As usual with this writer, she raises some interesting points.
Excerpt:
I agree with all of this. You should not buy a house because “renting is throwing your money away” or because you expect the house to become a cash cow. As an investment, housing is a good form of forced savings, but do not expect price appreciation to make you rich–nay, not even if it made your parents and all your neighbors rich.
But these articles, and the homeownership-skeptics (of which I am sort of one) often give short shrift to the benefits of owning. Renting has hidden costs, too. Outside of New York, with its massive stock of professional landlords hamstrung by restrictive rent rules, renting means you usually have to move every few years, because the landlord wants to live in the house again, or is selling it, or wants to raise the rent too much in the hope that you’ll be too lazy to move. Moving costs a ton of money, between the movers (now that I’m getting old and creaky), the new furniture that is inevitably required, and the old furniture that cannot be fit into the new house and must be thrown away. Moving also soaks up a month or so of your time on each side of the move, which needs to be factored in for both lost income and sheer misery.
Then there is the inability to have your house the way you want it. Sure, it’s not like we could afford high-end appliances. But if we owned our house, I might be able to hope that someday we would acquire a water heater bigger than a thimble, rather than hopelessly resigning myself to shallow, lukewarm baths. I might also be able to sink screws into the ceiling for a hanging potrack, install blackout curtains so that I could sleep later than 6 am in the summer, and otherwise make the house over more to my specifications. But the owners are fond of their home the way it is, so it stays.
For a long time, I didn’t care so much about this. I liked the freedom renting gave me. But once you’re committed to a city, and another person, that freedom starts looking overrated.
The recent housing crash has diverted people from their basic, original idea: borrowing to own a house is a fundamentally good deal. Buying at the peak of all housing bubbles was a bad idea. But if you buy within a reasonable range of prices, finance 80% of the purchase price (the typical middle class arrangement) and get a 30 year, fixed rate amortizing mortgage, it is very likely to be the best financial deal of your life if you are a middle class person. Most central banks target approximately 2% annual inflation. Assuming the interest cost of your mortgage is roughly comparable to what you would pay for a rental, the 4-to-1 leverage on an asset with government-driven 2% annual appreciation will magnify the return on your equity to almost 8%. In addition, since mortgages typically have no prepayment penalty, there is additional upside if you can refinance during a period of lower interest rates. There is also additional upside if the Federal Reserve misses its inflation target and inflation runs significantly higher than 2%.
None of this will correct an absurdly high price at the time of purchase, but even if prices today are still 10% above “fair value,” an immediate 10% loss followed by 30 years of 2% appreciation will allow you to quadruple the value of your equity (roughly 5% annual return on equity) in nominal terms and more importantly, outpace inflation by a significant amount with very low risk.
I like Megan too. I agree that there are many psychic benefits that come from owning that can’t be easily factored into the price. The shock came because people felt like owning your home was like a money tree and these benefits should come at no cost. I don’t think that your house should be viewed strictly as an investment like rental property or commercial property. You have to consider the intangibles and their value too. Of course, this from a man who lost money selling his last two houses.
Being single allows one to efficiently rent/lease anything (incl chicks) w/o assuming balance sheet risks
If choose family life, obviously need to buy some permanent shelter in a desirable locale…and assume an illiquid, depreciating, obsoleting asset on one’s balance sheet
Another critical component of owning is this. For most people, they take better care of that which they own, than that which they rent.
So – whether it’s a neighborhood of homes or townhomes, or a condo or co-op building, if the majority there own, there’s a greater likelihood that the streets and lawns are clean and tidy, that the buildings are maintained and that in general, property doesn’t fall into disrepair.
Needless to say, there are all kinds of exceptions and qualifications. Still, if people have ownership involved, they will make an effort to protect their investment and have pride in what is theirs.
There are good points to both renting and buying and like anything else, it depends. If your work requires frequent moves from one area to another, obviously renting is a better idea. If it costs less to own than rent, and you are happy to settle in a particular area and put down roots, owning is the way to go. Personally, I prefer to have a place of my own where I won’t be subject to the whims of a landlord, but until we’re somewhere in the vicinity of a bottom to the housing market, I’m renting.
Moving is a real pain in the patootie, though. I’ve learned to travel light and get secondhand furnishings (some of which, by the way, are far better made than new). Craigslist is awesome.
point well taken. Renting sucks.
on the other hand, if you own a $4 million house with a $3 million mortgage costing you close to at least $15G per month including taxes and before you spend another at least $2G per month on maintenance, some of the rentals in the $8G range currently available are very tempting. As with every thing, it is a matter of timing, preference, and personal situation. Renting definitely has its hassles for which you must be prepared, but depending on the numbers it could be at least temporarily very attractive.
We’ve owned and rented, made money and lost money on houses and lived in a caravan as well.To my mind if you are planning on staying somewhere for a number of years and can afford it then owning is the way to go. You can do what you like to the abode in terms of decor etc and you at least have something that you can sell if necessary. The personnal stress that having to find another rental and then the moving and trying to fit things into the rental make a huge negative for renting. I think where a lot of people run into trouble with buying as an investment is that they expect that they will make money in the short term and unless you are very fortunate in the market and the position this doesn’t usally happen-esp as you have to take into account the interest you have paid on your load, the rates and the cost of moving in and out.
Kathie
http://www.chamomilemassage.wordpress.com
(Gideon here)
chamomile:
Agree. After all these years, I’d say my happiest buyers were the ones who moved the least (bad for business, though).