Soft housing prices: Maybe Americans just aren’t dumb enough to keep buying houses?

The housing market remains soft, so we’re told, and the best minds of central economic planning are struggling to understand why and what new government gimmicks can be applied. I’m wondering if former homeowner sentiment has been factored in. This article from Zillow says that approximately 37 percent of home sellers are selling at a loss. Whatever the loss figured by Zillow you also have to add another 5-6 percent in real estate commission, equivalent to more than a year of rent in many markets. Psychologically, a person who just lost enough money to have paid for 5-10 years of rent is not a very likely candidate to go back into the market where he was just burned.

Thus the more houses are sold, the worse the buyer-seller ratio will get. Every sale has a roughly 37% chance of removing a person from the real estate ownership market. More and more Americans will be conditioned to the idea that home ownership is a waste of time and money, not to mention the inflexibility that it imposes on a person who might otherwise have been able to get a better job by moving. has some data on the price-to-rent ratio in various markets. In Manhattan it is 30:1. San Francisco and Seattle aren’t far behind. Thus for about 3.3 percent of the cost of buying, a person could rent. A buyer, by contrast, would pay at least 6% in real estate commissions and other transaction costs (the commission might be deferred until the property must be sold, but it will have to be paid eventually; or you could view at least half of the commission as built into the sale price). The buyer will have to pay perhaps 2% every year in property tax and maintenance, plus an additional 5% for mortgage.

In our wealthy suburb of Boston, rents are 3-4% of house prices. That would barely pay for property tax, maintenance (winters are harsh), and landscaping (weeds are aggressive). So the landlord who rents, and there are plenty, is basically giving the house for free to the renter. When it is time to sell, it takes 9-12 months of leaving the house empty, so the cost to sell is 8-10%, even if the market remains flat.

Another advantage for renters is that they can free their minds from the clutter that prevents homeowners from doing or thinking anything interesting. People in Manhattan, even when they own, never do any maintenance or yard work. So they can write novels and build empires. The rest of us go to Home Depot every few days and pull weeds.

Summary: Why would house prices continue to fall then? The longer that house prices fall, the more people will critically assess whether it makes any financial sense to own and conclude “it does not”. They withdraw themselves from the market of potential buyers, at least for 10 years or so until they forget what wounds they suffered and how boring they were when they owned.

52 thoughts on “Soft housing prices: Maybe Americans just aren’t dumb enough to keep buying houses?

  1. Silicon Valley condo owers have broken even since 2009. With quantitative easing, their prices have risen enough to cover fees. After 3 years, instead of burning $40,000 of rent, the ower has $40,000 in equity.

    You would have had to know that quantitative easing was going to be permanent & the bottom 99% of the population would become less relevant, while the top 1% became more important. As the top 1% has kept up with inflation, buying 40% of the stuff, they’ve replaced the demand once from the bottom 99%. The top 1%, only around 3 million people, are becoming the main factor in prices.

  2. There’s also the herd effect. When housing prices are rising, people think they’re going to continue rising, and jump into the market, driving up prices further. The faster prices rise, the more people get sucked in. Charles Kindleberger (“Manias, Panics, and Crashes”–highly recommended): “There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich.”

    … and then the bubble bursts and everyone hunkers down.

    This is still happening in Vancouver, where housing prices rose 30% last year.

  3. Well said. In the San Francisco Bay Area, the difference between renting and buying is pretty extreme. Using some simple calculations, whether or not this is a good financial move (not withstanding the personal time required at Home Depot, etc), depends very much on the rate of home appreciation. If the appreciation rate is high, the financial payoff is very good. If it’s not very high, or flat, or negative, it’s a financial loser. The high leverage employed in most home purchases makes this quite a high stakes wager.

  4. I’m surprised you didn’t mention one big reason not to be a property owner – you become prey to your state and local authorities insatiable appetite for taxes to fund public employees’ salaries and benefits, your house being the hostage.

  5. As a long-time Realtor there is something happening now that is quite disturbing:
    Folks that get behind on their mortgage but bravely carry on face years of negative credit history due to those late payments, but a person who simply files for bankruptcy and washes his hands of the debts that he promised to re-pay can reapply for and in many times be eligible to purchase another home with a lower mortgage in less than eighteen months!
    I guess the moral of the story is don’t do the right thing and you’ll be rewarded.

