7 ms·

Renting vs Buying, Foreclosures and Job Growth across 50 US Cities

122 points by shashashasha 15y ago

bitmage 15y ago
This is missing an important point - if you buy, you are stuck there until you can sell it again. That loss of flexibility represents a significant cost of its own.
- Symmetry 15y ago
  Also it involves concentrating your financial risk in one highly leveraged asset.
  - aidenn0 15y ago
    Yes and No. You typically are only risking your equity when you buy a house (which, with a 30 year mortgage, is basically just your down payment).
    - Retric 15y ago
      It might start that way, but 15 years down the line you will have invested a lot in that house. There is an ideal rate of home ownership relative to economic growth unfortunately the US is well pass the optimum with far to many people owning when it's a poor economic choice for them to do so. PS: What's missing from much of this analysis is you can have positive home equity but the transaction costs of buying and selling a home put you into the red.
    - hessenwolf 15y ago
      Ah, no no no no no!!! House prices can and do drop 40-60% from a peak. If you got a 95% mortage, you can really be hammered.
      - _delirium 15y ago
        In most states, mortgages are non-recourse loans, meaning that in effect the bank has to eat any losses, if you choose to play hardball. If they foreclose on the house and repossess it, the loan is considered settled, and they can't attempt to collect the difference, even if the house is worth less than the value of the loan was.
        hessenwolf 15y ago
        Pfft. I thought that was just California. One would think that that would have encouraged them to underwrite a little better.,, And who the fuck would rate any tranche of non-recourse loans AAA? How long does it stay on your credit history (officially)?
        bzbarsky 15y ago
        7 years is the typical number I've seen for how long things stay on one's credit history.
  - pasbesoin 15y ago
    And therefore pre-supposes a stability that people are not currently finding -- whether in property values or in their life circumstances and those of their communities (U.S. centric perspective).
- pinoyboy82 15y ago
  how would you quantify opportunity lost due to loss of flexibility?
  - iamscanner 15y ago
    I live in a city in Canada that has a bit of a lacklustre tech scene. Unfortunately, I bought a condo 2 years ago. Because of the size of the down payment I made (small), and the condo market right now (not awesome), I can't sell without taking a loss until probably about 2014. I also probably can't rent without taking a loss. I'd like to move - but at the moment, short of foreclosure, there's no way to get this condo off my hands so that I'm free to move again without taking a significant-enough (~$15k) hit to make it cost prohibitive. Are there more opportunities in other cities? Definitely. But because of my current living situation, I'm not flexible enough to take advantage of them.
    - potatolicious 15y ago
      Curious: which city in Canada?
    - teamonkey 15y ago
      How would your loss compare to two years' worth of rent for a similar apartment? I pay much more rent than $15k in two years, and that's in Montreal where rent is fairly cheap.
  - hessenwolf 15y ago
    Assuming you are looking at a 30 year mortgage, you could look at the spread of the 30 year USD gov't bond over the overnight rate (3.52% http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/ http://www.bloomberg.com/markets/rates-bonds/government-bond...). From wikipedia: Liquidity premium theory The Liquidity Premium Theory is an offshoot of the Pure Expectations Theory. The Liquidity Premium Theory asserts that long-term interest rates not only reflect investors’ assumptions about future interest rates but also include a premium for holding long-term bonds (investors prefer short term bonds to long term bonds), called the term premium or the liquidity premium. This premium compensates investors for the added risk of having their money tied up for a longer period, including the greater price uncertainty. Because of the term premium, long-term bond yields tend to be higher than short-term yields, and the yield curve slopes upward. Long term yields are also higher not just because of the liquidity premium, but also because of the risk premium added by the risk of default from holding a security over the long term. The market expectations hypothesis is combined with the liquidity premium theory:
- kelnos 15y ago
  ... or until you can rent it out, which in many markets is a fairly easy thing to do.
  - pedrolll 15y ago
    Yes, in many markets it is fairly easy. But in most it is not. In fact, anywhere you are, it's quite a hassle to find a good tenant, find new ones when the previous occupier leaves, fix the house etc...
    - Aloisius 15y ago
      That's what property management companies are for.
      - wuster 15y ago
        For 8-10% monthly fee. =)
        hugh3 15y ago
        Only 5% last time I talked to one in the US (and 5.5% for my place in Australia).
        roel_v 15y ago
        "Only" 5%? That's more than the average margin on owning real estate. Meaning, that 5% makes the difference between a profit and a loss on owning the building. 5% is a lot when you look at the cost of the capital that is required. (as a side note, I'm hard pressed to believe that for 5% everything is included (taxes, fees, ...) and that they do everything for you for that money. I'd pay 9% here in Europe, including tax, and for that money they'd put ads in the papers/internet, show the building to tenants, check if payments are made and put a lawyer on it when they're not (but I'd still have to pay the lawyer) and take the phone when something needs fixing. I'd still have to find, send and pay a repairman myself).
- deleted 15y ago
  [deleted]
EvanKelly 15y ago
For those of us (maybe just me) stuck on work computers in which we can't upgrade from IE7, is there any way to access the data in a plain text format?
- shashashasha 15y ago
  That's a bummer. We're using D3 and Isotope and I think D3 is breaking on IE7. It works for us on IE8, at least... Anyways, if it's useful to you, the data we're pulling from is here: http://insights.truliablog.com/vis/rent-vs-buy-q3/data/rvb-q3-formatted.csv http://insights.truliablog.com/vis/rent-vs-buy-q3/data/rvb-q...
  - deleted 15y ago
    [deleted]
  - EvanKelly 15y ago
    Thanks, nice to see my city on there. I don't expect anyone to go out of their way to support IE7, I was just interested in the data on this one. Thanks for providing it.
