I can't see that there would be one right answer to this question. So much depends on where you live and what you do (or if you're retired).
Are renters' rights strong (like NYC), or are owners' rights stronger where you are?
Are you retired? Or do you have a job like Jason where you can live anywhere? Or do you have a job that might require you to move?
Are you able to take care of a home you own yourself? Or would you have to hire people to maintain the home?
Do you live where real estate prices have fluctuated (Ca Fla)? Or do you live in a fairly stable area? (DC, NE corridor)
Are there a lot of renters to keep the price lower? Or do you live somewhere with very few rentals (like where Jason and I live)?
Rent and Inflation
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George the original one
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Rent and inflation:
http://www.newyorkfed.org/research/staf ... /sr425.pdf
Take special note of pages 15-16, where the discussion covers how the calculation of OER (Owner Equivalent Rent) has changed.
http://www.newyorkfed.org/research/staf ... /sr425.pdf
Take special note of pages 15-16, where the discussion covers how the calculation of OER (Owner Equivalent Rent) has changed.
Wow, I can't believe that an economics professor couldn't find historical rental prices. I just looked at the Bureau of Labor Statistics (BLS), and data since the year 2000 is easy to find.
The "Rent of Primary Residence" component of the CPI has increased by almost 40% from October 2000 to July 2012, while the "All Items" have increased by 32% in the same time. Over this short time, rent has gone up a little faster.
Aside from the numbers, I value flexibility above all, so I plan on renting for the long term.
The "Rent of Primary Residence" component of the CPI has increased by almost 40% from October 2000 to July 2012, while the "All Items" have increased by 32% in the same time. Over this short time, rent has gone up a little faster.
Aside from the numbers, I value flexibility above all, so I plan on renting for the long term.
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secretwealth
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secretwealth
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I've done both and I'm very partial to renting now.
People keep saying if they pay off their condo or house "they have 0 housing costs".
That simply is not true and it never will be true.
You still have HOA fees, taxes, repair costs, insurance, and no guaranteed that you can sell your house for the amount you paid. There is more stress to owning a house.
With renting, you don't have any of the above costs, and you have the great flexibility of leaving the place if you need to leave. Even if you had to break a lease, we're not talking about a ton of money lost in the long run.
You don't pay for ANY repair costs, taxes, HOAs or any other nuisance that comes with owning.
Even if you pay off a house or condo, you WILL still have bills to pay.
Personally, a piece of land is what I may own in future, but I'm very weary of getting sucked into home ownership again.
People keep saying if they pay off their condo or house "they have 0 housing costs".
That simply is not true and it never will be true.
You still have HOA fees, taxes, repair costs, insurance, and no guaranteed that you can sell your house for the amount you paid. There is more stress to owning a house.
With renting, you don't have any of the above costs, and you have the great flexibility of leaving the place if you need to leave. Even if you had to break a lease, we're not talking about a ton of money lost in the long run.
You don't pay for ANY repair costs, taxes, HOAs or any other nuisance that comes with owning.
Even if you pay off a house or condo, you WILL still have bills to pay.
Personally, a piece of land is what I may own in future, but I'm very weary of getting sucked into home ownership again.
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Spartan_Warrior
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@tylerrr: Not sure if you mean anyone in particular, but if I said I'd have 0 costs after ownership, I misspoke. Rather, I'll have about the lowest cost solution I can think of in my area that doesn't involve sharing space with others or other lifestyle sacrifices (e.g. vehicle living/couchsurfing/etc).
My taxes are about 150/mo. Insurance is about 40/mo, and, without a mortgage, may not be strictly necessary(?). Don't have an HOA, would never buy in a place that did. Repair/maintenance/upkeep has cost maybe 2500 bucks for the last two years... granted, I have put off some things like repairing interior doors, and haven't had any truly major expense like appliance break-downs or roof repair so far, but that does include full carpeting, painting, and even the one-time expense of radon mitigation equipment. So it seems like a fair average. So that's about 100 a month.
