Another RE Thread...

[legion]

From the huge RE thread ten years ago, I picked up that if it is substantially cheaper to rent than to own, it is a sign of an overheated market due for a correction.

This caught my eye:

https://www.nytimes.com/2017/05/19/realestate/they-can-afford-to-buy-but-they-would-rather-rent.html

“This is a generalization, but renting in Manhattan is substantially less expensive than owning,” said Mr. Ceurvorst, 61, the founder and managing partner of a structured trade finance firm.
...
“There isn’t much difference in lifestyle between owning and renting in Manhattan, except that if you pay rent you can spend more on the arts and sports and still have money left over,” he continued. “I prefer to rent and go to dinner anywhere I want. Why spend the extra money to buy, when in New York you sleep in your apartment but you live in the city?”

[vash]

i'm old school. i see rent as lining the landlords pocket.

[RKDinOKC]

In Oklahoma City it has historically been cheaper to make house payments than rent.

[Evans, Marv]

I'm so glad I don't have to think about renting or a mortgage. It's a real feeling of freedom. I'd say everyone should try to get their mortgages paid off as soon as they're in a position to start doing that.

[asphaltgambler]

Really too many variables to say what is or isn't right or the lowest cost over a given period of time. RE ownership gives you the power and stability given a stable market and low interest rates. Renting does neither.

[look 171]

Oh no, no, no. Let em' rent. They are buying me a house.

[sc_rufctr]

There's nothing better than owning your own home. I get the renting is cheaper thing but what happens if something goes wrong? (and it will)

Some bricks and mortar security is a good thing.

[McLovin]

That article is talking about a very unique group of renters and properties.

Rents of $5,000-$4,500 a month, and condo prices of $9 million (and even at that people apparently can't find what they like). With real estate prices like that, and high property taxes and HOA fees, it's not a "normal" situation.


Not really relevant to 99.9999999% of Americans.

[jyl]

A wild card is what tax reform may do to the home ownership equation. There is an outside chance the mortgage interest deduction could be eliminated or reduced. There is a better chance that a larger standard deduction will make itemizing less advantageous for many. The is also a real chance that the deduction for state and local tax, including property tax, will be eliminated. Each of those would make home ownership less advantageous.

[jyl]

Back of envelope own vs rent math in Portland:

Own: median house price $400,000, at 5% 30 year, mortgage + property tax is roughtly $2,500/month.

Rent: median rent for a 3 bdrm house is - well, just eyeballing several dozen listing, looks like a bit higher than $2,500/mo.

[Bill Douglas]

I see it as a snapshot in time. Right now renting and owning are much the same. Rents (generally) go up over time whereas mortgage payments stay much the same.

[Taz's Master]

Originally Posted by jyl

Back of envelope own vs rent math in Portland:

Own: median house price $400,000, at 5% 30 year, mortgage + property tax is roughtly $2,500/month.

Rent: median rent for a 3 bdrm house is - well, just eyeballing several dozen listing, looks like a bit higher than $2,500/mo.

How long do you plan to live there? How much equity will you build over a decade in your apartment? How long will your rents equal today's mortgage + property taxes? You can get burnt either way, but when the monthly payments are a wash, every dollar of principle you pay down and every dollar of the home's value increase is improving your personal equity.

[Alan A]

Originally Posted by Taz's Master

How long do you plan to live there? How much equity will you build over a decade in your apartment? How long will your rents equal today's mortgage + property taxes? You can get burnt either way, but when the monthly payments are a wash, every dollar of principle you pay down and every dollar of the home's value increase is improving your personal equity.

Until prices crash.
These are people who saw what happened on 07-8 and don't want to get hit the same way. Renting allows them to walk away.

[Taz's Master]

Originally Posted by Alan A

Until prices crash.
These are people who saw what happened on 07-8 and don't want to get hit the same way. Renting allows them to walk away.

I'd say that the financial system is pretty messed up. The stock market value seems to be based more on speculation rather than sound fundamental economic principles, I see the US approaching a point where the GDP won't pay the interest on its debt, real estate does produce bubbles and so forth. But, what are historic prices for the area, how far do you expect prices to crash, where do you expect interest rates to go, and when(if) the RE market crashes will you have access to the funds necessary to purchase? All questions to consider. I bought and rebuilt what might have been a tear-down, which when I sold it provided the down-payment for a house that I bought and lived in for a year and sold (not recommended) as the RE market crashed and didn't lose any $, and built my current home. I didn't use a realtor for the second sale, and I've done the work myself, was the general contractor and carpenter for the restoration and build. I have done just fine with my real estate investments without any special skills or knowledge. Don't spend more than you can afford, buy something you want to own and are willing to live in and hold on to, and you'll be fine financially. If you want the flexibility to relocate at your whim, your home isn't where you should be focusing on building equity.

[Noah930]

Originally Posted by jyl

Back of envelope own vs rent math in Portland:

Own: median house price $400,000, at 5% 30 year, mortgage + property tax is roughtly $2,500/month.

Rent: median rent for a 3 bdrm house is - well, just eyeballing several dozen listing, looks like a bit higher than $2,500/mo.

One comment: the challenge of the down payment. It's not easy to save $80K for that 20% down payment on a $400K house. (Ok, Ok, I know there are ways to put less down--but just let me use traditional house buying criteria for this example.) In LA or the Bay Area, a house in a nice neighborhood will be 2-3x that $400K value. It's hard to save $160-240K for a down payment! It's not the mortgage note that is difficult to pay. It's the down payment that's impossible for many to come by.

[Noah930]

Originally Posted by Taz's Master

If you want the flexibility to relocate at your whim, your home isn't where you should be focusing on building equity.

That was my take-home message (pardon the pun) of the article. These people have chosen lifestyle over finances.

[Crowbob]

I had my very modest house newly-built. Made a deal with the contractor/zoning/building code people/etc. to build the smallest house I could realistically enjoy living in and only as minimally complete as possible to allow final occupancy while specifying the use of mostly lower grade materials (inexpensive flooring, carpeting, cabinetry, etc) but super-insulated and structurally robust.

Upper level was unfinished as was the basement; zero landscaping, no decks, and no garage. Over the following 20 years or so I had continuous projects finishing, upgrading and improving the house paying cash along the way.

Bottom line, per current RE prices, I've tripled the value with zero debt. In the current environment it would cost me double at minimum just to rent a comparable place even if there were such a place available.

Many times over the years I've said I'd never do it again. Now, however, my necessities cost under $2k/mo. and that includes utilities, taxes, insurance, food and healthcare.

Looking back, I've actually had a second career in home improvement.

[Noah930]

Originally Posted by Crowbob

Many times over the years I've said I'd never do it again. Now, however, my necessities cost under $2k/mo. and that includes utilities, taxes, insurance, food and healthcare.

Off topic, but regarding your comment above: my family health insurance, alone, is $2000 per month!

Back on topic: Your life experience seems to run absolutely opposite that of the people in the OP's article.

[KNS]

Nobody has mentioned reaching retirement age. Getting your house paid off is wonderful thing and gives you that "bit more secure" feeling, not to mention freeing up disposable income. If you haven't paid off early hopefully you will by the time you reach retirement.

If you're always renting you may end up renting all the way to the grave. Rent prices go up, mortgage payments generally do not.

[Crowbob]

But rent is rent.

Home ownership is also taxes, insurance, maintenance, security issues, etc. and those costs are enormous over the life of a mortgage and continue indefinitely even after discharging the mortgage.

If anything, the housing crash should have brought home the idea that home ownership is not what we thought it was.

The mortgage v rent calculation involves much more than simple numbers.