- aodin 15y ago
  Any chance you can install chrome frame? It no longer requires admin access: http://code.google.com/chrome/chromeframe/ http://code.google.com/chrome/chromeframe/
ootachi 15y ago
Both San Francisco and San Jose are near the bottom in job growth. This surprises me, given the hiring market for engineers in the Bay Area. What gives?
- tedkalaw 15y ago
  I think it has to do with the number of tech jobs that are based in those cities. I'm from the midwest and am working out of an apartment in SF so I have no idea what I'm talking about it, but it seems like a lot of startups are based out of places that are "closer" to the tech scene. Again, I'm still getting used to the whole scene, but the center of everything really seems to be further south.
- potatolicious 15y ago
  There's a lot more to employment than engineers. This really goes to show just how vanishingly small our field/industry is compared to the overall economy. Things are red hot for software engineers in the Bay Area, they are way less peachy for just about every other field.
- Aloisius 15y ago
  I don't see why it is surprising. Tech employs quite a small percentage of people in the bay area.
  - kelnos 15y ago
    Anywhere I can find stats on that? I'm curious to see what the actual breakdown is.
techiferous 15y ago
This is why I don't buy the home I live in as an investment. It conflates two very important things: * My home. * A large financial investment. Changing one affects the other. I'm skeptical that life circumstances will magically align so that when it's a good time for me financially to sell my home, it will also be a good time for me to change location (or vice versa). So I rent.
- pnathan 15y ago
  The counter argument is that the rent you are putting down is not being invested into your home. I think that is a very cogent argument, but it relies on your ability to sell (or willingness to sell later on). I concur with your analysis though, and don't plan to buy for a long time (ie, when I am ready to put down roots for 10-20 years).
  - johnrob 15y ago
    Roughly speaking, if you save the difference between the rent and mortgage price, you should end up with the same upside that a purchase would have netted (although if rent > mortgage, then renting only makes sense for a short term stay). Many people think home buying is a good financial strategy because most people don't have the discipline to save this extra cash. It benefits the buyer in the same way a forced retirement savings plan would.
    - barake 15y ago
      I purchased a home due to mortgage payments (including taxes and insurance) being equal or less than renting somewhere reasonable. This is in Louisville, KY which may be an outlier.
    - hugh3 15y ago
      Roughly speaking, if you save the difference between the rent and mortgage price, you should end up with the same upside that a purchase would have netted (although if rent > mortgage, then renting only makes sense for a short term stay). Roughly speaking you might wind up with the same upside. I consider rent+invest the more risky option even if you do have the discipline to do it, since there are lots of scenarios where you wind up behind. What does winding up behind mean? It means being 85 years old, retired, and not having enough money to pay the rent. I think it's worth buying a house just to have the peace of mind of knowing you'll have somewhere to live once you're retired.
Unregistered 15y ago
When calculating the cost of purchasing/ renting, are they including condo fees, property/school taxes. In some areas the tax/condo fees alone exceed typical rents.
- analyst74 15y ago
  This is one of the most overlooked cost for first-time home buyers, all the cost in condo fees and taxes are not going to contribute a cent to your equity either.
  - dangrossman 15y ago
    Though the taxes are tax deductible, unlike rent. I moved out of a 2br apartment to a large 4br home where my mortgage and taxes are slightly higher than my rent was, but after tax deductions, I'll end up paying less. Being self-employed, I need all the deductions I can get, anyway.
  - Caerus 15y ago
    Also, utilities. I only pay for electricity at my apartment, and thanks to some 12" stone walls it's quite low. I talk to people my age who have bought homes and their utility bills can be as much as 40% of my rent.
    - roel_v 15y ago
      Maybe it's different in your area, but most areas I have experience with, no utilities are included in the rent. Plus a lot depends on how the place is heated/insulated (or cooled/insulated).
      - bzbarsky 15y ago
        The utility situation really depends on the area, yes. For example, my experience renting in Chicago is that water, heat and hot water were typically included in the rent. That's most certainly not the case everywhere.
- 15y ago
systemtrigger 15y ago
> it’s cheaper to buy a home than to rent in 74% of America’s 50 largest cities This "statistic" wouldn't happen to come from a company that earns its revenue primarily through the buying and selling of houses, would it? Most Americans should rent, especially in today's dark economy. The average American is unskilled, has not saved for retirement and lives paycheck to paycheck. Such a person should avoid big purchases because accumulating debt is a gamble on future earnings.
- scottkduncan 15y ago
  In addition to your own future earnings, it is also partially a gamble on future inflation and interest rate changes.
- leviathant 15y ago
  When my wife got accepted to West Chester University in SE PA, we went looking for a place to rent in the nearby area. Coming from Harrisburg, where I could rent a house for $500/mo, I was blown away that a 2br apartment generally ran $1200/mo (Stop snickering, New Yorkers) We decided to buy a 2br fixer-upper on the cheap and ended up with a mortgage of ~$600/mo. That was five years ago. We've since renovated the crap out of the house (it's now the nicest on the block), bought a second house in Philadelphia (wife's getting her PhD at Penn now, and I can now walk to work), and are about to put it out for rent. We'll be getting at least $1200/mo for it. Renting's okay while you get your financial situation together. Maybe most people shouldn't live paycheck to paycheck. You don't have to be well off in order to make a budget. If you look at my social security statements, I was making jack squat while I lived in York PA, and still managed to squirrel money aside. Some people's lifestyles are more conducive to renting. I quite like having a place I can mangle and customize as I see fit. Some people like not having to worry about maintaining their building and grounds. Maybe when I can't do things for myself, I'll go back to having a landlord, but especially given how low mortgage rates are right now, I feel fortunate to have bought a house or two.
