
Not Buying a Home Could Cost You $65,000 A Year - prostoalex
http://www.bloomberg.com/news/articles/2015-05-28/not-buying-a-home-could-cost-you-65-000-a-year
======
azakai
> To compile those numbers, realtor.com compared median home prices and the
> cost of renting a three-bedroom home in 382 local markets, then factored in
> estimates for transaction costs, price appreciation, future mortgage rates,
> and interest earned on any money renters saved when it was cheaper to rent.

But those aren't the only costs. When you rent you are generally shielded from
paying for various things, like fixing damage to the apartment or other
serious maintenance. Also, renting saves you from the risk of the house losing
value because of some local event like a neighborhood becoming less attractive
due to a new source of noise or crime. Finally, these estimates assume home
prices will rise according to "historical norms", which is a gamble.

Renting also lets you move around to pursue another job in another city,
without needing to worry yourself with renting out your current location. The
worry might deter you from moving and getting a higher salary, or it might
make you spend the time, effort and risk to rent out the place you own, which
brings its own costs.

It's hard to quantify those things. Some are unlikely events, some affect the
variance instead of the mean, and some depend on the individual (how likely
you are to find a job in another city - probably fairly high for people
reading HN compared to other industries). But I never see them taken into
account in articles like this.

~~~
rehitman
Exactly, this is just an article by realtors to stress out people to buy
homes, even if they cannot afford it or doesn't match their life situation.
There are lots of cost associated with owning home that people usually ignore.
They just see the mortgage, which sometime is less than their current rent.
However, in my experience mortgage payment is just around 60% percent of the
cost. You have taxes, more expensive insurance, and depending on your house.
HOA, landscaping. large maintenance like furnace, water heater, roof, crawl
space, and if you want to sell it in 10 years from now, you have to spend
around 10-20k at the time to update appliance.

I don't want to say it is always a bad investment. My point is it is a lot
more complex investment and needs research, and not buying can also be a good
option for some people.

~~~
walshemj
but renting has lots of additional costs in the UK you can have the following
just to move in:

Tenancy Fee £360 Admin Fee £90 Referencing Fee £60 Checkin Fee £90 Guaentor
Fee £90 Deed of Guarantee £120 Sat Checkin £72

~~~
DamnYuppie
Those fees, by comparison to home purchases, are very minimal. The doc fees to
buy a house in the US alone runs well over $1300, that doesn't even include
paying for points or inspections. You have the same type of fees to rent in
the US as well, credit checks, deposits, pet fees, and move in fees for
certain buildings depending upon access and parking.

~~~
walshemj
but that is amortized over a much longer time frame than renters

~~~
DamnYuppie
That is probably true yet that time frame is on average 4-7 years, not the 30
years most people think.

------
branchless
This article is idiotic. If I miss out by 65K a year that means prices are
advancing insanely. How can that be sustainable? We've seen what happens when
banks printing money through land runs ahead of productivity. You get a huge
crash and the govt bailout begins.

We _badly_ need a change in the way land wealth is taxed and in the way we
issue money. Without this land prices will always rise to soak up all
productivity gains.

Today is the anniversary of the peasants' revolt in the UK, by the way.

~~~
r00fus
While what you said is likely true, the fact remains that if you're not
"profiting" from the problem, everyone else is doing so on your behalf.

If everyone else takes a step forward, it's as if you took a step back.

~~~
7Figures2Commas
If your goal is truly to profit, buying a single property is far from ideal.
You don't need to buy a house to profit from these markets. You can buy any
number of REITs that own single and multi-family properties, mortgage REITs,
homebuilder stocks, closed-end funds with exposure to real estate, leveraged
products like ETFs and ETNs, etc. Most of these securities produce income.

As an extreme example, there's a UBS ETN with the ticker MORL that tracks a
global mortgage REIT index. It offers 2x leverage. It currently has a 20%+
yield and distributions are paid monthly. Is there risk? Sure. But unlike a
house, you can exit your position with a few keystrokes.

The great thing about investing in real estate through securities like this is
that when the market slows or changes trend, you can sit on the sidelines or
go short.

