16 ms·

How renting became the new homeownership

48 points by kareemm 11y ago

dalerus 11y ago
I think this is an overcorrection in the market. My wife and I purchased a house, that we couldn't afford, and lost it when the market turned. We lost most of our savings and have fought for years to get back out of debt. We've both agreed that for us renting is the way we are going to go. I hated homeownership.
- Ygg2 11y ago
  What is the biggest problem when it comes to home-ownership? Mortgage? Lack of agency?
  - raverbashing 11y ago
    - Maintenance - Cost of rental more closely tracks income/economic situation, you're also free to go to a place that costs more or less depending on your situation (whereas in homeownership you're locked to a place and the cost is fixed for decades) - You're less free to go where the jobs are (opportunity cost) "Oh but you're not building equity" then your problem is in financial education. The problem is not homeownership per se, it is of locking yourself into a long-term financial commitment for an overpriced asset that you can't afford (even if today you can afford the mortgage payments)
    - zerr 11y ago
      But you can always sell the house, or rent it to others and move to cheaper neighborhood (and rent there yourself). To me, renting means losing money, while buying (or mortgage) seems like an investment. After all, even if potential ROI is not that high for you, think about further generations - your kids will be the owners of your house - and again, they can sell whenever they need.
      - raverbashing 11y ago
        > But you can always sell the house Sure, but at what cost? Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? > rent it to others and move to cheaper neighborhood But is rental covering the cost of your mortgage? Can you rent for that value? > To me, renting means losing money, while buying (or mortgage) seems like an investment Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc A lot of people thought their homes were an investment as well, until the bubble burst
        pmelendez 11y ago
        >Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? Well, this is circumstantial, normally the value of a house climb faster than inflation. Sorry you have that bad experience but it was derived by a distortion in the market, one important component on each investment is timing. >Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc That is different though. Companies prefer to have variable cost and reduce minimum fixed cost. An airline doesn't know what will be his flight offer in 5 years so renting airplane allows them to be flexible and keeping their cost proportional production. The same for companies offer since you don't know how is going to be the size of the company, although big companies once they are stable tend to own their headquarters.
        raverbashing 11y ago
        > normally the value of a house climb faster than inflation "Normally" when? In what conditions? Japan's house prices have been falling for more than 20 years now. I guess someone should buy the cheap Detroit houses then, they can only go up in price. > Companies prefer to have variable cost and reduce minimum fixed cost. I don't disagree with this (though it is increasing their minimum operating cost)
        pmelendez 11y ago
        > "Normally" when? In what conditions? In a healthy economy with a moderate inflation and on markets that are not over-valued and/or with an unreal credit offer. > Japan's house prices have been falling for more than 20 years now. Japan's economy suffers a deflation since a long time, so not only housing prices are falling. >(though it is increasing their minimum operating cost) Actually it is not. Buying an asset have sense only when you know you are going to use it for at least is depreciation lifespan. If you have to sell it before that (because forced laid-off, moving out from city, etc.) you will most likely lose money since probably the interest rates are higher than the valuation rate. This is why most big company owns their headquater (they know/hope to use it for a long time) but rent everything else (They can find a bigger place easily if they need to hire more people, etc.)