  - systemtrigger 15y ago
    You and your PhD wife do not sound average, which serves my point that buying a house is a gamble on future earnings. You both are investing in yourselves, improving your assets and generating wealth. The average American watches 4 hours of television a day, he isn't prudent. > Maybe most people shouldn't live paycheck to paycheck. Strike "maybe most" and I agree with you.
tedkalaw 15y ago
It's really cool to see information like this laid out. I'm from Chicago, and even property downtown is not (as) expensive. I was always told that the bay was more expensive, but didn't believe it until I started living in San Francisco. We're planning on moving to San Jose, or somewhere a little further away to try and minimize that effect. Chipotle is 50 cents more expensive across the board here. Damn.
6ren 15y ago
Viewing this from Australia, where the 1 BR flat next door sold for $370K ($388K USD) this is very attractive. The bottom few ones are priced $50-$150K. It's plausible to buy outright - no mortgage. However, unemployment ranges from 9% to 17%... I'm not sure how pleasant or safe that would make the neighbourhood.
- praxxis 15y ago
  I just moved from Melbourne, AU to Las Vegas, and its incredible. I have a running joke with friends back in Australia that you can go out for lunch in Vegas and buy a house with the change. Having said that, I wouldn't trade my place in Melbourne for any number of houses here :)
  - hugh3 15y ago
    Another important point which makes buying cheap US houses unattractive is that being a landlord is a much less attractive prospect in the US. Being a landlord in Australia is just a matter of wandering down to your local LJ Hooker, handing over the keys, and watching as money starts magically appearing in your bank account. If you buy a block full of cheap houses in Las Vegas you'll be lucky if you can find an agent willing to manage them. If you do, you'll be lucky if he can actually rent 'em out. And if you do rent 'em out you'll be lucky if your tenants don't rip all the wires out for the copper and vanish across the border. Oh, plus there's property taxes. Yeech.
  - sgrossman 15y ago
    The trouble is, you'd have an easier time selling the scraps of your lunch than you would a home in Vegas. Condos that were going for $180K in my old neighborhood are now at $30K and still going down. It's going to be a looong time before the city recovers.
- megablast 15y ago
  Make sure you do not mention where you are, Australia is a tiny place. I am guessing that you are central Sydney or Melbourne.
pnathan 15y ago
Sort of a meta-comment, but that is a very very nice graphic.
- prpon 15y ago
  Looking at the source, it seems to be built with jquery isotope plugin. I couldn't see any similar examples at isotope site. Any one else know more details on the implementation? Also, the job growth numbers for each city look suspicious. Was there such a jump in growth rate in Jan '11?
  - shashashasha 15y ago
    If you look on Isotope's site, we're just using a StraightDown layout, not filtering anything, and animating the dots within each div individually. Can't speak to the job growth numbers methodology as they come from SimplyHired.com
    - prpon 15y ago
      Thanks for the info. Any tools you use for animating the dots and displaying the stats? Or is it plain javascript?
      - shashashasha 15y ago
        The animations are done with JQuery's .animate method, and since the stats are all across different ranges we're using D3's .scale and .quantize methods to normalize our positions. If you have more specific JS questions than that I can point you at @golike who wrote all the code for this :)
- hugh3 15y ago
  That's not a meta-comment. This is a meta-comment. Sorry, that wasn't supposed to be a joke. A meta-comment is a comment about comments, though, and your comment is on the graphics.
Aloisius 15y ago
I'm not sure I understand the prevailing view that renting is always better than buying. I bought an apartment in San Francisco in 2001 and frankly, it was one of the best decisions I've ever made. Before I did so, I calculated out the cost difference of renting vs. buying. After taxes, my living expenses were only a few thousand dollars more a year to buy vs. renting. If I want to move, I don't have to sell my place, I can simply rent it out. Given current rates, I can do so for more than my monthly mortgage payment. Not only that, but my property is worth about 40% more than what I paid for it. I can actually use my equity in my house to finance another home and flip one to a rental. Maybe purchasing isn't for everyone, but it certainly is for some. In the end, it depends on your finance situation and location.
- pedrolll 15y ago
  Yes, you're special because your home is in an area where people want to rent it. Every home-owner certainly does not have this advantage. In your case it makes more sense to buy than in others.
- roel_v 15y ago
  "I'm not sure I understand the prevailing view that renting is always better than buying." I see no reason to believe that that's a prevailing view. It all depends on the region and economic circumstances.
bb75 15y ago
I live in San Diego, CA - unless you're willing to live in a townhome, and a shitty one at that, nothing new or even in a nice neighborhood, you cannot get anything decent in the 250-350k range as advertised on this blog. San Diego is still overpriced and due for a real bottom soon.
jleyank 15y ago
I've said this before but this looks like a new discussion so I'll say it again: If you can switch jobs safely without moving, then yeah, buy a house. If, however, a job switch will involve a move, you're daft to do so. Too much risk in today's job market. I'm thinking of the US marketplace, but I suspect it will hold up in similar areas as well. Houses can/will be illiquid at times.
sdfjkl 15y ago
Is there something like this for Europe?
nh 15y ago
anyone know of any tutorials to create this type of JavaScript? it looks fantastic
- tomelgin 15y ago
  I was also struck by the eye candy. Looks like they're using d3, with Isotope for animations. The projects' websites should get you started: http://mbostock.github.com/d3/ http://mbostock.github.com/d3/ http://isotope.metafizzy.co/ http://isotope.metafizzy.co/
