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In my experience, the vast majority of people renting are locked into at least a 1 year contract, if not a 2 year. Most landlords aren't that interested in writing "month to month" or 6 month leases. Too much effort and expense getting a place ready, doing advertising for it, running credit checks on someone, etc. etc. -- only to have them move in and back out again in less than a year.
Given that? I'd say renters are somewhat "tied down" too. As a renter who wants to break a lease, you're facing paying the entire unpaid balance on the agreement or winding up in court. (A few exceptions like military service exist, but won't help most people get out of a lease early.)
If you have a home and a mortgage, you can normally put the place back up for sale any time you like. Heck - if you're moving because of a far better paying job, you might even be in a position to keep paying the mortgage while renting someplace else, until you can get it sold.
So all in all, I think it's six of one, a half-dozen of another... You're "tied down" any time you live someplace where you have some kind of payment arrangement on staying there that's not fully paid off.
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Originally Posted by Tall Traveler
My general rule is that it doesn't make sense to buy a house unless you're reasonably sure you'll be in it a minimum of 5 years due to the buy/sell cost will eat up any advantages of mortgage deduction and savings on buy versus rent. Whether the housing market goes up or down is not known when you buy so that's always a risk but if you're in the house a long time chances are very good it will go up in the long run.
Big negative of house ownership is that it ties you down. But I currently own 5, 1 I live in 1 and the others for an investment...I've made $$ on all of my previous houses but I would probably lose a little on 2 of the 3 houses I currently own but make substantially on the others.
My summary would be it makes sense for probably about half or 60% of the nation to own but if you don't want to be tied down or your income is marginal, better to wait.
Like most things American, the "obsession" is manufactured through marketing. There's several huge industries that rely on real estate obsession-- real estate agents, of course, but also mortgage companies, title companies, big-box "home improvement" stores, among others. And like a lot of industries, it's been favored by the government, mostly by the underwriting of residential mortgages, making it attractive for lenders to make 90-100% loan/value loans. In a truly free mortgage market, no sane lender would lend more than 70% of the property's value, and more often 50%-- because that's what the property might well be worth immediately after a foreclosure. If you look back at loans pre-FHA/VA/Fannie-Freddie, those were the types of loans being made. A prospective home owner had years of saving before buying a house.
I would prefer to rent and not be tied to a house I had to sell in order to move for better opportunities, but that's me-- I've never felt a particular tie to any neighborhood. Some were nicer than others, but none were so wonderful that I felt any special joy in being a part of it. However, my wife feels very secure staying in the same city, so here we stay. For now.
As for the economic advantages, it depends on the appreciation of the house's value compared with its expenses over time, and what comparable rental costs are.
I love the line of thinking...how brilliant. How about everybody gets a fair shake? I don't want to buy a house thank you.
Then deal with the consequences. I don't recall anyone ever, ever, ever telling me that "life is fair." Not once ever. If you don't like the way the game is played, move somewhere that has different rules. Or learn to play by the rules of the game where you live.
And when it comes to economics -- macro, micro, personal -- it's ALL a game. The sooner people figure that out, the quicker they can "win*" the game.
* Winning will mean different things to different people. The key is to realize that the entire worldwide monetary system is one elaborate game of three-card monte.
I'm curious to know the where the origins of America's obsession with owning houses comes from (you know, the American dream: big house, fancy cars, etc.). I do not see the appeal of being a slave to a bank for 30 years. I see people with mortgages claim that they own their homes, but they don't own the house (the bank technically does). Let's see what happens when they miss 2 mortgage payments. They no longer own the house anymore. I would not be surprised if the American dream was manufactured by big banks and the automobile industry.
I've never seen anyone lose a home over two mortgage payments.
I'd be making the payments anyway, but at least I have the privilege of being able to cut big holes in the walls whenever I want to. Whether building or remodeling, I can customize the house to suit me.
Home ownership became part of the "American Dream" after WWII and the Korean War when millions of veterans became able to use the GI Bill to buy houses without huge down payments. At the same time, cheap suburban tract housing and the post-war industrial boom attracted the veterans from the farms into the cities.
In theory this is eminently true, but we’re creatures of fashion and cultural exigencies. How many of our decisions are genuinely driven by personal conviction and rational weighing of pros and cons? How much of what we wear, eat, buy, consume, plan, and desire is ultimately the result of emulation or attempt to fulfill imperatives ever so gently suggested to us by external stimuli?
Absolutely spot on.
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Originally Posted by ohio_peasant
Germans are content with renting not because they are smart and Americans are stupid, or because Germans are all communitarian drones eager to jostle shoulder to shoulder, while Americans are free-spirited individuals desiring their space. Rather, the German economy just isn’t built around mass house-ownership, and the American economy is.
Spot on, again.
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Originally Posted by ohio_peasant
As a side note, I disagree with the assertion that the German economy is healthy, while the American economy is struggling. Neither economy is strongly healthy, but if anything, the US economy has better long-term prospects. The salient point here, however, is that the US economy is so heavily dependent on domestic consumer spending, while the German economy is more industrial and more export-oriented.
I agree here, too.
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Originally Posted by ohio_peasant
If the plurality of Americans decided to eschew house ownership and to become renters, the resulting collapse of consumption would destroy the American economy.
Only if it happened all at once, which seems unlikely. If it happened gradually, the economy would adjust, just as Germany's has. Germany's relatively weaker economic prospects aren't due to the fact that their economy isn't built around mass home ownership, but for other reasons, including, not limited to, the demographic problems brought on by a low birth rate.
What is "debt?" If you can sell it for as much or more than you have paid plus what reminds of the principle, you can't really classify it as "debt."
I agree. A car payment is debt. Credit cards are debt. And in some cases, homes CAN be debt but they don't have to be. Not all home owners are in debt simply because they are making a mortgage payment. If they can get out ahead at any time, or even break even, it is not debt.
@ Teckeee, very few people can afford to pay cash outright for a home. If you are living "debt free" because you are fortunate enough to have been able to pay cash for a home, great. If you are living "debt free" and renting, great. If it's the latter, I do not envy you at all. Most people will have a mortgage or rent. I think a lot of bad assumption goes into your statement that it is a status symbol. For a lot of people it is a long term goal to own outright and live rent/mortgage free by or before retirement. That has nothing to do with status but planning for the future. And for a lot of people planning for the future results in "either/or" decisions regarding finances. Ie: "Either we take a vacation this year or we save for retirement/add to portfolio..." But owning a house is that rare place where you can plan longterm and simultaneously enjoy gratification in the present.
I get owning a home, I just sold after 10 years. You live in an outer part of metro, like I did, there will be little to no appreciation. I took me 10 years to appreciate, and lived in Parker, CO ranked one of the best by many in the news. Denver is a funny market. I could have taken my 90k downpayment and put it into other investments and made something with it.
To each his own.
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