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Top U.S. Cities Where Buying Beats Renting
By EconMatters
Morgan Stanley (MS) published a research analysis in July 2011 predicting America is well on its way to becoming a renter society amid high rate of mortgage delinquency, foreclosures and liquidations slashing home ownership, while driving up rental demand.
Morgan Stanley noted that during the housing bubble, home ownership rates increased from 66% to 69%, an all-time high. Today, that number is just below 65% and that ratio is expected to decline further to 59.7%, driving multifamily vacancies down and rents up:
".....the U.S. will become a Rentership Society, in which the home ownership rate will keep falling, the home rentership rate will conversely rise, and the rental market will dominate the investment landscape in housing for years to come."
Indeed, the mortgage rate might be at multi-decade low, but amid high unemployment rate and the growing number of the long-term jobless, not everyone can qualify or afford a home loan. Falling home prices, of course, has not been a positive influence on owning a home.
While declining home ownership could be an incoming trend thanks to the Great Recession, I think people who lost their homes for whatever reasons would first crash at their parents' or relative's place first.
Home ownership could be well on a declining curve based on current economic outlook, but that does not necessarily translate into a corresponding increase in rentals either
Moreover, renting does not make that much economic sense, as the infogragphic below by Mortgagesum.com shows buying still beats renting and the top U.S. cities to do just that. So it is hard to see how after losing a home due to financial stress, renting could be a viable option.
On a side note, in light of the world's faith in the U.S. dollar whenever there's a crisis situation, we should also see increasing foreign ownership of the domestic real estate, particularly in the commercial office and multi-family unit sectors. That would be the subject of another research or infographic endeavor.
Infographic Source: Mortgagesum.com
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When we owned we routinely kept four or five doors closed at all times. We had two to three times the space we needed. That was our own fault. I gave in to my ego. Never again.
If you a buy a house you are stuck in America, how much does / will that cost you? Is that really how you want to position yourself at this juncture?
Echoing the other commenters here: this issue is more complex than the cursory price relationship explored in these infographics.
My co-workers that own have vastly overpaid. They bought houses that are sucking money out of them on a regular basis. Throw on top of that the $10,000 per year their municipality is sucking out of their wallets and it gets really ugly. One is getting ready to spend $12,000 on a new roof. The other is getting ready to spend $30,000 on a new kitchen. The talk of ongoing projects is endless.
They both bring in their lunch each day. Going out at lunch is a little beyond their budget.
I find all of these "but it costs so much to maintain/own a house" posts amusing. Yes it does, and if you rent, you are paying ALL OF THOSE EXPENSES, plus a profit for the landlord most fo the time.
I think owning housing can be risky. I think owning dollars is riskier still. I have to have SOMEWHERE to put my rapidly-diminishing-in-purchaing-power dollars, I don't want to put ALL of it into PMs, I need some hard assets. I just don't see how real estate, done carefully and properly, can be such a bad deal at this juncture.
I owned a rent house from 1984 to 1996 and I made a killing on it. I know times have changed but people still have to have a place to live.
They should get the new steel roofs. They last longer than the home itself.
I just put one of those on my house. Winter in Minneapolis will be the true test. The materials have a 50 year warranty. If the snow slides off like it's supposed to, it will be the best house move I've made. Spendy though.
Buying is good if Zimbabwe Ben has his filthy way with the dollar.
At the height of the Weimar inflation people spent something like 90% of their income on food and only a few percent on housing. In a pinch 50 people could live in a 3 bedroom house but they all still gotta eat. If your'e buying it to live in it make sure it has enough land for a garden.
That's not an argument for a home per se, that is an argument for hard assets based on the debasement of the currency. Unimproved real estate, commercial real estate, stocks, commodities, and precious metals all fit the bill too under that reasoning. Actually, precious metals should outperform houses. Stocks went up 27x between Oct 1922 and Oct. 1923 in Weimar Germany. Of course, what you could buy with those stocks went down so the shareholders still lost value. The best I can say for housing when discussing your argument is you are completely right, the huge leverage available makes it attractive because you may get the house for a song. In the death of a currency, timing is everything, but the only thing that is bullet proof is gold and silver.
