Today, 26 years later, that house is worth at least 5 times as much as what they paid for it. Seems like a great deal to me. At the same time, the original value of the house, if it accrued interest at 5% a year, would return a comparable sum, without the great expense of upkeep and renovation that my parents have incurred in 26 years. If a higher rate of return is assumed, for instance 10% through very wise investment, over 26 years, that original sum would be increased 10 fold. Granted, they didn't have that money in its entirety when they bought the house, but they did have a large part of it.
Now, the fact that they avoided paying rent during that time is something I didn't consider, which reminds me, once again, that my life is going to be a very difficult one given my lack of interest in material wealth- the idea of owning one thing for 26 years scares me. Maybe I'm like Irami in that way alone- I just don't personally find the idea of home ownership appealing on a visceral level. I spent 18 years of my life watching my father go out every weekend into the garden, into the garage, around the house, down the street, working. My mother did untold numbers of chores, uncountable loads of laundry, and they collected stacks of mail that seemed unapproachable. In my later teens, I took over most of the heavy lifting and yard work for my Dad, and pretty much hated every hour of it, and every inch of the dense yards and gardens he had maintained for decades. Now, to go out into the world and work, every day, for that, is not something I would want for myself. It's not something I ever liked in the details.
Maybe I was born to own a condo? Ultimately, I am glad to be 23 instead of, say 33, when I'm sure family will be pressuring me to buy a house, get married, and "figure things out for yourself."
Posted by katharina (Member # 827) on :
I could be worth much more today if I had bought a house when I left college. However, I could not have lived the life that I've lived, and I am glad that I didn't. One thing about buying a house is that you are then tied to a place, a neighborhood, and usually a lifestyle. That's great if you're done exploring and know what you want, but if you haven't, then those decisions are made for you. In the past, I have preferred my freedom to money. If I'd had the money, I would have used it to fund my freedom.
Posted by Orincoro (Member # 8854) on :
quote:Originally posted by TomDavidson: The "hole" is the danger. As Katie notes, once you're in it, it's very difficult to get out. My first priority, back when I was poor, was to scrape together enough money -- $3000 was the goal at the time -- to just sit in the bank, doing nothing. And the only reason that money was there was so that it'd be available to cover emergencies.
It seems in retrospect like an obvious thing, but it felt at the time like something very difficult. It was probably the first real financial decision I ever made.
I'm currently scraping money together for my move to Europe. I'm paying for my English teaching course, and two months of wage-less living in Prague. I have had 3,000 dollars (which has accrued interest) in an investment account for the past 10 years, but which I had actually, *forgotten about* as I had invested the money at the age of 13, saved from Christmas gifts and car washing.
My goal in the next two months is to increase my secure savings to about 6,000 dollars, while still paying those expenses, by selling my car and spending my summer wages on airfare and rent. It's interesting to me that you had that goal in mind, and that it was the same 3,000 dollar amount. For the first time in my life, and for the foreseeable future, I am poor, and will receive no further financial support from my parents.
Posted by katharina (Member # 827) on :
I'm in the same position. My dad supported me as an undergrad, but the parental help ended when I graduated from college. He figured, with some legitimacy, that at that point I could take care of myself. It wasn't a surprise - I always knew it would end then.
Posted by Orincoro (Member # 8854) on :
quote:Originally posted by Irami Osei-Frimpong:
quote:You can pay rent all your life and end up with nothing to show for it.
If all you have is a house to show for your whole life, I think there are deeper issues at play.
Ultimately, if you dismiss the need for the security, or sense of security and autonomy that a house provides you, and choose to spend your money in other ways, or be truly autonomous and travel much of your life, then I think you may be right on. As for your other complaints about a society of ownership, I don't know. I think you can't see the trees for the forest.
