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> [Home ownership] creates labor market frictions by tying you to a place I have never understood this line of reasoning. I agree that it increases friction,

> [Home ownership] creates labor market frictions by tying you to a place I have never understood this line of reasoning. I agree that it increases friction, but there is a whole lot of friction that has nothing to do with renting vs. buying. Particularly friction in long-distance moves.

burlesona 8y ago
I can tell you first hand that I bought a condo right at the start of the recession thinking I was getting a great deal, and subsequently lost my job in a round of layoffs. The next couple years I would have been better off if I’d moved but it took me three years to stabilize my situation enough to do it, mostly because I couldn’t sell and I couldn’t rent for enough to cover the mortgage, and I couldn’t afford two housing payments. I don’t know how common that sort of situation is, but I can easily imagine a much milder version of it in today’s housing bubble, which is people who bought ten years ago and now feel that if they moved, yes they’d get some equity out, but not enough to move to a home that would be “as nice” in the destination they’re considering. For example suppose you work in software and bought a house in Dallas, but you’re getting all these great offers to move to SF...
- opencl 8y ago
  I don't understand your second example at all. If you own a house during a bubble it seems like the ideal time to move. Sell your house to get the equity, move to a rental, then buy a house after the bubble pops.
  - trustno1 8y ago
    Until everyone who bought during the bubble tries to get out at the same time. This is what we're on the cusp of now -- house sales are finally starting to fall.
  - claydavisss 8y ago
    Or leave a particular metro. Or leave California. If you are open to moving when you have to, most real estate problems are non-issues. Once you limit yourself to a hard requirement of living in a particular metro or state, you are subject to the market. Everyone reading this can afford a home somewhere decent in the US, but you have to be willing to move. How many people reading this in the Bay Area would even consider moving to Gilroy or Benicia? Not many I presume.
  - burlesona 8y ago
    The point of the example is you could own a nice 4bd 3ba in the Dallas area for $300-400k. But say you work in software and your career has plateaued. It’s tempting to move to SF because there are so many great jobs. But you cash out your $60k of equity or whatever in Dallas and go look for housing in SF.... well, you’ll have to accept a significant lifestyle change and switch to renting. There are a lot of people who feel tied down by that deal and so don’t move even though it might be better long term to be climbing the ladder at a major company than to be maxed out in the best available local job you can get.
gnopgnip 8y ago
Selling a home and then buying a new one costs about 10% of the price of the home between closing costs and real estate commissions. That it on top of any costs to move that you would pay while renting.
rory096 8y ago
What is it that you don't understand about it? The two are not mutually exclusive. Economics works at the margin: it's not whether friction exists or whether it does not, but the level of friction. Some frictions apply in both cases, but the one mentioned only applies to ownership. Thus, two people at the margin in identical positions except that one is a homeowner and one is a renter may make different decisions — the renter is more free to change jobs/locale.
- claydavisss 8y ago
  What about the "frictions" renters face based on a tax system that inherently rewards home ownership? How about the "friction" renters face by not turning their housing expenditures into a future retirement nest egg?
  - rory096 8y ago
    >What about the "frictions" renters face based on a tax system that inherently rewards home ownership? I mentioned that. It's constant across the country though, so I don't think it creates a new cost to move from one place to another (the "friction"). Rather it's an ongoing subsidy on home ownership that incentivizes people on the edge to lean towards buying. More people buy because of the subsidy, who then have a higher one-time cost each time they move. >How about the "friction" renters face by not turning their housing expenditures into a future retirement nest egg? It's not clear to me that this is true, leaving aside places where rapid housing price appreciation due to supply restrictions dominate the cost of housing. Homeowners bear additional cost and risk - maintenance, insurance, interest on mortgage capital - that are part of the cost of rent. How much wealth accumulation results from acquiring home equity when you exclude tax and capital gains from demand shocks and include the transaction costs of buying and selling, potentially frequently?

burlesona 8y ago

I can tell you first hand that I bought a condo right at the start of the recession thinking I was getting a great deal, and subsequently lost my job in a round of layoffs. The next couple years I would have been better off if I’d moved but it took me three years to stabilize my situation enough to do it, mostly because I couldn’t sell and I couldn’t rent for enough to cover the mortgage, and I couldn’t afford two housing payments. I don’t know how common that sort of situation is, but I can easily imagine a much milder version of it in today’s housing bubble, which is people who bought ten years ago and now feel that if they moved, yes they’d get some equity out, but not enough to move to a home that would be “as nice” in the destination they’re considering. For example suppose you work in software and bought a house in Dallas, but you’re getting all these great offers to move to SF...

opencl 8y ago
I don't understand your second example at all. If you own a house during a bubble it seems like the ideal time to move. Sell your house to get the equity, move to a rental, then buy a house after the bubble pops.
- trustno1 8y ago
  Until everyone who bought during the bubble tries to get out at the same time. This is what we're on the cusp of now -- house sales are finally starting to fall.
- claydavisss 8y ago
  Or leave a particular metro. Or leave California. If you are open to moving when you have to, most real estate problems are non-issues. Once you limit yourself to a hard requirement of living in a particular metro or state, you are subject to the market. Everyone reading this can afford a home somewhere decent in the US, but you have to be willing to move. How many people reading this in the Bay Area would even consider moving to Gilroy or Benicia? Not many I presume.
- burlesona 8y ago
  The point of the example is you could own a nice 4bd 3ba in the Dallas area for $300-400k. But say you work in software and your career has plateaued. It’s tempting to move to SF because there are so many great jobs. But you cash out your $60k of equity or whatever in Dallas and go look for housing in SF.... well, you’ll have to accept a significant lifestyle change and switch to renting. There are a lot of people who feel tied down by that deal and so don’t move even though it might be better long term to be climbing the ladder at a major company than to be maxed out in the best available local job you can get.

gnopgnip 8y ago

Selling a home and then buying a new one costs about 10% of the price of the home between closing costs and real estate commissions. That it on top of any costs to move that you would pay while renting.

rory096 8y ago

What is it that you don't understand about it? The two are not mutually exclusive. Economics works at the margin: it's not whether friction exists or whether it does not, but the level of friction. Some frictions apply in both cases, but the one mentioned only applies to ownership. Thus, two people at the margin in identical positions except that one is a homeowner and one is a renter may make different decisions — the renter is more free to change jobs/locale.

claydavisss 8y ago
What about the "frictions" renters face based on a tax system that inherently rewards home ownership? How about the "friction" renters face by not turning their housing expenditures into a future retirement nest egg?
- rory096 8y ago
  >What about the "frictions" renters face based on a tax system that inherently rewards home ownership? I mentioned that. It's constant across the country though, so I don't think it creates a new cost to move from one place to another (the "friction"). Rather it's an ongoing subsidy on home ownership that incentivizes people on the edge to lean towards buying. More people buy because of the subsidy, who then have a higher one-time cost each time they move. >How about the "friction" renters face by not turning their housing expenditures into a future retirement nest egg? It's not clear to me that this is true, leaving aside places where rapid housing price appreciation due to supply restrictions dominate the cost of housing. Homeowners bear additional cost and risk - maintenance, insurance, interest on mortgage capital - that are part of the cost of rent. How much wealth accumulation results from acquiring home equity when you exclude tax and capital gains from demand shocks and include the transaction costs of buying and selling, potentially frequently?