Renters Slighted Once Again
I’ve read countless articles over the last few months about the government bailing out homeowners who can’t afford to pay their mortgages because of the tough economic times. However, I haven’t read one article about the government offering assistance to any of the 1/3 of Americans who choose to rent their homes. Why should the amount of goods/services the government provides you or the amount of money you are required to contribute to the government be impacted by your choice to rent vs buy?
Well my friends whether you like or not our economy is dependent on home ownership. Banks create mortgage-backed securities (which are not going to go away,they will just only be available in the safer packages rather than subprime garbage) to give them more liquidity to make other investments. Also the whole idea of home equity gives banks a ground to lend on and we all have seen what happens when lending stops. Also, homeownership provides wealth to individuals rather than having slumlords own all the property and creating an even larger wealth disparity gap and lessening our societies quality of life. I’m not saying its fair or right necesarilly, and obviously I am happy with the new legislation being a home owner, but the fact remains that our government wants you to own a home rather than rent and will continue to encourage home ownership with legislation. This is a bi-partisan belief based in fact. Brad I know you are completley anti-homeownership but this is something that is never going to change. Good work on the blog keep it up guys
Good points all around and as you know I have a home sitting in Atlanta as well (ad: http://www.zillow.com/homedetails/483-Mcwilliams-Ave-SE-Atlanta-GA-30316/14456971_zpid/). Although I agree that ownership of homes should be dispersed among millions I think there is still much to debate about if and when home ownership makes sense.
I can say in my case, given the current situation, purchasing my house was a mistake. At the time, with the information I had, it was not. Looking back on it and knowing what I now know, I should have treated it like any other investment.
A single house is not diversified, I do not know the real-estate market better than the average person (I don’t think most agents do either) and I leveraged a huge amount of money thus adding more risk to the equation. Overall I don’t see a single positive in my case.
If you are happy with inflation increases on the value of your house over 30 years (assuming you stay there that long) then perhaps the finances work out in your favor (taxes, government kick-backs, etc.) otherwise I think its a lose-lose situation.
This comment is already too long and I’ll be stirring up some thoughts on how I can write a blog on buy v. rent. It is a common question and it needs a common answer.
Will good points and I was clearly not trying to say that it is always the right individual decision to buy a home. This is clearly a case-by-case basis. My arguement was that from the governments perspective they need homeownership to be prevalent and it would be counterproductive for them to promote new legislation promoting renting.
From your perspective it was clearly a bad investment, however for most people owning a home gives them something of value and normally a appreciating asset. Homeownership is key to a middle class. Rather than throwing money away monthly on rent that goes to some slumlord they pay to own something that helps them accumulate wealth. Without homeownership the majority of America would have no net worth since most people cannot afford to save and invest since they require huge amounts of money for food and housing to keep their families safe and owning a house allows them to aquire wealth while still meeting one basic requirement.
This is a debate that could go on numerous ways and for days at a time. The idea of rent vs buy for the young and single is clearly an issue worth discussing as there really is no answer that is right or wrong 100% of the time.
All valid points, again. We are on the same page although I would battle you on the net worth comment. A house is a liability until you own it – and the vast majority of ‘home owners’ do not own their house.
Home ownership is a great thing for many many reasons and I support it. As you noted, each individual case is different, but by and large it makes sense.
What do others think? Is there anyone currently debating buying v. renting? What are your pros and cons?
Buy
+Mortgage
+Mortgage Insurance
+Taxes
+Home Insurance (Houses Only)
+Association Dues (-utility benefits)
+Buy/Sell Costs (Agent + Mort Fees)
+Maintenance/Repairs
-Tax Deductions
—————-
=Cost of Owning
For the “Cost of Home Owning” defined above you get in return equity (from principal payments), all profits/losses on the value of the home (over the long-term real estate values increase at a rate equal to wage increases – which edge just slightly higher than inflation due to productivity gains), and a place to live.
Rent
+Rent
——–
=Cost of Renting
For the “Cost of Renting” you only get a place to live.
So the analysis is this: Does the equity you develop + potential gain/loss on the value of your home worth the extra money you pay to buy vs. rent (difference between “Cost of Owning” and “Cost of Renting”)?
In almost all cases I would say that it is not – especially when you factor in the tremendous risk you expose yourself to by leveraging several hundred thousand dollars on a single asset.
Of course this analysis completely ignores all of the soft benefits that come along with buying or renting. These should not be ignored, but I’m trying to avoid writing a book.
Everyone is over-analyzing the situation. It’s as simple as this:
home ownership = the longest, or 2nd longest, commitment you will EVER make.
rent = the shortest commitment, if you even can call it that, one can make (for lodging).
Considering the recently housing collapse it boils down to:
Commitment (home ownership) screws you over because what you have now is not what you expected when you signed up.
No commitment (renting) always works out because if you don’t like it you MOVE ON.
I suggest you apply this learning to every facet of your life.