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What bizarre lines of thinking some people pursue. If you are a renter and you lose your job, you are the one really screwed. Go 5 days without paying rent and you get evicted in a lot of stetes. If you own instead it will be 6 months minimum until they move you out. So how is renting viewed as the low risk choice? I hear about the need to be able to move for work, but seems way overrated. I have move cities a number of times in my life and meet some who have done likewise, but reality is 90% of people wont ever move to another state or maybe they do it once in their adult lives.
The idea with renting is that following a job loss you could move to a cheaper apartment and cut your costs, or the flexibility will allow you to move to another area for a job rather than being anchored by a home. Regardless planning on squatting without paying and citing that as a mortgage benefit is hardly a game plan for a future crisis.
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Originally Posted by Willy702
For those who think debt is a big albatross, go ahead keep those thoughts. If it bothers you to owe money then that is you and your comfort level. But it doesnt apply to most people. If I own a $300k house I dont fret or worry that I owe the bank $200k. I have almost all the control outside of having to make my monthly payment. They cant tell me when to sel, they cant tell me I need to pay them back sooner and they have zero bearing on what my house is worth. When I want to cash in my equity gain is my decision. So why is it bad to borrow money to buy the home?
If you were underwater and could no longer pay they certainly could force you to sell or take possession of the home, a lot of people had this happen post bubble. You've already assumed being able to cash in, and universal appreciation is no longer guaranteed. Even if your house does rise in value, you still have the transaction costs to consider.
The idea with renting is that following a job loss you could move to a cheaper apartment and cut your costs, or the flexibility will allow you to move to another area for a job rather than being anchored by a home. Regardless planning on squatting without paying and citing that as a mortgage benefit is hardly a game plan for a future crisis.
Mortgages are almost always cheaper than renting, however. So you've already got most of that advantage. $1600 rent for a 3bd apartment vs $1100 for a 4bd/2ba 2000 square foot house in the same neighborhood, that includes PMI and property taxes. While true you could move down to a $800 month, you could also buy a condo. They're available here for $50k for a 2/1, similar to what you get in a 2bd apartment. So about $250/month mortgage and another $250 in HOA fees. They're not the nicest places, but they'll sure beat the apartment you can find for $600 a month here.
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If you were underwater and could no longer pay they certainly could force you to sell or take possession of the home, a lot of people had this happen post bubble. You've already assumed being able to cash in, and universal appreciation is no longer guaranteed. Even if your house does rise in value, you still have the transaction costs to consider.
Actually, I don't think he assumed guaranteed appreciation anywhere, I certainly don't. If you can't pay your rent they'll certainly evict you as well... difference is foreclosure takes longer. Both will pretty much ruin your credit and make it very difficult to rent/buy again in the near-term. I'm actually at the point where I need to really make up my mind to stay or keep renting. It's the transaction costs and inconvenience of closing and then trying to sell the damn thing that keeps me from doing it. I've been living here for going on four years now, however. The convenience, or rather perceived convenience, of not having to deal with the hassle keeps me renting despite it costing a couple hundred bucks a month more than it would to buy. House maintenance isn't really a problem as I like working around the house and do a lot of the minor stuff (painting, rebuilt the garage door, replaced a fence) for a deduction on my rent. I did let the landlord take care of the leak in the roof, however. Every time I get up there all I do is break those stupid tile shingles.
Mortgages are almost always cheaper than renting, however. So you've already got most of that advantage. $1600 rent for a 3bd apartment vs $1100 for a 4bd/2ba 2000 square foot house in the same neighborhood, that includes PMI and property taxes. While true you could move down to a $800 month, you could also buy a condo. They're available here for $50k for a 2/1, similar to what you get in a 2bd apartment. So about $250/month mortgage and another $250 in HOA fees. They're not the nicest places, but they'll sure beat the apartment you can find for $600 a month here.
In many parts of the country this is true, but in many parts of the country buying is more expensive than renting especially when you include all the other costs. When people start off with the assumption that that buying is cheaper than renting and don't say it, but then go on to list a whole host of benefits based on that assumption it confuses the issue.
I don't think one can say mortgages are "almost always" cheaper than renting. That may well be true in some markets, but it has not been the case in most of the places we've lived. We have been able to rent housing that we could never comfortably afford to buy, or would simply prefer to pay the lower rent and put our savings towards other purposes. That's definitely true of where we live now (Minneapolis), although it may not be true in every neighborhood in the metro area. It's the case in the locations where we are willing to live, however. I can rent a nice place for $1,200, but good luck buying an equivalent place in the neighborhood for that same payment per month. It still could be worth buying for those who are going to be around for long enough, and if rents rise then down the road it could be cheaper to have the locked-in rate, potentially much cheaper, but in short-term we'd be paying much more for owning (or would be living in somewhere much less nice).