    One other ploy that is becoming more and more prevalent is for a homeowner
    who is upside down on his mortgage, i.e. owes more than the property is currently
    worth, to “short sell” the property, that is he sells for less than his mortgage
    balance and the bank releases any residual balance. Then the now former homeowner
    contracts to purchase a new home that is drastically lower in price.
    It’s the stock equivalent of having your broker absorb a loss you take on a stock
    and then allow you to get back in at a cheaper price!

  6. Justice Brandeis, that wise moralist, said that “the worst” was not the Crash of 1929 and the subsequent Great Depression of the 1930’s but the sad excesses that preceded and led to the Crash. He also warned us about what he called “the curse of bigness.” Thorstein Veblen’s “conspicuous consumption” was everywhere obvious during the inflating of the last of our many bubbles. Underlying it all is the desire of small people (and we’re all smaller than we think) to convince ourselves and others of our own bigness — through bigness in cars (SUV’s), bigness in boats, bigness in breasts (they’re fake), bigness in houses, bigness in this, that and everything. But every big bubble eventually bursts. And every luxury comes with a price that eventually must be paid. I’m not sure we’ve learned anything from recent events. Paradoxically, what you describe might be an example of over-compensation in the extreme, causing a “reverse bubble” of big-time cutting, cutting, cutting that might be just as damaging. I like to think I’m a spare Scandinavian-American practicing as much as I can what I call “Thoreauvian economics.” But if everyone were to follow my example, wouldn’t our entire economy — premised as it is on spending and consumerism — collapse?

  7. Mark: Homeowners should absolutely use the cutouts available to them in their contracts and those provided under the law when those mechanisms are in their financial best interests.

    Part of accepting the mortgage terms created by the lender is knowing that they can be shed in dire circumstances. The lenders manage their risk by choosing how much to lend after appraising the collateral. If the lenders chose to gamble too aggressively with their clients’ money on under secured loans that is their problem, not the borrower.

  8. Long time, no talk Mr G!

    Our family made this exact calculation two years ago; rent costs roughly twice real estate taxes alone on our current property. Not counting maintenance, etc. Our landlord is likely paying to have us in the place. Similarly in Boston, a condo in JP cost more to own (significantly more) than renting a luxury highrise on Bostom Common.

    Only if I were convinced of skyrocketing home values would I desire to be in the residential real estate market right now; it makes no sense here in Seattle.

    What seems likely is continued soft / declining markets. As you note, this yields greater tax burden. I imagine this will settle out over the next 10 or 15 years, but there’s no need to ride it out as an owner, as far as I can tell.

  9. @Mark, I understand that as a Realtor you have a unique perspective on what is going on right now with the housing market. However, I personally have no problem with people walking away from their mortgages or performing a short sale on their property and then buying something else later.

    When you get a mortgage and buy a home you are essentially entering into one of the largest financial transactions of your life. However, you need to keep in mind that it is a financial transaction and not let emotions get in the way (at least not too much). It is the responsibility of banks to properly screen mortgage applicants for their ability to repay. Since banks basically neglected to do this during the housing boom they gave loans that were much too big.

    So the banks screwed up and gave people more loan than they could afford. At this point as an individual it makes no sense to keep paying for an asset that is worth less than what you have to pay for it. The bank can legally take back the house or allow a short sale. I don’t feel bad at all for the banks, they received and continue to receive huge government subsidies. I don’t see why its the resolvability of hard working Americans to prop up them up with mortgages that are worth less than the house.

    If nothing else this sort of behavior will in the short term cause housing prices to decline further. However, it will speed up the eventual bottom of the decline when supply and demand are once again in balance.

  10. Home prices should keep falling – moving owners into the renter market (and bidding up the costs of renting) until the price to rent ratio gets to be more in balance (don’t forget the mortage interest deduction in your P&L).

    The sellers “losing” 37% must have bought at the top of the market. I’d expect that a lot of those sellers had very little skin in the game if any at all.

