patrick.net

Debbie2012 says

After all these years and everything that has happened to the economy, I still believe buying a house is the best and most stable investment one can make. The first property I bought was during the '80's and I am still buying as soon as a bargain comes past.

A buyer from 80's and coming on the bear site? Something's fishy! I smell a Realtor!

If you think buying is foolish then you must think that renting is good. So in that case I'll buy and rent to you. In ten years I'll have some profit and still own the house and you will still need to rent somewhere. Isn't it frustrating to pay rent every month and realize that you have no equity? I believe people have to stop buying above their means. This way you get the best of both worlds. I was always so frustrated in the past when I rented because I like to make improvements and also enjoy making a nice garden. These things are hard to put your heart and soul into if you do not own them.
Just my opinion.

The real problem is the mortgage not the property. Paying sometimes twice as much for the property through interest. If you save and pay cash, then you pay the sticker price. If you don't, we'll then you pay a lot more.

On the same thinking, why is it the biggest purchase of a lifetime does not come with a trial period where you can return it for a full refund, money back guarantee, if in 6 weeks you decide it wasn't the right thing?

How come there is no 6 week retun policy. I wish we could buy a house from BED, BATH AND BEYOND, if it breaks we can return no questions asked.

... the economy really no longer needs that many people
to function, with automation and outsourcing.

That's baloney. Until everyone's needs and wants are met, the economy needs people to function. An efficient, unbroken economy will always need people.

What we are suffering currently is a massive dislocation of economic capital from productive wealth generating activities, towards highly inefficient, purely consumptive, if not outright dead-weight asset propping activities. Policies reward and skew economic activity towards corporatist parasites who have co-opted Congress / legislation to skew in their direction.

Obviously a complex subject, but as someone said -- a house is simply a depreciating asset. But that is in a naturally flowing market environment, which we do not have.

What we have had instead is a highly intervened marketplace, where what is "free market" about it operates superficially atop the rigid system as legislated.

Culprits?

• * Decade upon decade of ever-expanding credit and monetary policy (inflationary policy), pushing forward unbacked credit and money into a system that floods into housing via the mortgage market, kicking prices alway further up.
• * Policies that push homeownership as essential for everyone, regardless of an owner being able to afford it
• * A credit system / Wall Street that pushes riskier and riskier schemes with less and less thought because
  1. 1) money and credit is always expanding, making the idea of capital something that is taken for granted because it is always so easy to come by;and
  2. 2) those engaging in the riskiest behavior, it is proven, are allowed to keep their profits while getting bailed out when the bad bets blow up. Those who played it safe end up losing clients to those who take risks and get bailed out, creating the moral dilemma effect that further destroys an economy foundations
• * Eventually problems emerge from the initial distortions (e.g. price inflation / bubbles), which causes policy makers to back off their interventions so to "manage the business cycle", which in turn sucks the artificial oxygen from those unnatural areas of the economy, leading to collapse.
• * The consequent collapse (the seeds of which were sown from the very first minute of intervention) is painful, and politically problematic, resulting in reactionary policy designed to ward off the pain. It only prolongs the pain, while exacerbating all the problems mentioned above. The intervention is the economic equivalent of encouraging an alcoholic back to his feet with more booze as an alternative to withdrawal. Keep doing that and eventually the economic body deteriorates to the point of no return.

What's happened in housing is a microcosm of the gross malinvestment that has rotted the economy from within. We need to get rid of the countless interventions to allow for a restructuring of the economy away from interventions and economic parasitism by special interests, and towards capital formation and value-for-value exchange, which is what made the country wealth in the first place.

Gardens are for hippies and doomsdayers. If that's why you're buying a house, there's no talking sense.

We have put our heart and soul and good taste into every place we've rented. The style and personality follow us wherever we go. Life's a banquet and most poor housebuyers are starving.

KILLERJANE says

The real problem is the mortgage not the property. Paying sometimes twice as much for the property through interest. If you save and pay cash, then you pay the sticker price. If you don't, we'll then you pay a lot more.

The real problem the economy is experiencing across the board right now is that the pricing mechanism is completely broken. A house price right now remains totally dislocated from anything naturally sustainable. It is the consequences of tremendous intervention in the markets that enabled the bubble to happen in the first place. It remains a problem today as policy makers refuse to let house prices bottom out and find a natural clearing price absent massive intervention in interest rates and the mortgage market / home ownership market in general.

Complete and total collapse is the only way for housing to restore proper relationships.