    - briandear 11y ago
      If it doesn't put cash in your pocket, it isn't an asset. That's a fundamental misunderstanding. (I am basically agreeing with you.) the idea of the family home as an asset is completely wrong. It takes money out of your pocket each month without putting money into your pocket. It's a net loss. Now if that property created cash flow, then it would be a different conversation.
      - 2III7 11y ago
        Renting a house takes even more money out of your pocket.
      - pmelendez 11y ago
        According with the dictionary.reference.com: assets. items of ownership convertible into cash So buying a house is indeed an asset since you can convert it to cash. Renting is actually pure cost
      - jholman 11y ago
        This is so silly. Many things that do not put cash in your pocket are assets. Gold is an asset. A home is an asset if it can be sold for money, or used productively. If it turns out that your property is so worthless that no one will buy it at any price, and it's also useless to you as means of production, then it's not an asset. That combination of circumstances pretty much never happens. The asset value of a home is presumably offset by some debt you owe on it.... and if not, you're paying opportunity cost on the money you paid for the home. Whether or not real estate is a good investment is much thornier. But real estate is unequivocally an asset.
      - vetinari 11y ago
        Assets do not need to have zero-length payback period. If you buy a house for a cash, it will take years, until you break-even. And that's fine, businesses depreciate assets like this for decades, too. If you buy a house with a mortgage, there are costs related to it too. You need to take it into account in your payback period. However, you will eventually reach break-even point and since that point, you own an fully paid-for asset, that your kids can inherit, for example. With renting, you will pay indefinitely, and own nothing. You are just paying for the service of accommodation.
  - tljr 11y ago
    30 year loan
jonny_eh 11y ago
The Y-axis is truncated on the first graph! So misleading! https://en.wikipedia.org/wiki/Misleading_graph#Truncated_graph https://en.wikipedia.org/wiki/Misleading_graph#Truncated_gra...
- johnchristopher 11y ago
  I didn't find it misleading, considering the text before and after. The graph is clearly showing the Y-Axis and if the X axis was stable for long enough it correctly illustrate the bump. Of course I read both X and Y axis legends.
- learnstats2 11y ago
  The graph shows exactly what it is designed to show in an effective way, and they explain it clearly in the text. It's one of the clearest and least misleading graphs I can imagine. Starting the Y-axis at 0 would only be less effective at making the point. The Wikipedia section that you link recognises this. Every graph is misleading if you assume it has properties that are not there.
kijin 11y ago
Homeownership is the rational choice when (1) you expect to live in the same place for a long time; (2) the value of a home is either stable or rising, and is expected to continue like that for a long time; and (3) you have assurance that if you need to liquify your assets on short notice, you'll be able to sell your home or take out a second mortgage easily. None of that is true for most people under 45 now. Lifetime employment has all but disappeared. The 2008 financial crisis has shaken people's faith in housing as a safe investment. You don't want to tie up a large percentage of your net worth in an illiquid asset that doesn't gain much value, especially if you need to be able to pick up your stuff and move across the country at any time. Therefore, renting is the rational choice for us. The problem is what to do when you're old. If you happen to own a 5-bedroom house, you can rent out a part of it or sell it and move to a smaller house. In either case, you'll have enough income to enjoy a comfy retirement. Owning a home, in that sense, is like having a massive savings account. Renters can get the same benefit if they save up a lot of money or invest smartly, but that takes more discipline than just making mortgage payments each month. I wonder how many renters are actually aware of this difference, versus just spending their extra disposable income on fancy clothes, booze, and gadgets.
