patrick.net

Maybe because they'd rather have a 30 year mortgage than a lifetime of rent payments?

Was that difficult?

Get a 15year, even better outcome. You may break even on your mortgage over renting depending on the area, but after 15 years, you pay no rent for 65 or more years of your life. With the money saved, you could buy your home 4 times over.

You can pretend to disagree, but you wouldn't be on the forum if you weren't someday interested in buying a home. It's a rhetorical question but we all know your intentions are to short the market so you can buy low, only it's a low volume site.

I think the vast majority of the general public have simply not done the math when it comes to this decision. They don't understand the hidden costs of owning a home (both $ and time), in addition they don't understand that you do not gain wealth through deductions.

The other aspect is the social one. For some reason people feel that at certain life events they have to own a home. They think that part of that marriage license is an obligation to buy a home, or that a baby simply cannot be raised properly in a rented home.

However to come out ahead by deciding not to buy, you have to be very disciplined with your finances to truely use the opportunity cost scenarios. 99% of the public is not disciplined with many aspects of their lives and especially their finances.

Because owning a home is not considered a DREAM anywhere except America. I suppose NAR has to do something with that DREAM.

bubblesitter says

Because owning a home is not considered a DREAM anywhere except America. I suppose NAR has to do something with that DREAM.

That's BS. I have been to many places and lived in a few different cities for long times...its pretty much the same shit everywhere.
It wasn't NAR's invention that people love to own. It's the other way around. They cater to a need that is innately there.

Rent4Ever says

I think the vast majority of the general public have simply not done the math when it comes to this decision. They don't understand the hidden costs of owning a home (both $ and time), in addition they don't understand that you do not gain wealth through deductions.

On the contrary, I'd argue that you don't really understand the hidden payoffs of owning a home. Of course you gain wealth by deductions. A dollar not spent is the same as a dollar earned. Both equate to $1 saved.

In the end, it boils down to making sure the rent vs. own calculation is in your favor. The last study I saw showed that in 98 out of 100 cities, it was now cheaper to own. Of course I know the majority of people here livin in SF, and SF was one of the 2 cities where it's still cheaper to rent. (Honolulu is the other).

Call it Crazy says

I don't think blanket statements hold up because all the variables in markets, houses, etc.

Of course. That doesn't mean EVERY house is cheaper to own in EVERY city. It means on average, it is cheaper to own.

Call it Crazy says

There are many more "hidden" costs in owning versus renting

Most people know what those costs are so they're not hidden.

Also, why does everybody only think its worth buying a house when its massively cheaper than to rent??

I know plenty of people that are willing to pay a little more to own a house than to rent. If there was no benefit whatsoever to owning, then nobody would own.

But we are all aware of the renter lifestyle. IF you have a family with kids and want to settle in a specific location where kids grow up and go to school, then renting simply sucks. Having to move every 2-3 years is a hassle and costs money.

How about the "hidden" cost of renting? Like having to move all of a sudden because you are on a month to month and the landlord wants to sell. Moving costs money, everytime. Furniture never works the same in different places. Everytime we moved from one house to another we ended up spending money on making the new "renter" house livable again. If you like it nice, then you know what I am talking about.

I lucked out in the way that I was totally willing to pay a bit more to own but then rates kept dropping and dropping so we refyed only a half a year after we bought, a whole point lower and now I am paying less to own a much bigger and nicer house than the houses we used to rent. Ok, that was luck but I would have been perfectly fine to pay a little more even. Now, that difference is getting saved every month. TchaTching :)

snyderkv says

Maybe because they'd rather have a 30 year mortgage than a lifetime of rent payments?

Was that difficult?

Get a 15year, even better outcome. You may break even on your mortgage over renting depending on the area, but after 15 years, you pay no rent for 65 or more years of your life. With the money saved, you could buy your home 4 times over.

You can pretend to disagree, but you wouldn't be on the forum if you weren't someday interested in buying a home. It's a rhetorical question but we all know your intentions are to short the market so you can buy low, only it's a low volume site.

Well I am interested in owning if things are at the right price, but thats not really what I'm talking about here.

