patrick.net

Most people grossly underestimate the recurring costs of owning, especially the lost use of that capital tied up in the house. The lost interest alone could be more than the cost of renting.

Right! Rent vs Buy have been looked at from different angle. When all costs at truly included, (including the opportunity lost in equity ties up, etc), and the use of excess cash to make money elsewhere, renting is cheaper, hands down.

But there are factors why people buy, such as, keeping with their brother in-laws; smooth talks by realtors; owning a house for ego, etc.

I made a graph once from my data service that showed me that the rent to buy ratio is pretty much proportional to house price.

That is, the deals are progessively worse for buyers as you move upscale.

The poor people who rent should probably buy, but never manage to save enough or can't get a loan anymore.

The rich people who own should definitely rent the identical house for half as much, but it would just be too embarassing for them. They would lose social status.

But you guys are not factoring in the "emotional" cost of owning a home. Yes, math will trump that metric all the time, but try explaining math to a wife who's in love with a home....you might as well hit your head against some rocks... :)

People buy because they WANT to. No amount of reasoning/math/logic will take away the emotional factor. If a person buys something and is HAPPY regardless of its value, then everything else is irrelevant. Really.

The motive in life cannot be just math/logic/investments/etc etc.

Hell I got one of the best BJs :P when I bought my first house (with my ex wife...but that's a whole different story). Try explaining that with math or logic. :)

kapone says

Hell I got one of the best BJs :P when I bought my first house (with my ex wife…but that’s a whole different story). Try explaining that with math or logic. :)

I think BJs explain far more of the housing market than any academic study so far.

SHE wants a house, and it's YOUR job to buy it for her, cost be damned. Not PC, but I honestly believe that's how it works for most people.

The rich people who own should definitely rent the identical house for half as much, but it would just be too embarassing for them. They would lose social status.

You are correct, Patrick, because sometimes there is an informal ceiling on rents, even on the high end. For example, there aren't that many rentals in San Francisco with a rent above $10K, even though the cost to buy would be significantly more than $10K for some of those houses.

The other factor to consider, however, is that the potential rental pool at these levels is incredibly shallow. I have no problem finding a well-built, renovated, 2-4 BR house for rent in most of the Bay Area, but a mansion or other luxury property is a different story. There really aren't many rental options at this level, so people buy for that reason too.

From what I read, there are actually a lot of high-end rentals in NYC. Wonder why it isn't that way in SF.

SHE wants a house, and it’s YOUR job to buy it for her, cost be damned. Not PC, but I honestly believe that’s how it works for most people.

I joked about the "nesting" instinct at my friend's housewarming party in the Sunset in mid-2000. I thought they were buying rather late in the cycle, and was right, until the damn market got reset with Greenspan's post 9/11 interest rates and all the mortgage craziness.

How's this for a synopsis of the market:

May 25, 2011 Sold (Public Records) $530,000 -2.5%/yr
Oct 27, 2004 Sold (Public Records) $627,000 6.9%/yr
Apr 27, 2000 Sold (Public Records) $465,000 27.5%/yr
Aug 06, 1997 Sold (Public Records) $240,000 0.7%/yr
May 02, 1991 Sold (Public Records) $230,000 --

they made a good flip and moved to a more family-friendly nabe in 2004.