patrick.net

LOL. Analysis from zillow?

It is the new mantra. Media outlets all over are publishing things along these lines because it is a new and exciting change from the last few years. New and exciting makes them money.

The truth is somewhere in the middle. It is better to buy then rent in some places. Not so in others. It doesn't matter though, the media outlets provide marginally-relevant infotainment, not news.

phantom says

Is this for real?

Try getting a mortgage on a shack and you will know the reality!

Property taxes. Insurance. Hoa. New roofs and stoves that occasionally need to be replaced, at ever higher prices. Getting stuck in one location while your job may move miles away, costing you more in gas. Getting stuck when your neighbor moves and the new one has five kids who like robbing you. Potentially having some kid trip on the waterhose you left on the front lawn and getting sued for a million. Having code enforcement always coming around, potentially costing you thousands. Natural disasters. Time lost mowing the grass, buying gas for the mower, as well as upkeep on that mower. Landscaping. Fertilizer. Water pipe breaks and you get a $500 utility bill. Realtor commisions and closing costs to buy your home, and later sell it...etc..etc... If you rent, your landlord bears these costs and risks.

I wonder if Zillow also factored in inflation. Owning a home gets more expensive all of the time thanks to government. If you look at the burdens a landlord has, it is surprising rents are as cheap as they are.....

Cheeseus, it should be noted that the vast majority of your negative points about owning only apply to single family homes in the suburbs. If you live in an apartment in the city, all the gas and lawn-related stuff vanish. Even the neighbor stuff becomes unlikely if you live in a co-op with a strict board that keeps such riff-raff out. If all those hassles are so terrible -- and I'm sure they are -- why not live in the big city instead?

Cheeseus Sonofdog says

Property taxes. Insurance. Hoa. New roofs and stoves that occasionally need to be replaced, at ever higher prices. Getting stuck in one location while your job may move miles away, costing you more in gas. Getting stuck when your neighbor moves and the new one has five kids who like robbing you. Potentially having some kid trip on the waterhose you left on the front lawn and getting sued for a million. Having code enforcement always coming around, potentially costing you thousands. Natural disasters. Time lost mowing the grass, buying gas for the mower, as well as upkeep on that mower. Landscaping. Fertilizer. Water pipe breaks and you get a $500 utility bill. Realtor commisions and closing costs to buy your home, and later sell it...etc..etc...

So whats the answer then? Rent forever?

Hmm ... well, I'd paid off my $250K house in western MA with my hedge fund work this past year. Thus, if I ever need to move to TX for work, that's my swap property.

If I were to buy in let's say Boston (or eastern MA), that would be a $650K home and with my $250K down, it would be a ~$400K loan. The last time I ran the amortization calculator, that would make it ~$100K+ interest paid in 4.3 years, and only lowering my principal down to $378K. Hmm ... I'm only ~$22K or ~5+% into owning my place. And given the quality of homes in greater Boston, I can easily see spending $10K to $25K in repairs, just to make the place decent. And so how does this beat renting?

In Miami, for example, a homebuyer would only have to stay in their home for about 1.6 years for the purchase to pay off, Zillow said.

What does that even mean?

I think the economics paradigm is all about mental justification through assertion and debate.

And prices continue to fall in the meantime.

Rent goes up. No one ever seems to figure that into the equation.
For a 3 bedroom 2 bath house in the SF Bay Area, our rent (in various places) more than tripled in 25 years. If it tripled again over another 25 years, we would be eating dog food in retirement.
We just bought a house, and our payments (including tax and insurance) are LESS than rent would be for comparable places in the neighborhood. The best part is that we've locked in a payment. And after 30 years, there will be no more payment (except for the taxes and insurance).
My answers to Cheeseus Sonofdog's concerns about owning a house:
Property taxes and insurance: Included in house payment that is less than rent.
HOA: None.
New roof and stove: Came with the house. It will be a long time before these go out.
Stuck in one location: Much preferred to landlord selling the house out from under you (happened to us twice).
Bad neighbors moving in: Not too much of a problem in a rural location, because there aren't very many neighbors (you can only see ONE other house from our house).
Legal liability: That's what an umbrella policy is for.
Code enforcement: Not happening in the Santa Cruz mountains.
Natural disasters: That's what homeowner's insurance is for.
Landscaping and grass mowing: None. We live in the forest.
Water pipe breaks: It could happen. My husband knows how to fix just about anything.
Realtor commissions and closing costs: Not too bad, and we only had to put 5% down.

Rental rates are falling kiddo.

robynfrog says

Rent goes up. No one ever seems to figure that into the equation.

Wherever I work in eastern MA, RI, or CT, my rent has been pretty flat now for a number of years. I also get to expense some of it for business. The house in western MA is completely paid off and thus, I don't worry about a place to live in for retirement. From my p.o.v., not renting in retirement is the biggest concern in the debate but during one's active earning years, being able to move for jobs, consulting work, etc, is more important.