Show me where I can rent a single family house for 300 a month in my area and you'll have persuaded me. Rather, per Zillow, my house would rent for about 1650. (Which is also more than my current costs to own, that is, the aforementioned costs, plus mortgage P&I.) Thus why I wouldn't plan to sell it either, even if I want to leave. It's an asset that can generate income.
I plan to add solar panels to mitigate or eliminate my utility bill, hopefully soon, but definitely before I retire. Not sure how that would go over in a rental. Or turning my yard into a mini-farm?
My taxes are about 150/mo. Insurance is about 40/mo, and, without a mortgage, may not be strictly necessary(?). Don't have an HOA, would never buy in a place that did. Repair/maintenance/upkeep has cost maybe 2500 bucks for the last two years... granted, I have put off some things like repairing interior doors, and haven't had any truly major expense like appliance break-downs or roof repair so far, but that does include full carpeting, painting, and even the one-time expense of radon mitigation equipment. So it seems like a fair average. So that's about 100 a month.
Show me where I can rent a single family house for 300 a month in my area and you'll have persuaded me. Rather, per Zillow, my house would rent for about 1650. (Which is also more than my current costs to own, that is, the aforementioned costs, plus mortgage P&I.) Thus why I wouldn't plan to sell it either, even if I want to leave. It's an asset that can generate income.
I plan to add solar panels to mitigate or eliminate my utility bill, hopefully soon, but definitely before I retire. Not sure how that would go over in a rental. Or turning my yard into a mini-farm?
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secretwealth
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"Show me where I can rent a single family house for 300 a month in my area and you'll have persuaded me."
This gets to the heart of the matter--this is far too location specific, so generalizations about rent vs. ownership are unhelpful.
In NYC, it's definitely cheaper to buy than rent for older tenement style buildings. I think renting is probably cheaper for luxury buildings. In small towns in New England, buying is definitely cheaper than renting. In the Midwest, I imagine there are pockets of places where renting is cheaper in the long run, but I'm not too sure.
This gets to the heart of the matter--this is far too location specific, so generalizations about rent vs. ownership are unhelpful.
In NYC, it's definitely cheaper to buy than rent for older tenement style buildings. I think renting is probably cheaper for luxury buildings. In small towns in New England, buying is definitely cheaper than renting. In the Midwest, I imagine there are pockets of places where renting is cheaper in the long run, but I'm not too sure.
@secretwealth
The following is purely anecdotal, although I read articles at the time which backed up my claims in the LA Times (too lazy to look for links). In LA, a lot of people lost their homes and others were unable to buy with the tighter lending restrictions in place. And with no new supply of units being built, even as wages and home prices came down, rents actually increased. I just wanted to point out that there are other factors at play. Like everything else, rents are a function of supply and demand.
The following is purely anecdotal, although I read articles at the time which backed up my claims in the LA Times (too lazy to look for links). In LA, a lot of people lost their homes and others were unable to buy with the tighter lending restrictions in place. And with no new supply of units being built, even as wages and home prices came down, rents actually increased. I just wanted to point out that there are other factors at play. Like everything else, rents are a function of supply and demand.
@Spartan_Warrior, "Show me where I can rent a single family house for 300 a month in my area and you'll have persuaded me."
@Secretwealth, "This gets to the heart of the matter--this is far too location specific, so generalizations about rent vs. ownership are unhelpful."
It is important to reiterate that the average American homeowner moves every 5-7 years (link above). Remember how mortgages are amortized.
On a $100,000 mortgage at 4.5%, after 6 years they've paid:
-$25,600 in mortgage payments
-of which only $10,800 went toward principal
That means that after 6 years of payments they still owe $89,200 of the original $100,000
In other words, most of the mortgage payment was flushed away as interest. And when they sell, they must pay the 6% commission.
If you stay in one place for a long time then owning can work for you. That's how the Baby Boomers did it.
The world has experienced a fundamental shift since then. Today people change jobs, change spouses, change interests, change careers.... the world is change.