bialecki 15y ago
A big component missing here is location within a city. Having been in DC and Boston, they're on the edge of buy/rent, but a big question is could I live in the same neighborhoods or areas as I rent. If I can't, it's worth renting even if buying might be better because it's closer to where I want to be.
- wdr1 15y ago
  Same is true here in LA. The locations where there is a glut of housing is not the same places where people want to rent.
cletus 15y ago
I find the cultural differences with respect to home ownership fascinating. In the US, people often own their own homes. Rarely do they own homes that other people live in. Apartments are typically owned a single owner/landlord (condos are different). Owning is a common dream, less so in cities (particularly New York). In the UK, home ownership and the property market is an obsession. It is a common topic of conversation. People are heavily invested in their properties and often seek to buy more of them. There is a strong attitude of "if I don't buy now I'll never be able to afford to live here", particularly in London and the Southeast (less so now I suspect). The North and West are somewhat different. The market is highly speculative. In Switzerland, the property market is essentially controlled. There is little real estate speculation. Transaction costs are high. Capital gains taxes on properties can be brutal, which strongly discourages speculation. Renting is not frowned upon. For tax reasons, people often buy houses and never pay them off. In Switzerland you get a tax exemption for interest but you also get deemed income from the effective rent the property is worth. In Australia, owning one's house is a cultural obsession. People often end up owning multiple properties. There are few apartment buildings owned by one owner (it's much more like the American condo system). I think of all the systems I've personally experienced, I like the Swiss system the most. It treats property as something you need to live not a financial instrument to speculate on. That system isn't applicable everywhere however. Switzerland is unique in that it is fairly affluent, has a small population and very restrictive immigration. So somewhere like the US has >40 times the population so even excluding immigration, domestic movements of people can be incredibly large creating market pressures in places like New York that Switzerland will simply never experience. Some years ago I saw an article (I'm sadly unable to find but the topic is covered elsewhere in depth) in the UK which showed that the rate of home ownership was inversely proportional to economic growth. The idea was that home ownership reduces labour market flexibility (which it clearly does). I don't know if the trend still holds up. In Australia for example a family home can easily cost $1 million in Sydney. If the household income is $200,000 and that family wishes to move to, say, Melbourne and buy a new house they'll pay $20-50,000 in realtor fees and $50,000+ in stamp duty on buying the new house so they need to make back nearly $100,000 of after-tax income just to break even. Sadly stamp duty is a cash cow for state governments in Australia so isn't going anywhere anytime soon. Yet I think it's a real problem. Transaction costs need to be relatively low. Financing requirements need to be relatively to limit rampant speculation, particularly in overheated markets.
Game_Ender 15y ago
The New York times has a great site that lets you crunch the numbers yourself: http://www.nytimes.com/interactive/business/buy-rent-calculator.html http://www.nytimes.com/interactive/business/buy-rent-calcula...
ww520 15y ago
Gross Rent Multiplier (GRM) is used in evaluating rental property investment. One rule of the thumb ratio is 1% for monthly rent over purchase price. For ratio over 1%, you will most likely make money after finance cost and taxes. It can be used to evaluate renting vs buying decision for home buyer. If the likely rent for the house you are buying is close to or over 1%, buying has more advantage. If it's far below 1%, renting costs less.
- hessenwolf 15y ago
  So rent would be 12% per annum? Meaning if I pay 1k per month, the place is worth 120K? Enjoy finding that in a place that isn't shit-tastic. I have heard 7% is a reasonable long-term.
  - ww520 15y ago
    Good deals of course are not plentiful. The 1% is a high threshold filter to recognize the few good deals right the way. Rule of the thumb is a rough guess, gut feeling kind of guess. For quick guess without detail analysis, you want to build lots of cushion into the decision. The 1% will "most likely make money" because it has lots of cushion built in. You can do more detail analysis with CAP/IRR/interest rate for more marginal deals. 7% annual GRM has too little margin IMO. Assuming operating cost (expenses+taxes) is 40% of gross, that gives you about 4.2% CAP rate. You are making a tiny profit after paying a 4% mortgage. Any down turn at rent, increase at expenses, or vacancy would bleed it into red.
JonoW 15y ago
Surely buying is the safest long term scenario? I wouldn't want to be renting when I'm retired, as you become totally dependant on the rental market (i.e. if rents shoot up, you're screwed). Even if the housing market tanks and my house halves in value, at least I'll have somewhere to live. If I look at my friends parents who live in some nice parts of London, there is zero chance they could afford to rent the houses they live in now, the ones they bought 30 years ago.
gonepostal 15y ago
This graphic only tells part of the story and the easiest part of the story. What the rental/some of the economic fundamentals are right now. When deciding to purchase for investment and to a lesser degree a personal residence, the decision to purchase or not should be driven by the future not the present. I am more then willing to invest in any city on that chart if I know some or better, all of these: - population is increasing - employment is increasing - income is increasing - the neighbourhoods I'm buying show pride of ownership - public transit improvements (highway, LRT, subway) - supportive government (proactive business development office) Though this infographic is very cool/informative, buyers should concentrate more on the future then the present. Just because it's cheap isn't sufficient reason to purchase. And if you want to live in an area with a negative outlook renting IMO is best.