In other words, this is an assumption that is going to depend on location.
Actually, it's not. San Francisco, Manhattan, a few neighborhoods in other markets, markets without condos when you're looking at 1bd apartment to rent or 3bd house to buy becaues there's nothing smaller available. That's really about it, especially post-bubble.
Does it seem rational anymore to finance a home for 15 or 30 years? With the way employers seem to treat their employees these days (as extremely disposable inputs), how unstable the economy is, etc., it seems like home ownership is no longer a viable or rational option. Why would anyone want to be locked into a 15 year or 30 year commitment when folks don't know if they'll have a job in six months, a year, five years. It just seems like the risk of financing a home in this day and age has grown exponentially.
The general question of whether it's a good time in "this" market for anyone to buy any home has too many variables to contend with. Obviously, you are talking about yourself, but, have provided no details: age, career status, location, job market in your area, financial situation .... RE market there, Rental market there, savings situation, mortgage-to-income ratio being considered, likelihood that you will remain in that area, other obligations (family, bills, etc). ..... etc.
People have always bought and lived-in homes, just as they are today ... and will continue to do 15-30-years from now. While 'appreciation' has always been a major consideration in buying a home, price, mortgage and comparable alternatives are also big drivers. You are right, the job market looks bleak when you consider a 7-8% unemployment level --- but, remember, the reciprocal condition is a 90%+ employment level! Nobody has a crystal ball, but, there is no substitute for optimism. Don't believe everything the media shouts from the headlines .... 'in order to sell more newspapers and advertising.' Your future is up to YOU ... You don't need 8% of the jobs ... only one! -- Employers will always need good employees, 'gloom and doom' don't exist in a vacuum, but, require positive, beneficial things ... for their definition. By the same token, defeat and pessimism can quickly become self-fulfilling prophecies, if we allow them to.
For me, the biggest opportunity cost, as a 30some year old head of household, is the ability to move. I can't say the majority of workers in this Country can honestly bank on the idea of staying put in one location 15 years at a time. That is a serious blow to the concept of homesteading in this Country, which is the fundamental requirement in order to maximize one's ability to rise above the transactional costs of buying and selling repetitively.
While jobs may be a lot more volatile than in the past, losing or changing jobs doesn't necessarily equate to needing to move for most people. For one thing, most people get their next job through contacts in their network and these networks are almost always concentrated in the city where they are. In some fields, such as certain health care specialties, demand is high and people with these skills and experience are likely able to choose where they want to live. Also, a lot of industries are highly concentrated in certain metro areas: technology in SF Bay, finance in NYC, oil in Houston, goverment and defense contracting in DC to name a few. So if you are in one of these industries or jobs it is not necessarily that risky to buy in your city because your next job is likely to be local. Perhaps that is why the real estate markets are fairly strong in these areas.
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Originally Posted by hindsight2020
Since appreciation rates will never be again the triple-your-money that was the 2000s bubble, it is safe to say that the starter home mantra is useless to people making median wages. That's the more reason to delay home ownership until you are well into your late 30s or 40s, assuming a progressive increase in income as a function of age, which isn't a given. The flexibility of renting for a young family, even when accounting for the premium paid in a higher rent over a cheaper mortgage, is of more value in the long term than attempting to homestead and losing ground every time employment kicks you out of your house and forces you into begrudged landlordship. Unless you can cart that house with you to the next job or can commute from that house to the next job, you're better off renting.
Again, this assumes that changing jobs requires a move to a different metro area which is not true. I agree with you people should wait to buy until they are reasonably sure that they will be staying in a specific area for long enough to be able to at least recover the transaction costs associated with buying and selling. Depending on the circumstances, this could be someone in their 20s, not just people in their late 30s or older.
Given the environment of rising rents, historically low interest rates, and relatively low real estate prices, it makes sense for a lot of people to buy. In the long run, locking in a low and fixed housing payment (the largest part of most people's monthly budget) and building equity through paying down a mortgage and hopefully some appreciation will create a lot more wealth than paying rent which increases 3-5% per year to someone else.
