posted
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.
Posts: 5600 | Registered: Jul 2001
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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.
Posts: 37449 | Registered: May 1999
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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.
Posts: 5600 | Registered: Jul 2001
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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...>
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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.
Posts: 5600 | Registered: Jul 2001
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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.
Posts: 17164 | Registered: Jun 2001
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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?
Posts: 17164 | Registered: Jun 2001
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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.
Posts: 7954 | Registered: Mar 2004
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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.
Posts: 7593 | Registered: Sep 2006
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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.
Posts: 5600 | Registered: Jul 2001
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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.
Posts: 7954 | Registered: Mar 2004
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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.
Posts: 15770 | Registered: Dec 2001
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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.
Posts: 26071 | Registered: Oct 2003
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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.
Posts: 7593 | Registered: Sep 2006
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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.
Posts: 4287 | Registered: Mar 2005
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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.
Posts: 26071 | Registered: Oct 2003
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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?
Posts: 10177 | Registered: Apr 2001
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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.
Posts: 5600 | Registered: Jul 2001
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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.
Posts: 4287 | Registered: Mar 2005
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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.
Posts: 7593 | Registered: Sep 2006
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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).
Posts: 15770 | Registered: Dec 2001
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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.
Posts: 7954 | Registered: Mar 2004
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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.
Posts: 10177 | Registered: Apr 2001
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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.
Posts: 3037 | Registered: Jan 2002
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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.
Posts: 5600 | Registered: Jul 2001
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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.
Posts: 10177 | Registered: Apr 2001
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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.
Posts: 15770 | Registered: Dec 2001
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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.
Posts: 5600 | Registered: Jul 2001
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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.
Posts: 26077 | Registered: Mar 2000
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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.
Posts: 3275 | Registered: May 2007
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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.
Posts: 7593 | Registered: Sep 2006
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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.
Posts: 7954 | Registered: Mar 2004
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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. Posts: 1099 | Registered: Apr 2005
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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.
Posts: 7593 | Registered: Sep 2006
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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.
Posts: 7954 | Registered: Mar 2004
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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.
Posts: 21182 | Registered: Sep 2004
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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.
Posts: 2223 | Registered: Mar 2008
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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.
Posts: 15770 | Registered: Dec 2001
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ElJay: Probably. I probably could have explained better and avoided this, I apologize for that.
Posts: 7593 | Registered: Sep 2006
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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. Posts: 1813 | Registered: Apr 2001
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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 $750 more than what our rent is.
And we'd have to outlay a chunk of change to get that mortgage.
There are markets where the rent vs. mortgage level is very out of whack, because if rents reached mortgage levels, you'd lose a ton of renters, but since there isn't a ton of new construction anymore, there isn't as much downward pressure on housing prices.
posted
Irami, the problem in Chicago is that King Daley wants all of the rif-raff (which include most people who need affordable housing) south of his border. They are *supposed* to be creating affordable housing in other areas, but from all reports this is more lip service than anything else. And he really wants those @#$@# 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.
Posts: 11265 | Registered: Mar 2002
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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.
Posts: 14428 | Registered: Aug 2001
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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.
Posts: 3037 | Registered: Jan 2002
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posted
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.
Posts: 5600 | Registered: Jul 2001
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The question is identifying them at the right time, a problem which is not entirely absent when investing in real estate.![[Smile]](smile.gif)
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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