122 points by shashashasha 15y ago

This is missing an important point - if you buy, you are stuck there until you can sell it again. That loss of flexibility represents a significant cost of its own.

Symmetry 15y ago
Also it involves concentrating your financial risk in one highly leveraged asset.
- aidenn0 15y ago
  Yes and No. You typically are only risking your equity when you buy a house (which, with a 30 year mortgage, is basically just your down payment).
  - Retric 15y ago
    It might start that way, but 15 years down the line you will have invested a lot in that house. There is an ideal rate of home ownership relative to economic growth unfortunately the US is well pass the optimum with far to many people owning when it's a poor economic choice for them to do so. PS: What's missing from much of this analysis is you can have positive home equity but the transaction costs of buying and selling a home put you into the red.
  - hessenwolf 15y ago
    Ah, no no no no no!!! House prices can and do drop 40-60% from a peak. If you got a 95% mortage, you can really be hammered.
    - _delirium 15y ago
      In most states, mortgages are non-recourse loans, meaning that in effect the bank has to eat any losses, if you choose to play hardball. If they foreclose on the house and repossess it, the loan is considered settled, and they can't attempt to collect the difference, even if the house is worth less than the value of the loan was.
      - hessenwolf 15y ago
        Pfft. I thought that was just California. One would think that that would have encouraged them to underwrite a little better.,, And who the fuck would rate any tranche of non-recourse loans AAA? How long does it stay on your credit history (officially)?
        bzbarsky 15y ago
        7 years is the typical number I've seen for how long things stay on one's credit history.
- pasbesoin 15y ago
  And therefore pre-supposes a stability that people are not currently finding -- whether in property values or in their life circumstances and those of their communities (U.S. centric perspective).
pinoyboy82 15y ago
how would you quantify opportunity lost due to loss of flexibility?
- iamscanner 15y ago
  I live in a city in Canada that has a bit of a lacklustre tech scene. Unfortunately, I bought a condo 2 years ago. Because of the size of the down payment I made (small), and the condo market right now (not awesome), I can't sell without taking a loss until probably about 2014. I also probably can't rent without taking a loss. I'd like to move - but at the moment, short of foreclosure, there's no way to get this condo off my hands so that I'm free to move again without taking a significant-enough (~$15k) hit to make it cost prohibitive. Are there more opportunities in other cities? Definitely. But because of my current living situation, I'm not flexible enough to take advantage of them.
  - potatolicious 15y ago
    Curious: which city in Canada?
  - teamonkey 15y ago
    How would your loss compare to two years' worth of rent for a similar apartment? I pay much more rent than $15k in two years, and that's in Montreal where rent is fairly cheap.
- hessenwolf 15y ago
  Assuming you are looking at a 30 year mortgage, you could look at the spread of the 30 year USD gov't bond over the overnight rate (3.52% http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/ http://www.bloomberg.com/markets/rates-bonds/government-bond...). From wikipedia: Liquidity premium theory The Liquidity Premium Theory is an offshoot of the Pure Expectations Theory. The Liquidity Premium Theory asserts that long-term interest rates not only reflect investors’ assumptions about future interest rates but also include a premium for holding long-term bonds (investors prefer short term bonds to long term bonds), called the term premium or the liquidity premium. This premium compensates investors for the added risk of having their money tied up for a longer period, including the greater price uncertainty. Because of the term premium, long-term bond yields tend to be higher than short-term yields, and the yield curve slopes upward. Long term yields are also higher not just because of the liquidity premium, but also because of the risk premium added by the risk of default from holding a security over the long term. The market expectations hypothesis is combined with the liquidity premium theory:
kelnos 15y ago
... or until you can rent it out, which in many markets is a fairly easy thing to do.
- pedrolll 15y ago
  Yes, in many markets it is fairly easy. But in most it is not. In fact, anywhere you are, it's quite a hassle to find a good tenant, find new ones when the previous occupier leaves, fix the house etc...
  - Aloisius 15y ago
    That's what property management companies are for.
    - wuster 15y ago
      For 8-10% monthly fee. =)
      - hugh3 15y ago
        Only 5% last time I talked to one in the US (and 5.5% for my place in Australia).
        roel_v 15y ago
        "Only" 5%? That's more than the average margin on owning real estate. Meaning, that 5% makes the difference between a profit and a loss on owning the building. 5% is a lot when you look at the cost of the capital that is required. (as a side note, I'm hard pressed to believe that for 5% everything is included (taxes, fees, ...) and that they do everything for you for that money. I'd pay 9% here in Europe, including tax, and for that money they'd put ads in the papers/internet, show the building to tenants, check if payments are made and put a lawyer on it when they're not (but I'd still have to pay the lawyer) and take the phone when something needs fixing. I'd still have to find, send and pay a repairman myself).
deleted 15y ago
[deleted]

EvanKelly 15y ago

For those of us (maybe just me) stuck on work computers in which we can't upgrade from IE7, is there any way to access the data in a plain text format?