I'm talking about people that MUST own no matter what. If they can't afford in an area they want, they expand the search to outlying areas. Even leading into areas that they know are less safe than they'd reasonably accept or homes they really don't want to live in. And they know it, but their desperation to own leads them to look into areas where they really don't want to live.

And the real truth is that they should stay where they are happy and continue to rent. But no one wants to tell them that because of the lame institutionalized push to purchase. So instead they get told they're worthless idiots who flush money down the drain every month they pay rent.

Thats what I'm talking about...sheer and utter desperation to obtain a mortgage.

dodgerfanjohn says

Thats what I'm talking about...sheer and utter desperation to obtain a mortgage.

That goes for a lot of things. Some people have sheer desperation to drive a brand new car so they lease one in order to afford it.

My thing is, whatever makes you happy. If somebody feels better to own in a cheaper not so nice area then renting in a nicer neighborhood, they should go for it. We are all different in our priorities. For example, I have never cared about watches. Still don't. But there are millions of people that are crazy about expensive watches. Hey, let them.

I also know somebody that squeezed himself into as many possible mortgages as he could over the course of 40 years. Well, he is retired now and collecting rent on 6 properties and living in 1 property. All of them payed off at this point. I also know a different person that tried to to the same...lived as frugal as he could, put every penny into the homes he owned with the same goal of retiring and collecting but he got cancer with 52 and died.

Who knows how to live life right? Nobody. It's a complex equation, in hindsight you are always smarter. That's also why it makes no sense to overanalyze everything because it comes different anyways.

I try to live with some sort of balance. Save money for rainy days. A portion of income goes to bills, a portion to savings and a portion for wasteful spending called having fun and living life.

thomas.wong1986 says

dodgerfanjohn says

I notice many postings in online forums from people who are "frustrated" at being unable to mortgage a home in Southern California.

Maybe they will realize prices will need to down lower...

Its interesting they dont know how to price and negotiate on buying a home...

Time and again, we've discussed this.

Our demographics are changing. Our tax system is going to change.

There will be places in the US where normal, middle class people will not be able to own a home. Certain parts of northern and southern coastal California probably fall into that category. I would also put the New York and Boston suburbs into that category. I understand suburban Raleigh is getting expensive due to the increasingly high percentage of biotech and medical research folks locating to the Triangle area. Atlanta started getting bubbly about twenty years ago. Charlotte is still affordable but people are flooding like crazy into the Carolinas so eventually, it'll change as well.

Columbus, Cincinnati and Pittsburgh are still affordable because there are no jobs there unless you're a doctor, nurse or other medical professional. If your job doesn't involve taking care of the elderly or managing their affairs, forget those areas. It's all they have.

Michael Bloomberg, Judd Gregg and Peter Schiff are each being proven right!

We've known this was coming for thirty years. We were told in high school, it's going to be an expensive world so get as much education as you can. That was good advice.

There are no surprises here.

Your argument is not compelling. There are safe areas of Los Angeles that have schools through high school rated 6 or 7 with API in the mid to high 700's and honors/advanced courses that are not shorting anyone on education that feature homes under $300K. West Covina, Covina, Whittier. Hour max rush hour drive to job centers in Industry, Pasadena, Long Beach, and Dowtown. Neighborhoods might be too brown for some, but then isn't that So Cal?

dodgerfanjohn says

Your argument is not compelling. There are safe areas of Los Angeles that have schools through high school rated 6 or 7 with API in the mid to high 700's and honors/advanced courses that are not shorting anyone on education that feature homes under $300K. West Covina, Covina, Whittier. Hour max rush hour drive to job centers in Industry, Pasadena, Long Beach, and Dowtown. Neighborhoods might be too brown for some, but then isn't that So Cal?

I just looked, and there's a lot of nice stuff in Valencia. I'd live there again. We loved it. The place was good to us.

