patrick.net

Coogan99 says

But to answer the question: 15 year period ending today.
Assume you had a 30yr mortgage @ 8.4% 1994 to 2001
refi #1 7.0% 2001 to 2005
refi #2 5.6% 2005 to today

I think you could do better for most of that time period, but no big deal.

Coogan99 says

Case Schiller is up from 78 -> 125 = 3.2% annual home price appreciation
S&P 500 annualized 1994-2010 6.58%, lets call this opportunity cost
http://en.wikipedia.org/wiki/S%26P_500

The only money subject to the opportunity cost is your down payment. But the rest of your methodology doesn't make sense. Your house isn't a pure investment--it's your shelter. We're comparing buying vs. renting. You need to find the total cost of renting for 15 years vs. the total cost of owning for 15 years.

edvard2 says

I know my fair share of people who’ve told me they wish they hadn’t bought. In fact, one of my friends who owned for 5-6 years said he will never buy a house again.

5-6 years...bought in 05-06? Yeah, I'd be pretty bummed too.

tatupu70 says

And I specifically stated in my post that excepting bubbles, buying is better.

No, you said:

Look at any 15 year period in history and tell me when renting wins.

I gave you 4 answers at minimum and could find more probably. You take your market as it comes, so it's silly to exclude bubbles from consideration, positive or negative.

Do you have an example of a 15-year period where there was no bubble (per your condition, not mine), and housing returns (including total cost of ownership) outpaced inflation + T-bills? In order for housing to be an "investment," it needs to have a higher return than the risk-free rate to compensate for its risk.

It's probably hard to find a 15-year period where there was no bubble at all. Even for something like the 1950s, you had the post-WWII boom and in the 1960s you had the lowest interest rates ever until recently. That suggests to me there was some bubble/bust effect there, although we don't have as great statistics from that era.

Coogan99 says

First - to clarify - when I say its almost never cheaper to buy than rent, I mean if you look at individual properties today, and estimate what they could rent for.

And I think it's impossible to say that. Most important is your timeframe--if you plan to live there for an extended period, buying almost always wins. Then, of course, location. In some areas of the BA, it is clearly better to rent. But the BA is more the exception than the rule anymore. The last numbers I saw for the US in general had the rent ratio at ~10.

corntrollio says

No, you said:
Look at any 15 year period in history and tell me when renting wins.

Actually, I said:

tatupu70 says

Buying at bubble prices never make sense. Otherwise, assuming you won’t be moving any time soon, it almost always makes financial sense to buy. Look at any 15 year period in history and tell me when renting wins.

Notice, where I said "otherwise"?

corntrollio says

I gave you 4 answers at minimum and could find more probably

lol--you gave me 4 and I showed you were wrong. Let me know when you find one that is actually true.

corntrollio says

Do you have an example of a 15-year period where there was no bubble (per your condition, not mine), and housing returns (including total cost of ownership) outpaced inflation + T-bills? In order for housing to be an “investment,” it needs to have a higher return than the risk-free rate to compensate for its risk.

I'm not saying housing is an investment. I'm saying buying beats renting. Those are two very different conditions. Buying housing purely based on appreciation potential is not an investment I would ever make.

ch_tah says

Yes, as long as you ignore the time it takes for you to save the money to buy. You’ve already said you’ve been renting your current place for 8 years. How many more until you buy (in cash of course)?

My point being that there's more than one way to buy a house and my method of doing so leads to the same outcome. Technically, I could buy right now in just about any other housing market free of the coasts. At this point I see little reason to do so as my job pays well and I'm comfortable renting. Nothing lost.

tatupu70 says

lol–you gave me 4 and I showed you were wrong. Let me know when you find one that is actually true.

Check again. Those 4 are clear losses when you consider cost of ownership: again LA 1982-1997, OKC in the CNN article, Houston in the CNN article, Japan. Take your market as you find it.

You can parse your own language any way you want, but that one sentence was pretty unambiguous and unqualified. You gave a challenge, and I accepted it. And even above you concede that it might not be true in the Bay Area.