shashashasha 15y ago
That's a bummer. We're using D3 and Isotope and I think D3 is breaking on IE7. It works for us on IE8, at least... Anyways, if it's useful to you, the data we're pulling from is here: http://insights.truliablog.com/vis/rent-vs-buy-q3/data/rvb-q3-formatted.csv http://insights.truliablog.com/vis/rent-vs-buy-q3/data/rvb-q...
- deleted 15y ago
  [deleted]
- EvanKelly 15y ago
  Thanks, nice to see my city on there. I don't expect anyone to go out of their way to support IE7, I was just interested in the data on this one. Thanks for providing it.
aodin 15y ago
Any chance you can install chrome frame? It no longer requires admin access: http://code.google.com/chrome/chromeframe/ http://code.google.com/chrome/chromeframe/

ootachi 15y ago

Both San Francisco and San Jose are near the bottom in job growth. This surprises me, given the hiring market for engineers in the Bay Area. What gives?

tedkalaw 15y ago
I think it has to do with the number of tech jobs that are based in those cities. I'm from the midwest and am working out of an apartment in SF so I have no idea what I'm talking about it, but it seems like a lot of startups are based out of places that are "closer" to the tech scene. Again, I'm still getting used to the whole scene, but the center of everything really seems to be further south.
potatolicious 15y ago
There's a lot more to employment than engineers. This really goes to show just how vanishingly small our field/industry is compared to the overall economy. Things are red hot for software engineers in the Bay Area, they are way less peachy for just about every other field.
Aloisius 15y ago
I don't see why it is surprising. Tech employs quite a small percentage of people in the bay area.
- kelnos 15y ago
  Anywhere I can find stats on that? I'm curious to see what the actual breakdown is.

techiferous 15y ago

This is why I don't buy the home I live in as an investment. It conflates two very important things: * My home. * A large financial investment. Changing one affects the other. I'm skeptical that life circumstances will magically align so that when it's a good time for me financially to sell my home, it will also be a good time for me to change location (or vice versa). So I rent.

pnathan 15y ago
The counter argument is that the rent you are putting down is not being invested into your home. I think that is a very cogent argument, but it relies on your ability to sell (or willingness to sell later on). I concur with your analysis though, and don't plan to buy for a long time (ie, when I am ready to put down roots for 10-20 years).
- johnrob 15y ago
  Roughly speaking, if you save the difference between the rent and mortgage price, you should end up with the same upside that a purchase would have netted (although if rent > mortgage, then renting only makes sense for a short term stay). Many people think home buying is a good financial strategy because most people don't have the discipline to save this extra cash. It benefits the buyer in the same way a forced retirement savings plan would.
  - barake 15y ago
    I purchased a home due to mortgage payments (including taxes and insurance) being equal or less than renting somewhere reasonable. This is in Louisville, KY which may be an outlier.
  - hugh3 15y ago
    Roughly speaking, if you save the difference between the rent and mortgage price, you should end up with the same upside that a purchase would have netted (although if rent > mortgage, then renting only makes sense for a short term stay). Roughly speaking you might wind up with the same upside. I consider rent+invest the more risky option even if you do have the discipline to do it, since there are lots of scenarios where you wind up behind. What does winding up behind mean? It means being 85 years old, retired, and not having enough money to pay the rent. I think it's worth buying a house just to have the peace of mind of knowing you'll have somewhere to live once you're retired.

Unregistered 15y ago

When calculating the cost of purchasing/ renting, are they including condo fees, property/school taxes. In some areas the tax/condo fees alone exceed typical rents.

analyst74 15y ago
This is one of the most overlooked cost for first-time home buyers, all the cost in condo fees and taxes are not going to contribute a cent to your equity either.
- dangrossman 15y ago
  Though the taxes are tax deductible, unlike rent. I moved out of a 2br apartment to a large 4br home where my mortgage and taxes are slightly higher than my rent was, but after tax deductions, I'll end up paying less. Being self-employed, I need all the deductions I can get, anyway.
- Caerus 15y ago
  Also, utilities. I only pay for electricity at my apartment, and thanks to some 12" stone walls it's quite low. I talk to people my age who have bought homes and their utility bills can be as much as 40% of my rent.
  - roel_v 15y ago
    Maybe it's different in your area, but most areas I have experience with, no utilities are included in the rent. Plus a lot depends on how the place is heated/insulated (or cooled/insulated).
    - bzbarsky 15y ago
      The utility situation really depends on the area, yes. For example, my experience renting in Chicago is that water, heat and hot water were typically included in the rent. That's most certainly not the case everywhere.
15y ago

systemtrigger 15y ago

> it’s cheaper to buy a home than to rent in 74% of America’s 50 largest cities This "statistic" wouldn't happen to come from a company that earns its revenue primarily through the buying and selling of houses, would it? Most Americans should rent, especially in today's dark economy. The average American is unskilled, has not saved for retirement and lives paycheck to paycheck. Such a person should avoid big purchases because accumulating debt is a gamble on future earnings.

scottkduncan 15y ago
In addition to your own future earnings, it is also partially a gamble on future inflation and interest rate changes.
leviathant 15y ago
When my wife got accepted to West Chester University in SE PA, we went looking for a place to rent in the nearby area. Coming from Harrisburg, where I could rent a house for $500/mo, I was blown away that a 2br apartment generally ran $1200/mo (Stop snickering, New Yorkers) We decided to buy a 2br fixer-upper on the cheap and ended up with a mortgage of ~$600/mo. That was five years ago. We've since renovated the crap out of the house (it's now the nicest on the block), bought a second house in Philadelphia (wife's getting her PhD at Penn now, and I can now walk to work), and are about to put it out for rent. We'll be getting at least $1200/mo for it. Renting's okay while you get your financial situation together. Maybe most people shouldn't live paycheck to paycheck. You don't have to be well off in order to make a budget. If you look at my social security statements, I was making jack squat while I lived in York PA, and still managed to squirrel money aside. Some people's lifestyles are more conducive to renting. I quite like having a place I can mangle and customize as I see fit. Some people like not having to worry about maintaining their building and grounds. Maybe when I can't do things for myself, I'll go back to having a landlord, but especially given how low mortgage rates are right now, I feel fortunate to have bought a house or two.
- systemtrigger 15y ago
  You and your PhD wife do not sound average, which serves my point that buying a house is a gamble on future earnings. You both are investing in yourselves, improving your assets and generating wealth. The average American watches 4 hours of television a day, he isn't prudent. > Maybe most people shouldn't live paycheck to paycheck. Strike "maybe most" and I agree with you.