Of course, the housing is not the only massive economic distortion out there that needs to completely correct. So long as those distortions are encouraged through market manipulation and official policy intervention, forget about having a healthy economy.

KILLERJANE says

The real problem is the mortgage not the property. Paying sometimes twice as much for the property through interest. If you save and pay cash, then you pay the sticker price. If you don't, we'll then you pay a lot more.

Still, you make a very salient point. I'd elaborate by saying a massive economic problem is debt in general. Families would be much better off saving money, pooling resources, and granting loans to each other, thus building up a family bank that keeps the interest in the family vs. pushing it to the banking industry.

This is a great idea. I do this with my 401k. I can't get any interest from fixed income, so I borrow the money from my own 401k for cars, etc, and in turn pay it back with interest. Sure, I get taxed on the interest twice (when I earn it, and then when I take it out of the 401k later, but with a bank loan, I keep 0% of the interest I pay.

Do this with a savings account, and it works, too.

Problem is, the stupid shits at the Fed, etc., in all their Keynesian / monetarist offshoot wisdom, don't want anyone to save a dime right now, forcing your to subsidize low rates for the govt. It's killing capital formation which is the lifeblood of an economy.

Some people don't like buying because they don't like commitments at all. I even know people who sit on mil of $$ and they prefere to lease their refrigirator rather than buy it. So this is also psychological issue.

In some cities, it has collapsed but people still need a place to live, so it I good for them. In a big way, the American dream is back in some very affordable cities like, Phoenix, Atlanta, las Vegas.

Hey scam, your arguments are blanketed one way only. Not every place is the same. Your harsh one sided view is ridiculous and lacks thought.

My own opinion is that buying a house is sometimes a good idea. It all depends on the price of the hosue vs the rent for the same thing.

Yes, Phoenix and Vegas are full of good deals for buyers at the moment, because prices are low there compared to rents.

But buying on the SF peninsula is still a very bad deal for the buyer. The amount of money the owner burns can easily be twice as much as the renter's costs. And that's after the tax deduction.

Leopold B Scotch says

I'd elaborate by saying a massive economic problem is debt in general.

Yes, mortgage debt in particular drives up the sticker price on a house and turns formerly independent and proud people into meek obedient workers.

It's wonderful in a way that you cannot borrow money to pay rent.This makes rents much more honest. No debt involved.

Agreed, so if you buy property where it produces cash flow when rented, then take that cash flow and pay the rent to live wherever you'd like, then you kinda beat the system, eh?

You can buy for cash properties cheaply in some places like I said above and rent them and still have cash flow past the taxes, insurance and HOA.

There are great deals out there if you are willing to do the research.

You guys have been out in the cold too long.
You've gone from "I refuse to buy at bubble prices" to
"Down with home ownership".

It seems to me, you folks in California are working against your own self interest. Do you know what the difference between places like South Florida and the Bay area is? In Florida we ignored homes after jig was up.
You folks worship the high prices of your over inflated egos and place an unrealistic value on living there. Then you realize you can't afford it, so you inject, nobody should buy a house, because you can't have your dream place at a price you can afford. But truth be told, if the Bay Area was to become affordable, most of you would consider it an undesirable place to live.

Go buy a house and be happy, and quit trying to be someone you can't afford to be.

Yes, mortgage debt in particular drives up the sticker price on a house and turns formerly independent and proud people into meek obedient workers.

I'd clarify, though, that our current system of ever expanding credit and money supply creates this problem because nobody has to save one one end of the transaction in order to lend via the mortgage on the other. This causes prices to rise in the first place.

In a non-expansionary / honest money environment where loans had to be backed by legitimate savings, you'd find that any increase in house prices would = increased demand, which would translate / have to correlated with decreased demand elsewhere in an economy, resulting in lower prices to balance things out.

Moreover, lending to mortgages would be more naturally governed as mortgages would not be subsidized or government backed in any way, causing lenders to more diligently / prudently diversify their lending portfolios. As lenders hit their mortgage limits, rates would naturally have to rise in order to draw in additional lenders, which in turn would increase monthly payments, which in turn would apply a natural brake on housing in the economy as a whole.

We've allowed policy makers and legislation to short-circuit this under the idea that it is everyone's right to have a home, and it's the government's job to make it a near entitlement via its power.

It's wonderful in a way that you cannot borrow money to pay rent.This makes rents much more honest. No debt involved.

But you have to keep in mind that the landlord is often mortgaged. Hence, artificially low rates = artificially lower costs of business = artificially lower rent.

