patrick.net

Housing does depreciate but the land doesn't. Just because you're not getting a tax write-off when you rent doesn't mean your landord isn't.

Owning should be cheaper than renting, because you're paying for service. If you can rent cheaper than owning (after all the crazy math people use to justify their predisposed desires) then housing is over-valued, and you're buying for the luv. I live in an area that doesn't have single family homes for rent, and those that are rent for a premium over 100% LTV/asking price.

Landlords MAKE MONEY, your money. If they don't then they're making friends, or are just plain stupid. The low mortgage rates have the numbers kinda wacky, but if mortgage rates were 10% tomorrow rent wouldn't drop a smidgen while housing prices would be shredded.

I would suggest that todays hosuing is not an investment unless you have enough money to pay cash for the property. It then comes down to if you could make more by investing the cash or renting the home.

In todays market, if the landlord has owned the property for years their tax base is likely lower. If you are a good tenant, protect the property, pay on time, then you likely will pay below market rates unless the landlord is stupid or you live in highly desireable area.

In the end it does come down to finances.

Good points.
1. I think housing depreciates but you get to "maintain" it so thereby amortize the depreciation by your improvements throughout its lifespan. In poorer neighbrhoods, they just let it depreciate; so, when they sell their house for 1/5th of houses a few miles away then you know why.

2. In some places you might not choose to upgrade your lifestyle because your environment offers so much you choose not to stay at home! This is EXACTLY the social difference between now and 60 years ago. I haven't seen anyone else mention this so maybe its not well-understood. As a relic drive through a poor neighborhood and notice how many people are on the street hanging out. Similar to everywhere back when houses were 1/2 the size they are today. People socialized OUTSIDE of the home rather than needing networked gaming and social networking websites.

3. I with you could provide the research numbers on this. If we assumed 10M houses would drop in 1/2 then that's roughly $100k*10M loss which is only $1T. I don't think that would wipe out any banks. I think the FED/gov printed somethign like $12T (but up to $20T by some estimates) over the last 3 years; so, another $1T is only a fraction of the printed money. Sure, it goes to plug a hole rather than do somethign useful but that's the hole which keeps housing prices inflated and some very wealthy people very wealthy.

Where I live its cheaper to buy than rent given the tax writeoff for interest payment. Rents have not adjusted to the new pricing levels. People are still charging based on what they could have sold the house for 3 years ago. And the landlord refused to sell his house at the market price. That was OK because we got a new one with granite countertops for less actually.

maxweber1 says

I think the FED/gov printed somethign like $12T (but up to $20T by some estimates) over the last 3 years

This is a pretty bizarre number (the Fed did take $1.2T of MBS in exchange for cash "fresh off the press") but I agree that another $1T of losses to the banking sector is in the cards at this point, ie. this is only the fourth inning, and I also think the system will be forced to lower rates to 3% to accept this shock gracefully.

If this situation comes to pass, buying RIGHT NOW is highly advised, since prices are still calibrated to the 5% levels and 3% is FORTY PERCENT more "affordability" thrown into the equations.

As for depreciation, California's climate is very kind to houses and of course as mentioned above a large component of the purchase price is not the house itself but the grant deed filed with county, that deed is theoretically worth the NPV of all future income flows of the property.

After tax savings I think I can buy right now for less than I can rent

I am not against buying a house that works for you now. While rates may go up, depressing values further, this won't be dollar for dollar so buying now will still give you a better price.

And of course buying now is the best insulator against wage inflation in your area. With Chinese labor working for $1 and still having 300 MILLION people underemployed, perhaps the future economy will just adjust to NO domestic manufacturing sector. This already happened in the Silicon Valley and it's doing better than ever, though if and when the design work starts getting offshored there will be . . . problems.

I suspect most of the fed monetization was electronic rather than paper.

Regarding inflation, we are experiencing deflation now. There has to be an increase in the money supply and circulation of the incremental supply. All that money is sitting on ledgers in banks and finanical institutions.

knewbetter is exactly right. The house itself depreciates, but the LAND is what increases in value.

"If you are a good tenant, protect the property, pay on time, then you likely will pay below market rates unless the landlord is stupid or you live in highly desireable area."

That's only true when your landlord is an individual. Many landlords today are corporations (eg: Avalon Bay) and could not care less about your history. They will have no problem increasing your rent.

HousingWatcher,

I have a good landlord, she is an individual and in the banking profession. I pay below market rent, she fixes things quickly. I am definately going to extend my lease.

I agree with all three.