@Secretwealth, "This gets to the heart of the matter--this is far too location specific, so generalizations about rent vs. ownership are unhelpful."
It is important to reiterate that the average American homeowner moves every 5-7 years (link above). Remember how mortgages are amortized.
On a $100,000 mortgage at 4.5%, after 6 years they've paid:
-$25,600 in mortgage payments
-of which only $10,800 went toward principal
That means that after 6 years of payments they still owe $89,200 of the original $100,000
In other words, most of the mortgage payment was flushed away as interest. And when they sell, they must pay the 6% commission.
If you stay in one place for a long time then owning can work for you. That's how the Baby Boomers did it.
The world has experienced a fundamental shift since then. Today people change jobs, change spouses, change interests, change careers.... the world is change.
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George the original one
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- Location: Wettest corner of Orygun
George, you left out....
-Opportunity costs for the down payment
-Plus closing costs on purchase
-Plus closing costs on the eventual sale
-Plus taxes
-Plus maintenance
-Plus insurance
-Plus 6% commission when sold
-Plus sewer & water bills (generally included in rent)
-Plus skewed-diversification of investments toward housing
-Plus inflexibility
-Plus the risk that the home value will decline
-Plus the inefficient times, (ie grow into home or empty nest)
-Opportunity costs for the down payment
-Plus closing costs on purchase
-Plus closing costs on the eventual sale
-Plus taxes
-Plus maintenance
-Plus insurance
-Plus 6% commission when sold
-Plus sewer & water bills (generally included in rent)
-Plus skewed-diversification of investments toward housing
-Plus inflexibility
-Plus the risk that the home value will decline
-Plus the inefficient times, (ie grow into home or empty nest)
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jennypenny
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- Joined: Sun Jul 03, 2011 2:20 pm
Ego, you left out possibities like
-ability to grow your own food
-access to drinking water (through well or stream or capture)
-ability to produce energy
-access to fuels like timber
I still say there is no right answer. If you compare renting v. owning within the general population, renting might have an edge. In the ERE crowd, I think we're smart enough to choose a home that eliminates many of the negatives and use it in a way that enhances, instead of drains, our resources.
-ability to grow your own food
-access to drinking water (through well or stream or capture)
-ability to produce energy
-access to fuels like timber
I still say there is no right answer. If you compare renting v. owning within the general population, renting might have an edge. In the ERE crowd, I think we're smart enough to choose a home that eliminates many of the negatives and use it in a way that enhances, instead of drains, our resources.
I'm sure many of you are already familiar with the New York Times "Is It Better to Buy or Rent?" calculator, but for those who are not, check it out. I think the best strategy is to buy, then sell at a profit, then buy a place with cash or just rent in a place with low rents. If you buy and hold till you die, the overall amount of money you spend will likely exceed the amount you spend on a rental until you die. According to the NY Times Calculator, if you buy a house for $172,000 and never sell it versus renting a comparable place for $1000 per month with a 3% rate of rent inflation, you will have spent a total of $465,000 buying and $443,452 renting. But if you sold the place after 20 years, you would have only spent $267,868 if your house appreciated at an annual rate of 3%.
http://www.nytimes.com/interactive/busi ... lator.html
http://www.nytimes.com/interactive/busi ... lator.html
"This gets to the heart of the matter--this is far too location specific, so generalizations about rent vs. ownership are unhelpful."
Secretwealth's response is the real answer. There are so many variables that the answer can change from property to property in the same area of the city. Some times you are throwing money away by buying and some times you are throwing money away by renting. There is no "golden rule" to follow in this case.
Secretwealth's response is the real answer. There are so many variables that the answer can change from property to property in the same area of the city. Some times you are throwing money away by buying and some times you are throwing money away by renting. There is no "golden rule" to follow in this case.
Jenny, you're absolutely right, there are indeed many benefits to home ownership for those who have the funds and plan to stay in one place for most of their lives.