    Being able to hand the keys to the bank and say adios is part of how a mortgage CONTRACT is written. It’s a business transaction; there is no moral failure in walking away from a bad investment. And as Kenny Rodgers said “you got to know when to hold ’em, know when to fold ’em”.

    Big government thought homeownership was some sort of Holy Grail, part of the American dream. More likely homeownership was a visible signal for what people really wanted – independence, achievement, financial stability and success. But it is an outcome not a precondition.

    If homeowners aren’t putting 20% down to have skin in the game the system moves to less stable equilibrium, and homeownership is no longer the signal of achievement and succes it was.

    Buy a house because you want to live there – and paint the walls what ever color you please.

  11. @Mark,

    What a load of traditional realtor garbage. Two reasons I say this:

    1) The person who filed for bankruptcy didn’t do the wrong thing, or stop doing the right thing. That person was party to a contract that outlined what would happen if that person stopped paying the mortgage (and what would happen if he paid to completion). He chose to exercise a clause in a valid contract written by the other party. If this is wrong behavior, the bank that wrote the mortgage contract should have written it differently. Or are you asserting that banks like Wells Fargo don’t have the legal resources to write effective contracts?

    2) Again, you’re asserting that a person with a mortgage has power over the bank holding the mortgage. Short sales must be approved by the bank holding the mortgage. So here you’re in effect saying that the homeowner (sic) forced the bank to a short sale that is not in the bank’s best interests. Solution is for the bank to hire managers that make decisions in the best interests of the banks. (Pro tip: short sales are often in the bank’s best interests.) By contrast, there is zero chance that I could call Schwab and convince them to take my loss on any position I have.

    The fact that realtors don’t understand finance is a third reason some people won’t go into the market. The so-called experts are mostly charlatans.

  12. You’re suggesting that greed will never replace fear in the housing market. History suggests otherwise. But I agree it will be a long cycle.

  13. The duplex next door to me is listed at $2 million. The sale docs state that each unit rents for about $4,000 monthly. For the life of me I can’t figure out how buying it would be cash-flow positive, even if the owner knocked a half-million off the price.

  14. If you run your numbers without factoring inflation over the long term, it’s correct that buying makes little sense. But if you begin think about how the type of currency dilution required to lessen the huge debt burden of present-day individuals and governments, fixed assets like property begin to look more appealing.

  15. There is some truth to this. However, for many people (me) buying a home isn’t just a financial transaction. The neighborhood, schools, privacy, control to do what I want, etc are all more important than how I make out in the end. Naturally I don’t want to lose what I put into the house, but I would have lost that to rent anyway. Plus, _if_ I build equity (like has always happened for me so far, even now), it’s like frosting on the cake.

  16. The pendulum will swing back. Once inflation comes and subsides renters will hurt while homeowners with large debt benefit since it will be easy to pay down debt based on yesterdays dollars. Home purchasing will be attractive again via the ratios. Since I own a lot of debt, I am hoping for a few years of 20% inflation.

  17. I’m 60. I like going to Home Depot. I rented until I was 47 when I purchased the house that I currently live in. It’s a nice house at the end of a cul-de-sac in a quiet neighborhood. I have many horror stories from my days of being a renter. Those aside, my main point is that when you have a family with the children in school, you cannot allow yourself to be put yourself in a position where you are subject to the whims of the property manager and the dark cloud of 30-days-notice. Having to uproot, find a new place and move in a very short time span is an extremely unpleaseant experience. If you can keep your job and avoid defaulting on your mortgage, the way to prevent that ugly 30-day-notice scenario is to own your home. Oh and one other point. My home is currently worth twice what I paid for it.

  18. Real estate is the only asset class where regular people can invest using huge leverage with no adverse consequences. In a non recourse state, you only lose your down payment if you default. If the price of the house goes up by 10% your return on equity can be as high as 300% (if you only put 3% down). Real estate offers huge upside potential. The cost versus renting is driven by the potential gains.