I am a natural-born saver. My ex-husband was the ultimate spendthrift. I wanted to own a house (in the 1980s) (1) because it symbolized adulthood and responsibility; (2) because my childhood was blighted by my parents' repeated ill-timed moves -- I wanted my children to have stable friendships all the way through high school; (3) prices were rising rapidly, so I wanted to lock in something before we were completely priced out of the market; (4) I wanted the "forced savings plan" because my husband always made payments on time, but never saved ANY money. (5) I hated living in apartments, and rented houses were always an issue -- you never knew what the REAL intentions of the owners were. (6) I wanted to be able to decorate a place the way I wanted, and have a yard and flower beds. (7) I was sick of endlessly moving, and thought that if we OWNED a place the endless moving would stop.

Eventually, we bought a nice house using family money as a down payment. My spendthrift husband sucked all the equity out of the house and we sold it. We never lived anywhere that nice again, and divorced a few years later.

I'm living in an apartment at present (in a lower-cost area of the country) and I plan to start looking for a house to buy this fall. I think that there will be massive inflation in the next few years, and that I will be able to pay off a house with "cheap money." But I am not unhappy with where I am at present, and I have plenty of time to pick and choose.

For a couple to live in rented accommodation for years while waiting for the bubble to completely burst and for good deals to come available, there has to be a high level of trust that when the time is right, that BOTH people will be fully on board with buying. In my marriage, that level of trust did not exist. Home ownership meant nothing to my husband, who was the ultimate "rolling stone." He spent all of his money on himself, and he spent all of my money on himself, and he ran up huge credit card balances (exceeding his gross income at one point) that left me enslaved to his minimum monthly payment schedule. And every year our rent went up by an amount of money that greatly exceeded the raise/cost of living adjustment that I got at work.

I think that it is hard to figure out other people's circumstances sometimes. If you are a logical, responsible person married to someone who isn't then you can get desperate.

Laura, I agree with you.

Here again, you'll always be able to sell a house that's in an area where people want to live versus being in an area where people just "end up".

Be careful. That's all I'm saying.

We collectively all just bought houses we don't live in and we do have 30 years of debt. Most of us just don't know it yet. The people hoarding the property bought it with our money, effectively lowering our purchasing power so we have to rent from them instead of holding title ourselves. It was the crime of the century and very well orchestrated.

Well having savings is prudent and I believe in at least 20% down payment before buying real estate. California is overpriced and I am only here because of a good job. Otherwise, I'd rather be living in south Florida with lower cost of living and closer to the Caribbean for scuba diving but for now, I am here in bay area.

rootvg says

Columbus, Cincinnati and Pittsburgh are still affordable because there are no jobs there unless you're a doctor, nurse or other medical professional. If your job doesn't involve taking care of the elderly or managing their affairs, forget those areas. It's all they have.

You are quite right, sadly! I've often joked that if it weren't for old people having heart-attacks, we wouldn't have an economy here in the Rust Belt at all!

What am I missing here? I bought a place. After tax credits, incentives, etc., I put down 40K. My mortgage, taxes, insurance, HOA dues are $300 less than the rent would be on this place. And, if you consider that I can write off the interest and prop taxes maybe $400 less. Over time (let's say 10 years), the rent will likely increase but my payments won't much, increasing the spread in my favor. I believe we're in for a long slow slog in RE, but, in 20 years, I simply can't believe that prices won't be higher. We got nowhere near Japan in terms of overvaluation. By the time I sell in 20 years, I will pretty much have this place paid of and rents will be MUCH higher than my mortgage. Therefore, I will pocket almost the entire selling price of my place.

I think there's a bit of hysteria and throwing out the baby with the bathwater mentality. If you buy at a truly reasonable price and live in the place (or rent it out) for a good chunk of time I think, in the end, you will be pleased.

It worked out well for my mother, my grandmother, my sisters, etc. As long as you don't overpay (or not by too much) I don't see why it wouldn't for you, arguments about the "new paradigm" aside.

marquismark says

It worked out well for my mother, my grandmother, my sisters, etc. As long as you don't overpay (or not by too much) I don't see why it wouldn't for you, arguments about the "new paradigm" aside.

Where are you? That will have a lot to do with that issue.

Los Angeles (mid City)

tatupu70 says

Rent4Ever says

I think the vast majority of the general public have simply not done the math when it comes to this decision. They don't understand the hidden costs of owning a home (both $ and time), in addition they don't understand that you do not gain wealth through deductions.

