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Rent is a bigger elephant, it consumes a much larger proportion of renters' incomes than mortgages consume of homeowners' incomes
Well, this is a biased statistic because homeowners tend to have a higher income compared to renters, but it is important to be very conservative with making inferences from correlation to causation!
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Originally Posted by freemkt
, and renters have NOTHING to show for it while homeowners at least build equity and wealth with their mortgages.
In a lot of markets you can come out ahead by renting and investing the difference into growth stock mutual funds - the caveat of course is that this requires both the discipline and the investment know-how.
And of course if you can't pay a mortgage due to low income, then the issue is moot - it's not being a renter that is the problem, rather it is a low income problem. You don't build equity as an owner if you can't actually make your house payments - at most you can build a yard with "Foreclosure Sale" on a sign in front.
Well, this is a biased statistic because homeowners tend to have a higher income compared to renters, but it is important to be very conservative with making inferences from correlation to causation!
Yup -- hidden variables and dissimilar populations matter. In most (but not all) markets the cost of owning (mortgage+tax+insurance+maintenance) will be way over the cost to rent for an equivalent property. However renters and homeowners aren't populations living in the same homes, in the same places, or with the same incomes, in the statistical sense.
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In a lot of markets you can come out ahead by renting and investing the difference into growth stock mutual funds - the caveat of course is that this requires both the discipline and the investment know-how
This I disagree with. No-one will let you leverage up cheaply like you can with a 20% down payment on a home to buy stocks, and there are huge tax advantages: not only the mortgage interest deduction, but a far more important one is untaxed imputed rent. The rent you don't spend is a form of return from the capital you have invested into an owner-occupied home that is taxed at 0%. So it ends up being better (assuming you are living in one place long enough not to get eaten up by transactions costs) after taxes and leverage even if the headline return rate historically has been worse.
True, and a lot of people retiring these days or people that are elderly these days have a lot of their wealth in their homes.
Real estate is a much bigger vehicle for wealth creation than anything else.
Real estate does not "create" wealth. Typically it only appreciates at around the overall rate of inflation and provides a small income via real or imputed rent, net of non-capital owner cost (taxes, insurance, maintenance).
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Originally Posted by jm1982
Homeowner net worth isn't just a little more than renter net worth., but a LOT more
"The survey indicates in the past 15 years, the net worth of the typical home owner has ranged between 31 and 46 times that of the net worth of the typical renter. Home owners had nearly $200,000 in net worth compared to the average $5,000 net worth of renters."
Hmmm...which net worth would you rather have... $200k..or $5,000? Tough decision right?
You are "conveniently forgetting" (word choice?) the fact that they had a much higher income to begin with.
I'm sure the average net worth of people who own yachts over $300,000 is greater than the average net worth of those who don't. That hardly means that buying the yacht is a path to wealth!
Yup -- hidden variables and dissimilar populations matter. In most (but not all) markets the cost of owning (mortgage+tax+insurance+maintenance) will be way over the cost to rent for an equivalent property. However renters and homeowners aren't populations living in the same homes, in the same places, or with the same incomes, in the statistical sense.
This I disagree with. No-one will let you leverage up cheaply like you can with a 20% down payment on a home to buy stocks, and there are huge tax advantages: not only the mortgage interest deduction, but a far more important one is untaxed imputed rent. The rent you don't spend is a form of return from the capital you have invested into an owner-occupied home that is taxed at 0%. So it ends up being better (assuming you are living in one place long enough not to get eaten up by transactions costs) after taxes and leverage even if the headline return rate historically has been worse.
Well, this is simply not true in many markets. When house prices are sufficiently high relative to rent, you never break even buying, even if you lived to be 300 years old you'd still be behind.
Consider the case in many areas of Seattle, or in some areas of Bentonville, Arkansas. The average price of a house is over $300,000 and yet the rent is often just a hair over $1000 per month.
The owner has to shell out an enormous sum - first $60k for down payment, and then $1493 a month on mortgage (4.25%, 30 year, 1.25% property tax). In addition at a 2% rate the maintenance and repair (incl. the cost of homeowner's own time) costs $6k/year, or another $500/month.
If the renter pays $1300/month, this leaves $60k for the renter to invest initially, and then almost $700/month on an ongoing basis.
In 10 years, the renter will have a stock portfolio worth $270,000 if paying a tax rate of 15% on dividends and capital gains and getting a 10% return.
At this point, the renter's portfolio will throw off so much passive income that all of the rent will be covered by it, so the renter gets to live for free, in effect, even with 2-3% annual rent inflation.
The owner, by contrast, has ZERO liquid assets and still has to shell out enormous sums every month for the roof over his/her head.