The plain fact is that individually (which is how people aught to be considered if possible) our motivations for owning homes are not tangibly governed by the structure of society and its ills. There is an unmistakable influence, but what people here have been saying is that the visceral advantages are the real attractors, not just the trappings of ownership- not just membership in the society of consumption and a set culture and lifestyle (against which your objections run deeper than economics, as you've demonstrated before). For me though, the autonomy of the spirit, of experience, is more attractive. I love the company of people in cities. I like not knowing where I will be sleeping in a month. I like the idea that I can leave all my friends and my family behind and live my life episodically. Maybe that's middle child syndrome? But whatever the cause, the advantages of owning a home feel to me like the advantages of becoming a lawyer or an orthodontist- I'm sure I could do it if I had to, but why would I subject myslef to a life I don't want?
Posted by The Rabbit (Member # 671) on :
quote:This is what troubles me about the idea of buying a house (other than my age). My parents didn't buy a house until they were married at 35. Today, 26 years later, that house is worth at least 5 times as much as what they paid for it. Seems like a great deal to me. At the same time, the original value of the house, if it accrued interest at 5% a year, would return a comparable sum, without the great expense of upkeep and renovation that my parents have incurred in 26 years.
Your calculations are in error for several reasons. By my calculations, they would have had earn an interest rate of 6.39% after taxes annually in order for the value to be equal to the value of the house. But that is assuming that they paid cash for the house, a very unlikely assumption but it turns out to not matter assuming that the mortgage rate, the rate they could have earned investing the money elsewhere and the appreciation of rate for the house are all equal.
If they had a mortgage rate of 6.39%, it turns out that the net present value of their down payment and their mortgage payments over the 30 years of the mortgage are essentially equal to the price they paid for the house, assuming that they could have invested that at 6.39% (after taxes).
So essentially, if your parents had rather than buying a house put their down payment and then each of their mortgage payments into an investment that earned 6.39% annually, they'd have a savings equal to the value of their house.
That all looks fine until you realize 3 things, 1st over the long term real estate does better than most other investments. They would have had to have been quite lucky to earn that much after taxes consistently over the past 26 years.
2nd: They would have had to pay rent. If at the time they bought the house, they had put their 25% downpayment in the bank and rented the house for 80% of what they would have paid for a mortgage, and the rent went up a modest 2.5% per year -- the net present value of their downpayment and rent payments would have been equal to the net present value of the down payment plus mortgage payments -- but right now they would have only 1.25 times the original value of the house in the bank.
3rd: Assuming that they got a fixed rate mortgage, they are effectively protected from inflation, whereas rent is not. In the hypothetical scenario where rent starts out 20% lower than the morgage and goes up a very modest 2.5% per year, the rent will be higher than the mortgage payment after 10 years and by 26 years, its 50% higher than the mortgage payment. At year 31, the mortgage payment will drop to zero, but rent will be 68% higher than the starting value.
4th: Taxes. Mortgage payments can be deducted from your taxes and rent can't. Furthermore, the appreciation on your personal residence is effectively tax free for ever. In most IRAs, you have to pay taxes on the earnings when you take the money out of the account. This makes it very difficult for any investment to compete with owning your own house.
[ August 04, 2008, 12:57 PM: Message edited by: The Rabbit ]
Posted by Mucus (Member # 9735) on :
Two notes: First, when I said "housing prices in my area", I was being rather specific. There are problems with this area that concern me including several large dominant high tech companies that seem to be in a precarious business situation and a really badly run local government.
Second, you may find this thread interesting, its from a forum that focuses on financial issues and is on this topic link Posted by fugu13 (Member # 2859) on :
I suspect that such analyses don't take into account the value of a fallback position, though: Even if your home doesn't rise in money value, you still get the value of being able to live in it.
Posted by fugu13 (Member # 2859) on :
So long as you're able to make payments. If your investment doesn't rise in value, you're not obligated to keep making payments in order to have a place to live.
Certainly having a home has different sorts of advantages, and to many people owning a home will be advantageous. But, separately considered, the return on a home as a monetary investment is not a compelling reason to have one.
Posted by MattP (Member # 10495) on :
I think there may be some more recent constraints driving the cost of homes that are unlikely to relent, such as decreasing space near urban areas into which we can build out economically, rising fuel costs which make it less desirable to live further from urban areas, and increasing costs and decreasing availability of water and power-generating resources.
Posted by fugu13 (Member # 2859) on :
People said that about property prices in Japan; it didn't turn out to be true.