  19. “Boring Home Owner” makes an excellent point. I bought my house in 1973, paying down 7/15th of the purchase price. As it rapidly appreciated in market value I paid the monthly mortgage payments with the “funny money” of the mid-to-late-1970’s when interest rates went as high as 16% on certificates of deposit. In those days independent banks didn’t sell their mortgages and my bank didn’t whine that I was paying with funny money — but when my bank got in trouble during the mid-America-agricultural crisis in the ’80’s I paid the mortgage off early. I won’t even say how many times the house has increased in market value. But I wouldn’t care if it hadn’t. I bought it as an act of love and as a home for my family, as a place to LIVE in, not as an investment. I like being tied down to it. It has been my steady “friend” for nearly 38 years.

  20. Ax,
    I like to think I understand finance, and high finance, very well. Particularly
    contracts of financial institutions.
    Perhaps I didn’t make my point clear enough:
    What happens if these same short-sellers/new home buyers at reduced
    prices once again find themselves in another drooping home market and
    once again they end up under water? Do we bail out the banks (again) and
    thus allow the process of mortgaging (no pun intended) our grandchildren’s
    future to continue on to their grandchildren? I hope not.
    I was also attempting to lament the current credit standards that the banks
    now use. There is no way a man who gets behind on his bills yet tries to
    repay his debts should be penalized more than one who simply washes
    his hands of debts that he created. If this is fair, I dread to see the future.

  21. Sorry, I forgot to add, Ax:
    The NAR (National Association of REALTORS) fully endorses all aspects
    of short-selling and also our current credit scoring system.

  22. I think buying a home is a form of hazing. Hazing sticks around in fraternities and rites of passage because it works. It creates group loyalty — people value something more when they’ve put a lot of effort into acquiring it. Once you’ve done it, you don’t regret it because the entry costs were so severe.

    …But I think the people who have never done it are thinking twice.

    I also think that housing prices will continue to remain low because boomers will continue to cash out and move from places like MA and NJ, where the property taxes are sort of insane.

    Property taxes where I live are almost half of the cost of my yearly rent. Even if I owned my house, it’s not like I could just live off the fat o’ the lan or whatever — I’d still have to pay that huge bill every year for whatever it is they do with that money. So, it in a way, even the people who own are paying rent anyway.

  23. Trust me, housing will get increasingly more expensive to rent. When you retire and are on a fixed income more than half your income will for rent. Those that own and have it paid off by the time they retire will have to pay property tax which in some locals is frozen after a certain age.

  24. TSG: Why do you think rents will go up? People can’t afford to pay more than a certain percentage of their wages in rent. So if rents have gone up significantly it must be due to a big boost in wages from a vibrant economy. In that case, wouldn’t a stock market portfolio also enjoy a boost? So a renter who has chosen to put his savings into stocks rather than home equity should be wealthier and better able to afford rent.

    Or perhaps you’re thinking that the population will expand hugely. That would make land more scarce. But most parts of the U.S. have plenty of extra land and also people can build taller structures.

  25. Funny that you wrote that. Also I’m owning a house I know it’s obligations. So the house was bought with no lending.!!! Someone else wrote about 7/15 payment. That’s better than 0.1/15 but imagine now. You could safe your money for a decent interst. So you could “wait” till you can buy a house. But all the developed states just are fuled by credit. It’s not what you got for your saving but what you have to pay for your debts. And so debts are “natural”. So sorry this is what I call addicted. The whole system is addicted, and the deldefs are the dealers to draw more and more into this.

    Once in my life one has listen to me as I told him. “Don’t be stupid, don’t buy your own property, rent and you’ll be fine”. All landlords will be happy to have a paying tenant. You even can choose where to live and if you decide differently. You just “go”. Try that with you own properrty and then especially in times in favour of buyers….

  26. Phil,
    Rents in my area (southern VA) have increased due to supply and demand.
    Folks who give up their homes are forced to rent, thus there is currently a far greater demand for rental homes than I have ever seen in my twenty plus years in the real estate business.
    Also, I am more of a real estate investor than I am a Realtor and I can say
    with certainty that in our area there are some incredible opportunities to
    purchase single family houses that three years ago would have been too
    costly to use for rental proprty but now, because of the decline in housing
    prices, they are perfectly priced for investment property. In fact, I have
    purchased more investment property in the last three years than I’ve bought
    in the previous ten years combined, and I continue to do so.
    Keep in mind in my area our real estate taxes run about one-half of one
    percent of the property value.