- logicchains 11y ago
  >Renters can get the same benefit if they save up a lot of money or invest smartly, but that takes more discipline than just making mortgage payments each month. I wonder how many renters are actually aware of this difference, versus just spending their extra disposable income on fancy clothes, booze, and gadgets. I'd be interested to hear what Americans think of a policy we have in Australia called mandatory superannuation. It essentially forces people to put around 12% of their income into pension funds (they can choose which fund, or possibly even self-manage it in some cases) that they can't touch until they're retired, meaning that people who rent their whole lives and save nothing can still have hundreds of thousands in savings to support them when they retire.
  - whatusername 11y ago
    Try searching for: "privatised social security"
stkni 11y ago
I'd assume that the laws of supply and demand will eventually correct this. Interesting that the laws of leverage (i.e. it magnifies gain and loss) have punished plenty of homeowners, and that will probably make the correction take a long time to come around. But that's no comfort for the generations that miss out.
Shivetya 11y ago
TL;DR - investment companies are scarfing up lots in incomplete subdivisions to build rental homes and they aren't just renting them to whomever has the money I live in one of those subdivisions that failed to complete before the housing bust. About two years ago an investment group purchased the remaining eleven lots and built homes strictly for the purpose of renting. HOA rules did pay off as they had to keep to architectural rules and even minimum square footage; 2400+ After talking to their builder, turned out it was two investment groups that tend to work together, he was working on three separate subdivisions at one time. All homes are rented by management companies, full background checks, the likes. Being able to rent one, even this far out from Atlanta (think 25 miles) apparently is very desirable and not as simple as showing up with the money. After a few years they either sell out right or do a limited rent to own. The surprise to me is that there is still substantial turnover in renters. Used to be the rule was stay out of the sub 1k a month rent; the homes near me are 1200-1500 a month; but out of eleven rentals I figure maybe half have had the same families for the first year. So while I see some subdivision have new building starting and even some that never got the first house down I look close for the signs. Big home builders will be building to sell to homeowners, if the builder doesn't display his name except on permits its likely for rent.
briandear 11y ago
It feels like a lot of people in the Washington Post comments ought to read Rich Dad, Poor Dad.
rplst8 11y ago
I think for many people renting is the only sane choice with the volatility of the job market. You can't be tied to a house that is any significant portion of your income once finding work forces you to move. The sad part is that today, more than ever, where you live shouldn't matter for many office jobs. But it does matter - to employers.
bill_from_tampa 11y ago
Part of the reason for the 2008 market crash was the 'subprime home loan' debacle, where lending policies encouraged persons who should not have owned a home to nevertheless buy one and take on a mortgage. This policy (to increase home ownership) failed, and the market corrected. We are back to where we were in 1993 with respect to home ownership because the attempt to increase ownership artificially failed, spectacularly.
fsk 11y ago
Rule of thumb: If you are sure you are going to be living in the same place for more than 7-10 years, buy. Otherwise rent. Remember that, instead of buying, you can rent and invest the difference. If you made a spreadsheet with all fees and costs, you'll come up with 7-10 years as the breakeven point.

