patrick.net

Too pessimistic of a view. The US economy will not be poor forever, neither will energy be expensive forever. New industries will arise, cheaper energy will be developed, and the economy will recover.

Live below your means, do the math, and if you buy a house make it a very modest one relative to your income and you will not have a problem.

We bought when it was financially prudent, that was 1993 I think, that time is gone though. It's crazy out there now.

Buying today is like signing up for a giant ball and a chain.

If you don't buy then you rent so there is always a price at which it makes more sense to buy than to rent. Granted the 30 year mortgage may be a thing of the past before too long for the job market / job stability reasons you just mentioned.

But there still will be a market for homes, and believe it or not if you compare incomes to prices, some areas are on the upper end of those ratios.

if a home has total cost of ownership that is one tenth monthly rent for an equivalent home, then it makes sense to buy.
if it costs ten times monthly rent, it makes sense to rent.

in between these two scenarios is the gray area where you make a subjective decision that buying or renting is better.

"Amen to that"

From/reminds me of the movie "Ghost Ship", no one saw what was coming until the sharp wire cut them all in half...

“Is buying a house (ever) a good idea?” Wha wha whaaaaat?!?!?! IT IS ALWAYS A GOOD IDEA. My goodness, a poster like this must think the real unemployment/underemployment rate is way up in the mid twenties when calculated the way it was just 25 years ago, a poster like this must think the age of contraction has begun and that infinite growth on a finite world is not possible, silly silly silly. A poster like this must believe that every oil field on earth peaks and declines in production and that new oil discoveries are not even coming close to replacing lost production, thus this amazing blip of economic growth, which paralleled the rise in oil production in now coming to end. What a bunch of hooey!

It would seem that homebuying is a relic from when employers and Government enjoyed the privileges of having "stability" in their workforce (and forced savings for retirement through ownership).

But now, don't they encourage workers to be mobile? This generation is different from our parents' in that we don't retire from our 30 years at the same company, replete with Gold watch. Instead, we get the best increases through a lack of fidelity and the employer may reset your seniority through M&A or liquidation.

Why be tied to a 30 year mortgage at all? It could ruin your "mobility", financially and physically.

I sold a DC-area house in 2005. I was relieved, made a decent profit after only three years and was happy to have learned my lesson about owning (and borrowing) more than I needed. Geographical areas are as different as people's needs. I'm about to buy another home--though this time, it'll be a traditional 15-year mortgage with more than 20% down. It's a single family, close to all the action in a walkable neighborhood with exciting things going on. My mortgage payment will be $225 less than my current rent, and homes here last ONE DAY on the rental market. The oak trees in the small yard make up for the 1980's kitchen and the size is less than half of my old home in DC. But I could not be more excited about this.

The reasons for my excitement are far more than financial. Some of us are "nesters." We want to know that our monthly payments will remain the same for fifteen years (or more--but I don't recommend it). I want to be able to paint and make repairs and enjoy sweat equity projects over the years. I don't want to worry each year whether or not my landlord will decide to sell, raise the rent, change management companies, or worse--over-extend himself and default on a home I am currently renting. I want to walk to a state-of-the-art hospital, grocery store, library and more--especially as I grow older. I want permanence, and I will be at peace knowing that I will own this home before I retire.

I strongly recommend working out the financials... but you must also look at your own goals, personality traits and things you value. Study your neighborhoods and evaluate projections for economic growth. Is your home a projection of yourself, or just a place to sleep? If you had to relocate, would a rental income pay your mortgage, taxes, insurance and upkeep?

Sorry this is so long... but buying (and owning) a home can be an amazing experience. It can also be a nightmare. Know what you want and why you want it. Know your wishes, your needs, and that sweet spot between the two called common sense.

It is Maintenance free income. A $500 k mortgage @ 5% generates $500 k net to the banks. They have learned to milk the benefits out of home ownership.

YES. BANKS LIKE THE IDEA OF HOME OWNERSHIP.
BUY NOW BEFORE IT"S TOO LATE AGAIN !

duckhead says

IT IS ALWAYS A GOOD IDEA.

Come on now, we all know that isn't true. To be absurd for the moment, paying $10 million for a house that you could rent for $1 per month wouldn't be a good idea, would it?