tedkalaw 15y ago

It's really cool to see information like this laid out. I'm from Chicago, and even property downtown is not (as) expensive. I was always told that the bay was more expensive, but didn't believe it until I started living in San Francisco. We're planning on moving to San Jose, or somewhere a little further away to try and minimize that effect. Chipotle is 50 cents more expensive across the board here. Damn.

6ren 15y ago

Viewing this from Australia, where the 1 BR flat next door sold for $370K ($388K USD) this is very attractive. The bottom few ones are priced $50-$150K. It's plausible to buy outright - no mortgage. However, unemployment ranges from 9% to 17%... I'm not sure how pleasant or safe that would make the neighbourhood.

praxxis 15y ago
I just moved from Melbourne, AU to Las Vegas, and its incredible. I have a running joke with friends back in Australia that you can go out for lunch in Vegas and buy a house with the change. Having said that, I wouldn't trade my place in Melbourne for any number of houses here :)
- hugh3 15y ago
  Another important point which makes buying cheap US houses unattractive is that being a landlord is a much less attractive prospect in the US. Being a landlord in Australia is just a matter of wandering down to your local LJ Hooker, handing over the keys, and watching as money starts magically appearing in your bank account. If you buy a block full of cheap houses in Las Vegas you'll be lucky if you can find an agent willing to manage them. If you do, you'll be lucky if he can actually rent 'em out. And if you do rent 'em out you'll be lucky if your tenants don't rip all the wires out for the copper and vanish across the border. Oh, plus there's property taxes. Yeech.
- sgrossman 15y ago
  The trouble is, you'd have an easier time selling the scraps of your lunch than you would a home in Vegas. Condos that were going for $180K in my old neighborhood are now at $30K and still going down. It's going to be a looong time before the city recovers.
megablast 15y ago
Make sure you do not mention where you are, Australia is a tiny place. I am guessing that you are central Sydney or Melbourne.

pnathan 15y ago

Sort of a meta-comment, but that is a very very nice graphic.

prpon 15y ago
Looking at the source, it seems to be built with jquery isotope plugin. I couldn't see any similar examples at isotope site. Any one else know more details on the implementation? Also, the job growth numbers for each city look suspicious. Was there such a jump in growth rate in Jan '11?
- shashashasha 15y ago
  If you look on Isotope's site, we're just using a StraightDown layout, not filtering anything, and animating the dots within each div individually. Can't speak to the job growth numbers methodology as they come from SimplyHired.com
  - prpon 15y ago
    Thanks for the info. Any tools you use for animating the dots and displaying the stats? Or is it plain javascript?
    - shashashasha 15y ago
      The animations are done with JQuery's .animate method, and since the stats are all across different ranges we're using D3's .scale and .quantize methods to normalize our positions. If you have more specific JS questions than that I can point you at @golike who wrote all the code for this :)
hugh3 15y ago
That's not a meta-comment. This is a meta-comment. Sorry, that wasn't supposed to be a joke. A meta-comment is a comment about comments, though, and your comment is on the graphics.

Aloisius 15y ago

I'm not sure I understand the prevailing view that renting is always better than buying. I bought an apartment in San Francisco in 2001 and frankly, it was one of the best decisions I've ever made. Before I did so, I calculated out the cost difference of renting vs. buying. After taxes, my living expenses were only a few thousand dollars more a year to buy vs. renting. If I want to move, I don't have to sell my place, I can simply rent it out. Given current rates, I can do so for more than my monthly mortgage payment. Not only that, but my property is worth about 40% more than what I paid for it. I can actually use my equity in my house to finance another home and flip one to a rental. Maybe purchasing isn't for everyone, but it certainly is for some. In the end, it depends on your finance situation and location.

pedrolll 15y ago
Yes, you're special because your home is in an area where people want to rent it. Every home-owner certainly does not have this advantage. In your case it makes more sense to buy than in others.
roel_v 15y ago
"I'm not sure I understand the prevailing view that renting is always better than buying." I see no reason to believe that that's a prevailing view. It all depends on the region and economic circumstances.

bb75 15y ago

I live in San Diego, CA - unless you're willing to live in a townhome, and a shitty one at that, nothing new or even in a nice neighborhood, you cannot get anything decent in the 250-350k range as advertised on this blog. San Diego is still overpriced and due for a real bottom soon.

jleyank 15y ago

I've said this before but this looks like a new discussion so I'll say it again: If you can switch jobs safely without moving, then yeah, buy a house. If, however, a job switch will involve a move, you're daft to do so. Too much risk in today's job market. I'm thinking of the US marketplace, but I suspect it will hold up in similar areas as well. Houses can/will be illiquid at times.

sdfjkl 15y ago

Is there something like this for Europe?