Granted, though -- to your point -- in the end, you can overpay for your mortgage, but rent will only be what's affordable to renters.

Still, I suspect there's too much intervention for us to have a truly honest rent rate, even if it is more legit.

GraooGra says

So this is also psychological issue.

LOL. Now renting v/s buying is a psychological issue? not a financial one?

John Bailo says

Why can't I go into an area and say rent a one-bedroom cottage in a community of small cottages w

The local jurisdictions won't allow building of reasonably sized housing because they can't justify bloated property taxes for them. Gotta pay those bloated union pensions somehow!

I do agree with the basic premise from the OP about job insecurity being a barrier to buying a house. If the price is right for the house, a lot of the problems go away. Or just wait until you can retire before you buy a house. It also helps if you live in a big metro area where you can potentially get another job if your current one disappears (although that tends to setup the commute from hell).

Own/Rent issue has been discussed endless times. Following is my take:

1.You are financially better off if you rent.
2.If have the urge to buy, there are ulterior reasons, example, like showing your friends "you have arrived."
3.If you do buy, you should pay cash. (If you do #1 right, you will be able to pay cash one day). House is consumption, just like buying home entertainment system, you shouldnt borrow to get them.
And if you need loans to buy, make sure you can pay it off in 7 years.

“Now renting v/s buying is a psychological issue? not a financial one?” It is BOTH, of course you want to buy a house so you feeeeel successful, and fitting in with all your neighbors who have all been taught that buying a house is the American Dream (psychological), then on the flip side your Realtor™ makes bank CHACHING (financial)! It’s a WIN WIN, you feeeeeeel good and your Realtor feeeeeeels good.

Hey scam, Didn't the oracle of Omaha say recently that buying property now is a super great investment? But warren is a poor old man, huh?

http://www.ibtimes.com/articles/306749/20120229/real-estate-forecast-2012-warren-buffett.htm

I paid something like 34K (that's with closing costs) in 2003 and have saved more than that in rent since then, so for me it was a good. For the people 5 houses down from me that paid $150K for essentially the same house, not so much (since they can maybe sell it for 75K now).

Yes, buying a house is like marriage. It is a commitment. This is very psychological issue.

OT but...Chart idea: I don't know if Patrick has done this, but recently he had the inflation adjusted house prices graph and the value of the dollar on roughly the same time period. I was wondering if anyone ever combined these graphs. I know you have nothing to do Patrick (ha ha) but I thought it might be interesting.

Take care and thanks for your work.

KILLERJANE says

Agreed, so if you buy property where it produces cash flow when rented, then take that cash flow and pay the rent to live wherever you'd like, then you kinda beat the system, eh?

Thinking saying and doing need to line up.

These people cannot understand anything that is not negative about housing. I think they have sour grapes, they want to own but cannot get it together for whatever reason. So they speculate about a subject that they really have no experience about. I won't be basing my decisions to buy or sell real estate from a bunch of perpetual renters.

I think the real problem is that people need to buy a house they same way they would buy a used car.

Zzyzzx, but you cannot sell your car for more than you bought it for. A car truly has a short life. A house can last much longer. And in other older countries where houses and structures were made by masons and concrete, not wood frame, they last centuries.

MoneySheep says

3.If you do buy, you should pay cash. (If you do #1 right, you will be able to pay cash one day). House is consumption, just like buying home entertainment system, you shouldnt borrow to get them.
And if you need loans to buy, make sure you can pay it off in 7 years.

I would disagree with this for a number of reasons. Basically because if you compare real estate to overall stocks in the long run stocks outperform real estate by a fairly good margin. In many circles its suggested to take as long as possible to pay off a house. In doing so you're taking the money you're not spending on a mortgage payment and putting it into investments that will over the long run give you more return. Likewise if you pay for a house with cash, your cash is then tied up to again- an investment that isn't going to perform as well and in many ways puts the money at more of a risk come something awful- like if you lost the house for some reason.

* Not financial advice

I could disagree because paying cash for a property frees up your income and you are actually paying sticker price. Financial stress is reduced. You always have a place to live in hard times without the added mortgage payment pressure of losing your home. Try it, you'll like it !

I'd rather pay 200,000 cash than 350,000 over 30 years. That's 30 years of being responsible to holding on to that job because of the house, painful. I did that for 10 years, hated it. And we bought in 2000.

Buying a house make sense IF and ONLY IF:

1. The house is accurately and reasonably priced.
2. If you plan to pay it off in 10 years or less.

Once a house is paid for, it's fantastic. My Boomer generation parents took 25 years to pay off their house (through several refis). Did they get hosed on interest? Yes!