I am sorry but rents are not falling along with housing prices across the board. If you want to make a meaningful point you ought to be truthful about whatever it is you are trying to point out, otherwise you just come across as an idiot. When I rented here my rent went up every year 3% without fail. The management never fixed anything that needed fixing, the fucking superintendent was a doorman at another building (so he was never around) and his wife mopped the floors of our building. He didn't do dick except bring his serbian buddies in to renovate apartments (and make extra money) when people moved out. The rent sure as hell went up 3% a year though, and it continues to do so, as I have two good friends who live in units in building that can confirm this.

Austin TX says

We want to know that our monthly payments will remain the same for fifteen years

They won't be if you're in Austin. TCAD reassesses residential values annually at a rate of 10% appreciation and adjusts your tax bill accordingly.

The smart money is selling in Austin. Prices are fucking goofy here.

Is it EVER a good idea? It is all relative. Living arrangements generally cost SOMETHING. Certainly, around much of the Bay Area, buying costs more than renting, enough that you can save cash towards outright purchase faster than you can pay-off a mortgage. Rents are going up, so it is becoming increasingly difficult to save lots of money renting in popular areas. I would be very hesitant to say that rising rents make buying into the "right" choice, but I guess if you are determined to stay in the area, there may come a time where it is less nonsensical to buy than to rent.

Buying is quite appealing idea to me. In DC area, we're getting to the point where rent = mortgage situation. Not because home price went down, but because rent went up.

I think a paradigm shift may slowly be happening. Mobility is much more beneficial for employment and promotion. If a person is not tied to a location, the employment and job improvement possibilities increase exponentially. In this economic environment, much of the population will come to realize this.

If rent is close to the mortgage payment, renting makes moe sense hands down. The maintenance costs and having to personally deal with issues of the house that come up are the deciding factor. I own a small house (1000 Sq ft.) and sometimes it is a real pain in the *ss. It seems on the weekends, I am always mowing the land, making some repair, painting, etc. If I owned a large house, I would have to do that much more. The American (opium) dream of owning a McMansion is slowly fading.

Patrick a great article and I congratulate you and basically agree with you. I am not sure that we will be able to sell the house that we live in now. The keys might have to go back to the bank.

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.

Location, location, location.......RELATIVE to how useful your location allows you to be.
What does this mean? It means that the value (not the price) of a home lies in whether it puts you close to where you are useful to your own future and the future of your environment (resources, other people, etc). First, you have to determine if living in a particular place is going to enable you to have a future. Second, deciding whether to buy or rent is relative to how stable you think your usefulness at that place is going to be.
A traveling salesman who changes jobs may not ever see a stable location for themselves, and thus, would not have much need to own a home that requires them to maintain it and develop community ties.
A generational culture (Traditional farmers, etc) that works the land would not think twice about buying a house and fertile land to settle down with future centuries in mind.

The current situation of pricing based on supply/demand of bank loans and cheap gasoline-powered transport is very confusing because the cheap gas enabled most people to drive a long distance without thinking about it, and it enabled the land to be worked by very few people with very large machinery. (We replaced the value of human labor with petroleum products.)
This is a very short-lived cultural situation that has few comparable precedents to evaluate (the Spanish "cheap gold" empire, maybe.....and that led to a Stone-age economic collapse). "Reason's got nuthin' to do with it."- Mr. Gibbs.
We have to wait and see how telecommuting flushes through this situation, also. I don't think it will have a great impact, because driving to work is only half of the driving side of the current exurb/suburb society: the other half is driving to meet and eat. The transience of 21st century employment now influences people to meet and eat with people OTHER than those they work with (the traditional 'networking' of the 20th century).
The Castle in the 'burbs is not so much a trophy as an anchor. Anchors can be useful, but not when all of the boats are moving.

I don't think there's an absolute answer that's totally right here. Everyone's situation will be different. Basically, if you can afford to buy, have cash savings, have a reasonably stable job, and don't place home appreciation as a dependency on owning one then its not a bad idea.

Full disclosure- we just bought. But it was a complex decision. We saved for over 10 years, lived very frugally and have stable jobs. Secondly, while our rent was pretty cheap- and in fact cheaper than what we will be paying for the house, if we had to have found another similar rental in this market we would be paying more for rent than for a similar sized house's mortgage. The fact is that right now money is ridiculously cheap. As in interest rates are hovering around 3.66% or thereabouts. I'm not sure if that's necessarily a good thing because low interest rates tend to create asset bubbles. One of my primary reasons for buying was simply to put a more dependable ceiling on housing costs so that ultimately more can be stashed away for retirement. I could care less what the house is worth.

Basically I don't have strong opinions either way. Renting is fine and buying is fine for different reasons.

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