I'm not really interested in a pure buy vs. rent discussion, as it has been rehashed many times, and I've given my own nuanced opinion on the issue numerous times. There are times when either is a benefit, and there are times when either makes sense; not everyone is a good candidate to be a homeowner, and ownership doesn't make sense for everyone.

ch_tah says

A renter can just as easily lose his/her job or be forced to relocate. There’s no doubt that a “tradeoff” of owning is lack of mobility. That doesn’t mean a couple renting is in any better shape than a couple that owns. I’ve never advocated purchasing when a couple is not able financially. If we follow the rules of Klarek in purchasing, the house should be rentable if you are forced to relocate, so you shot your own hypo in the ass.

I wasn't talking about a loss of job, I was talking about the stress created by being stuck and missing a good job opportunity.

"Honey, you should take the job."
"I can't. We can't sell this place without taking a substantial loss."
"It's worth it for the job though, so let's do it."
"You also said it would be worth it to own, and it's your fault we're in this position."

Just a simplified portrayal of what's been going on and will continue to go on in millions of households throughout the country. A house becomes a financial shackle, whether the value falls or remains flat. People who are lured to it use guilt tactics to convince their spouses to jump in (ask anybody who is married to someone from China, you're bound to get into a fistfight if you argue against home ownership), using the same bullshit emotional plots discussed above. This can create resentment in the same way that we resent NAr's bullshit tactics being used on the public.

Just throwing this out there as a possibility:
-K married a Chinese woman
-Chinese woman forced K to buy a home
-After a while, Chinese woman grew tired of his depressingly, negative attitude
-Chinese woman gets a divorce and takes half of house which forces a sale of K's house
-K's attitude grows increasingly negative towards homeownership and apparently Chinese people (regarding housing)

Close? :)

corntrollio says

You can parse your own language any way you want, but that one sentence was pretty unambiguous and unqualified

You're kidding, right? I copied the entire post whereas you took a single sentence out of context and I'm the one parsing language??? Come on.

corntrollio says

Check again.

OK, hang on.......... Nope, you're still wrong.

corntrollio says

I’m not really interested in a pure buy vs. rent discussion

Then why the heck did you reply to my post??? I clearly stated my contention that buying beats renting over almost any 15 year time horizon. How could you interpret this to mean that I thought housing as an investment beats the stock market???

ch_tah says

Just throwing this out there as a possibility:
-K married a Chinese woman
-Chinese woman forced K to buy a home
-After a while, Chinese woman grew tired of his depressingly, negative attitude
-Chinese woman gets a divorce and takes half of house which forces a sale of K’s house
-K’s attitude grows increasingly negative towards homeownership and apparently Chinese people (regarding housing)

Close?

LOL!!

edvard2 says

Precisely. I will agree that I would like to own my house, but when I say own- I mean I OWN the house free and clear. That means buying it for cash. Most people choose to spend 30 years paying the bank plus interest.

And how are you going to achieve that if you don't have rich parents and are paying rent every month as much as somebody else is paying a mortgage. If you tell me that you will save money while renting to the point where you can buy a house outright in cash than I could say - You could have also had a mortgage for 30 years, still save that same money but instead make extra payments and pay the house off over 5-7 years or whatever shorter time period.

If you can buy for the same amount than rent, why waste time renting and throwing it out? The argument that interest is like renting is not correct because the interest portion of a mortgage is way less than a rent check. When I compare my mortgage to somebody renting, I am including Interest+ Principal + Prop Tax - Deductions. If I only compared what I am actually throwing out (the interest) then I would be WAY better of than renting. Like $600/month or so in my case.

And if you are in the line of work where you have to constantly move or relocate than DUH! ...buying is not for you. It's like getting married. If you want to have a different girlfriend every week...don't get married, obviously. But let's say you do find somebody that you could envision spending the rest of your life with, then...get married.

tatupu70 says

I copied the entire post whereas you took a single sentence out of context and I’m the one parsing language??? Come on.

Yes, your first two sentences were qualified, your third wasn't. Even if your third sentence was implicitly qualified because of the first two, how do you know whether you're buying into a bubble or not for the next 15 years without a time machine? The idea that you could or should exclude bubbles doesn't make sense, except in hindsight.

tatupu70 says

I clearly stated my contention that buying beats renting over almost any 15 year time horizon.

Once again, you misstate -- you said "any 15 year period in history." If I was really being a smartass, I would have pointed out that property values may have dropped during periods other than in the 20th or 21st century in various locations around the world. :) You know, during wars and plagues and various other events.

