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Rent or Buy.. opinions
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Rent, Don't Buy, Your Home By Justin Ewers, usnews.com
Jun 26th, 2008
Real-estate agents have been pushing the virtues of homeownership since homes were invented. Or since real-estate agents were invented, anyway. Paying a mortgage, they insist, is a can't-miss investment (the tax breaks, the appreciation, the thrill of fixing your own roof!). Renting is for simpletons who don't like keeping their own money.
But does owning a home really trump renting? With the economy stumbling, house prices falling, and credit tightening, many housing experts are questioning the conventional wisdom. "Over the last decade, it may have been true," says W. Van Harlow, an economist at the Fidelity Research Institute. "Clearly, there are periods where [the housing market] will dominate. But give this market correction another 18 months, and it may not be true anymore."
Not so hot. The housing boom produced endless stories of homeowners getting twice what they paid for their homes. But "prices don't always go up," says Jay Butler, director of realty studies at Arizona State University. Even a boomtown like Phoenix has seen median rates of appreciation climb only 4.6 percent a year since 1981. According to a Fidelity study published this year, the return on a dollar invested in real estate in 1963 barely beat that of a low-risk treasury bill.
When the housing market slumps-as it has every 10 or 15 years for the past several decades-homeownership becomes little more than renting, from a bank. Without appreciation, buying a $400,000 house-instead of renting the same property for, say, $2,000 a month-can turn into an expensive, potentially money-losing proposition. Assuming home prices come out of their death spiral (prices fell 4.5 percent in the third quarter compared with last year), they would still have to appreciate at 4 percent every year for a decade-even if rents climbed well above the rate of inflation-before a family would save more owning than renting. An $80,000 down payment could be invested instead in a mutual fund earning 8 percent, and housing comes with myriad other expenses, from maintenance to insurance to taxes, none of which build equity. Tax breaks do ease the pain. But with the average family staying in a house only six years, homeownership during a slump (especially in foreclosure pits like Las Vegas and Tampa, where prices have dropped more than 9 percent since last year) can look less and less like the American dream.
Renting, meanwhile, has its virtues. It's cheaper in the short term, it offers maximum flexibility, and it pushes the headaches of maintenance and taxes onto landlords. It can also be a sound long-term investment. According to Fidelity, if renters save even $300 a month-the difference, say, between their rent and a monthly mortgage payment-that money, invested in stocks growing at only 4 percent, could add up to $114,000 in 20 years. (And that's on top of earnings on a down payment that never had to be made.) "Over long horizons, if you reinvest the savings," Harlow says, "you're probably not going to find that much difference between renting and buying." Saving hasn't proved to be the national forte, of course. But with the bloom off the homeownership rose, it may have to be soon.
Jun 26th, 2008
Real-estate agents have been pushing the virtues of homeownership since homes were invented. Or since real-estate agents were invented, anyway. Paying a mortgage, they insist, is a can't-miss investment (the tax breaks, the appreciation, the thrill of fixing your own roof!). Renting is for simpletons who don't like keeping their own money.
But does owning a home really trump renting? With the economy stumbling, house prices falling, and credit tightening, many housing experts are questioning the conventional wisdom. "Over the last decade, it may have been true," says W. Van Harlow, an economist at the Fidelity Research Institute. "Clearly, there are periods where [the housing market] will dominate. But give this market correction another 18 months, and it may not be true anymore."
Not so hot. The housing boom produced endless stories of homeowners getting twice what they paid for their homes. But "prices don't always go up," says Jay Butler, director of realty studies at Arizona State University. Even a boomtown like Phoenix has seen median rates of appreciation climb only 4.6 percent a year since 1981. According to a Fidelity study published this year, the return on a dollar invested in real estate in 1963 barely beat that of a low-risk treasury bill.
When the housing market slumps-as it has every 10 or 15 years for the past several decades-homeownership becomes little more than renting, from a bank. Without appreciation, buying a $400,000 house-instead of renting the same property for, say, $2,000 a month-can turn into an expensive, potentially money-losing proposition. Assuming home prices come out of their death spiral (prices fell 4.5 percent in the third quarter compared with last year), they would still have to appreciate at 4 percent every year for a decade-even if rents climbed well above the rate of inflation-before a family would save more owning than renting. An $80,000 down payment could be invested instead in a mutual fund earning 8 percent, and housing comes with myriad other expenses, from maintenance to insurance to taxes, none of which build equity. Tax breaks do ease the pain. But with the average family staying in a house only six years, homeownership during a slump (especially in foreclosure pits like Las Vegas and Tampa, where prices have dropped more than 9 percent since last year) can look less and less like the American dream.
Renting, meanwhile, has its virtues. It's cheaper in the short term, it offers maximum flexibility, and it pushes the headaches of maintenance and taxes onto landlords. It can also be a sound long-term investment. According to Fidelity, if renters save even $300 a month-the difference, say, between their rent and a monthly mortgage payment-that money, invested in stocks growing at only 4 percent, could add up to $114,000 in 20 years. (And that's on top of earnings on a down payment that never had to be made.) "Over long horizons, if you reinvest the savings," Harlow says, "you're probably not going to find that much difference between renting and buying." Saving hasn't proved to be the national forte, of course. But with the bloom off the homeownership rose, it may have to be soon.
Comments
And I still only have a certificate of title so i really dont own it. Who the heck has the actual title?
Hmmm....