~~~
usaar333
The downside of real estate ETFs is you don't see the mortgage interest
deduction which can decrease the house payments by ~20% (depending on tax
bracket).

~~~
7Figures2Commas
The mortgage interest deduction is for most people overrated. I believe only
about half of homeowners actually claim it, and I recall that the average
deduction was around $2,000/year.

Again, if your interest is in profit, real estate-related investments are hard
to beat for the average person, especially if you hold them in tax advantaged
retirement accounts. Also, consider that with a leveraged product like MORL,
which has total annual fees of .80%, you're leveraging at an effective cost of
capital you could never get as an individual.

~~~
usaar333
I agree for the average person it's not too significant, but the average
person on this site earns well above the average person.

As an example, for a programmer in a ~37% tax bracket owning a million dollar
home in the Silicon Valley, you could be talking about a tax-deduction on the
order of $12k annually.

With that said, MORL looks like a very interesting product -- and probably a
better investment than a house for most people.

------
DenisM
PSA. Every decade or two we get a flood of these so-called "news stories":

\- They don't make any more land.

\- Real estate only goes up.

\- Stop paying the mortgage of your landlord, pay your own!

\- Buy now, or be priced out forever!

\- (Seattle-only) Californians are moving in and buying up all the real
estate.

The _real news_ here is that the stars are aligning to start priming the pump
for a new real estate bubble. _This time it will be different!_

~~~
beambot
Reminds me of the pg essay about suits:
[http://www.paulgraham.com/submarine.html](http://www.paulgraham.com/submarine.html)

------
quasse
>The chart below comes from data published today by realtor.com

An unbiased source for this article I'm sure.

------
derekp7
If you are going to go the home ownership route, by all means avoid the
30-year fixed mortgage -- even with lower interest rates.

So lets say you buy a $200K house on a 30-year, 20% down. If you take the
monthly payments, plus property tax and insurance, you could pay down a 90 -
100K condo within 5 years. Then sell it and use that as a down payment on a
$160k house (so again borrowing only 60K) and pay that off in anther 5 years.
By years 11-15 you could live in a $200 house and have it payed off in 5
years, instead of starting off with that house and having only half the
mortgage payed down by then.

The best part of this, is you are protected from the market going up or down.
So say the market tanks, and your initial house loses value after 5 years. The
worst thing is that you are living in a paid off house. The best part -- the
next house you wanted to move up to is probably cheaper as well, so it
balances out. And if the market goes up, well that means that you can sell
your initial house for much more, increasing the down payment on the next
bigger house.

------
arielweisberg
This xkcd comes to mind [https://xkcd.com/605/](https://xkcd.com/605/)

Also boo market timing.

~~~
digi_owl
Sadly applicable to all manner of topics...

And there truly is a XKCD for everything.

------
craftkiller
Renters tend to pay less per month than owners so if you can take that monthly
difference and invest it wisely you might be able to beat the owners while
keeping your freedom of location.

~~~
RealGeek
Most renters pay more than than the owners. A typical breakdown of the rent
looks like this:

Rent = Mortgage payment + HOA + Property Tax + Maintenance + Land lord's
profit

~~~
muzz
In areas where price/rent ratio is high, the "land lord's profit" portion is a
large negative number

------
e28eta
Those numbers assume you're planning on keeping it for 30 years, which skews
the numbers well in favor of buying.

I have coworkers in their early 30's who are already on their second house in
the last 5 years. I haven't asked if they timed the market well and came out
ahead, or if they regret the first house.