  27. To have a renter there must be an owner. Owners are not likely to subsidize renters very long, so get ready for rents to rise. Eventually it will become a better financial deal to own than to rent. If we learned anything in the past bubbles it is that to do what everyone else is doing is probably a bad idea…

  28. FN: I’m not sure that real estate is a fully rational market. For example, a homeowner may not count the value of his or her time in maintaining the owned house. A landlord may be reviled, but at least the landlord is responsible to send over the plumber, electrician, etc.

    A homeowner also may not be realistic about the costs of selling, both in realtor commission and in paying the expenses of the house while it sits on the market. Finally, the homeowner may be swayed by tales of someone he knows who happened to make some money buying a house in a particular suburb of LA or San Francisco at a particular time.

    There are also a lot of forced landlords. Consider the family that goes away for a year or two on a temporary job assignment, e.g., a university sabbatical. The transaction costs are too high for them to sell and buy again, so they must rent or hire a caretaker for the house (I think insurance companies by default will not insure a vacant house). Due to the high transactions costs for real estate in the U.S. (we must be a world leader in real estate commissions!), the property owner is the one with the liquidity problem and therefore he or she should be the one to suffer financially for it.

    Even professional money managers aren’t good at evaluating liquidity problems (cf. the Collapse of 2008).

  29. Let me just add there is a lot of distortion in the market.

    For instance, the USDA has a rural development program where if the township is less than 50% developed, they will guarantee 100% of the mortgage with 0 % down. So rather than fix up older properties in urban areas, people rationally choose to buy new construction in more rural areas – because they can more easily finance the purchase. Of course, some rural advocates then complain about the use of usable farmland being turned into housing…

  30. You are probably right at those prices.

    At the price I bought at, $116K for a 3BR house in flyoverville fully paid off, it makes sense for me to keep it even if I move to another city. It’s a convenient place to keep my guns, MREs, and Jeep and makes a decent rally point.

  31. has some data on the price-to-rent ratio in various markets. In Manhattan it is 30:1.

    I would take the NY Times data with a grain of salt. The legend states it used the avg price. For this specific market average cost is worthless (Since there are many luxury units) (Interestingly enough average rent is probably ok). Mean would be a better indicator for cost, or maybe better (avg without luxury units).

    My research shows the avg (with luxury removed) 2BR in Manhattan to be about 840K and the average rent (many assumptions, doorman vs non-doorman) is about 4500. That would give a ratio of 15.55 vs the 29.2 stated in the article. You need a subscription to Moody’s to get their numbers so I can’t verify what assumptions they used)

  32. @Mark,

    I called your comment garbage because you ascribe immoral attributes to one side in a financial transaction (the buyer) by saying that default is not doing the right thing and that short sales are a “ploy”. So in your view the banks aren’t immoral for creating systemic hazards knowing they have a one-way bet going, our problems lie only with the immoral buyers. (Which is an interesting point of view for someone working with homebuyers.)

    One solution would be for banks to enforce sane lending standards, and to use credit scoring as a smaller part of the lending decision. But that’s not going to happen anytime soon; even the NAR endorses the nonsensical standards in force now (to oppose them would mean fewer sales and commissions). _13 Bankers_ gives an excellent overview of how this problem goes back to the founding of the country, and gives insight into why we still haven’t solved the problem. In short, yes we will continue to bail out the banks, as we have done for the last few hundred years.

  33. GRM (Gross Rent Multiplier) varies greatly by location and category of housing.

    High end housing is the best deal for a renter. I’m living in a $3.5M property in San Francisco and my rent basically just covers the owner’s property tax and association fees.

    30 miles away, I am buying foreclosures averagaing 27% of peak value. I’ve paid about $2M cash for 14 houses and I collect annual rents of about $250,000.

    Sometimes it pays to own, and sometimes its painful to own. A blanket statement one way or the other is wrong half the time.

  34. In the contracting economy that the reality of limited resources imposes, we may end up with something that is a hybrid of renting and owning. It’s all about access as Kevin Kelly and others — including myself — have pointed out. The concept is simple. No debt. The “bank” owns the properties and when you pay “rent,” it accrues to your account at the “bank.”

