To me the trend of the American Dream of Home Ownership becoming The American Dream of Having a Dream Home is where we get home ownership not being as financially sound of a investment as in years past.
People used to buy a house they could reasonably afford and would fit their needs for a long time. They would rent until they could afford this and then stay in the house long enough to build equity and take advantage of cheaper house payments than prevailing rents. This of course was helped by high inflation.
Now we have people buying as much house as the bank will let them, which is usually too much, and moving to a bigger house the minute they can afford to even if they don’t need to. In this way their house payments remain high and they never pay of their mortgages.
This of course isn’t true in every area but it is where I live. Housing is relatively inexpensive so we have families of three living in 5 bedroom 4 bath homes that people can barely afford. It’s the American Dream of excess. These same people could be buying houses 1/2 to 1/3 the amount for housing in the same area, in the same school district.
You also have to look at property taxes. I live in an area of high taxes so there are people paying $400/ month and up for property taxes. I have seen families of 4 paying over $800.00 a month in property taxes for a 4 b4droom house when they could be renting a 4 bedroom, very nice duplex that is just like a house for $900/ month.
So there are too many variables. You can rent or own and get ahead financially and you can rent or own and waste your money. Depends on how you choose to live.
I suspect one major factor is that of forced savings. It is no doubt totally irrational, in that a rational person could in theory take the difference between mortgage and rent as a renter and plunk it into a handy investment account, and come out ahead; but human nature being what it is, most will scrimp & save if forced to because they must make mortgage payments, but will not exercise the same restraint and diligence voluntarily to save for the future.
I thought I mentioned this in passing, but maybe not. Where I live there are quite a few fairly affordable apartments for sale (defined as, $200,000 or under for a 1BR). However they have maintenance fees as high as my current rent! Very rarely do I see maintence below $900/mo. I have no idea what property taxes are, but they’re on top of that.
So mortgage + “maintenance”+ property taxes = at least 2-3x rent. Compare that to the fact that nearly every rental in my neighborhood is Stabilized, includes utilities (gas/heat/water) and has a live-in super and it looks kind of… pointless or even downright stupid to buy where I am now.
Other people have very, very different circumstaces and evaluate their own needs and wants differently.
It’s funny, my parents were bugging us to buy. Then my brother took a bath on his SF studio… and now they are talking about selling up themselves and moving into an apartment because they are sick of shit breaking all the time in their 120-year old rowhouse, dealing with the tenants (they have 2 rental unit, and live in the downstairs), being hassled by the city for not shoveling the snow, etc. The idea of all that being someone else’s problem is starting to appeal.
Really depends on the local laws and on what the landlord can slowly do to convince the local inspectors that he’s working harder than he is, doesn’t it?
When you own your own home, you’re free to do with it what you want (or at least as much as the state/county/city/homeowner’s association will let you.) You also have the potential to make a lot of money when you sell the house, although that probably wouldn’t be the case right now. I bought a house for $80,000 in 1993 and sold it for $150,000 in 2007. That was a good profit that I put towards my current house. You could factor in the mortgage payments I was paying, but really I’d either be paying mortgage or rent, so that isn’t really relevant unless the rent would have been a lot less than my $600/mo mortgage, which it wouldn’t.
To me paying rent is more worry-free (assuming your landlord is good), but is also throwing money out the window.
When would that ever be true? Most landlords have a mortgage, and all have to pay for maintenance and property taxes. That all gets paid for by renters, so in most cases monthly rent payments will be more than comparable mortgage payments.
This, in spades. The classic American Dream (roughly lasting a century from the introduction of horse-drawn streetcars to about the 1990s) went like this.
Live with your parents/rent an apartment until you get married and have a kid. During that time you scrape together enough for a down payment on a “starter house,” usually something like a two-bedroom bungalow.
When you have more kids, you either take on a second mortgage to add on, or move to a larger house (and maybe a better school district.) If you become rich, you’d renovate or move to a fancier neighborhood. Otherwise, you stay put.
Finally, you retired and sold the house for a retirement nest egg, or died and left the house to your kids as their inheritance. Houses turned over slowly, pretty much following the life-cycle of their owners.
This was also tied into the idea of having a job for life, or at least not moving all over the country as your employment changed.
Then people came up with the idea of “investment houses” that you’d live in for a few years while the house appreciated, take your profits and move on. Then, some financial genius came up with the idea of adjustable-rate mortgages, where you buy more house than you can afford, but your future income would take care of the higher payments. But that really doesn’t fit the American Dream, where an immigrant puts down roots and has a little piece of property to call his own.
It doesn’t get all paid for by renters. In some cases it does, but many, many landowners don’t really recoup their cost in rent. We are currently renting while we build. My rent is much, much less than the owner’s mortgage payment. That is the major flaw in the “It’s always better to buy” argument. If anyone tells you that they aren’t very good at math.
As has already been pointed out, the stock market is historically a better investment than real estate. If your sole purpose is to make money, then there are better ways (generally speaking) to do it. It might be better to rent for several years, then take your savings and buy a house with cash. The best reason to buy is so you have more control over what you do with your place of residence.
That is a very risky assumption, I have friends with condos in Chicago who are scrapping by with renters until they can dump the place. The rent is not covering their total costs, and if their tenant happens to move out in the middle of the night then they’re SOL.
Yeah I know lots of people make lots money renting, if not they wouldn’t do it for 20+ years. But people loose money too. It’s not always a cash cow.
Absolutely correct, I agree. I was refuting a common refrain, though not necessarily one expressed here, is that “I have to start paying some interest so I can deduct it from my taxes!”
Not necessarily, see below. If the landlord has to cover not just expenses but generate positive cash flow, then it could drive rent above market rates.
Math is one thing, accounting is another. Landowners usually recoup their expenses in rent, but not the cash outlay. Paying down principal on a mortgage is not an expense, it’s increasing equity. Expenses are interest, taxes, and maintenance (and depreciation, technically, but that doesn’t represent a cash outflow and is recovered on sale).
Of course it’s not always better to buy and it’s not always better to rent. That’s why some people buy and some people rent. And when the housing market loses money, the whole equation goes haywire.
It’s not hard to bridge the gap. You take a a depreciating asset such as a used mobile home and substitute that for an apartment. It doesn’t much of a down payment and is a way of applying some of the rent money to an asset that can be converted to a down payment for a home.