If you're going to make a ridiculously broad statement like that, I can call you on it, while still finding the overall argument not that interesting. No one makes a pure buy vs. rent argument, although I would likely suggest that people should more strongly consider buy vs. rent in their determinations, whereas you might disagree.

What so many people here don't see is that renting is nothing else than a 0% down, lifelong loan with a slowly increasing interest rate and no chance of having any equity ever. The "freedom" argument is a total wank because if you have a family, 2 kids and need to move it
#1 costs a lot of money to move
#2 very stressfull and timeconsuming to pack up a whole house and move

so nobody just moves just like that in reality. And then what, find another rental? For less?

When life turns against you, you are screwed either way.

SubOink says

What so many people here don’t see is that renting is nothing else than a 0% down, lifelong loan with a slowly increasing interest rate and no chance of having any equity ever.

But that's not universally true. In the Bay Area, it can be cheaper to rent than to buy. A disciplined person can put away the difference and be far better off.

If you're going to talk about equity as the reason to buy a house, you necessarily have to talk about forced savings. If the return on housing is as low as it has been shown to be over the long run, then equity is just forced savings. This makes sense if the calculation make sense, but the calculation has to make sense. "zomg you will have no equity ever" is more of an emotional argument than a logical argument, because it requires more thought and more facts.

People often move in 5-7 years anyway, especially when they do something boneheaded like buy a "starter house," so the moving argument isn't as compelling as you're making it. I've known "owners" who have moved every 4 years or so because they work in apolitical positions in political jobs (e.g. city government, but not an elected or appointed position) and often have to move on to the next city when there's a regime change. There's no one good answer here. Some of them bought houses, but it didn't always make sense.

Why can't people stop making false absolute statements and instead make nuanced intelligent arguments? Is that too much to ask?

corntrollio says

The idea that you could or should exclude bubbles doesn’t make sense, except in hindsight.

Not really. Many, many here realized the US was in a bubble in the mid 2000s. Look at price/rent ratios. Look at historical price trends. Anyone who was really looking could have figured it out.

corntrollio says

If you’re going to make a ridiculously broad statement like that, I can call you on it, while still finding the overall argument not that interesting

I guess, but I would expect you to find an example that supports your premise (that I'm wrong). Really, I would expect you to find many such examples as I said "almost always". Even if you were able to find a few examples where renting wins over 15 years, it still wouldn't disprove my statement.

In any event, you clearly didn't understand the rent vs. buy argument when you "called" me on it based on your subsequent post. Which is OK. Just don't pretend that you showed me to be wrong.

corntrollio says

Once again, you misstate — you said “any 15 year period in history.

And for the record. Here is my original post since you keep misrepresenting it.

tatupu70 says

That’s a completely ridiculous statement. Buying at bubble prices never make sense. Otherwise, assuming you won’t be moving any time soon, it almost always makes financial sense to buy. Look at any 15 year period in history and tell me when renting wins.

tatupu70 says

I guess, but I would expect you to find an example that supports your premise (that I’m wrong). Really, I would expect you to find many such examples as I said “almost always”.

That would be true if you had actually said "almost always," but as we know, you keep quoting yourself not saying that. Thanks for that, btw! :)

But you can't prove your statement is right, and I have shown at least 4 examples that your statement is wrong, some of which were on a nominal basis, which is quite incredible. I could find more, but what's the point? Even 1 is enough to prove an "always" statement wrong (as "find any 15 year period" is, logically).

I doubt you could even find the data to prove your statement even if you had said "generally" instead of "always." While finding housing price data is easier to come up, rent data is a lot harder to come by. It's fairly easy to show the return from housing being very very low.

However, what I can say is that your statement should be generally true if you replace "always" with "generally" because renting should be the price of owning plus a reasonable profit in the long-run. The profit should make renting more expensive, because that profit pays for transaction costs, illiquidity, risk, short-term commitment, fees for service (e.g. if the landlord provides a gardener, the gardener should be making a profit, etc. However it's not *always* true, as you stated, and you can't know a bubble except in hindsight -- that's where the risk comes from.

You did say that buying is "almost always" a better decision than renting, which is also wrong, since renting can be good for various purposes. There are many reasons to rent which I've pointed out in other threads. Not everyone is a good candidate for homeownership, and the most recent housing bubble shows that quite well.

tatupu70 says

Not really. Many, many here realized the US was in a bubble in the mid 2000s.