Edit: [http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calc...](http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calculator.html)

~~~
nandemo
Impossible to say for sure without seeing the exact methodology and the data,
but there are probably many other issues with this "study".

* taking data for the past year (or for a few recent years) and extrapolating it to 30 years, instead of actually getting the data for the last 30 years

* hindsight bias: 30 years ago you didn't know whether it would be better to buy a house in San Francisco or Detroit.

* comparing returns on a risky, leveraged investment (buying a house) with returns on a low risk investment ("interest earned on any money renters saved").

------
shanemhansen
I can't tell other people what they should do, but I'm very happy I own my
home.

I have a 3% interest rate and got a great deal because of the recession. I
also own pets and don't have to stress about what some landlord thinks about
that. My rent isn't going to go up. People in SF are signing 2 year leases
just to get into an apartment. Do they really have more freedom to move?

I'm free to do things like build raised bed gardens and rainwater irrigation
systems. We just made our house way more energy efficient because we are
environmentalists. If a landlord would even allow me to do those things, it
would still be pointless because I'd just be making his house nicer, not mine.

~~~
rocky1138
> My rent isn't going to go up.

Do you have to pay property taxes?

I'm sure not all states have them, but here in Ontario, we do. If you own a
home, you must pay tax on that home every year. This is a form of rent and
goes up with changing regimes and adjustments in the value of your home.

[http://www.mah.gov.on.ca/Page10240.aspx](http://www.mah.gov.on.ca/Page10240.aspx)

------
Eternalspting22
Having a roof over your head costs money! The basic premise of this article is
rising cost of real estate in perpetuity. If that were not true there would be
no difference to ownership just different timing of cash flows due to
different financing! It is atrocious that Bloomberg of all places published
such low quality writing simply using appeal to authority and not going deeper
into the assumptions!!! In the long run it makes no difference if you factor
all costs! There is also a major lifestyle issue besides the costs.

------
simoneau
realtor.com? Realtors think it is ALWAYS a good time to buy. "Never ask a
barber if you need a haircut."

------
Apreche
Give me enough money for a down payment, and I'll buy. Until then, gotta live
somewhere.

~~~
johnbaboozlld
Why should we pay for your house down payment?

~~~
mfisher87
The point was probably that coming up with the money for a down payment is
significantly more difficult (or less likely) today than it was in the past.
Given how many graduates are burdened with loan debt.

~~~
shanemhansen
It is much easier in the US than other countries. 3-5% down for FHA loans is
not uncommon. I own 2 houses (one that's probably worth 400k) and I definitely
didn't put 20% down.

------
jchrome
HURRY UP AND BUY!

~~~
rhizome
You want to lock in that equity before you're priced out of the market.

------
tonetheman
realtor.com spam ignore and move on

~~~
branchless
I know - why is this rubbish on hacker news of all places?

------
stegosaurus
The figures themselves are a bit boring.

Basic premise of owning vs renting is enough alone really. Unless you plan to
move around often it should be blindingly obvious that buying is cheaper.
Someone else owns a home and is renting it to you with a profit margin.

~~~
ForHackernews
> is renting it to you with a profit margin.

Not necessarily. Landlords can only charge what the market will bear. If you
happen to live in a not in-demand rental market, the landlord will be renting
it for whatever they can get.

~~~
UweSchmidt
From what I have observed it seems that in less desirable areas renting could
be more expensive than buying as everyone has _some_ money for rent
(especially if there is some social security that helps) but no one wants to
buy in a bad area.

On the other hand there is an upper limit on rent as wages only go so high,
and landlords often enjoy the high income and don't see a need to sell. People
who have plenty of money and really want a nice place are willing to pay
extra, so for high quality real estate buying can be more expensive than
renting.

Most importantly though there are ways to buy real estate cheap, and if you
"buy retail" or believe the numbers you read in listings you may be the sucker
in the biggest deal of your life. Chances are everyone you're dealing with in
a real estate deal is super professional and extremely experienced. Price is
"var", not "CONST".

~~~
jessaustin
You're right about professionals and suckers. A successful (i.e. he's done it
for many decades) real estate investor I know says that he makes all his
profit on the day he buys. In other words, a professional will only buy a
property for _much_ less than the normally-quoted "price".

