Rent or own?

[Jim Warren]

I'd really appreciate opinions on this as I currently rent. What do you think the future holds?

[Laughing Mirror]

1. Currently, I borrow

The future? The street, no doubt.

[Jim Warren]

2. I hear that.........

me, wife and child.

[Laughing Mirror]

8. We are all in this together

[acmavm]

3. Trying to own, but hanging on by a thread. Temporary work for over a

year and a half.

[onehandle]

4. Buy, but only where property values are going up.

Interest rates are back on the floor again. Take advantage of them now. A house payment can be less than renting these days.

Unfortunately, after Kerry is elected and the economy rebounds, interest rates will go up. But not your morgage interest rate.

[James T. Kirk]

5. Buy!

We are buying! My wife and I just signed an agreement on our first home today!

It really depends on the housing market you are in, though.

[Jim Warren]

7. housing market you are in

Thanks all for the replies so far.

I think I'm in one of the worst housing markets, southern New England.
Mass. average homes prices just exceeded the 400k mark!

Care to give a few more words on your take as to the 'depends on the market you're in'?

[James T. Kirk]

13. Ooooooh. Bad place.

I feel your pain. I live in southeastern Massachusetts and from what I've seen, there is very little good, affordable housing. We're paying just over $200,000 for a modest townhouse condo in Fairhaven, Mass. We could get a huge place for that kind of money elsewhere. My wife and I are first time buyers, so we figured a condo was a good way to get something we could afford and get out of the rental world.

I see all these huge, half a million dollar houses around here and I have to wonder where these people get all the money.

[Tiberius]

6. someone did an analysis on this...

and I think that given historical averages in the appreciation of a house, the biggest factor to consider is really how often you move.

the whole notion that you're "throwing your money away" if you rent is inaccurate. you're throwing away much more money if you buy houses and move around frequently.

renting, at least here in Boston, is great. rents have actually declined recently.

[Jim Warren]

9. Yeah, we've moved a lot.

Thanks, that's the kind of thing I'm wondering about.

Boston, ouch, that is some spendy real estate. Makes Newport look cheap.

[wryter2000]

10. Better to buy now, if you can

I second what the person said about don't buy if you move a lot.

Assuming you're going to stay put, buying right now is a good investment because of low interest rates. However, don't sign yourself up for a house payment that's going to be hard for you to make.

I bought a house two years ago and already have about $50K in equity in it. With my fixed rate mortgage, my "rent" will never go up. These days I wouldn't get a variable rate mortgage.

[rapier]

11. notes

Buying will be a good 'investment' only so long as interest rates are low. One follows the other. Easy cheap credit has been the fuel for real estate inflation.

In a virtuous circle easy money begets more demand which begets higher prices which begets even more demand, and so on. All contingent upon the availbility of cheap credit. Absent low low rates demand will slacken, as will price. which could trigger a vicious circle to lower prices.

I think it is fair to say with a median price of $400K in his area this is a hot market area. As a rough guess I would say that prices in hot areas are 30% too high. That doesn't mean it isn't a good speculation. (An investment is something which has a high probability of giving a steady return of X percent. A speculation is something you buy and hope to sell higher) Home prices could continue to rise for some time. I'm not smart, or is that dumb enough, to predict.

It should be noted that hosing inflation is an overt policy of the Fed, the entire government, and the financial system. With all those friends the market is not one that will fall without a fight.

Buying a home should always be first about having a place to live. ALWAYS. Screw the speculators and all the majority who think they are so smart riding an inflationary wave. Buy if you can but hold no illusions that your hoped for building of 'equity' is an investment. It is a speculation. One that carries a bit of risk. Of course if the market turns down after you buy you can just walk away. If you make a minimal down payment the loss will be small. Someday this will happen on a large scale.

Here is a funny article about the logic of housing inflation carried to the extreme.

http://www.dailyreckoning.com/home.cfm?loc=/body_headline.cfm&qs=id=1548

Click on second article in the left frame, Signs the Housing Market....

[kalian]

17. Thanks for the post, Rapier....

its pretty much in line with my own thoughts.

I currently am looking into purchasing a home. I plan long-term
residence unlike my fellow Coloradoans that move on average 6 years
inbetween homes :eyes:
There's definitely a MASSIVE housing bubble going on right now,
but I plan on purchasing my home to LIVE IN and not speculate with...