That being said, I don't see Ben and company taking the dollar down to zero and letting you out of your mortgage for the price of a cup of coffee. That would be against the self interest of the central bankers and they will prevent it.
And just who pays Mortgagesum.com that made that graphic. The housing industry is notorious for lying their heads off.
How about counterparty risk???
If you buy today, you have no way of knowing if the town you buy in is going tits up. You have no way to plan for taxes that are going up. You don't know which of your neighbors is on the cusp of forfeiture, thereby causing your home's value to plummet. You have no way of knowing which major employer in your area is going to lay off big numbers of workers and cause forfeitures in your area. You have no way of knowing if the housing association is going to have to raise fees because of fees unpaid by unemployed neighbors.
This is going on everywhere now, and you want us to buy? Basically, you are a gambler. You see a potentially successful trade, in your opinion, and you are urging people to go all-in on a house during the biggest financial hurrican in human history.
Quit being such a fucking downer. Let Utica be Number 1 and enjoy their time in the sun. That is just great. In some areas of Utica you can buy a place for $10,000 or less. I believe a lot of Bosnians have done this and are fixing the old places up. I would stay away from the Corn Hill District. It should probably be called the Corn Row District since that seems to be the hairstyle of choice.
Look at that populcation of 60,000 people. I believe Utica was over 100,000 in their heyday. But there is plenty of empty commercial space available since we don't make anything here anymore. The manufacturing has gone bye bye. At least they still have the Utica Club brewery.
It is sad that a dying little city, a symbol of our manufacturing might, is the number one town. Not because it is rising up but because prices had fallen so far down. It is a beautiful area but you better hope that Upstate doesn't go through another early 90s episode. Not that it has ever recovered from that time. Maybe you can get a job at the Home Depot.
Enough with the negs. I was being sarcastic.
My point is that they are digging deep when a place like Utica is #1 place to buy.
I was just in Utica last weekend for a friend's wedding. Thankfully the floods from the tropical storm had receded by that time.
The wedding was at a nice Masonic temple, but a bombed out warehouse was visible less than 1/2 mile away from the temple campus. From the parking lot you could see a low, ranch-style building with "WAKE UP SHEEPLE" spray-painted on the front.
Beyond that the most offputting thing about Utica was how rural it feels for a city of 60k.
I've lived in Rochester, NY for 9 years and, among other reasons, I wouldn't buy a house here because property taxes are insane. We appear steady at this time because there are many private higher ed institutions in the metro area. We are also helped by the surprisingly high levels of gov't/MIC money flowing through industry here.
You still pay the property taxes when you rent. It's just a pass through charge.
To add to your list, there are all the questions about proper title as well. If you're looking at a home as a financial asset (which I wouldn't recommend) you'd have to start with the ability to prove you own it, and that's far from certain anymore.
Baloney
Too much supply, too little demand
10k baby boomers are retiring every day and they are downsizing
The economy is worsening and the US is clearly going bankrupt
You may be able to show some price appreciation month over month, but that is just noise.
Most importantly, all you can say is buying is better than renting RIGHT NOW, but buying a house is a 20 year commitment. You just posted that the average home ownership is 5 years. If you buy based on renting being a better deal right now, you are in actuality betting that will remain the case for the next 5-20 years.
Hey, they manipulated stocks higher last week, why don't you use the same reasoning and go all-in on stocks? It's the same thing.
You must think we are stupid. Really, really stupid.
This assumes that you plan to live in one place for more than 5 years, and you don't have $50 - $480/mo. in other ownership-related expenses. A new roof or furnace, or an undisclosed electrical or plumbing gremlin would tilt that scale pretty dramatically. A big bump in local property taxes might make one's eyes water a little as well, and that's pretty much a sure thing over the next few years. I live in Minneapolis, and coming to find in January when it's colder than a witch's tit that your walls are insulated with crumpled up 1922 newspapers might skew that math a little, both in your utility bill and the insulation job you've now got on your plate.