Have been renting for 12 years in San Francisco now (first 4 years with roommates) and only had one rent increase of $42 in all those years. I stayed 2 years, 2 years, 5 years, 2 years, and currently 6 months. At my first place the rent dropped from 2001 to 2002 by $300 from $900 to $600. Only one of the places (for 2 years) had rent control, ironically that was also the only place which ever increased my rent.

robynfrog says

For a 3 bedroom 2 bath house in the SF Bay Area, our rent (in various places) more than tripled in 25 years. If it tripled again over another 25 years, we would be eating dog food in retirement.
We just bought a house, and our payments (including tax and insurance) are LESS than rent would be for comparable places in the neighborhood.

For any bull market, if one gets in early enough, then it tends to work out. Thus, to get into the Cali or NE corridor bubble cities, that time was 2002 or earlier. I have a friend, who moved from NYC metro to Boston and took a $150K haircut, since he'd bought in '06 and then, had to move in 4 yrs for work.

In a similar vein, those who'd bought gold in 2003 ($350-$400/oz), aren't worried about a correction but those who'd gotten in, post $1.1K/oz, can't say the same. I haven't added any to my portfolio, since the markets went haywire in '09.

Rin says

For any bull market, if one gets in early enough, then it tends to work out. Thus, to get into the Cali or NE corridor bubble cities, that time was 2002 or earlier.

Yes, 2002 or earlier would have been nice. But we didn't have the money at that time.
What I'm saying is that we JUST bought a house, as in November of 2011.

Funny how one letter can change the whole meaning

bmwman91 says

It is better to buy then rent in some places.

It is better to buy than rent in some places.

robynfrog says

Rin says

For any bull market, if one gets in early enough, then it tends to work out. Thus, to get into the Cali or NE corridor bubble cities, that time was 2002 or earlier.

Yes, 2002 or earlier would have been nice. But we didn't have the money at that time.

What I'm saying is that we JUST bought a house, as in November of 2011.

Per Case Shiller, prices now are comparable to ~2002-2003 prices. You probably purchased at the new bottom but of course we will not know for sure as the view from the rear view mirror is still too close. In any case, you will do just fine, that is if you plan to stay there for awhile which I assume to be the case.

I always use the NYT rent vs buy calculator and adjust all the advanced parameters accordingly. It factors in many things such as opportunity costs of your down payment, deductions for property/tax interest for your tax rate, rental deposit, estimate annual maintenance, assumed inflation rate, estimate property appreciation/depreciation, estimated rental increases/decreases, inflation, HOA fees, realtor %'s etc

You still need to make your own assumptions about where you feel property values will be in however many years, but no one has a crystal ball. Its still a great tool to breakdown your total costs on a year by year basis - rent and owning side by side. You can look at the total costs of both, which factors in all of the above variables, in each individual year.

The way prices are in CA, out here it beats it after about 40 years.... maybe. But who knows how it is elsewhere. Just look at Patrick's calculator or one from NY times.

Which is the reason why I'm so bearish on RE in certain areas, they look like a worst place to throw money at.

APOCALYPSEFUCK is Shostakovich says

If you can't pay cash, you should not buy, person to person, no brokers involved.

Huh? So if you can't buy cash it's OK to buy with brokers? Or not person to person???

Cheeseus Sonofdog says

If you rent, your landlord bears these costs and risks.

Yet still manages to come out ahead in the long run, usually. So all these costs are factored in, and you as the renter are paying them, just not all at one, but rather spread out into monthly payments.

Cheeseus Sonofdog says

Getting stuck when your neighbor moves and the new one has five kids who like robbing you.

Having been a frequent watcher of COPS, one thing I noticed is that if you got rid of renters, there would be about 95% less crime. The cops were always going to visit apartment buildings and trailer parks. On the rare occasion they went to visit SFHs, it was often oddball stuff like an alligator in the yard.

Rin says

And so how does this beat renting?

A friend's apartment building is being foreclosed on. It's not clear who owns the building, who to pay the rent to, and the new owner(s) seem to want all the tenants out. All of the tenants there have been living in uncertainty for months, and will continue to do so for more months to come, at least. One tenant decided to move out. Another is paying the rent. Another is staying and not paying, but was served with eviction papers. Etc.

Meanwhile, I'm picking my ideal paint color on my bathroom wall remodel (which would never be allowed by a landlord, because it's not off white).

Yeah, but I'm renting now, for less than my former mortgage. I have another two years before I'll be eligible to apply for a mortgage (I did a short sale last year). I live in the Denver area. So, I'm still ok even if these figures are true. I miss the mortgage deduction, though.

barbaraG says

I miss the mortgage deduction, though.

Mortgage deduction is like wealth effect. Spending a dollar to save a nickel.

I also miss the relative freedom of owning. Not having to get permission for as many things. It's relative, I know. I also had a rental property unexpectedly sold out from under me in 1999, so there's that too.

bubblesitter says

LOL. Analysis from zillow?

