Wed
Apr 11 2007
01:12 pm
By: Sven

Taking a break from monitoring the mortgage meltdown (which is now seeping into the Alt-A level, BTW), I came across this neat doohickey on the NYT site for measuring renting vs. owning. Related story, radio bit.

It seems to confirm my own prejudices (and deep-seated resentment...I'm a renter) that home ownership is often overhyped and oversold as a financial solution for all circumstances, and is part of the reason the bubble is bursting. Thoughts?

bizgrrl's picture

One thing nice about owning

One thing nice about owning is when you get old and the home is paid for you can still afford to live there with less income. Many elderly people I know have paid for the homes they currently live in. Their largest expenses now are healthcare, food, and electricity. It takes away one big worry when you get old.

Andy Axel's picture

I think home ownership makes

I think home ownership makes sense, especially once you get to a point where you need a tax writeoff.

Now, as far as this subprime banking scam goes...

Doesn't this sound an awful lot like the thrift theft of the mid-80s? Billions in fly-by-night S&Ls disappears! Economy threatened! GOP involvement at the highest levels! Slaps on the wrist issued! Taxpayers left to make up the difference!

(Remember, McCain was big buddies with ol' Chuck Keating. Just remember.)

____________________________

People getting rich. Some people saying "Markets!" More death. Neil Young. Death.

R. Neal's picture

Average Woman C.E. Petro has

Average Woman C.E. Petro has a post about this, too:

(link...)

Edit: I've done both, and lean towards buying*. Circumstances change, though, and everyone's circumstances are different.

(*I figure you are paying the mortgage, taxes, etc. either way, because no landlord is going to rent to you for less than they are paying. The calculator's analysis is based partly on the out of pocket downpayment and closing costs, which some might consider an investment although who knows these days. Thankfully, real estate prices are fairly stable here in ET).

Sven's picture

everyone's circumstances are

everyone's circumstances are different

That's it exactly. It can be a great investment, and there are many other non-financial considerations. My beef is that real estate is so often sold as the end all, be all for everyone.

But if the doohickey is to be believed, buying a home would be an absolutely horrible investment for me at present-- even if my rent goes up significantly and the house appreciates at an absurd rates of 10% plus per annum.

I've long believed this to be true, but I can't recall a single person agreeing with me. There's also been a relentless mantra in the media - buy, buy, buy - with no qualifications. After a while, one starts to think they're crazy to disagree.

CBT's picture

It's like a lot of things,

It's like a lot of things, it depends on your personal situation, needs, finances, etc. It also depends on what you buy, at what price, loan terms if you finance, equity position, etc. Like many folks, my house is presently my biggest single investment. Maybe that will change as I get older. But considering all that, for me and Mrs. CBT buying is far better.

p.s.

Lordy, with what I've learned CBT means in some circles, maybe I shouldn't refer to my lovely bride as Mrs. CBT.

Sven's picture

Doesn't this sound an awful

Doesn't this sound an awful lot like the thrift theft of the mid-80s?

Funny you mention that, because I just finished reading Liar's Poker. The origins of the S&L mess also lie in the mortgage business. Lewis Ranieri, one of the "Big Swinging D$#ks" at Solomon Brothers, lobbied to get the interest rate cap on home loans removed. Then he invented the whole scheme to package and sell the thrifts' mortgages on Wall Street. Great book.

cdthomas23's picture

Renting certainly makes

Renting certainly makes sense in some situations. People that spout "renting is throwing away money" have a little bit of a case, but they don't think about the other side. Often the people that go from renters to "owners" that were in this situation put little to nothing down and take out a 30 year mortgage. Talk about throwing money away with all the interest and PMI, etc.

Renting definitely has a place, but I think home ownership is a great goal to strive for. I see renting as a place to be while building up a bigger downpayment for a house or in a transition of location.

Craig Thomas
(link...)

Sven's picture

I think home ownership is a

I think home ownership is a great goal to strive for

Please forgive me if I'm reading too much into that statement, but it strays a bit to close to the "ownership society" nonsense. Increased rates of home ownership in the U.S. have not lead to increased saving, even among "responsible" home buyers. Just the opposite, in fact.

I can't help thinking most of the conventional wisdom about home ownership isn't just marketing hoo-hah. I save money just fine, thankyouverymuch, and I'm getting twice the rate of return that I would in real estate.

A lot of that can be attributed to the fact that my means are relatively modest, as would the kind of property I could afford. I suspect that's true for a lot of people, but the hucksters want them to believe otherwise because fat commission checks are involved.

Up Goose Creek's picture

Sven, I highly recommend

Sven, I highly recommend you visit the housing bubble blog. You will find yourself among kindred spirits.

(link...)

"no landlord is going to rent to you for less than they are paying"

This is so not true. The above mentioned blog is teemeng with examples. And even closer to home: I briefly owned a home in the fair city of Murrvul and had a d**n hard time renting it for anything close to what a house payment would have been. Yet when I decided to sell I was overrun with prospective buyers and made a healthy profit. It's because Murrvul was/is? a bubble market and people are buying for appreciation, not income.

In Knoxville the figures are closer to balancing and it comes down to personal choice. The most important factor IMHO is can you do your own repair work of get it done inexpensively. Also, do you enjoy puttering around the house.

____________________________________
Less is the new More - Karrie Jacobs

Sven's picture

had a d**n hard time renting

had a d**n hard time renting it for anything close to what a house payment would have been

This is why I should keep my mouth shut. With all the potential renters out chasing the Big Score, it's been a renters' market. My rent hasn't increased in four years (I know, I know...I should just wait).

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Up Goose Creek's picture

Numbers

Now that I've run the numbers with the low interest rate I might have gotten a rent somewhat close to what a 100% mortgage payment would have been but it didn't take maintenance into account. That's the big thing people overlook. They also overlook what the down payment money could be earning otherwise.

Less is the new More - Karrie Jacobs

Sven's picture

I think you can input

I think you can input maintenance costs under the "advanced options," UGC. I've been searching around for some data on what those costs average, but haven't been successful.

I think the bottom line here is that there needs to be better information and advice out for people making this fateful decision. The Realtors®©™ just don't suffice.

Andy Axel's picture

What, First Tennessee

What, First Tennessee underwriting the lot-hoggization of suburban Farragut? You don't say...

____________________________

People getting rich. Some people saying "Markets!" More death. Neil Young. Death.

ultron's picture

So I keep pressing Alt-A,

So I keep pressing Alt-A, but a house is not appearing before me.

Andy Axel's picture

Must be some sort of General

Must be some sort of General Protection Racket Fault.

____________________________

People getting rich. Some people saying "Markets!" More death. Neil Young. Death.

Andy Axel's picture

I note with some trepidation

I note with some trepidation that my mortgage holder is tainted by the Alt-A brush, having taken a 21-point hit against earnings in the most recent quarter for its dabbling (read: 45% of its 2006 loans were Alt-A) in risky loans. Sheeyot.

I always worried about me making my payments, not my bank being in default to its creditors.

____________________________

People getting rich. Some people saying "Markets!" More death. Neil Young. Death.

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