This doesn't contradict what I said. You are talking about a 15 year period. Did you know in 2001 that there would be a housing bubble in 2005? Did you know in 1998? Did you know in 1993? Did you know in 1990? If so, can I have what you're smoking? It must be good stuff.

"You could have also had a mortgage for 30 years, still save that same money but instead make extra payments and pay the house off over 5-7 years or whatever shorter time period."

And why would anyone do that knowing that they have to pay for maintenance?

"If you can buy for the same amount than rent, why waste time renting and throwing it out? The argument that interest is like renting is not correct because the interest portion of a mortgage is way less than a rent check. When I compare my mortgage to somebody renting, I am including Interest+ Principal + Prop Tax - Deductions."

You do know that the mortgage deduction is going to go on the chopping block...right?
http://blogs.wsj.com/developments/2011/05/18/whats-the-future-of-the-mortgage-interest-deduction/
There's no logical reason to reward high end housing with a credit. If we are to promote housing it would help to support more affordable rather than high end. We have 19 million empty homes in the country..there's no reason to support new construction.

"And if you are in the line of work where you have to constantly move or relocate than DUH! …buying is not for you. It’s like getting married. If you want to have a different girlfriend every week…don’t get married, obviously. But let’s say you do find somebody that you could envision spending the rest of your life with, then…get married."

Define "constantly". Many employers move it's just a fact of life. The average person has at least six different employers in their life. Higher home ownership leads to higher unemployment because the worker base cannot move.
http://tinyurl.com/66nbdro Let's say you put you money in a mortgage and pay it off. You bought the house after going to school so 30+22 you are 52 years old..now you get laid off..ok now what? Put your house on the market? How fast can that happen? Now with renting you can pack up your stuff and go..you used a service rather than a product..you don't have to worry about reselling the product.

"What so many people here don’t see is that renting is nothing else than a 0% down, lifelong loan with a slowly increasing interest rate and no chance of having any equity ever. The “freedom” argument is a total wank because if you have a family, 2 kids and need to move it
#1 costs a lot of money to move
#2 very stressfull and timeconsuming to pack up a whole house and move"

But people aren't having the same size families as they did before. Cost alot to move? According to whom? Time consuming? Yeah if you have a house..if you have an apartment you don't.

Everything these days has been made smaller and lighter. Have a ton of books? Kindle, big PC? Laptop..tons of music? ipod. huge stereo ? Bose..tons of clothing? Space bag, cable tv? netflix, cable internet? wifi. The idea of having a place to impress others or "entertain" is gone.

To note a fair amount of celebrities live in NYC. Cindy Lauper lives in an apartment...so does Ralph Nader. They do so mostly because of rent controls but they also aren't stupid. Why buy when you can rent? Why be responsible for more things?

You also don't have the liabilities. Let's say it's january and ice has frozen on a walk on your house. You go though the garage..uh oh someone selling some crap slipped on it and is now suing you..or this could be wet leaves in the fall..can't happen when you rent. I had a pool growing up in the suburbs. As nice as it is to say you can have your own swimming we also had to keep our eyes like a hawk on it. Had to lock it up and put up the ladder. OK why? Well pools are more likely to kill than guns. I wouldn't ever want a pool again just due to the liabilities. White flight ended years ago.
http://www.npr.org/blogs/talk/2008/07/the_end_of_white_flight.html
Suburbs are now seen as boring remote areas with no night life, few services and everything being a significant drive away.

"so nobody just moves just like that in reality. And then what, find another rental? For less?"

Well yeah I've seen it done. Starting a bidding war on rents is easier than a house because there's no bank involved in a rent.

corntrollio says

That would be true if you had actually said “almost always,” but as we know, you keep quoting yourself not saying that. Thanks for that, btw!

Seriously? This is getting ridiculous. Again here is the original post:

tatupu70 says

That’s a completely ridiculous statement. Buying at bubble prices never make sense. Otherwise, assuming you won’t be moving any time soon, it almost always makes financial sense to buy. Look at any 15 year period in history and tell me when renting wins.