There will definitely be increases in the price of property. But they are unlikely to be greater than the increases in the value of non-property investments over the long term. The recent bubble was an anomaly. Note that several of your reasons are likely to drive the prices of most houses in America, out in the suburbs, down, not up.
Posted by Dagonee (Member # 5818) on :
Still, for the vast majority of people, it's easier to get a higher return on investment (as opposed to a higher return on the value of the investment asset at the time of purchase) from real estate than, say, an index fund, simply because it's much easier to get access to capital for a house than for an index fund.
Posted by ElJay (Member # 6358) on :
Not to mention, again, that the money you're investing in your house you're pretty much going to be spending on housing anyway. That's really the kicker in all these comparisons -- if you weren't paying a mortgage, you would not be putting the "saved" money into an index fund. You'd be using most, if not all, of it to pay rent. So comparing it to investing in something else "instead" is not a fair comparison.
Even if you don't actually make money when you sell the house, you're still getting back a big chunk of what you've spent on housing for the past however many years.
Posted by fugu13 (Member # 2859) on :
Yes, I am only saying that housing as an investment in and of itself is not specially advantageous over other forms of investment, to refute Rabbit's argument that, in addition to the sorts of advantages you were listing, the return on real estate was higher than for other investment. To quote:
quote:1st over the long term real estate does better than most other investments.
This is not true. In fact, the only reason real estate does well on comparisons of capital investment at all is because it tends to be highly leveraged (effectively).
Posted by ElJay (Member # 6358) on :
Ah, gotcha.
Posted by Mucus (Member # 9735) on :
quote: Originally posted by The Rabbit: 3rd: Assuming that they got a fixed rate mortgage, they are effectively protected from inflation, whereas rent is not.
Of course the rent is going up due to inflation, a house owner is not entirely protected from that either. Property taxes, maintenance, and utilities which explain part of why rent is increasing also affect house owners and many of the calculators use about 1% of the house price per year for maintenance (including roofing, windows, etc.) and 1% for property tax which is non-trivial.
quote: 4th: Taxes. Mortgage payments can be deducted from your taxes and rent can't. Furthermore, the appreciation on your personal residence is effectively tax free for ever. In most IRAs, you have to pay taxes on the earnings when you take the money out of the account. This makes it very difficult for any investment to compete with owning your own house.
Again, this depends on jurisdiction. In general, mortgage payments are not tax deductible in Canada. If an IRA is anything like a RRSP then the reason that it is taxable on withdrawal is that you fund it with 'before-tax' dollars. So you have more money to work with when contributing to an RRSP rather than a mortgage which is funded with 'after-tax' dollars. After this year, we're also getting a TFSA which is funded with after-tax dollars but is not taxable on withdrawal, period.
In general: I would also note that some are comparing apples with oranges. If you compare renting a house versus buying a house, I'm sure that the equation would improve dramatically in favour of buying compared to renting a small apartment versus buying a house.
None of this is to say that owning a house is a bad idea, financially. I just really like how ketchupqueen put it, "this really, really, really depends."
Posted by Orincoro (Member # 8854) on :
Re: Rabbit's earlier post- I hadn't considered all those factors, and I'm not exactly a financial genius. Still, in the endgame, I'd just rather live in an apartment... I guess I could see myself buying one of those if it were a good investment. Not like you HAVE to live in it.
Posted by Dagonee (Member # 5818) on :
quote:Still, in the endgame, I'd just rather live in an apartment..
This is a great reason to live in an apartment.
When I help my siblings with financial planning, my goal is to show them the financial effects of their choices over time. That way they can fully evaluate their options.
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What I've paid in repairs and improvements have mostly been paid back in increased energy efficiencies, but isn't more than about 3 grand total for the 9 years anyway. ![[Razz]](tongue.gif)
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The guys hit each other in the crotch if they think they can get away with it. You didn't get thrown off the team for that, I promise.![[Dont Know]](graemlins/dontknow.gif)
But whatever the cause, the advantages of owning a home feel to me like the advantages of becoming a lawyer or an orthodontist- I'm sure I could do it if I had to, but why would I subject myslef to a life I don't want?