The big "threat" that I forsee is that the average current housing
prices are definitely inflated (average in Colorado Springs is about
170K, which is VERY low when compared to the national average). The
issue is that when the economic situation comes home to roost (and
it will) many homes will depreciate considerably. I'm 100% sure
that the home that I purchase will lose value within 3 years of
my purchasing it and I expect it too, but at the same time I won't
be allowing it to phase me since I plan to stick it out in this town
for a very long time (I work for a school district...).

I feel sorry for the folks whose home values will depreciate AND
have already taken out most of their equity. They will be the ones
that are up shit creek.

Bottom line is: we're at a crossing point in the housing market and
its best to jump in while you still can. Remember, when inflation
hits...mortgage payments on a conventional loan will remain
constant while rent payments will increase yearly...guaranteed.

Just my two shiney pennies.

[unblock]

19. buying can be a good investment even as rates climb

you just have to have locked in a good mortgage rates and stay put long enough. in the long run you're almost a shoo-in for being better off by buying.

the big "but" nowadays, is you have to know you will stay put, say, at least 7 years. that can be a tall order for many for whom 7 years can easily mean 3 or 4 different jobs....

[mastein]

12. Get on the escalator now

Yes, prices are up now so the number in box #1 will be scary but that will be offset by a lower monthly payment. Also, the faster you get in the faster you can pay things off. IF you decide to go with a 30 year mortgage now (the wise move, don't listen to the folks selling ARMs, it is a bad move long term), just make sure you go for a deal with no prepay penalty. That way, if you add or 2 extra principal payments a year, you can shorten the length of the loan that way. The only "loss" in doing that vs. a refi to a 15 down the line, is probably about 0.5%, which will get eaten up by the market once the intrest rates recover and we have to start paying on the debt created by the shrubbery.

[On the Road]

14. Depends on Your Goal and Your Situation

My parents always owned, but kept moving and never made much money because of the transaction costs. If you're stable and the monthly costs are equivalent, owning is almost always a better long-term prospect.

The timing is not necessarily the best. Right now real estate prices are high, but over 10 years or more it's hard to go wrong.

I put off buying a house after my divorce because I didn't know where I would be in a few years -- I didn't want to lose on the transaction costs of selling right away. It was a mistake -- I could have $100K of equity right now after four years in the hot DC market.

Over the long term, prices are bound to rise. But like the stock market, it may take a few years to recover.

I have done something relatively bizarre -- I'm renting near DC (where you can't get a good house for under $300k), but have bought three small investment townhouses in Baltimore (where you can get foreclosures in working-class neighborhoods for less than $30k).

Not recommending this option, but thinking about renting is one way to increase affordability. For example, you may be able to buy a bigger house if you plan on renting out the basement. Or look at getting a whole duplex and living in one half.

[rapier]

15. notes on speculation

"Over the long term, prices are bound to rise. But like the stock market, it may take a few years to recover. "

All off thread but....

This is in no way meant to be a prediction but

stock owners from 29, if they held, were not whole again till 54 or so. That includes dividends by the way, which are non existent now pretty much and nobody cares about them anyway despite the fact that the bullshit lies about 10% stock returns over the long term DEPENED upon dividends (3% or more back then and reinvested to get the 10% numbers) to get their BS numbers. (BS because they always measure indexes, which shift over time.

Everything is bound to rise in as much as inflation is built into the system. Is it possible that the built in inflation most assume is as inevitable as the sunrise and some sort of natural phenomenon will have a sudden violent reversal? Yes. Likely probably no but the blithe assertion above is far less than certainty.

In any case general inflation is making a comeback but stocks and housing have inflated already. Will they keep pace. I don't have a clue but don't assume they will.

Stocks are a speculation, not an investment. Residential Real Estate is too, to the extent one assumes above core inflation rate returns. THe dearth of investment and the mania for speculation defines our nation perhaps, never more so than in this age.

[On the Road]

16. That's Exactly My Quandary

I would like to build some equity before retirement and am very afraid of having negative equity by buying too soon.

I bought a small house in 1984 in University Park, MD for $107,500. A year and a half later houses in my neighborhood began selling for $170-180,000. The next year it lost over half those gains. I do NOT want to be one of the people who bought at the inflated prices.