Now, slowly, read the 3rd sentence. Do you see the "almost always" in there?

corntrollio says

I have shown at least 4 examples that your statement is wrong, some of which were on a nominal basis, which is quite incredible

What the hell are you talking about? You have shown nothing that indicates renting was better than buying over any of those time periods. If I missed it, please paste it again.

corntrollio says

It’s fairly easy to show the return from housing being very very low.

Of course it is. Housing appreciation generally follows wage inflation. Nothing more. I would never say otherwise. How does that in any way contradict my statement?

corntrollio says

However, what I can say is that your statement should be generally true if you replace “always” with “generally” because renting should be the price of owning plus a reasonable profit in the long-run.

Actually you miss the main reason why owning beats renting. Owning(with a mortgage) is a great inflation hedge.

corntrollio says

You did say that buying is “almost always” a better decision than renting, which is also wrong, since renting can be good for various purposes. There are many reasons to rent which I’ve pointed out in other threads. Not everyone is a good candidate for homeownership, and the most recent housing bubble shows that quite well.

And that's why I said that you need to be planning on remaining in the house for a relatively long time. What other reasons did you have?

corntrollio says

This doesn’t contradict what I said. You are talking about a 15 year period. Did you know in 2001 that there would be a housing bubble in 2005? Did you know in 1998? Did you know in 1993? Did you know in 1990? If so, can I have what you’re smoking? It must be good stuff.

Of course it contradicts what you said. Are you purposely playing dumb? Buying BEFORE a bubble is good. Why would you need to know a bubble is coming? The only thing you need to worry about is buying DURING a bubble. When prices are out of whack. Otherwise, you're fine.

SubOink says

And how are you going to achieve that if you don’t have rich parents and are paying rent every month as much as somebody else is paying a mortgage. If you tell me that you will save money while renting to the point where you can buy a house outright in cash than I could say - You could have also had a mortgage for 30 years, still save that same money but instead make extra payments and pay the house off over 5-7 years or whatever shorter time period.

Easy. Combined we make a very generous dual income. We're also the cheapest cheap-skates you'll ever meet, drive 2 crappy old extremely high mileage cars, buy bulk groceries, and get our furniture from the street. We rent a house and share it with 2 other people. Its a big house and we have a lot of space. Our rent is around $1,300 in an area where houses are still sitting around with $500k+ price tags. We save, invest, and spend as little as possible and have been doing this for 10 years. Doesn't take long to save up enough to buy a house that way. In Texas, NC, TN, GA, or most any other state a decent house can be had for $150k. Maybe even less if the economy keeps going down the crapper.

We'll move outta' the Bay Area, buy for cash elsewhere, have plenty in retirement and savings. Sure- all told it would've taken us 15 years to do so. But its worth it. We'll be semi-retired before 40.

edvard2 says

We’re also the cheapest cheap-skates you’ll ever meet, drive 2 crappy old extremely high mileage cars, buy bulk groceries, and get our furniture from the street

Okay, if you like living like a rat and never enjoy life then ok - that is definitely a way to get there. Only problem is, if for some reason you don't make it and crap out earlier...then you lived like a cheap ass and saved and saved for nothing. I had a friend that was like that...died of cancer with 49...had SO much money saved, plans to buy a house in cash, retire early...too bad he never got to enjoy one cent of his money...

Not for me...

edvard2 says

"For example, where I currently live a lot of the work has to be done by a qualified contractor. You also need to get a permit in many cases as well. In many cases even small changes have to get approved. Then there are many areas that have restrictions about what you can do to the outside of your house- even down to what sort of colors you can paint it and where you park your cars. The list goes on and on...”

Just curious, do you live in Irvine, CA? It almost sounds like it!

There are a wide variet of anecdotes here. I guess different strokes for different folks based on those...

SubOink says

. I had a friend that was like that…died of cancer with 49…had SO much money saved, plans to buy a house in cash, retire early…too bad he never got to enjoy one cent of his money…

So you will feel happy if you spend all your money and die at 49?

corntrollio says

“Look at any 15 year period in history and tell me when renting wins.”
Sure. SF or LA purchased in 1988 or 1989. Houston purchased in the 1980s or afterward. Japan.
It’s equally ridiculous to give your absolute, as it is Coogan99’s absolute. Most people’s absolutist statements are ridiculous.
There are many markets right now where buying is cheaper than renting. The Bay Area tends to have the reverse more often.
Buying *should* be cheaper than renting, because of illiquidity, high transaction costs, risk, lack of mobility, etc. Usually when the reverse happens, there’s some sort of distortion or other factor causing it.