But ... the house is now paid for. It's theirs. All they have to do is pay modest Utah property taxes. Not having to pay rent after retirement will be a HUGE savings to them.

I'd agree that a house is a depreciating asset, unless you have an inflationary economy, which is what we have. Then the house can rise faster in price due to inflation, than it falls in price due to depreciation.

Having a house paid off lets you sleep good at night - plus the landlord can't raise the rent, and you can paint the place any color you want without asking permission, have as many pets as you want, etc.

Depreciation is a concept used in accounting to measure the decline in an asset's value spread over the asset's economic life. Depreciation allows for future investment that is required to replace used-up assets. In addition, the U.S. Internal Revenue Service allows a reasonable deduction for depreciation as a business expense in determining taxable net income. This deduction is used only for property that generates income. For example, a building used for rent income can be depreciated, but a building used as a residence cannot be depreciated.

Is buying a house (ever) a good idea?

With millions of homes sold and bought over time in different economic cycles and markets, sure, sometimes it was/is a very good idea.

I think with this most recent and huge economic meltdown of 2008 opened a window, just for moment, just for a glimpse of the greedy tyranny of the global financial elite. This game has been going on for many decades!

http://theeconomiccollapseblog.com/archives/the-number-one-tool-of-financial-enslavement

In my opinion, a huge red flag is Fannie Mae selling $321k 1 bedroom trendy condos in Sherman Oaks.

http://www.redfin.com/CA/Sherman-Oaks/14141-Dickens-St-91423/unit-207/home/4835790

Is buying a house (ever) a good idea?

It depends. I'd rent forever rather then paying 500K for a crappy 1500 sq. ft. wooden box - I'll let the landlord take the tax break and make a wise use of my money somewhere else. :)

Leopold B Scotch says

We've allowed policy makers and legislation to short-circuit this under the idea that it is everyone's right to have a home, and it's the government's job to make it a near entitlement via its power.

How else you gonna get elected to office?

duckhead says

“Now renting v/s buying is a psychological issue? not a financial one?” It is BOTH, of course you want to buy a house so you feeeeel successful, and fitting in with all your neighbors who have all been taught that buying a house is the American Dream (psychological), then on the flip side your Realtor™ makes bank CHACHING (financial)! It’s a WIN WIN, you feeeeeeel good and your Realtor feeeeeeels good.

Do you...YOU...feeeeeeel like I do?

I'm loving the comments. I think the volume of passionate & conflicting opinions suggest that the question is best answered locally, and personally. It's a good idea sometimes. And like all industries, a few unscrupulous professionals (realtors, bankers, etc...) cast a shadow over the hard-working, honest few. Here's how I came to my own answer. It may differ greatly from yours, in your world and in your circumstances; I respect that. The process of answering may be the same for all of us, though our individual answers will no doubt (and should) vary greatly.

I am comfortable putting more than 20% down. I love this area, (Austin), and see employment options long into the future. I hate moving. I love working on a home--maintenance for me is a pleasure, not a chore. I plan on using every square foot of my new home--i.e. it is neither too large nor too small. I am happy with the current value, even if it never goes up (or declines) down the road. My monthly payment (property taxes included) is significantly less than my current rent. I am a picky homeowner and have been a picky renter. Conditions of rental units often offend me. I like the freedom of having a roommate or family member stay with me unconditionally for long periods of time. I do not, however, care about the tax write-off and I'm not foolish enough to believe I could flip this house in three years (like I did in 2005) and make a profit. Those days, for know at least, are gone. Pragmatism is king... and I'm just being a good subject.

That said, Austin is not San Francisco or Detroit or Miami. The things that make me happy may not make you happy. Rates will likely rise, which means home values may likely decline even more in some areas. But buying a home is a complex, multi-faceted experience--which is why a blog like Patrick's is so valuable to anyone in the midst of that decision-making process...

I bought a home for 325K and sold three years later for 565K. I've bought artwork that I later sold for more than 300% profit. The mustang I paid $3,000 for as a teenager paid for most of my undergraduate tuition.

I've tried to be nice here... in both of my posts. But you should take a closer look at what you believe is truth. There are exceptions to everything. I'm not recommending that those exceptions be the rule for making the decision to buy a home--in fact, just the contrary. But nobody benefits from such absolute statements.

I'm obviously in the wrong place. I've been reading this blog for years now... I guess engaging in a discussion was a mistake.