  35. another angle – we all discuss the home owners abiliby to pay but that changes. if you are disabiled, get cancer or other sickness, divorce or lose your job….what do you do? The rich can afford life happening to them the middle and poor simply cannot.

    your circumstances will change – my estimation for myself is if I cannot afford the mortgage if my income goes down then I cannot afford the house.

    by that estimation – MOST Americans cannot afford homes. period.

  36. I disagree, Brenda. Changes in your life will affect your ability to pay rent as well. When you pay your rent money, it’s gone forever. At least if you are forced to sell your home, you may have some equity built up…you may not. Either way you’re out the money. I’d rather take my chance with ownership.

    The key is buying something you can afford. People today want instant gratification and they over reach and over extend themselves.

  37. Jim: I don’t think you fully appreciate Brenda’s comment regarding the advantages of flexibility. For a person who loses a job in Michigan and needs to move to Texas or Singapore, owning a house in Michigan is hardly a blessing, whether it was affordable or not. As far as rent money being “gone forever”, the same may be said for interest paid to a bank as well as the capital paid for a house in many neighborhoods in Detroit.

    Owning property makes sense for a commercial property owner, which has a lot of ways of hedging risk. It is hard to see why it makes sense for an individual for whom it may constitute a large percentage of total assets and leave them with a big illiquid lump that they can’t get rid of when life changes.

  38. You’re right, Phil, if you only want to look at the extreme dark side of the situation. I don’t feel that one can make this decision because something bad “might” happen.

    One can always become a landlord themselves and lease the place they own should some tragedy befall them.

    Owning property for an individual makes more sense to me than owning it for commercial reasons. If you think the housing market is bad, the commercial world is far more unsettled.

    I own an eighth of a commercial warehouse that has been vacant for 7 months now.

  39. Jim: “extreme dark side”? Changing jobs is not uncommon or extreme. Paying a 5-6% real estate commission is not uncommon or extreme in the U.S. Getting divorced is, sadly, not uncommon.

    The commercial property world is “far more unsettled”? How is that possible from an owner’s perspective? It isn’t practical for an individual to use more than one residential house at a time. Whereas a commercial property enterprise can own different kinds of real estate in different corners of the U.S. and around the world as well. Check out the list of cities in which owns its 133,000 apartments (in 44 states). AIMCO isn’t going to suffer too badly if one of its tenants gets divorced and moves out and, in fact, can probably predict fairly reliably what percentage of its tenants will divorce annually.

  40. Well, I don’t know the ins and out of the great Americas, but here in Ol’ Blighty my monthly mortgage repayments are 1/3 of what I would have to shell out to rent *my own house*. I’m jus’ sayin’

  41. As many people have said previously, walking away from your upside down mortgage is often the best financial decision you can make.

    Yet your credit score is dinged for this, making it difficult for you to obtain a loan in the future.

    Are credit rating agencies making impartial judgements as to people’s ability to repay loans?

    Or are they just acting as collection agencies for banks?

  42. Mark,

    I don’t know where you are in “southern VA,” but it varies a lot from Virginia Beach to Danville to Blacksburg to Bristol.

    Every cute/college town has no shortage of transplants to whom it looks cheap, but are naive about the costs and realities of owning rental property — let alone THERE. There’s no shortage of shrewd realtors, property managers, and developers who know well how to take advantage, and they talk it up like it’s the best thing since sliced bread.

    I’m glad if you’ve found a successful niche. But from where I sit, after nearly a decade in “southern VA,” it sounds just like that kind of talk: Mr. Realtor saying, “Buy something…”

  43. Thomas,

    Case-Shiller aside, I look at median prices vs. median household income — which is what can be sustained long-term. Going by this, a lot of metro areas are still way overpriced, despite the real estate wonks saying otherwise.

    Again, it’s the real estate industry trying to get people to buy. I wish they didn’t have so big a megaphone, and I wish more people would learn to tune it out. A few more years of little revenue from real estate advertising will change media for the better, IMO.