On the contrary, I'd argue that you don't really understand the hidden payoffs of owning a home. Of course you gain wealth by deductions. A dollar not spent is the same as a dollar earned. Both equate to $1 saved.

In the end, it boils down to making sure the rent vs. own calculation is in your favor. The last study I saw showed that in 98 out of 100 cities, it was now cheaper to own. Of course I know the majority of people here livin in SF, and SF was one of the 2 cities where it's still cheaper to rent. (Honolulu is the other).

So you should definitely try to maximize deductions to gain wealth? How's that working out for you? Ha ha, what a joke.

The bottom line is, I have never heard a solid argument that can explain to me why homeownership is even something worth considering, unless the homes total value represents less than 10% of your overall networth. I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation. Not to mention having 70-90% of my networth in ONE asset is absolutely insane.

I'm the only one of my friends to have taken this route. They are all upside down, stuck in their homes, lost all their downpayment, have spent thousands updating the homes, taxes, insurance, etc with nothing to show for it. I am liquid and way ahead of the game.

E-man says

Laura,

Another great post by you. Thx for sharing.

John,

I'm disappointed that you keep on believing and posting this non-sense. Why such a complete desperation to mortgage a home they can't afford? WTH are you talking about? Have you gotten a mortgage lately, or even try to get one in the past 3.5 year? You still believe banks are still lending out money to those unqualified like the boom years? It's hell if one is self-employed.

I suggest you keep quiet and maybe then, you'd learn something new. I'm just a bit disappointed that our government would hire someone this uninformed to work for them. Maybe this explains why CA is having a huge budget deficit and the country as a whole.

Maybe major Chuck Reed is correct that CA is ungovernable. :(

Learn from your victory. Prosper from your failure.

Happy April Fools :)

AnotherLaura says

I'm living in an apartment at present (in a lower-cost area of the country) and I plan to start looking for a house to buy this fall. I think that there will be massive inflation in the next few years, and that I will be able to pay off a house with "cheap money." But I am not unhappy with where I am at present, and I have plenty of time to pick and choose.

There wont be massive inflation. And for someone like me in a government job, we get screwed the most in an inflationary situation as our pay raises will lag several years. But theres not going to be massive inflation.

marquismark says

I think there's a bit of hysteria and throwing out the baby with the bathwater mentality. If you buy at a truly reasonable price and live in the place (or rent it out) for a good chunk of time I think, in the end, you will be pleased.

Correct. No one is criticizing buying a house that you really want in an area you want to live in and a situation where you can reasonably afford it.

SJ says

Well having savings is prudent and I believe in at least 20% down payment before buying real estate. California is overpriced and I am only here because of a good job. Otherwise, I'd rather be living in south Florida with lower cost of living and closer to the Caribbean for scuba diving but for now, I am here in bay area.

Correct. If 20% minimum down payment was required for a mortgage, the housing market in high priced locations would crumble to the ground. Evidence is the sick substantial discounts for even cosmetic fixers. 3.5% down people don't even have the money to paint the walls and fix the floors. But they have the access to loans to pay a 25%+ premium to mortgage lipstick on a pig.

taxee says

We collectively all just bought houses we don't live in and we do have 30 years of debt. Most of us just don't know it yet. The people hoarding the property bought it with our money, effectively lowering our purchasing power so we have to rent from them instead of holding title ourselves. It was the crime of the century and very well orchestrated.

The landlords situation has nothing to do with you. DUCY?

BTW, your critical thinking skills are terrible. Either that or you are a realtor. Or both.

SubOink says

Who knows how to live life right? Nobody. It's a complex equation, in hindsight you are always smarter. That's also why it makes no sense to overanalyze everything because it comes different anyways.

Requiring 20% downpayment would not allow people to make such important decisions so lightly.

Rent4Ever says

So you should definitely try to maximize deductions to gain wealth? How's that working out for you? Ha ha, what a joke.

No, but you need to count deductions in your rent vs. buy decision. I thought that was obvious.

Rent4Ever says

I'm the only one of my friends to have taken this route. They are all upside down, stuck in their homes, lost all their downpayment, have spent thousands updating the homes, taxes, insurance, etc with nothing to show for it. I am liquid and way ahead of the game.

