O/T Worthwhile buying a house in america or keep renting?

[gogotren]

Real estate has doubled or more in value every generation for the past 100 years. It will continue to rise in value, so long as the nation's population continues to increase (as it does now).

Real estate prices are starting to recover from the last bust. They'll never be lower ever again in our lifetimes.

All of this argues in favor of buying a house.

Mr. wise, what has inflation done over that same time period of the past 100 years? RE over time, with interest, expenses, repairs, etc does little more than match rate of inflation. You think the population is increasing? Birth rate is in decline for several yrs already. Have you heard of the baby boomers? Yes population will be flat to decline for decades to come as they die off. You say prices will never be lower again... and what do you base this off? We still have a ton of deleveraging of debt to do, interest rates are heading higher (especially when the fed stops QE), population is NOT growing, hedge funds are exiting the residential RE mkt (which is a big part of the push up over last 2 yrs), china`s major RE bubble is set to burst in the next 1-2 yrs, and on and on, you are clueless as to the risk out there.

 

[Jitbjake88]

Buy now. Sell in 5-10 yrs and make some money.

 

[maldorf]

Buy now. Sell in 5-10 yrs and make some money.

I don't think 5 yrs is enough, especially in these very uncertain times. Unless you sell it on your own youll have to pay 6% to the realtor's office and that really takes a big chunk.

 

[Performance Based]

I am a bit astonished that this is a real question. Property tax for most states is completely nominal so the comment that it is a black hole much like renting is absurd and not founded on any meritorious fact.

By asking this question I am assuming you are new in regards to investing a portfolio and truly making your money work for you.

If you are going to be around for a while absolutely purchase for yourself, in regards to that I mean purchase with only you you in mind. (YOUR NEEDS).

If you are not going to be in the area for long purchase a property that will be easy to lease out, preferably at some sort of premium. IE town homes in desirable neighborhoods.

 

[360]

Mr. wise, what has inflation done over that same time period of the past 100 years? RE over time, with interest, expenses, repairs, etc does little more than match rate of inflation. You think the population is increasing? Birth rate is in decline for several yrs already. Have you heard of the baby boomers? Yes population will be flat to decline for decades to come as they die off. You say prices will never be lower again... and what do you base this off? We still have a ton of deleveraging of debt to do, interest rates are heading higher (especially when the fed stops QE), population is NOT growing, hedge funds are exiting the residential RE mkt (which is a big part of the push up over last 2 yrs), china`s major RE bubble is set to burst in the next 1-2 yrs, and on and on, you are clueless as to the risk out there.

We are forgetting that a big part of buying a house is peace of mind. You have your own place with peace and quiet.

In an apartment you could have some loud ignorant neighbors living next to you with no respect for privacy. You can hear their conversations, loud music, and footsteps all day and night with the thin walls to your apartment.

I'm not going to be living next to some lazy assclown in an apartment because "the risk assessment" was too high to buy a house.

 

[Performance Based]

Mr. wise, what has inflation done over that same time period of the past 100 years? RE over time, with interest, expenses, repairs, etc does little more than match rate of inflation. You think the population is increasing? Birth rate is in decline for several yrs already. Have you heard of the baby boomers? Yes population will be flat to decline for decades to come as they die off. You say prices will never be lower again... and what do you base this off? We still have a ton of deleveraging of debt to do, interest rates are heading higher (especially when the fed stops QE), population is NOT growing, hedge funds are exiting the residential RE mkt (which is a big part of the push up over last 2 yrs), china`s major RE bubble is set to burst in the next 1-2 yrs, and on and on, you are clueless as to the risk out there.

We have drastically different opinions in regards to a few financial matters but it is nice to see other individuals who are actually educated in the realm of finance willing to help the forum out.