The idea with renting is that following a job loss you could move to a cheaper apartment and cut your costs, or the flexibility will allow you to move to another area for a job rather than being anchored by a home. Regardless planning on squatting without paying and citing that as a mortgage benefit is hardly a game plan for a future crisis.
If you were underwater and could no longer pay they certainly could force you to sell or take possession of the home, a lot of people had this happen post bubble. You've already assumed being able to cash in, and universal appreciation is no longer guaranteed. Even if your house does rise in value, you still have the transaction costs to consider.
Yes there have been heightened foreclosures and there are still plenty of people underwater, but being underwater is what you make of it. In time almost everyone underwater today can be above water. I have a home I rent out that remains seriously underwater, but it cash flows right now and the tenant is paying almost $500 in principal down each month for me. It may take 2 years, it may take 10 years but I will eventually be out from underwater. There are options aside from just laying your responsibility at the bank and saying you shouldn't be blamed because you got caught up in housing mania some years ago.
I certainly wouldn't suggest squatting, but seriously people who can't pay rent because of job loss aren't just finding a cheaper place. Once evicted they are usually moving in with family or friends. This may be contrary to public thinking but anyone with an investment mindset towards real estate is fully aware renting is far more risky than buying provided you buy a house wisely and know it can rent for at least what the costs are. People who bought way over what they could afford and with too many bells and whistles to recover proper rent were those who en masse had to give up their homes and who left the housing market thinking its impossible to invest or make money over time from houses. And if one is lucky enough to live in a market where renting is indeed cheaper than owning its best to keep renting.
I guess plenty of folks have jumped on this, so I not trying to pile on, but let's put some real numbers to it?
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Originally Posted by Willy702
What bizarre lines of thinking some people pursue. If you are a renter and you lose your job, you are the one really screwed. Go 5 days without paying rent and you get evicted in a lot of stetes. If you own instead it will be 6 months minimum until they move you out. So how is renting viewed as the low risk choice? I hear about the need to be able to move for work, but seems way overrated. I have move cities a number of times in my life and meet some who have done likewise, but reality is 90% of people wont ever move to another state or maybe they do it once in their adult lives.
Mkay. If I am running a well ordered personal financial situation, I should have 3 to 6 months of all expenses parked for an emergency, right? Not saying anyone/everyone does, but that is pretty much the specification, right?
That means folks with that Emergency Fund do not go into crisis on the 5th day of the month.
So let's do some typical real world High and Low numbers for real world people?
Low(er): $40,000 income, $100K house (if buying) or $800 month if renting. Total household expenses maybe $2500 a month, so an Emergency Funds should be somewhere between $7500 and $15000.
High(er): $80,000 income, $250,000 house (if buying) or $2000 month if renting. Total household expenses maybe $4000 a month, so an Emergency Funds should be somewhere between $12,000 and $32,000.
So rent is somewhere between $800 and $2000, which is typically very close to the (bank) owner payments + taxes + insurance. As far as cash flow -- about the same, if one is not figuring on taxes, business expense tricks, etc.
Now let's see what is at Risk in the paths per the job loss scenarios.
Down Payment(s) on those same houses (at 20%) are $20,000 and $50,000
Emergency Fund for these same folks are somewhere $7500 and $32,000. What (we) anti-deep-debt folks are saying is that the Emergency Fund IS NOT the Down Payments on these houses.
Having that Emergency Fund as a separate set of money takes away the crisis from the Low(er) and the High(er) Folks, for whether they are renting or paying a mortgage.
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For those who think debt is a big albatross, go ahead keep those thoughts. If it bothers you to owe money then that is you and your comfort level. But it doesnt apply to most people. If I own a $300k house I dont fret or worry that I owe the bank $200k. I have almost all the control outside of having to make my monthly payment. They cant tell me when to sel, they cant tell me I need to pay them back sooner and they have zero bearing on what my house is worth. When I want to cash in my equity gain is my decision. So why is it bad to borrow money to buy the home?
The error in your calculus is not considering the (MUCH NEEDED) Emergency Fund. Your model is somewhat using the slow Foreclosure Process as a Faux Emergency Fund -- at the end of which you lose the house, along with the Down Payment.
A wiser path would be to accumulate BOTH the Emergency Fund (FIRST) and then in addition accumulate the Down Payment, so that one is covered in both paths.
Called Delayed Gratification by some, Emotional Maturity or Emotional IQ by others -- but in practice . . . it is just Grow Up. Makes a lot of the crisis(es) go away.
Sort of an Un-American thing, anymore.
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