A convincing argument that renting is not the best deal for the renter.
The renter is the real person who pays real estate taxes, not the lardlord.
Home ownership (and the process of making payments toward that goal) is a form of security that, to me, is worth the added expense that financial experts see when they look at nothing but the numbers on paper. I don't look first and foremost at resale value or how much money I might have saved by going another route -- I look at the fact that I have a place to live, which barring some major financial setback (in which case I'd also be screwed, as a renter) no one can take away from me.
The landlord who owned the place I rented before I bought (okay, contracted to buy, over thirty years....) the home I'm in now, was in the process of dragging me into his divorce proceedings when I gave him notice of my intentions to vacate -- and he's enough of a SOB to have evicted me on, again, any one of a multitude of perfectly legal pretenses, had I tried to stay on in his house and refused to go along with what he wanted me to do (which involved saying things that were close enough to lying that I wouldn't have done it). This sort of vulnerability to someone else's actions and attitude is a huge consideration, to me, but something that can't easily or accurately be factored in when numbers are crunched.
The best part when you finally pay off your home. You have tons of $$$ for retirement. Who wants to retire with a rent payment till you die? Or maybe you will become homeless when you can't work anymore and can't pay the rent. Pretty scary thought there huh?
Worried about losing value in your home? Go rent that way your losing 100% all the time,and like a few have stated here renting is just you making someone elses house payment. So why not make your own payment.
Just don't be stupid and borrow 125% of the value of your home or get a variable interest rate.
It's really a no brainer.
Always buy if you can. Yes there are a lot of expenses but if you rent your landlord includs those expenses in your rent.
The best part when you finally pay off your home. You have tons of $$$ for retirement. Who wants to retire with a rent payment till you die? Or maybe you will become homeless when you can't work anymore and can't pay the rent. Pretty scary thought there huh?
Worried about losing value in your home? Go rent that way your losing 100% all the time,and like a few have stated here renting is just you making someone elses house payment. So why not make your own payment.
Just don't be stupid and borrow 125% of the value of your home or get a variable interest rate.
It's really a no brainer.
+1
mortgage payments can stop, rent payments never stop, owning my home i am in control of everything, including eviction, renters have zero control of the landlord, death, bankruptcy, sale, and in some cases just an azzhole
i cannot fathom renting
I would hate to buy a place here (although I am happy here) only to get a job offer somewhere else in a year, and not be able to accept due to a mortgage payment here.
If you want to be able to leave town quickly, and painlessly (compared to selling a home) renting is the safe play, in my opinion.
You can break a lease much faster, and cheaper than you can sell a house and pay a real estate agent.
At least in most cases.
When you have no mortgage payment anymore, it really pays off, as long as you don't screw it up with an "equity line".
Yes,.....I have taxes, and insurance, but that is where it ends for me.
You ARE paying them if you rent, plus you need renters insurance for your possessions.
If on the other hand you buy at the top of the market, and don't have the ability to realize what you can afford,.......you are better off renting. This is what we are dealing with right now.
say you buy a $100,000 house on a 30-year loan. add these up.
1. closing costs, whatever that is
2. interest over 30 years.
3. taxes.
4. the $100,000.
when you want to sell the house, you get back out of it what it's worth 30 years from now.
what's the total on that.
then, instead, what about renting the same $100,000 house. what would the rent be? $1000 a month? (I don't know) if so, total payments on that would be $360,000.
when you're done renting, you walk out the door and get back zero.
what's the difference in $$$. y'all fill in the numbers, I don't know what they are.
But don't let me stop you from renting. In fact I'm headed down there to evict some people and find some more renters.
In Boise, $100,000.00 would buy you the cardboard box, but it would have to be in Nampa.
Margaret Thatcher
"There are three kinds of lies: lies, damned lies and statistics."
Mark Twain
Rent you can change the scenery, enviroment & neighbours, quickly, if needs be!
& some one else has the hassle of the maintenance.
Buy & the responsibility is yours ! good or bad, also an investment, could make you rich ,if you sell & rent, at retirement, after a few years of ownership !
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Buying has never been a good (long-term) investment, renting is always better. The US is about the only large nation where home ownership is king. It is a marketing scam.
A very good observation as well as the correct one. The reason home ownership is so "popular" here in the USA is simply because law makers decided that the more people part of the so called American Dream the better. This is one of the reasons that Congress turned a blind eye to all of the shakey goings on in the home mortgage/lending business. Home mortgage interest payments are totally tax deductable for the average working class hero (if someone thinks you make too much money you naturally get screwed out of that deduction), along with points, closing costs and most property taxes. Here in Orange County, CA at it's peak the average house cost over $500K and most people were looking at $2500-$3500 per month in payments (if they used an impound account for their property taxes) but nearly all of that was a tax write off. No matter what some people still believe, there are not very many legit tax write offs left in this country and various lobbying groups fought hard to see to it that those which are a part of home ownership remained on the books. This was a big selling point when people looked down the barrel of a fat mortgage and wondered how they'd make the payments "Don't worry, most of it will be a tax write off and you'll be getting thousands of dollars back at the end of the year". Buy a home as a place to live and if you make money on the deal that is great, but the housing market is very fickel (just like the stock market) and you can lose your shirt in the short term if the market takes a dive. We own our little shack here in Newport Beach using a 15 year loan which we paid off early. It was a good deal since we bought at the low point in the market back in 1991, which interestingly enough was when another Bush was in office!