48 points by kareemm 11y ago

I think this is an overcorrection in the market. My wife and I purchased a house, that we couldn't afford, and lost it when the market turned. We lost most of our savings and have fought for years to get back out of debt. We've both agreed that for us renting is the way we are going to go. I hated homeownership.

Ygg2 11y ago
What is the biggest problem when it comes to home-ownership? Mortgage? Lack of agency?
- raverbashing 11y ago
  - Maintenance - Cost of rental more closely tracks income/economic situation, you're also free to go to a place that costs more or less depending on your situation (whereas in homeownership you're locked to a place and the cost is fixed for decades) - You're less free to go where the jobs are (opportunity cost) "Oh but you're not building equity" then your problem is in financial education. The problem is not homeownership per se, it is of locking yourself into a long-term financial commitment for an overpriced asset that you can't afford (even if today you can afford the mortgage payments)
  - zerr 11y ago
    But you can always sell the house, or rent it to others and move to cheaper neighborhood (and rent there yourself). To me, renting means losing money, while buying (or mortgage) seems like an investment. After all, even if potential ROI is not that high for you, think about further generations - your kids will be the owners of your house - and again, they can sell whenever they need.
    - raverbashing 11y ago
      > But you can always sell the house Sure, but at what cost? Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? > rent it to others and move to cheaper neighborhood But is rental covering the cost of your mortgage? Can you rent for that value? > To me, renting means losing money, while buying (or mortgage) seems like an investment Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc A lot of people thought their homes were an investment as well, until the bubble burst
      - pmelendez 11y ago
        >Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? Well, this is circumstantial, normally the value of a house climb faster than inflation. Sorry you have that bad experience but it was derived by a distortion in the market, one important component on each investment is timing. >Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc That is different though. Companies prefer to have variable cost and reduce minimum fixed cost. An airline doesn't know what will be his flight offer in 5 years so renting airplane allows them to be flexible and keeping their cost proportional production. The same for companies offer since you don't know how is going to be the size of the company, although big companies once they are stable tend to own their headquarters.
        raverbashing 11y ago
        > normally the value of a house climb faster than inflation "Normally" when? In what conditions? Japan's house prices have been falling for more than 20 years now. I guess someone should buy the cheap Detroit houses then, they can only go up in price. > Companies prefer to have variable cost and reduce minimum fixed cost. I don't disagree with this (though it is increasing their minimum operating cost)
        pmelendez 11y ago
        > "Normally" when? In what conditions? In a healthy economy with a moderate inflation and on markets that are not over-valued and/or with an unreal credit offer. > Japan's house prices have been falling for more than 20 years now. Japan's economy suffers a deflation since a long time, so not only housing prices are falling. >(though it is increasing their minimum operating cost) Actually it is not. Buying an asset have sense only when you know you are going to use it for at least is depreciation lifespan. If you have to sell it before that (because forced laid-off, moving out from city, etc.) you will most likely lose money since probably the interest rates are higher than the valuation rate. This is why most big company owns their headquater (they know/hope to use it for a long time) but rent everything else (They can find a bigger place easily if they need to hire more people, etc.)
  - briandear 11y ago
    If it doesn't put cash in your pocket, it isn't an asset. That's a fundamental misunderstanding. (I am basically agreeing with you.) the idea of the family home as an asset is completely wrong. It takes money out of your pocket each month without putting money into your pocket. It's a net loss. Now if that property created cash flow, then it would be a different conversation.
    - 2III7 11y ago
      Renting a house takes even more money out of your pocket.
    - pmelendez 11y ago
      According with the dictionary.reference.com: assets. items of ownership convertible into cash So buying a house is indeed an asset since you can convert it to cash. Renting is actually pure cost
    - jholman 11y ago
      This is so silly. Many things that do not put cash in your pocket are assets. Gold is an asset. A home is an asset if it can be sold for money, or used productively. If it turns out that your property is so worthless that no one will buy it at any price, and it's also useless to you as means of production, then it's not an asset. That combination of circumstances pretty much never happens. The asset value of a home is presumably offset by some debt you owe on it.... and if not, you're paying opportunity cost on the money you paid for the home. Whether or not real estate is a good investment is much thornier. But real estate is unequivocally an asset.
    - vetinari 11y ago
      Assets do not need to have zero-length payback period. If you buy a house for a cash, it will take years, until you break-even. And that's fine, businesses depreciate assets like this for decades, too. If you buy a house with a mortgage, there are costs related to it too. You need to take it into account in your payback period. However, you will eventually reach break-even point and since that point, you own an fully paid-for asset, that your kids can inherit, for example. With renting, you will pay indefinitely, and own nothing. You are just paying for the service of accommodation.
- tljr 11y ago
  30 year loan

jonny_eh 11y ago

The Y-axis is truncated on the first graph! So misleading! https://en.wikipedia.org/wiki/Misleading_graph#Truncated_graph https://en.wikipedia.org/wiki/Misleading_graph#Truncated_gra...

johnchristopher 11y ago
I didn't find it misleading, considering the text before and after. The graph is clearly showing the Y-Axis and if the X axis was stable for long enough it correctly illustrate the bump. Of course I read both X and Y axis legends.
learnstats2 11y ago
The graph shows exactly what it is designed to show in an effective way, and they explain it clearly in the text. It's one of the clearest and least misleading graphs I can imagine. Starting the Y-axis at 0 would only be less effective at making the point. The Wikipedia section that you link recognises this. Every graph is misleading if you assume it has properties that are not there.