 

[woodswise]

Mr. wise, what has inflation done over that same time period of the past 100 years? RE over time, with interest, expenses, repairs, etc does little more than match rate of inflation. You think the population is increasing? Birth rate is in decline for several yrs already. Have you heard of the baby boomers? Yes population will be flat to decline for decades to come as they die off. You say prices will never be lower again... and what do you base this off? We still have a ton of deleveraging of debt to do, interest rates are heading higher (especially when the fed stops QE), population is NOT growing, hedge funds are exiting the residential RE mkt (which is a big part of the push up over last 2 yrs), china`s major RE bubble is set to burst in the next 1-2 yrs, and on and on, you are clueless as to the risk out there.

The US population is growing faster than any other industrialized nation. The current population of 316,311,000 is projected by the US Census bureau to increase to 439,000,000 in 2050. https://en.wikipedia.org/wiki/Demographics_of_the_United_States

What you don't understand about the babyboom issue (and so many others don't understand) is it is only the birth rate declined after the baby boom generation, and not the overall population. So the rate at which the country was growing slowed. Now you have many people claiming when babyboomers retire, and die we will lose population, social security is going to implode and many other dire predictions that might be possible if the nation's population was declining, will come true. But they simply do not understand the basic fact that the nation is still gaining population and will continue to do so even after the babyboom generation dies, and that this fact alone means all those dire predictions are simply based on a false premise

While real estate does cost money over time, renting does not build equity. So given the choice between paying $1,000 per month and building equity so you eventually own your home outright and paying $1,000 per month and not building equity, there is only one logical answer: buy your home. This may not be the best choice for everyone, due to other factors. But if other factors do not argue against it, buying a home is better financially than renting.

As to land prices never being lower, that is because (as you correctly perceive) we live in a monetary system that depends on inflation, and to a large extent inflation depends on population growth.

So unless and until the nation's population starts to shrink, the economy will continue to be shaped by inflation, and prices for commodities and assets like land and other real estate will increase over time.

The real question is whether the rate of increase of value of land relative to other things, like commodities or stocks and bonds, will be faster or slower. And that, sir, is anyone's guess for now.

Regardless of the relative rate of growth, we are recovering from a crash, and as is true of any asset, it is best to buy it while the price is low, and sell when the price is high. I think it is safe to say the price of real estate is low and for that reason alone it is a good time to buy if you are going to buy real estate.

 

[gogotren]

What you don't understand about the babyboom issue (and so many others don't understand) is it is only the birth rate declined after the baby boom generation, and not the overall population.

When baby boomers die population will decline, maybe stay flat only offset by immigration, which historically does not produce mid/high level income people for at least a generation because most are unskilled labor. There are not enough babies being born to offset those deaths. Second what you and everybody on CNBC miss is people do predictable things at predictable times. Did you know peak potato chip buying for a household is 42 y/o? Why? Because the average American has their first kid at an average of 28 y/o, then at 42, that kid is 14 y/o and eating everything in site. Boomers hit their peak spending age of 47 y/o in 2007, coincidence? Gen Y, millenials are larger in size than the boomers, BUT spread out over many more years. The Gen simply does not have the massive concentrated purchasing power the boomers do. Now we are taking the largest section of population and they are going from peak spending (kids 14-22 y/o) and they are moving into retirement where they will spend less every year till the die (outside maybe medical).

Do you even see the huge disconnect between the stock mkts and reality? Commodities are going to take a huge poop as well, as the 30 yr cycle comes through and China struggles to maintain.

360: how much peace of mind would you have being upside down on your home 100K? Go rent a home then.

PMC: I think your a smart dude on some things but you know CA, property taxes can equal 2-4% of the property value each year! That is not nominal in my book. My brother is in NY, has 1 acre, on a main road, $340k home, taxes... $7k/yr!

 

[maldorf]

When baby boomers die population will decline, maybe stay flat only offset by immigration, which historically does not produce mid/high level income people for at least a generation because most are unskilled labor. There are not enough babies being born to offset those deaths. Second what you and everybody on CNBC miss is people do predictable things at predictable times. Did you know peak potato chip buying for a household is 42 y/o? Why? Because the average American has their first kid at an average of 28 y/o, then at 42, that kid is 14 y/o and eating everything in site. Boomers hit their peak spending age of 47 y/o in 2007, coincidence? Gen Y, millenials are larger in size than the boomers, BUT spread out over many more years. The Gen simply does not have the massive concentrated purchasing power the boomers do. Now we are taking the largest section of population and they are going from peak spending (kids 14-22 y/o) and they are moving into retirement where they will spend less every year till the die (outside maybe medical).