nh 15y ago

anyone know of any tutorials to create this type of JavaScript? it looks fantastic

tomelgin 15y ago
I was also struck by the eye candy. Looks like they're using d3, with Isotope for animations. The projects' websites should get you started: http://mbostock.github.com/d3/ http://mbostock.github.com/d3/ http://isotope.metafizzy.co/ http://isotope.metafizzy.co/

bialecki 15y ago

A big component missing here is location within a city. Having been in DC and Boston, they're on the edge of buy/rent, but a big question is could I live in the same neighborhoods or areas as I rent. If I can't, it's worth renting even if buying might be better because it's closer to where I want to be.

wdr1 15y ago
Same is true here in LA. The locations where there is a glut of housing is not the same places where people want to rent.

cletus 15y ago

I find the cultural differences with respect to home ownership fascinating. In the US, people often own their own homes. Rarely do they own homes that other people live in. Apartments are typically owned a single owner/landlord (condos are different). Owning is a common dream, less so in cities (particularly New York). In the UK, home ownership and the property market is an obsession. It is a common topic of conversation. People are heavily invested in their properties and often seek to buy more of them. There is a strong attitude of "if I don't buy now I'll never be able to afford to live here", particularly in London and the Southeast (less so now I suspect). The North and West are somewhat different. The market is highly speculative. In Switzerland, the property market is essentially controlled. There is little real estate speculation. Transaction costs are high. Capital gains taxes on properties can be brutal, which strongly discourages speculation. Renting is not frowned upon. For tax reasons, people often buy houses and never pay them off. In Switzerland you get a tax exemption for interest but you also get deemed income from the effective rent the property is worth. In Australia, owning one's house is a cultural obsession. People often end up owning multiple properties. There are few apartment buildings owned by one owner (it's much more like the American condo system). I think of all the systems I've personally experienced, I like the Swiss system the most. It treats property as something you need to live not a financial instrument to speculate on. That system isn't applicable everywhere however. Switzerland is unique in that it is fairly affluent, has a small population and very restrictive immigration. So somewhere like the US has >40 times the population so even excluding immigration, domestic movements of people can be incredibly large creating market pressures in places like New York that Switzerland will simply never experience. Some years ago I saw an article (I'm sadly unable to find but the topic is covered elsewhere in depth) in the UK which showed that the rate of home ownership was inversely proportional to economic growth. The idea was that home ownership reduces labour market flexibility (which it clearly does). I don't know if the trend still holds up. In Australia for example a family home can easily cost $1 million in Sydney. If the household income is $200,000 and that family wishes to move to, say, Melbourne and buy a new house they'll pay $20-50,000 in realtor fees and $50,000+ in stamp duty on buying the new house so they need to make back nearly $100,000 of after-tax income just to break even. Sadly stamp duty is a cash cow for state governments in Australia so isn't going anywhere anytime soon. Yet I think it's a real problem. Transaction costs need to be relatively low. Financing requirements need to be relatively to limit rampant speculation, particularly in overheated markets.

Game_Ender 15y ago

The New York times has a great site that lets you crunch the numbers yourself: http://www.nytimes.com/interactive/business/buy-rent-calculator.html http://www.nytimes.com/interactive/business/buy-rent-calcula...

ww520 15y ago

Gross Rent Multiplier (GRM) is used in evaluating rental property investment. One rule of the thumb ratio is 1% for monthly rent over purchase price. For ratio over 1%, you will most likely make money after finance cost and taxes. It can be used to evaluate renting vs buying decision for home buyer. If the likely rent for the house you are buying is close to or over 1%, buying has more advantage. If it's far below 1%, renting costs less.

hessenwolf 15y ago
So rent would be 12% per annum? Meaning if I pay 1k per month, the place is worth 120K? Enjoy finding that in a place that isn't shit-tastic. I have heard 7% is a reasonable long-term.
- ww520 15y ago
  Good deals of course are not plentiful. The 1% is a high threshold filter to recognize the few good deals right the way. Rule of the thumb is a rough guess, gut feeling kind of guess. For quick guess without detail analysis, you want to build lots of cushion into the decision. The 1% will "most likely make money" because it has lots of cushion built in. You can do more detail analysis with CAP/IRR/interest rate for more marginal deals. 7% annual GRM has too little margin IMO. Assuming operating cost (expenses+taxes) is 40% of gross, that gives you about 4.2% CAP rate. You are making a tiny profit after paying a 4% mortgage. Any down turn at rent, increase at expenses, or vacancy would bleed it into red.

JonoW 15y ago

Surely buying is the safest long term scenario? I wouldn't want to be renting when I'm retired, as you become totally dependant on the rental market (i.e. if rents shoot up, you're screwed). Even if the housing market tanks and my house halves in value, at least I'll have somewhere to live. If I look at my friends parents who live in some nice parts of London, there is zero chance they could afford to rent the houses they live in now, the ones they bought 30 years ago.

gonepostal 15y ago

This graphic only tells part of the story and the easiest part of the story. What the rental/some of the economic fundamentals are right now. When deciding to purchase for investment and to a lesser degree a personal residence, the decision to purchase or not should be driven by the future not the present. I am more then willing to invest in any city on that chart if I know some or better, all of these: - population is increasing - employment is increasing - income is increasing - the neighbourhoods I'm buying show pride of ownership - public transit improvements (highway, LRT, subway) - supportive government (proactive business development office) Though this infographic is very cool/informative, buyers should concentrate more on the future then the present. Just because it's cheap isn't sufficient reason to purchase. And if you want to live in an area with a negative outlook renting IMO is best.