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All this talk of buy vs rent lacks specificity. There are plenty of examples where one has worked better than the other. It really depends on the situation. Plus this has been an outlier decade for both housing and stocks, I pity those trying to create rules of thumb to use based on what has happened since 2000. What would drastically change thbe math are tax law changes. Taking away deductibility would skew towards renting for the "use" side, but the increased rent demand would increase the math for landlords wo presumably would still get interest deductibility. Plus those who rent should not underesimate the locked in value of a fixed rate loan. It may not be anything valuable right now, but having payments locked in at say 4.5% for 30 years is a huge future asset. If homeowners got smart and stopped seling homes but instead took the slam dunk returns 10-15 years from now the whole equation changes yet again. So really while we al have opinions which is better I think the answer depens on a case by case analysis.
All this talk of buy vs rent lacks specificity. There are plenty of examples where one has worked better than the other. It really depends on the situation. Plus this has been an outlier decade for both housing and stocks, I pity those trying to create rules of thumb to use based on what has happened since 2000. What would drastically change thbe math are tax law changes. Taking away deductibility would skew towards renting for the "use" side, but the increased rent demand would increase the math for landlords wo presumably would still get interest deductibility. Plus those who rent should not underesimate the locked in value of a fixed rate loan. It may not be anything valuable right now, but having payments locked in at say 4.5% for 30 years is a huge future asset. If homeowners got smart and stopped seling homes but instead took the slam dunk returns 10-15 years from now the whole equation changes yet again. So really while we al have opinions which is better I think the answer depens on a case by case analysis.
Good post. There has been a lot of discussion of the buy versus rent question in the Real Estate Forum, and the consensus of opinion there is exactly what you're saying, namely that it depends. It depends on the local real estate market, which is certainly not the same in all areas of the country. It depends on one's personal circumstances, such as but not limited to how long one intends to live in a particular location.
I'm 25, engaged, getting married in a year and a half and in an expensive market (MA)... hoping to buy a house within a year after the wedding, or atleast before starting a family.
I hope the housing market is still a few years away from its bottom.
The housing market reacts inversely to interest rates.
For example, let's say you want to get a 250k 30yr fixed @4.5%. Payment is 1266.71
If interests go up to 7.0% and you want to keep the same payment you can only afford a mortgage of around 190k.
Not trying to kick anyone while they are down but interest rates and people that want to sell but can't along with other idle inventory would make me highly cautious about spending a significant amount on a house anywhere that the decision didn't make sense just from an own vs. rent perspective.
I think a lot of areas have seen what is an artificial bottom where the sellers won't sell lower....and as such you sill see stagnant home prices in some places for another 10 years or more.
I'm 25, engaged, getting married in a year and a half and in an expensive market (MA)... hoping to buy a house within a year after the wedding, or atleast before starting a family.
I hope the housing market is still a few years away from its bottom.
Ouch. I don't envy your predicament.
When I was in your shoes a starter home in the Chicago suburbs was 150k and I bought when rates were almost 9%. When rates came way down I refinanced.
If you are looking at buying a 350k home at 4.5% rates....the situation can't really improve but if rates go the other way....you could be in trouble if forced to relocate or some other unexpected issue were to surface. (The forum is full of posts where people are paying a mortgage and renting their former house since it's upside down and they are living elsewhere now and cash strapped with rent etc. on top of that)
Now granted, if you are buying to live there 30 years and so on and so forth it won't matter and you will have a great interest rate. But I'd be prepared for the possibility that an interest rate spike in that scenario could temporarily put you upside down.
The housing market reacts inversely to interest rates.
For example, let's say you want to get a 250k 30yr fixed @4.5%. Payment is 1266.71
If interests go up to 7.0% and you want to keep the same payment you can only afford a mortgage of around 190k.
Not trying to kick anyone while they are down but interest rates and people that want to sell but can't along with other idle inventory would make me highly cautious about spending a significant amount on a house anywhere that the decision didn't make sense just from an own vs. rent perspective.
I think a lot of areas have seen what is an artificial bottom where the sellers won't sell lower....and as such you sill see stagnant home prices in some places for another 10 years or more.
actually we get our best home appreciation between 6-8% mortgages.. the historical norm for a mortgage is 7%
lower indicates slower economy and higher makes them un-affordable.
thinking prices should fall as rates rise is as silly as thinking prices should be soaring because rates are low,.
in fact historically rising rates put pressure on home prices to rise as the we better buy now before rates go up and we can afford even less house kicks in.
im not expecting that this time because the pressure is off wanting to buy a home totally but you know, just when you think it wont happen there it is.
A I pity those trying to create rules of thumb to use
Yup, and there are so many of them thrown about. People should replace x% of their working income in retirement, people at x age should have y% in stocks, people should or shouldn't invest in Roth before 401k, etc.
It is usually far more complex than using 2 or 3 factors to nail down an answer.
A I pity those trying to create rules of thumb to use
Quote:
Yup, and there are so many of them thrown about. People should replace x% of their working income in retirement, people at x age should have y% in stocks, people should or shouldn't invest in Roth before 401k, etc.
It is usually far more complex than using 2 or 3 factors to nail down an answer.
Its more about looking at historical averages. Seems like an awful lot of people are using recent performance as a measuring stick for long term results ( like using the 2000's for example). Long term means over the period of 30-40 years. For the past 100+ years stocks have on average delivered a 7-8% median annual return. Real estate has returned something like 3-4%. Of course there have been bubbles and recessions and depressions along the way- hence the rather modest overall median returns. This also means the entire market is broadly considered. As such anyone investing in stocks needs to have a very broad approach with a smattering of investments throughout a wide variety of industries and companies.
Anyway, that's pretty basic econ 101 subject matter. All I know is that I have various family members who never made tons of money yet consistently invested in stocks and are all doing quite well now.
There are stats that suggest that owning a home leads to a longer life, less divorces, higher net worth and more stability.
But perhaps that was before we decided that our house was our piggy bank and we took every opportunity to raid it!
owning a home doesnt lead to higher net worth. its generally the other way around. the higher the net worth the odds are they may buy a home.owning a home has probley been responsible for draining more net worths as folks couldnt afford them..
reminds me of a chart i saw in college on inflation. it was a chart showing what folks did for their entertainment in the high inflation of the early 1980's.
it showed inflation rising and the chart showed more and more people going to the movies.
i said to my professor ,there it is; proof! going to the movies is what causes inflation.
boy if i didnt own my homes my net worth would be far higher with all the dough they run and mines paid off.
Last edited by mathjak107; 04-25-2011 at 09:55 AM..
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The buy versus rent question