kijin 11y ago

Homeownership is the rational choice when (1) you expect to live in the same place for a long time; (2) the value of a home is either stable or rising, and is expected to continue like that for a long time; and (3) you have assurance that if you need to liquify your assets on short notice, you'll be able to sell your home or take out a second mortgage easily. None of that is true for most people under 45 now. Lifetime employment has all but disappeared. The 2008 financial crisis has shaken people's faith in housing as a safe investment. You don't want to tie up a large percentage of your net worth in an illiquid asset that doesn't gain much value, especially if you need to be able to pick up your stuff and move across the country at any time. Therefore, renting is the rational choice for us. The problem is what to do when you're old. If you happen to own a 5-bedroom house, you can rent out a part of it or sell it and move to a smaller house. In either case, you'll have enough income to enjoy a comfy retirement. Owning a home, in that sense, is like having a massive savings account. Renters can get the same benefit if they save up a lot of money or invest smartly, but that takes more discipline than just making mortgage payments each month. I wonder how many renters are actually aware of this difference, versus just spending their extra disposable income on fancy clothes, booze, and gadgets.

logicchains 11y ago
>Renters can get the same benefit if they save up a lot of money or invest smartly, but that takes more discipline than just making mortgage payments each month. I wonder how many renters are actually aware of this difference, versus just spending their extra disposable income on fancy clothes, booze, and gadgets. I'd be interested to hear what Americans think of a policy we have in Australia called mandatory superannuation. It essentially forces people to put around 12% of their income into pension funds (they can choose which fund, or possibly even self-manage it in some cases) that they can't touch until they're retired, meaning that people who rent their whole lives and save nothing can still have hundreds of thousands in savings to support them when they retire.
- whatusername 11y ago
  Try searching for: "privatised social security"

stkni 11y ago

I'd assume that the laws of supply and demand will eventually correct this. Interesting that the laws of leverage (i.e. it magnifies gain and loss) have punished plenty of homeowners, and that will probably make the correction take a long time to come around. But that's no comfort for the generations that miss out.

Shivetya 11y ago

TL;DR - investment companies are scarfing up lots in incomplete subdivisions to build rental homes and they aren't just renting them to whomever has the money I live in one of those subdivisions that failed to complete before the housing bust. About two years ago an investment group purchased the remaining eleven lots and built homes strictly for the purpose of renting. HOA rules did pay off as they had to keep to architectural rules and even minimum square footage; 2400+ After talking to their builder, turned out it was two investment groups that tend to work together, he was working on three separate subdivisions at one time. All homes are rented by management companies, full background checks, the likes. Being able to rent one, even this far out from Atlanta (think 25 miles) apparently is very desirable and not as simple as showing up with the money. After a few years they either sell out right or do a limited rent to own. The surprise to me is that there is still substantial turnover in renters. Used to be the rule was stay out of the sub 1k a month rent; the homes near me are 1200-1500 a month; but out of eleven rentals I figure maybe half have had the same families for the first year. So while I see some subdivision have new building starting and even some that never got the first house down I look close for the signs. Big home builders will be building to sell to homeowners, if the builder doesn't display his name except on permits its likely for rent.

briandear 11y ago

It feels like a lot of people in the Washington Post comments ought to read Rich Dad, Poor Dad.

rplst8 11y ago

I think for many people renting is the only sane choice with the volatility of the job market. You can't be tied to a house that is any significant portion of your income once finding work forces you to move. The sad part is that today, more than ever, where you live shouldn't matter for many office jobs. But it does matter - to employers.

bill_from_tampa 11y ago

Part of the reason for the 2008 market crash was the 'subprime home loan' debacle, where lending policies encouraged persons who should not have owned a home to nevertheless buy one and take on a mortgage. This policy (to increase home ownership) failed, and the market corrected. We are back to where we were in 1993 with respect to home ownership because the attempt to increase ownership artificially failed, spectacularly.

fsk 11y ago

Rule of thumb: If you are sure you are going to be living in the same place for more than 7-10 years, buy. Otherwise rent. Remember that, instead of buying, you can rent and invest the difference. If you made a spreadsheet with all fees and costs, you'll come up with 7-10 years as the breakeven point.