Just to clarify (that's all)... buying in Japan after 1988~
(usually a bad idea, especially 1988-2002)

If you bought in/ around Tokyo 1972, you could do very well (still ahead of the game).

xenogear3 says

So you will feel happy if you spend all your money and die at 49?

I definitely wouldn't regret it...

The point is - You gotta live a little. If you wait to enjoy life until you are 60...you may never make it. So here you are living like shit all life...thinking you are so smart, saving money when you could just get a nice house when you are 30...enjoy it, live a little and by 60/50/45(depending on what loan) you still own the house anyways.

SubOink says

I had a friend that was like that…died of cancer with 49…had SO much money saved, plans to buy a house in cash, retire early…too bad he never got to enjoy one cent of his money…

He could have spent the money on the greatest vacation ever before he died.

SubOink says

The point is - You gotta live a little. If you wait to enjoy life until you are 60…you may never make it. So here you are living like shit all life…thinking you are so smart, saving money when you could just get a nice house when you are 30…enjoy it, live a little and by 60/50/45(depending on what loan) you still own the house anyways.

It's a really sad statement about the mentality of this country if people believe the only way to not live "like shit all life" is to be overburdened with debt.

klarek says

It’s a really sad statement about the mentality of this country if people believe the only way to not live “like shit all life” is to be overburdened with debt.

Where do you get "overburdened". edvard wants zero debt. Others are saying some debt is OK. Who is saying take on too much debt?

tatupu70 says

Where do you get “overburdened”. edvard wants zero debt. Others are saying some debt is OK. Who is saying take on too much debt?

And SubOink says anybody without debt lives a shitty life. "Too much debt" is relative, but I'd say that somebody with his kind of attitude will easily get in over their heads.

SubOink says

Okay, if you like living like a rat and never enjoy life then ok - that is definitely a way to get there. Only problem is, if for some reason you don’t make it and crap out earlier…then you lived like a cheap ass and saved and saved for nothing. I had a friend that was like that…died of cancer with 49…had SO much money saved, plans to buy a house in cash, retire early…too bad he never got to enjoy one cent of his money…

Not for me…

Who said I lived like a rat? The furniture I've found in the street are almost entirely antique. I have solid oak, mahogany, and cherry furniture. Most needed refinishing. Most are now worth a lot of money. The two older cars are old, but I know how to work on them and give them a coat of wax every 2 months. They still look like new. I'm sort of proud of them. I enjoy the way we live. Sure- someday we'll buy a house. Knowing that I don't have to worry about how to pay for it is a nice thing.

let me put it this way. When I graduated college I made crap for money for years. Its not a good feeling to be broke or worry about finances. Now that I make a great deal of money I really appreciate it and feel relaxed. Besides- even if we all make it to 90 we're all going to get stuck in a old folks home and basically own nothing.

I agree with edvard2.

We buy no new furniture, because most of them are CRAP slapped with a brand. The furniture pieces I have are all antiques deals that we picked out from a thrift shop or antique shop, made from excellent grade exotic wood that you cannot even find on the market any more, because they are now protected species. Put it this way, I do not consider buying Ethan Allen me-too cheap wood furniture "enjoyment" of life.

There are so many things that can be enjoyed for so little money, and the Americans are being brainwashed into spending money = enjoying life. The so-called upscale American brands are nothing short of slapping a marketing and branding cost on top of cheap materials.

I don't pay for brands, I pay for raw materials. And top grade raw materials, from food to clothing, from furniture to cookware, does not cost that much if you do not fall for the brand. In fact, I was appalled to find out so many mass market "designer brands" like Ralph Lauren use CHEAP materials, like polyester. I got a couple of Ralph Lauren gifts for my kid that are made from half polyester, and I never bother to let my kid wear them.

OO says

We buy no new furniture, because most of them are CRAP slapped with a brand. The furniture pieces I have are all antiques deals that we picked out from a thrift shop or antique shop, made from excellent grade exotic wood that you cannot even find on the market any more, because they are now protected species. Put it this way, I do not consider buying Ethan Allen me-too cheap wood furniture “enjoyment” of life.