DO YOUR MATH

ROFL LMFAO OMG so true.

APOCALYPSEFUCK is Shostakovich says

If you can't pay cash, you should not buy, person to person, no brokers involved. They can suck dick at truck stops like real professionals.

Oh fuck yeah that's the entire scam they WANT your cash. Credit few have today but some have available cash and they will pull any ploy to grab it.

bmwman91 says

Media outlets all over are publishing things along these lines because it is a new and exciting change from the last few years. New and exciting makes them money.

Oh yes the simpleminded buy any kind of loud, bright bullshite. They should add on FREE, EASY, ENGAGING, LIKE US ON FACEBOOK, FOLLOW US ON TWITTER, SAVE, SALE, PROMO CODE.

All the keywords that drive in the suckers like moths to a flame.

If your mortgage deduction is greater than your standard deduction, that means you paid too much for your house.

It was scary to learn that my landlord had listed the house without warning me. I had 4 kids and an elderly mother, and all their pets. So-so income due to having gotten a late start on my career), only so-so credit, no savings (see: 4 kids), and it was just awful. But then, last year, I had to short-sell my house due to a 2010 layoff (I kept paying as long as I could, but eventually I had to just do the math). So that felt awful too. Overall I'd rather own because it takes longer to be forced out and you can do more things wiithout asking somebody's permission. I think it all depends on where you are and what you need.

Interesting article. It stated that it takes an average of about about 8.8 years to break even in the San Francisco Bay Area, but over 14 years for Menlo Park.

@Patrick, I'm curious. Have you run a comparable rent vs. buy analysis for your own situation? Had you bought in 1998 or 1999, when would your break even year be? 2012-2013? My guess would be sooner than that because of this last RE cycle as well as the steady decline in interest rate.

If an individual bought a property today, I guess they would break even by 2026. The real question is where will interest rate be by then? We are living in an exciting period of history. :)

Darrell In Phoenix says

barbaraG says

you can do more things wiithout asking somebody's permission

Like paint the walls any color you want?

Or remodel the kitchen or bathrooms. Sorry, it wasn't your house. Scratch those off the list.

Darrell In Phoenix says

barbaraG says

you can do more things wiithout asking somebody's permission

Like paint the walls any color you want?

We do that anyway. Our landlord is coolz. We even change light fixtures and hardware to represent our more tasteful decorating scheme. Change it back when we move out.

Darrell In Phoenix says

E-man says

Or remodel the kitchen or bathrooms.

Why go to that expense when it's the landlord problem?

Our landlord did exactly this when we moved in. Medium grade cabinets/appliances, high grade granite counter and glass tile. The bathroom was redone in 1930's period-perfect materials.

We looked at houses here in LA a couple months ago. With taxes, insurance, HOA, it was going to run us $1800 more/month and our rent hasn't increased in 4 years now. Just going to keep socking that money away and let the "investors" and "rich foreigners" keep buying up these $1mill crap shacks.

E-man says

Patrick, I'm curious. Have you run a comparable rent vs. buy analysis for your own situation? Had you bought in 1998 or 1999, when would your break even year be? 2012-2013?

Sure, I run it all the time and the answer is never.

I would never break even by owning. Renting is by far the better deal, because my rent is low compared to the likely sale price of the house.

My rent is about equal the cost of property tax and maintenance, so owning would gain me nothing but the risk of losing equity and the loss of alternative investment income -- not to mention the loss of my freedom to work on this site full time.

Even if I had bought in 1998 or 1999, it still would have been a very bad deal, because I did better in the stock market than I would have done with the house.

My rent is about equal the cost of property tax and maintenance

I'm stunned. Are you comparing average rentals to average houses in your area?

How does your landlord make any money?

You're definitely getting a good deal by renting.

E-man says

Or remodel the kitchen or bathrooms. Sorry, it wasn't your house. Scratch those off the list.

Or just rent an apartment that has a kitchen and bathroom you like as-is.

My rent is about equal the cost of property tax and maintenance

If your rent is that low, why would you even think about moving? How far below market is it?

freak80 says

I'm stunned. Are you comparing average rentals to average houses in your area?
How does your landlord make any money?
You're definitely getting a good deal by renting.

This has been my experience in San Francisco too. It's just way cheaper to rent. Plain and simple. Doesn't even take a lot of calculations, though I've done plenty.

The part of this discussion that is often missing is the budget aspect. If you budget(I know, who really does that crazy stuff!) to keep your housing costs below 25% of your net income, then a lot of the discussion on this thread is irrelevant.

JG1 says

Having been a frequent watcher of COPS, one thing I noticed is that if you got rid of renters, there would be about 95% less crime. The cops were always going to visit apartment buildings and trailer parks. On the rare occasion they went to visit SFHs, it was often oddball stuff like an alligator in the yard.

Funniest post on pat.net EVER. (disclaimer:I've not read them all, but there's some really funny writers here.)