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« Can We Please Have Some More Personal Responsibility in Our Finances? | Main | One Year Ago This Week -- April 27 »

April 27, 2007


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Rate of return on what? The downpayment?

My husband and I recently sold our house (it had appreciated 60%) and we were able to pay off significant debt ($37,000) that we had accumulated through credit cards and an adoption loan. All we have left is a student loan. We are in an apartment now and my husband thinks we should stay here until the student loan is paid off. Our rent is reasonable, not too much over what were paying for the house. It's a nice place, but I can't help wondering if we are making a mistake to stay here until the loan is gone. If we work really hard, we can pay off the loan in 2.5 years. Are we making a mistake not getting right back into the housing market?

Of course if it stagnated or depreciated over that time no doubt renting would come out ahead. Ownership is really a lifestyle decision for most. Are you ready to settle down, stay put, do what you want with a place? Few convert from owning back to renting other than through bankruptcy or divorce. If renting and owning were the same cost, I know I wouldn't rent, but if I thought I might have to move in 2 or 3 years, I wouldn't buy. I don't see any rush to do anything these days. Saving a downpayment would make more sense today.

Those that need subprime loans would be better off improving their credit than tackling ownership. Bad credit would suggest you may not be ready for one yet.

Of course several economists have shown that, on average, housing only appreciates at very slightly above the rate of inflation. It's the dividends that count - ie the rent money you don't have to pay. Of course, you have to offset those with the cost of RE taxes, maintenance, insurance, and other costs.

In my case, a house is better than renting. But without kids, it might be a different story.

What about the housing costs going down? The faster these houses go up in the cost, the more Americans are not going to be able to afford them, bringing prices back down.

What happened to the rate of home ownership before and after the subprime loans became popular? Was it still holding steady or increasing as historically, or was it stagnating - which caused a demand for subprime and nonstandard loans?

There are many benefits to owning a home, but I don't see it as a great investment. At least not right now.

This kind of analysis is extremely dependent on local market conditions. For example, here in San Francisco, it usually doesn't make sense to buy unless you plan on living here for decades, and even then, you're buying as much for emotional value as investment value. Check out this great rent vs. buy calculator at

I agree with Ryan Waggoner that this is largely dependent on local conditions, and global ones if you are comparing home purchases vs. stock investing. I used the calculator from the NY times and put in my info from my own move last year from an apartment to a home, 3 years and the home is better. Hopefully we will stay there for 10 or more, and have it paid off before we sell it.

I just like buying because eventually the payments will end, you'll never have that renting. Plus this can't happen:

When I was single I never wanted to buy as a house seemed like overconsumption compared to a 1BR apt. But after I got married I got a 2BR 2BA condo and this seemed to make sense.

I do think it's easier to grow net worth through home ownership (not using your home as a HELOC ATM) but this is under normal housing conditions. For the US right now as a first time buyer depending on the location I would still rent a house vs buying. In some parts of the West renting a home is 1/4 the mortgage + taxes of 95% of the value of the house so let the owner subsidize your life while renting!


Two truths about return on investment. Past performance does not predict future success and you can't evaluate a ROI with out evaluating risk. Actually if you believe in regression to the mean, great past performance (which homes have had) imply poor returns in the future. Also, for most people owning a home involves a great deal of leverage (ie, even if they put 20% down, they still borrowed 240K on that 300K mortgage) so there is a exceptionally strong dependence on assumptions.

Does this study also factor in the tax write offs owning a house allows? While renting may be "cheaper" the tax write offs usually allow you to change your deductions and take more money home regardless of what the housing market is doing.

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