Of course, the house is easily worth $220,000 more right now, so time heals all negative equity. If you're stable or don't mind renting it out when you move, it's virtually a sure thing.

The safest way is to find an area that has not yet appreciated. Depends a lot on the city. I decided to put off buying a primary residence in DC, but that's a contrarian position right now.

If inflation heats up (which it may), it will cause real estate prices to rise over the long term. However, it will also cause higher interest rates, which will push real estate prices lower. To some extent it's a trade-off -- no one knows exactly how much.

[rapier]

18. notes

If housing, and stocks, inflate forever, then everyone who owns them will be rich or at least financially secure.

I don't think Adam Smith ever thought of that. John Law did however. So too has Alan Greenspan and Wall Street.

Few really appriciate how much the meaning of capitalism and free markets has been subverted to mean speculation and endless monetary inflation

Why would a liberal, myself, mention Smith and markets. Well Smith and markets were children of the Enlightenment and classical liberalism. They have been hijacked by 'conservatives' to provide for, as JK Galbraith says, "a superior moral justification for selfishness"

[unblock]

20. well put. 'conservatives' don't believe in free markets

first and foremost, they don't believe in competition. they think 'free markets' means 'whatever happens without government interference', which in truth means anti- competition.

virtually the entire purpose of 'government interference' is to promote and ensure competition. by opposing this, 'conservatives' reveal themselves as corrupt facists, not at all free marketeers.


markets are made up of sellers and buyers. how can you claim to believe in free markets when you always side with the seller??

[Jim Warren]

21. That's a great post unblock!

And rapier's above it.
You've said in a few straight-forward sentences what I've been trying to find the language for awhile.
I got a rush listening "entrepreneur" brother-in-law I'm gonna hammer with this.

[Nikia]

22. I am thinking it would be better if we owned

I am not sure of my job situation yet so we are putting off buying until then. We pay $625/month in rent. We are not allowed to do anything with the duplex, even put nails in the wall. The average housing price in this area of rural Wisconsin is $125,000, which is a pretty nice house. There are houses around $80,000 that my husband and I find acceptable and would be bigger than what we live in now. I don't think that property values will go up too much, but it would be nice to have a place of our own.

[Jim Warren]

23. $80k? wow

Man, that sounds pretty darn good. I'm glad there are still some areas of the country that have not gone insane.
Here in New England prices are through the roof. Five years ago We were living in a house the owner put up for sale and couldn't sell it. He wanted to move to Arizona and kept dropping the price and finally said to me I should buy it for $89k. Hah, what a mistake. He sold it cheap and the person who bought it kept it two years and sold it for $189k. Today it's market value is $289k.

[amazona]

24. buying is cheaper than renting in my area

Louisiana is a homestead state -- no property tax on homes assessed under $75,000.

The renter must pay for the landlord's profit plus property tax in addition to the other costs.

Renting a house in my neighborhood is around $1,100 a month! Just checked the newspaper this weekend -- this is for a house a couple houses down from me. I bought my house at a bottom (the S&L crisis) in 1991, therefore, the gov't paid the transactions costs and allowed me a very low down-payment to boot. My monthly note was well under $500, although I don't remember exactly any more. They were motivated to get people back into houses and to save the nicer neighborhoods, so they had completely restored my house. They even put on a new roof and did the first termite treatment. The interest rate was higher, but keep in mind, when interest rates are higher, the cost of the house will drop some -- so if you come into some extra income and can pay off early, you actually end up paying much less with higher interest rates. So don't be panicked into buying because you think these low interest rates can't last forever. There is good and bad to low interest rates.

When I was earning some decent money, I paid off my home and have lived note-free for several years.

If I sold my house today, even at the cheapest price for this neighborhood, I would get all my money back and more. It is like living rent-free...for more than 12 years!

If you move a lot, and can't get a gov't program or your job to pay your closing costs, then buying might be a bad idea. But for me it has been a godsend.

[Mixxster]

25. Is it just you and your spouse...

or do you have children?

A few years ago, I was forced to move from the apartment I had lived in for over 15 years. I'm single, the rent was really cheap, I didn't have a large income, and I was concerned about the upkeep of a house. What I ended up doing was buying a two-unit. I live in one and rent the other. The income from my tenant pays well over half the mortgage.

Of course, that advice isn't much good if you have kids or are used to living in an entire house.