Seriously? How did this devolve into buying new furniture vs. buying antique? Or brand names vs. non-brand names?

Nobody is arguing that you need to overspend on crappy furntiture.

Personally, I don't understand the mindset that you need to buy a house with cash or not buy at all, but to each his own.

OO says

There are so many things that can be enjoyed for so little money, and the Americans are being brainwashed into spending money = enjoying life. The so-called upscale American brands are nothing short of slapping a marketing and branding cost on top of cheap materials.

Exactly. 90% of the "nice" furniture out there is made out of fiberboard covered with a plastic or fake wood veneer. As soon as that veneer is scratched or damaged the piece is done. I have one piece that's a huge book case made out of solid mahogany. Beautiful piece. It was covered in a zillion layers of house paint and was in the trash. With all that stripped off its a showpiece. As soon as a new piece of furniture walks out the door today it instantly becomes worthless. My antique furniture has value and could be sold for considerably more. Sort of like an investment except I paid nothing for them.

Same goes for anything else. All of my tools are probably at least 30-40 years old. Same with the household appliances. Even the cheapest brands from 40 years ago are of better quality than the nicest brands today. If I DO buy something new, I will spend the money to get quality and that means usually buying something that is actually made in the USA. Sure- the markup is higher. But in many cases it'll probably outlast anything from the big box stores. I have a pair of American made shoes. I paid $150 for them but 7 years later they're still like new. I have a full set of All-clad pans. Professional grade. Made in the USA. They cost $100 apiece. But I'll never have to buy another set as long as I live. I only buy Mag light flashlights. They're $20-$30 each. But I have one from when I was a teenager that has taken a beating.

tatupu70 says

Personally, I don’t understand the mindset that you need to buy a house with cash or not buy at all, but to each his own.

Yes, to each his/her own. I'm not saying its the absolute right way to do it. Its our way. Most people choose to spend 30 years paying off a mortgage. We're not like most people.

tatupu70 says

Now, slowly, read the 3rd sentence. Do you see the “almost always” in there?

Yeah, still not there. Try again.

tatupu70 says

Actually you miss the main reason why owning beats renting. Owning(with a mortgage) is a great inflation hedge.

Except when it's not, i.e. the examples I pointed out.

tatupu70 says

Of course it contradicts what you said. Are you purposely playing dumb? Buying BEFORE a bubble is good. Why would you need to know a bubble is coming?

I think we've spent enough time on this subject, so this is my last point, but 1982 to 1997 in LA was a great example of why buying before a bubble can be equally terrible. It's incredibly hard to time the market, especially in something as illiquid as property. If you didn't have the fortunate market timing to sell in 1990, you lost a hell of a lot of real money (i.e. inflation-adjusted) if you sold in 1997, per your 15 year horizon. Bubbles tend to overshoot on the recovery, as that bubble likely did.

klarek says

tatupu70 says

Where do you get “overburdened”. edvard wants zero debt. Others are saying some debt is OK. Who is saying take on too much debt?

And SubOink says anybody without debt lives a shitty life. “Too much debt” is relative, but I’d say that somebody with his kind of attitude will easily get in over their heads.

Once again, putting words in my mouth. Where do I say that anybody without debt lives a shitty life?

I was referring to edvard who basically clams down, living as cheaply as possible. Buying used garage sales furniture, don't go out to eat...all for one purpose - to save money to buy a house with cash??

I mean, who is the slave here?

My wife and I work. For the last 8 years as renters we had a simple model...I pay for everything and we bank her income...then we used a good amount of that income to put down on a house and now our situation is...I pay for everything and we bank her income. Same situation. I am still saving just like we saved before but in 15 years I have either paid the house off OR if I stick to the monthly payment I will have a good amount of equity in the house. The big Plus is...I get to enjoy that house RIGHT NOW. In 10 years, I will have upgraded this house where its my dreamhouse. Something you would never be able to do with a rental. If I had buckled down and kept saving...then buy in cash...it would take me 15 years to buy this house. Meanwhile, I gotta keep moving from rental to rental...deal with pesky landlords and waste money on moving. Plus, moving SUCKS. Especially when you are a family and have a house. You accumulate so much stuff its a nightmare to move. We hate it.