I am being persistent about this because home-ownership is the default setting. We've been brainwashed (by realtors, the largest lobby in Washington) that home-ownership = success while renting = failure.
Add to that the fact that we're genetically pre-programmed to "nest". Also, add the fact that the calculations around renting vs. owning are complex, confusing and hard to estimate because there are so many future unknowns.
The fact is, when judging by purely financial considerations, most Americans should not be buying a home. They move too often to accumulate equity and the transaction costs are high.
Why does a simple statement like that illicit such visceral responses? Because it is the biggest investment a person is likely to make in their lifetime and they want to believe it was the right one. Again, it's a complex calculation involving not only facts and figures, but emotion and genetic programming.
I am not saying that renting is right for everyone. I am saying it is right for more people than are now doing it.
Also... the week before last I had a daughter help her senior-mother apply for an apartment here. The mother's finances were in shambles because of a foreclosure. They were declined. Their desperation was palpable.
They operated on the assumptions perpetuated by Realtors, perpetuated by faulty conventional-wisdom, perpetuated by ancient internal desires, and now they are suffering.
I have some expertise and a degree in Real Estate and still, many years ago I fell for it. It was one of the great lessons of my life.
Just because ownership feels right doesn't make it right for everyone.
I am being persistent about this because home-ownership is the default setting. We've been brainwashed (by realtors, the largest lobby in Washington) that home-ownership = success while renting = failure.
Add to that the fact that we're genetically pre-programmed to "nest". Also, add the fact that the calculations around renting vs. owning are complex, confusing and hard to estimate because there are so many future unknowns.
The fact is, when judging by purely financial considerations, most Americans should not be buying a home. They move too often to accumulate equity and the transaction costs are high.
Why does a simple statement like that illicit such visceral responses? Because it is the biggest investment a person is likely to make in their lifetime and they want to believe it was the right one. Again, it's a complex calculation involving not only facts and figures, but emotion and genetic programming.
I am not saying that renting is right for everyone. I am saying it is right for more people than are now doing it.
Also... the week before last I had a daughter help her senior-mother apply for an apartment here. The mother's finances were in shambles because of a foreclosure. They were declined. Their desperation was palpable.
They operated on the assumptions perpetuated by Realtors, perpetuated by faulty conventional-wisdom, perpetuated by ancient internal desires, and now they are suffering.
I have some expertise and a degree in Real Estate and still, many years ago I fell for it. It was one of the great lessons of my life.
Just because ownership feels right doesn't make it right for everyone.
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Spartan_Warrior
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@Ego: Where are the visceral responses? You seem to be the most dogged pursuer of this line of discussion... FYI, I might also point out that the subtext of your post is that owning a home is an emotionally based decision that "feels right" because we all fell prey to real estate industry propaganda. It reads a little condescending.
I doubt that any of us here have been brainwashed...
"Should the average American rent or buy" is a totally different question from "which is the best value". The latter certainly has a subjective/circumstantial component as you allude to, but I think this thread was designed to look at the mathematical/objective side of the question, e.g. the actual money involved.
All the other issues have been hammered to death here already and obviously the "right" answer is different for everyone.
I doubt that any of us here have been brainwashed...
"Should the average American rent or buy" is a totally different question from "which is the best value". The latter certainly has a subjective/circumstantial component as you allude to, but I think this thread was designed to look at the mathematical/objective side of the question, e.g. the actual money involved.
All the other issues have been hammered to death here already and obviously the "right" answer is different for everyone.
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secretwealth
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Again, i don't see too many visceral responses here, but I do agree with Ego that in many cases renting is better than buying. Particularly when homes don't appreciate, appreciate poorly, or people plan on getting 30 year mortgages.
I'm more interested in ERErs and people who buy in cash. Does the opportunity cost offset potential savings from not renting, or does buying win out? I still think the answer is "it depends".
I'm more interested in ERErs and people who buy in cash. Does the opportunity cost offset potential savings from not renting, or does buying win out? I still think the answer is "it depends".
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jennypenny
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