Of course this is an unusual example since it is for areas with anomalous price:rent ratios. But it suffices to show the point that it is FAR too premature of a conclusion to say "buying is better".
Well, this is a biased statistic because homeowners tend to have a higher income compared to renters, but it is important to be very conservative with making inferences from correlation to causation!
In a lot of markets you can come out ahead by renting and investing the difference into growth stock mutual funds - the caveat of course is that this requires both the discipline and the investment know-how.
And of course if you can't pay a mortgage due to low income, then the issue is moot - it's not being a renter that is the problem, rather it is a low income problem. You don't build equity as an owner if you can't actually make your house payments - at most you can build a yard with "Foreclosure Sale" on a sign in front.
And coming out ahead by renting and investing the difference is moot for most renters because it requires INVESTIBLE INCOME i addition to discipline and investment know-how. The most recennt numbers I've seen say that median renter income is almost exactly HALF median homeowner income.
Even low-income renters could often afford a mortgage IF tiny homes were available for ownership. The private sector builds them all the time but government gets in the way of low-income ownership.
Yup -- hidden variables and dissimilar populations matter. In most (but not all) markets the cost of owning (mortgage+tax+insurance+maintenance) will be way over the cost to rent for an equivalent property. However renters and homeowners aren't populations living in the same homes, in the same places, or with the same incomes, in the statistical sense.
This I disagree with. No-one will let you leverage up cheaply like you can with a 20% down payment on a home to buy stocks, and there are huge tax advantages: not only the mortgage interest deduction, but a far more important one is untaxed imputed rent. The rent you don't spend is a form of return from the capital you have invested into an owner-occupied home that is taxed at 0%. So it ends up being better (assuming you are living in one place long enough not to get eaten up by transactions costs) after taxes and leverage even if the headline return rate historically has been worse.
And coming out ahead by renting and investing the difference is moot for most renters because it requires INVESTIBLE INCOME i addition to discipline and investment know-how. The most recennt numbers I've seen say that median renter income is almost exactly HALF median homeowner income.
Even low-income renters could often afford a mortgage IF tiny homes were available for ownership. The private sector builds them all the time but government gets in the way of low-income ownership.
I doubt commercial lenders would lend on a $20,000 tiny house, not to mention, the closing costs would be as much as a 20% down payment!
Well, this is simply not true in many markets. When house prices are sufficiently high relative to rent, you never break even buying, even if you lived to be 300 years old you'd still be behind.
Consider the case in many areas of Seattle, or in some areas of Bentonville, Arkansas. The average price of a house is over $300,000 and yet the rent is often just a hair over $1000 per month.
The owner has to shell out an enormous sum - first $60k for down payment, and then $1493 a month on mortgage (4.25%, 30 year, 1.25% property tax). In addition at a 2% rate the maintenance and repair (incl. the cost of homeowner's own time) costs $6k/year, or another $500/month.
If the renter pays $1300/month, this leaves $60k for the renter to invest initially, and then almost $700/month on an ongoing basis.
In 10 years, the renter will have a stock portfolio worth $270,000 if paying a tax rate of 15% on dividends and capital gains and getting a 10% return.
At this point, the renter's portfolio will throw off so much passive income that all of the rent will be covered by it, so the renter gets to live for free, in effect, even with 2-3% annual rent inflation.
The owner, by contrast, has ZERO liquid assets and still has to shell out enormous sums every month for the roof over his/her head.
Of course this is an unusual example since it is for areas with anomalous price:rent ratios. But it suffices to show the point that it is FAR too premature of a conclusion to say "buying is better".
I have never seen such discrepancies between owning and renting. In Portland it's common to see $200,000 houses rent for $2500. I'm paying $500/mo to rent a room in a house of eight.
Ziillow and Trulia have been saying it is cheaper to own than to rent in at least 48 of the top 50 US housing markets.
Debt, leaving it at the door of materialism only touches lightly on the subject of the why of American debt, AND the clinging to materialism as a newfound religion of sorts. Our economy grew on the back of all that consumption, the US "miracle" economy was nothing more than a reflection of our collective willingness to immerse ourselves in both materialism and debt. Of course the "consumer machine" had everything to do with it, we have come to think of this machine as our economy, and all the encompassing metrics to our consumption has arrived as the exact same stats as that which we measure our national well being...
Actually, high debt materialism is a fairly recent development. The 1980's is when debt levels for consumers really began to get out of hand. Before that the majority of consumer purchases were mostly cash except for homes and autos.
It is interesting you brought up this discussion during the biggest holiday shopping season of the year. How many people will spend more then they can afford on gifts during the holidays?
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