That said, I own a house (well, really, I'm buying one from my credit union) and I wouldn't have it any other way. But there'a a lot more to it than comparisons between average mortgage and average cost of rent. I've made the decision I have because it works for me, but your results may vary. Just sayin'.
I have a buddy that is trying to sell his house in the Lake Harriet area. He is now $25,000 below what he paid for it in 2004 and can't get any interest. He also put a lot of money into renovations. Let's add in the 6% he will have to pay a real estaet shyster. His final sales price will probably be about $260,000 so let's say $15,000. Now let's start calculating.
- Money lost from purchase price: $45,000
- Money paid to REIC: $15,000
- Money spent in renovations: Let's call it $25,000
That is a total of $85,000 in 7 years.
But no fear they are talking about taking it off the market and waiting things out. We can call that "opportunity cost" or the "I'm stuck cost".
I do believe in buying but not during the largest real estate crash in American history. But in places like Minneapolis prices are already way down. So much for the bullshit myth that the housing bubble did not hit the Midwest. That is a huge lie. Let's add to this mess the downward spiraling economy of the next 20 years and it really gets ugly. I know that I want flexibility to move where the jobs are and the riots aren't.
Your buddy's story is one I'm well familiar with. My only saving grace is that we bought a starter home in 1996, about 5 seconds before the bubble hit Minneapolis. We bought that house for the same price the previous owner had bought it for...in 1976. Talk about a stagnant market at that time. That price was so low, in hindsight, that by 2009 that we owned 80% of the mortgage already.
We decided to sell in 2009 because the kids were getting to the age that they need their own rooms. We were prepared for low offers, and priced pretty low as we had all that equity. Had the offers been too low we would have looked at enlarging rather than selling and buying. And, had worst come to worst, my wife and I grew up in big families where the kids shared rooms, and we more or less survived. There are far worse things than living in a cramped house that's all paid for.
We sold it in 2009 to the proverbial greater fool who hadn't read the papers apparently and thought he could still add stainless steel appliances and cabinet faces and double his money. The $8000 first-time buyer credit artificially inflated sale prices at that moment as well; the greater fool made the biggest offer but we had 2 others in the same ballpark. If he had planned to live in the house it would have been an OK move on his part, not great; but he was about 3 years late on the flipping plan.
We were then able to put a 50% downpayment on the next house. We bought at a price I think was a little too high, but with the cash from the greater fool, the mortgage we have now is about what we would have paid to buy this house in 1996, had we been able to make that deal at that time.
I feel for your buddy. That's a nice part of town, and I'm sure the house is gorgeous, but he's not going to be able to get out of that and be made whole. Waiting won't help. If he needs to move, he needs to get into the rental business, which is a tough business even for those who want to be in it.
You're absolutely right about "the bullshit myth that the housing bubble did not hit the Midwest. That is a huge lie." H-U-G-E Lie. By sheer dumb luck and unintentionally advantageous timing it worked out for us as if we missed the entire bubble.
That's just luck. Overall, Mpls. had a huge bubble, and now we've got a multi-tiered market. Stuff in the 7 figures moves among that small market. The unimpaired-seller-to-well-qualified-buyer market is down a whole lot, particularly if the seller doesn't have at least 30% equity to burn. And then there's the sludge REO, short-sale and foreclosure market; which has a few gems in it but a whole lot of cases where the house is priced at $90,000 all right, but it needs $100,000 of work so it's really more like a $200,000 house, and you wouldn't pay $200,000 for it straight-up.
Good luck to your buddy. Hate to hear it.
There's more to buying a home than paying the mortgage... Add maintenance, repairs, taxes, insurances, etc, and you will see that renting is equally expensive.
Buying is mainly good for banks, not for buyers.
Tru all dat.
Would you say that renting is better for landlords too?