  44. @Ed,
    I’m near Lynchburg and I only buy what I consider sure things, i.e. residential property in good neighborhoods that are now selling at a price
    that will give me a monthly rental income of around one percent of my
    purchase price.
    I own about forty homes and this terrible market for sellers
    has been a boon for investors like myself. Personally, I feel
    like we’re at a bottom and since there are many, many folks who will
    choose to rent for a long, long time, I am acquiring when a property fits my criteria.
    Regarding your Realtor “go buy something” comment, I can only say that it doesn’t take a mathematical Adonis to calculate a reasonable
    return on an investment when it comes to purchasing a single family
    investment property and almost anyone with decent eyesight can tell
    a good neighborhood from a bad one.
    PS As a Realtor for twenty plus years, I have always held the opinion that if one
    could find a reasonably priced home to rent and then invest his savings in
    other ventures, in the long run the non-homeowner will accrue far, far more
    net worth.
    I think Phil put it best, a lot of home ownership is emotion.

  45. When we bought our house, the most important considerations were escaping the control of landlords, living in a more settled, quiet, residential neighborhood, being in the school district we wanted, etc. At the time, buying was also clearly financially preferable in the market we were in, and we expected to be in the area a while, so there was no real tradeoff.

    That was a dozen years ago. But now that we’re in the market for a new house in a new city, I wonder if that much has changed. It’s a little more of a tradeoff, but you can’t decide for a given property whether you’re going to rent it or buy it. The two sets of properties are grossly different, at least where we’re looking (and, I believe, where we live), and the size of the sale market is about 4 times the size of the rental market. It’s not generally possible to identify comparable rental and sale properties, and of course it depends on what’s important to you. How many square feet do you add to the rental property for someone like me who despises dealing with landlords?

    So I’m a little baffled by this. While I can see that it makes sense to pose questions about how much I would be paying for all the advantages (to me) of owning, all else being equal, I still can’t help feeling that it’s mostly an academic exercise, given that in reality, almost nothing else is equal. Perhaps it’s hard to see given that we’re talking about two kinds of things that you live in. But it seems no more helpful to me than talking about whether it makes sense to buy a newspaper vs. renting water-skis (either of which might be a nice morning’s entertainment).

  46. ps i’m much less boring as a homeowner than as a renter
    pps it turns out that in our size range, houses for sale outnumber those for rent more than 20:1 in the areas we’re looking. it’s going to be hard to work around that disparity.

  47. Dan: How do you know that you’re less boring as a homeowner? Most boring people think that they are interesting; if not, they wouldn’t meet the dictionary definition of a “bore”.

  48. We have invested for thirty years and
    have never seen a better rental climate.
    People who a few years ago swore they’d
    never lease a home now ask for multiple
    year leases.
    I second the earlier poster from Virginia
    who stated the bad home market has
    been a boon for investors who know
    what they’re doing.
    I believe we are seeing a new era of
    educated folks realizing it’s far cheaper
    to lease than buy. And in many area’s
    it truly is just that.

  49. Phil, being able to tell if you’re interesting or not is very different from being able to tell if you’re more or less interesting than you were at some other period in your life. The former is universally acknowledged to be almost impossibly difficult, and I would never presume to say I’m generally interesting (I would say you can tell a lot from the fact that no one’s lining up to write articles about me). The latter is almost necessarily a much easier judgment. So of course I don’t know for certain if I’m more or less boring now. But I have access to a lot of information on the subject.

    Had I decided 12 years ago to rent instead of buying, it’s hard to tell if it would have made me more or less boring. But the silly mechanism you’re suggesting — less time wasted on home maintenance — wouldn’t be the reason, because that kind of thing accounts for less than a tenth of a percent of my time (more for my wife, she enjoys gardening). My mind was far more cluttered with home-related issues when I rented, because of the near-constant struggle with the constraints imposed by the owners of the property where I lived, and things like that. For most people, bigger issues — e.g., family and career changes — are overwhelmingly more important than the amount of time sucked up by either renting or owning. So I’m skeptical that boringness devolves from owning vs. renting, that’s just a just-so story.

    I wish you’d addressed my other postscript instead. How am I supposed to understand the supposed financial advantages of renting when houses for sale outnumber renters 106 to 4, before even considering most of the things I need? I feel like I’m being told to shop in a non-existent market.

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