If you can afford to buy a house/condo should you do it to avoid rent?

[Mark1808]

[ QUOTE ]
I mean I'm not sure I want to commit myself to one place for the next 10 years or anything like that, but if it's smarter to buy a condo for the next 3-5 years than to rent for that whole time I'm thinking I should do it. It's just that I'm not very clear on the logistics of these things. Other than all of the maintenence I'd have to take care of myself, what downsides are there to owning vs renting?

[/ QUOTE ]

Given the overwhelming eveidence that the market is likely to get worse before it gets better I would say you are better off renting. The financial advantage in owning is only through potential apreciation. On a cash flow basis rental rates are a lot cheaper than owning and maintaing a home.

If you were married with kids and saw a dream home you could afford now then you would have other considerations, but from a pure finnacial perspective renting looks like a no brainer.

[Thremp]

Markets are too local to say anything across the board. To suggest the national housing market has an impact on your local housing market is retarded.

[spex x]

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The financial advantage in owning is only through potential apreciation.

[/ QUOTE ]

I disagree. You are just about always better off owning than renting DESPITE appreciation. All you have to do is look at an amortization schedule to see why. Over time you gain more and more ownership in the property. Even if the property doesn't appreciate, you're better off. This as opposed to renting where over time you have no equitable interest not matter how long you stay.

The problem with buying a house and planning to sell it before 5 years is that in that short time you don't gain too much equity in the property.

[ QUOTE ]
On a cash flow basis rental rates are a lot cheaper than owning and maintaing a home.


[/ QUOTE ]

Not necessarily. It depends a lot on the market in question and the home in question.

[Jimbo232]

spex x - I agree with you on the time horizon necessary to justify buying a home, but I think you are wrong when saying you are almost always better off buying a home regardless of appreciation.

Assuming you rent for 30 years as opposed to buying a home and paying down the mortgage over 30 years there are many viable situations where you come out ahead by renting versus buying. If you invest your down payment in the market and add to it the monthly savings from renting versus buying compounded over 30 years (using historical market returns and historical housing appreciation rates at inflation) you will probably come out with much more money in your investment account than you would in home equity. At the end of 30 years you could buy the home in cash and still have money left over in your portfolio. Of course this scenario all depends on the #'s you input, but if you play around with calculator rwesty provided it is not far-fetched at all.

The one good thing about a home is that it is forced savings which bodes well for the people who are not disciplined enough to invest their savings from renting over a 30 year period. Again I am going to fall back upon my belief that the buy/rent decision shouldn't be solely driven by financial analysis, but more importantly the lifestyle preferences inherent in the buy/rent decision.

[Mark1808]

[ QUOTE ]
[ QUOTE ]
The financial advantage in owning is only through potential apreciation.

[/ QUOTE ]

I disagree. You are just about always better off owning than renting DESPITE appreciation. All you have to do is look at an amortization schedule to see why. Over time you gain more and more ownership in the property. Even if the property doesn't appreciate, you're better off. This as opposed to renting where over time you have no equitable interest not matter how long you stay.

The problem with buying a house and planning to sell it before 5 years is that in that short time you don't gain too much equity in the property.

[ QUOTE ]
On a cash flow basis rental rates are a lot cheaper than owning and maintaing a home.


[/ QUOTE ]

Not necessarily. It depends a lot on the market in question and the home in question.

[/ QUOTE ]

There is very little equity pay down percentage wise in the first 5 years of a 30 year loan. I calculate my own house and I estimate on a before tax basis owning costs maybe 3 times as much when you figure interest, taxes, insurance, maintenance and opportunity cost of the 20% down paymnent to buy. An after tax calculation (many maintenace costs decrease your cost basis and are not immediately deductble and neither is insurance) still means owning is still twice as expensive per month on a cash flow basis. I am not even including transactions costs for buying and selling which also must be over come.

Granted I live in Southern California and the gap may be narrower in parts of the country where appreciation has not been as high, but I suspect owning is still more expensive than people realize. Another factor is one would tend to buy a nicer place then they would rent further increasing the cost of ownership. I think when you factor in the anticipated price drop in residential real estate someone who does not need to own a home for personal reasons is better off renting at this time.

[jono]

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[ QUOTE ]
Do a little research on the housing market?

new homes sales tumble to 7 year low

you ain't seen nothing yet

interview with housing index guru

I was too optimistic on the housing market

now it hurts

Jim cramer on housing

#1 home builder larger losses than expected

greenspan says prices to drop much further

[/ QUOTE ]

Jono - are you saying this is a good time to be a buyer or to avoid the purchase of a home at this time? I think without knowing the specific market the OP is considering applying nationwide statistics is somewhat of a poor exercise. Personally, I wish I was in the market for a new home right now as the "power" has clearly shifted in the buyer's favor at this time.

[/ QUOTE ]

Jimbo, true it has shifted into buyers favor, but there is still a long ways to go more IMO. I would hold off buying for anywhere from 6 - 18 months.

Thremp, I agree real estate is local, but save for a small minority of areas the national trends I linked are a pretty good indication of how almost everywhere is performing.

[scotchnrocks]

A national trend doesn't really mean a whole lot. A good rent vs. buy tool and good common sense is all that's necessary to determine the financial sensibility of buying a place. Trying to time the market based on a trend from past data is much less effective (and deceiving) than crunching the numbers in real time.

[Thremp]

Markets are so local in real estate its absurd. Zoning regulations, city improvements etc etc etc matter infinitely more than any national news, swongs etc. I don't know if I can be more clear about this. You need to do the numbers for your own market, the specific properties you're looking at and the utility each option has for you (perhaps renting despite losing a shade of money means a nicer location, less stress etc etc).

Some markets have been almost completely flat with normal 1-3% appreciation over the last decade, while other places have boomed. Frequently these places are within 50 miles of each other.

jono,

Actually I'd say the national trends are more indicative of the smallest portions of the housing markets. The coastal areas and a few metros. Most of America isn't in these markets. And even within those markets I'm sure there are pockets that defy national trends. National trends are created from the summation of local markets, not vice versa.

[jaydub]

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Markets are so local in real estate its absurd. Zoning regulations, city improvements etc etc etc matter infinitely more than any national news, swongs etc.

[/ QUOTE ]

Yes, clearly the local zoning ordinances are more relevant than a ridiculous deterioration of the credit markets. But I must be a retard or something.

Spex,

Still waiting for your "normal" market example returning 7% real on condos.


Edit:

Also, I'm curious, there may be such places with which I'm unfamiliar but I can't think of an area that meets this qualification:

[ QUOTE ]

Some markets have been almost completely flat with normal 1-3% appreciation over the last decade, while other places have boomed. Frequently these places are within 50 miles of each other.


[/ QUOTE ]

I define boomed as the non adjusted appreciation of at least 75% that many areas have seen. What's an example of a flat and a boom within 50 miles over the specified decade?

J

[Thremp]

Jaydub,

R U SERIOUS?

How about you try coastal regions and then move anywhere inland? Would you like zip codes? Or would you just like to continue to be pretentious and incorrect douche?