You need to get some new friends then. All of my friends that bought are WAY ahead right now. Looking at rent vs. buy will ensure that you don't buy into a bubble.... And as long as you don't, you'll come out ahead in the medium and long term.

Rent4Ever says

you should definitely try to maximize deductions to gain wealth?

A problem with this is that it assumes one will be in a high tax bracket for the duration. For most taxpayers, an extended period of unemployment will bring their bracket down so that less of the interest (and property tax) payment is deductible. Means more money out of pocket.
It's another card in that "house" of cards.

Rent4Ever says

I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation.

Yes, but you can't live in your portfolio...

B.A.C.A.H. says

For most taxpayers, an extended period of unemployment will bring their bracket down so that less of the interest (and property tax) payment is deductible.

So, you base your financial decisions on a forecast of being unemployed for extended period?

I would think being unemployed for a significant amount of time makes all planning irrelevant.

tatupu70 says

being unemployed for a significant amount of time makes all planning irrelevant.

I don't agree. One can build dealing with that contingency into their overall planning.

Doing so is one reason that my partner and I don't quiver and quake at every scowl our bosses make. On the other hand we see, too often, folks with high living costs relative to their nest egg, get stressed out. Some people don't deal with stress too well.
http://chitralekhan.wordpress.com/2008/11/16/companies-blog-about-their-layoffs-laid-off-employee-driven-to-killing-ceo/

B.A.C.A.H. says

I don't agree. One can build dealing with that contingency into their overall planning.

I agree, but I certainly wouldn't make tax decisions with the assumption that I will be laid off for an extended period. Unless you think the probability is high....

Make sure you have a sufficient nest egg to account for that possibility, yes. Use it as an excuse to never buy a house, no.

tatupu70 says

I agree, but I certainly wouldn't make tax decisions with the assumption that I will be laid off for an extended period. Unless you think the probability is high....

I don't disagree with you on that one. However, nor would I suggest to others that they "lockin" their expected cost of living as depending on the highest tax brackets to make it all work.

tatupu70 says

Make sure you have a sufficient nest egg to account for that possibility, yes. Use it as an excuse to never buy a house, no.

"excuse"? That insinuates it is normal and expected for everyone to buy a house (even if it involves/requiring borrowing with tax deductible interest payments), unless they are excused with a permissible excuse. (Are you a Realtor®?)

Owning/buying a house may be best for you but it is not for everyone. Not everyone needs

an excuse to never buy a house

dodgerfanjohn says

SubOink says

Who knows how to live life right? Nobody. It's a complex equation, in hindsight you are always smarter. That's also why it makes no sense to overanalyze everything because it comes different anyways.

Requiring 20% downpayment would not allow people to make such important decisions so lightly.

agreed.

SubOink says

dodgerfanjohn says

SubOink says

Who knows how to live life right? Nobody. It's a complex equation, in hindsight you are always smarter. That's also why it makes no sense to overanalyze everything because it comes different anyways.

Requiring 20% downpayment would not allow people to make such important decisions so lightly.

agreed.

20% seems like the bare minimum people should need in order to be even considering buying. If it was my island, I'd have it at 50% or higher. That'll wipe out the hint of any foreclosures. People need skin in the game, otherwise it is really just a virtual game. Dumb people running important decisions if you ask me. All for the sack of fake wealth.

marquismark says

Rent4Ever says

I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation.

Yes, but you can't live in your portfolio...

But you can take the dividends you are receiving and pay some underwater home owner rent, so he can relocate to his new job.

RentingForHalfTheCost says

marquismark says

Rent4Ever says

I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation.

Yes, but you can't live in your portfolio...

But you can take the dividends you are receiving and pay some underwater home owner rent, so he can relocate to his new job.

Yes...but you probably can't do it and be married. Few women would put up with it.

I would also caution you that we won't always be in a down economy, either. California has been known since inception for its booms and busts.

RentingForHalfTheCost says

But you can take the dividends you are receiving and pay some underwater home owner rent, so he can relocate to his new job.

Actually, there is no way in hell you could do that. The math doesn't even come close to adding up.