Do you even see the huge disconnect between the stock mkts and reality? Commodities are going to take a huge poop as well, as the 30 yr cycle comes through and China struggles to maintain.

360: how much peace of mind would you have being upside down on your home 100K? Go rent a home then.

PMC: I think your a smart dude on some things but you know CA, property taxes can equal 2-4% of the property value each year! That is not nominal in my book. My brother is in NY, has 1 acre, on a main road, $340k home, taxes... $7k/yr!

You make some great points! I agree with most of what you say and think a lot of that will come true.

I do think that if a person has a good stable job and with a family planning on remaining in the same place for 10 yrs or more then you are better off buying a home that you can afford. We built the home we live in now back in 08 when the market had started to come down and it has lost about 8% of its value but the value of the home is slowly climbing and we should be here a long time so we aren't concerned with depreciation at this point. Homes around here are selling fast now because there aren't that many on the market and every month the sale prices in our neighborhood are rising.

I am glad we don't live in California with those high taxes! The taxes here aren't too bad. Between us prepaying the mortgage down so that it will only take us about 10 yrs to pay off the 30 yr mortgage and taxes not being too terrible here I think we do quite well. I do think its a big mistake for someone to bite off more home than they can afford and end up taking 30 yrs to pay off their home because the amount of interest you pay is staggering. Buy something you can prepay down and get a 30 yr ARM so that if you do lose a job or something you can fall back on the low payment set by the 30 yr payoff.

 

[360]

I thought about this thread when I was on the treadmill at the gym today. Some dork behind me was telling his friend the great benefits of full service gas at the gas station. His comment was "it's great, you don't have to get out of your car to pump gas, they wash the windows for you, and if it's raining I won't get wet."

This guy probably rents an apartment for a living. Renting an apartment when you can afford to buy a house and getting full service gas are two sure signs of idiotic behavior. You are throwing your money away.

 

[maldorf]

. Renting an apartment when you can afford to buy a house and getting full service gas are two sure signs of idiotic behavior. You are throwing your money away.

Well, not always. If someone is a type of person that changes jobs every 5 years or sooner then its a losing proposition to keep buying homes. For instance, the house across the street was bought by a family that only lived there for about 3 yrs and they bought before the housing bubble burst. They lost $100k on their house when they sold it because they had to move half way across the country for his new job. What did they do when they moved, they bought another house! Another family in our neighborhood was similar and they had been in 4 different homes in the past 7 yrs, each time selling they would lose out. I don't understand why people like that keep buying homes.

 

[Performance Based]

The problem is they sell the house, instead of renting it out and essentially putting free equity into it and riding out the recession.

Hell, say your mortgage + all taxes is 4,000 a month... Rent it out at 3,000 if you have to and you lose a substantially smaller amount of money than selling it and loosing your down payment potentially.

 

[Performance Based]

PMC: I think your a smart dude on some things but you know CA, property taxes can equal 2-4% of the property value each year! That is not nominal in my book. My brother is in NY, has 1 acre, on a main road, $340k home, taxes... $7k/yr!

I actually just moved back from CA to TX, I am shocked how high property taxes are here. Looking at purchasing a fairly modest house and the taxes are still 25-30K a year. It can be absolutely absurd, however if I were to rent I would wind up losing proportionately much more.

 

[maldorf]

The problem is they sell the house, instead of renting it out and essentially putting free equity into it and riding out the recession.

Hell, say your mortgage + all taxes is 4,000 a month... Rent it out at 3,000 if you have to and you lose a substantially smaller amount of money than selling it and loosing your down payment potentially.

I would be too scared to go out on a limb and own 2 homes. What happens if you cant find a consistent renter that always pays on time and doesn't trash your house, because then you are left paying 2 mortgages. If you get a bad renter in there and they tear up the place then you have to evict them and find a lawyer etc. Its just not worth the trouble to me, especially if you're moving 1000 miles away. Too much liability.