These glittering generalities are bullshit. All real estate is local. It all depends on the local rental market vs. ownership. Five year mortgages are below 3% now. There is not much maintenance expense on a nearly new tract house and there are many available in some markets that are very cheap compared to what it costs to rent thanks to the massive amount of overbuilding that happened during the Bush administration.
Try at least $200/mo in repairs and reserves expense for when that roof needs to be replaced or the foundation has problems or the plumbing leaks. It's endless with the repairs and maintenance. Landscaping, watering, painting etc. These are all expensive and time consuming. The only advantages are a backyard and flexibility to do as you wish with your property. I've learned alot about plumbing, electrical work, carpentry, and masonry in a few years.
Another issue with owning- loser adult kids move back into their parents basement and let/tell their progeny to run all over neighboring properties. Then, when you try to get em to stay in their own yard, the loser mom comes over and yells at you and tells them to keep doing what they wish. Even had one of these little shits yell at my wife they would f'in sue if they got hurt! It's amazing how quick a place can decline due to these useless shits. Right down to piles of construction debris that never gets cleaned up. Forget zoning enforcement. That's only in buffet land. My house is almost paid for. These worthless shits scammed out of theirs in the middle of the night, leaving someone else to pick up the tag. And obumma loves this crap... Gad, I can't wait till the economy picksup and the basement snakes move on... God help the next generation with loser parents raising the next shit generation. Somethings gotta give. Maybe Spain has the right idea where mortgages don't get wiped- the loser still has to pay. Of course, I do feel bad for the people who really do fall on hard times- but the weasels who play the game- what do you do? At least if I where a renter, I could leave em in the dust... There. Rant's over. Wish I fekt better. I know the shits will never read this/recognize themselves- too busy blowing $$ in Atlantic City and renting new cars...
What he said. 200k house on a 30 year mortgage and you dang near purchase it twice with accured interest. Add in PMI and insurance for another 2000 per year or 175 per month regardless of where you live. Then you get to the property taxes. Thought you owned it huh? nope it belongs to the state. These can be brutal in New Jersey or New York and significant everywhere. And one fact remains, no matter how worthless your property becomes your tax burden will never decrease but only increase without a courthouse battle. Never mind the dishwasher going out or that carpet to replace. Then you consider that owning a house is a giant ball and chain tying you down if you want to take a job somewhere else or get transfered. Want to move and put it on the market? you have to pay someone to mow the grass and watch over it. You could rent weekly in a Greek villa next to the ocean and fly back and forth for cheaper.Owning is for Suckers. And by the way, I am a sucker. Want to buy 2000 squares? Im looking for a bigger sucker than I and am willing to pay some parasitic RE agent 6% to find him.
30 year mortgage at 5% and by the end I've paid for the house twice, sure. But by the time the 30 years is up, the house is also worth 10x in nominal terms. Do you really think price inflation is going to average less than 5% a year over the next 30 years? I think mortgage holders are going to come out looking great a decade from now. They can pay off the rest of their mortgage with confetti paper and they own the house outright. Unlike the renter who owns .. squat.
Consider scrolling up and reading a little bit... then rethink your post. You've ignored all of the additional costs of "ownership", not the least of which is the fee you must pay to the king for allowing you the privledge of "owning" some of his land. This alone will blow your math and results, but consider this too... the renter, if they did nothing but put the property tax that would have had to pay into gold/silver, will not only OWN something that is real and without counterparty risk, but will also capture the entire price inflation benefit you used to try to make your case a 'no brainer'. Turns out it was a no brainer, eh?
No disrespect.. do whatever you think right.
stay away from anything that can be taxed.
to own a home is to become a serf, bound to the land and responsible for tithe to the local tax lords. no thank you.
Renters pay property taxes too. Its built into the rent.
This is also why i don't buy land; when the government needs money they will go after the property owners hard and mean; and if they can't pay; force them off.
But, AND HERE'S THE RUB; 1st, who would want to live in any of those cities; and 2nd, what about work; none of the places seem a good place to move to; i get to sell my gold, get taxed, and live next to bubba, who'll steal shit off my lawn...
you get what you pay for.