So as much as I understand edvards approach, I don't think its a smart way to go especially since you don't know where prices will be in 15 years. Maybe less, maybe a lot less...maybe more, maybe a lot more. You don't know. If prices will be less than today, then you're saving plan works out...if prices are higher, then it doesn't.

It's up to you. By the way, nobody would stop you from living dirt cheap in a house you bought. You could still buy the used furniture, only eat at home and save save save. You could still have roommates and rent some room's of your house out. Nothing would change except, you'd be the landlord, you collect the rent and will one day own the house. You could still save cash and buy a second house with cash.

Don't forget, paying rent is just like a mortgage. As long as you need a roof over your head, you have to pay it. So much for the freedom argument. In theory, you can leave. In reality, you don't.

My take on the whole rent versus buy thing is that its a local issue as well as a timing issue. Where I live now you could buy a decent home for $250,000-$300,000 as recently as in 2003. Now those same houses after the bust are still clinging to a $500k average price. Had I had the good fortune of being born a few years earlier I would probably buy at those prices. But 500k is ridiculous. As I don't see any real catalyst for prices coming down to acceptable levels we rent with the intention of moving somewhere cheaper. Its a sort of widespread problem particularly with the coasts. Most of the country has corrected to acceptable levels. The bubbly coasts are still- well- bubbly. This in turn means that a good chunk of the industrial and economic output of the country resides in bubble areas. For all practical purposes the US is by and large still in a bubble.

Until this disparity between the coasts and the center becomes less dramatic this sort of argument won't have a clear-cut answer because in most cases its wiser to rent on the coasts and much wiser to buy in the center.

SubOink says

My wife and I work. For the last 8 years as renters we had a simple model…I pay for everything and we bank her income…then we used a good amount of that income to put down on a house and now our situation is…I pay for everything and we bank her income. Same situation. I am still saving just like we saved before but in 15 years I have either paid the house off OR if I stick to the monthly payment I will have a good amount of equity in the house. The big Plus is…I get to enjoy that house RIGHT NOW. In 10 years, I will have upgraded this house where its my dreamhouse. Something you would never be able to do with a rental. If I had buckled down and kept saving…then buy in cash…it would take me 15 years to buy this house. Meanwhile, I gotta keep moving from rental to rental…deal with pesky landlords and waste money on moving. Plus, moving SUCKS.

But I fail to see how your example is superior to mine because you're using some generalities to make a point. Not ALL renters have bad experienced with renting. I have been renting the very same house for 8 years. Its a nice house. As I've mentioned before we have far surpassed the average time a family stays in a home in the Bay Area- 5 years. I know this because it seems like half the houses around us are like revolving doors- someone buys it and then they sell it in 2-3 years. One house near us has seriously been put up for sale 3 times so far. So I could just as easily make the same "Moving sucks!" argument in regards to buyers.

And as far as living cheap.... well that doesn't mean we don't live it up either. If you came to my house I would be willing to put money on it that you would be pretty impressed. Its nice. The stuff we have is also nice. In fact many pieces are pretty good conversation pieces. Doesn't matter that it came from the trash. I grew up with parents who sold antiques so I have an eye for desirable pieces and only buy if the price is right or better yet- its free.

lastly, the name of the game is all about the effects of compounded interest and time. We started investing when we were young. The goal is to stuff as much money into investments, 401k's, bonds, mutual funds, and so on as we can while we're young. The more you do that and the sooner you do so the sooner you'll be able to retire. A house is totally unproductive when it comes to investing. Its what a person lives in and the money it might be worth is meaningless since selling it would mean using whatever appreciation it garnered into another house. So we're sort of doing what most people do in reverse: take care of retirement, save up the cash, and THEN buy the house. In the end retirement savings is the only thing that matters.

Anyway, I am by no means saying that your way of doing things is wrong. We have different ideas of how to do things and it sounds like it is working out for you. If so, that's great. We do things differently and have our own plans. I'm happy with how we live. That's really all that matters, right?

SubOink says

If I had buckled down and kept saving…then buy in cash…it would take me 15 years to buy this house.

Come on SubOink, you've been here a while. You do realize that the majority of house haters on this site hate that people buy houses they can barely afford with down payments as low as they can get them. That is the problem.

If you've saved properly for a down payment and buy a house within your comfortable price range, a house is fine. The problem is hardly anyone does this. People want a house, a nice one, and they're willing to stretch their money to the brink to get it.