 

[Performance Based]

I would be too scared to go out on a limb and own 2 homes. What happens if you cant find a consistent renter that always pays on time and doesn't trash your house, because then you are left paying 2 mortgages. If you get a bad renter in there and they tear up the place then you have to evict them and find a lawyer etc. Its just not worth the trouble to me, especially if you're moving 1000 miles away. Too much liability.

It all comes down to hiring a company that does property management and charges a percentage of the rent...

 

[maldorf]

It all comes down to hiring a company that does property management and charges a percentage of the rent...

Yeah, that would be the only way to go. I take it they do everything for you including getting the repairs and maintenance done on it?

If they do everything including finding the renter, collecting rent, maintenance, back ground check, etc how much is their cut? I would be it is quite substantial.

 

[Performance Based]

Honestly I am not too certain so I do not want to give incorrect information. I would guess 10-30%?

 

[maldorf]

Honestly I am not too certain so I do not want to give incorrect information. I would guess 10-30%?

There is a nice hotel we stay at in Florida that sells rooms to buyers and then they take care of everything for you. When people stay there you then get paid, and you can stay there free of course. Its not a bad deal and the hotel seems to be quite full most of the time. The hotel is rather unique too in that it is owned by the workers, not sure how that works. Its right on the beach at the Golf of Mexico side. Great beach. Ive thought about springing for one of those.

 

[woodswise]

I would be too scared to go out on a limb and own 2 homes. What happens if you cant find a consistent renter that always pays on time and doesn't trash your house, because then you are left paying 2 mortgages. If you get a bad renter in there and they tear up the place then you have to evict them and find a lawyer etc. Its just not worth the trouble to me, especially if you're moving 1000 miles away. Too much liability.

Because you are building equity instead of paying rent, owning and living in your own home is less risky than owning a home as an investment. You are right about all of the above.

Your friends who keep losing money on their homes must have been buying high and selling low. Those who buy low and sell high have made a lot of money over the years. The question your friends should ask themselves, is whether they came out further ahead owning their own homes instead of paying rent all those years. If so, then maybe they didn't do so badly in the end.

Housing prices are low right now because we just survived the biggest real estate and economic crash in recent history. Housing prices are just starting to rise again and interest rates on mortgages are at historic lows. If a person is looking to buy their first home, there is not going to be a better time than right now. Plus there is a good inventory of houses out there so it is a buyer's market. You will get a lot more house for your money now compared to 5 or 6 years ago. And when the market recovers you will be able to sell it for more than the house you might have been able to afford 5 years ago.

If a person already owns their home and wants to sell, the situation is more complicated. If they can break even or make a little money on their old home, good. If not, they have a difficult decision on how to proceed. If they can cover the short fall they will be fine selling and buying a new one. This is because over time the new home (which also has a depressed value in current market conditions) will recover the value they lost on the sale of the old one. But if they cannot cover the loss on the old house, and are being forced to move elsewhere (i.e. new job, etc.) they face only risky options: keep the house and hope the value bounces back quickly enough so they can sell it and break even (this leaves them at the mercy of renters, property managers, etc.); or sell the house at a short sale (this leaves them at the mercy of the bank, who will most likely come after them for the unpaid balance, ruining their credit and thus preventing them from qualifying for a mortgage to buy a new home, etc). This last is the worst of the worst case scenarios. If the person could buy a new home before going belly up on the old one, they will have a better chance of recovering sooner because they will be able to recapture the lost equity on the new home when the markets recover. If not, they will likely be forced to rent and lose out on catching the recovered equity on the new home and it could be years before they can qualify for new financing.

 

[360]

One thing to mention about real estate agents......Don't listen to their BS.

They will always try to scare you into buying high and selling low so they can make their sale and commission.

One year after the housing/economic crash I talked to three real estate agents. Each one tried to convince me that the market had recovered and housing prices were on the rise. Bullshit.