
Renting vs Buying, Foreclosures and Job Growth across 50 US Cities - shashashasha
http://insights.truliablog.com/vis/rent-vs-buy-q3/
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techiferous
This is why I don't buy the home I live in as an investment. It conflates two
very important things:

* My home.

* A large financial investment.

Changing one affects the other. I'm skeptical that life circumstances will
magically align so that when it's a good time for me financially to sell my
home, it will also be a good time for me to change location (or vice versa).

So I rent.

~~~
pnathan
The counter argument is that the rent you are putting down is not being
invested into your home. I think that is a very cogent argument, but it relies
on your ability to sell (or willingness to sell later on).

I concur with your analysis though, and don't plan to buy for a long time (ie,
when I am ready to put down roots for 10-20 years).

~~~
johnrob
Roughly speaking, if you save the difference between the rent and mortgage
price, you should end up with the same upside that a purchase would have
netted (although if rent > mortgage, then renting only makes sense for a short
term stay).

Many people think home buying is a good financial strategy because most people
don't have the discipline to save this extra cash. It benefits the buyer in
the same way a forced retirement savings plan would.

~~~
hugh3
_Roughly speaking, if you save the difference between the rent and mortgage
price, you should end up with the same upside that a purchase would have
netted (although if rent > mortgage, then renting only makes sense for a short
term stay)._

Roughly speaking you _might_ wind up with the same upside. I consider
rent+invest the more risky option even if you _do_ have the discipline to do
it, since there are lots of scenarios where you wind up behind.

What does winding up behind mean? It means being 85 years old, retired, and
not having enough money to pay the rent. I think it's worth buying a house
just to have the peace of mind of knowing you'll have somewhere to live once
you're retired.

~~~
hessenwolf
Yeah... Peeps I know in the Republic of I who bought are average 100K in
negative equity, meaning, even if they sell, they still owe 100K. The risk
depends on the market levels. 7% annual rent to price, or 3.5 times median
income is the general long-term trend (OECD report), and if your house is way
above that then worry.

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bitmage
This is missing an important point - if you buy, you are stuck there until you
can sell it again. That loss of flexibility represents a significant cost of
its own.

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Symmetry
Also it involves concentrating your financial risk in one highly leveraged
asset.

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aidenn0
Yes and No. You typically are only risking your equity when you buy a house
(which, with a 30 year mortgage, is basically just your down payment).

~~~
hessenwolf
Ah, no no no no no!!!

House prices can and do drop 40-60% from a peak. If you got a 95% mortage, you
can really be hammered.

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_delirium
In most states, mortgages are non-recourse loans, meaning that in effect the
bank has to eat any losses, if you choose to play hardball. If they foreclose
on the house and repossess it, the loan is considered settled, and they can't
attempt to collect the difference, even if the house is worth less than the
value of the loan was.

~~~
hessenwolf
Pfft. I thought that was just California. One would think that that would have
encouraged them to underwrite a little better.,, And who the fuck would rate
any tranche of non-recourse loans AAA?

How long does it stay on your credit history (officially)?

~~~
bzbarsky
7 years is the typical number I've seen for how long things stay on one's
credit history.

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Aloisius
I'm not sure I understand the prevailing view that renting is always better
than buying.

I bought an apartment in San Francisco in 2001 and frankly, it was one of the
best decisions I've ever made. Before I did so, I calculated out the cost
difference of renting vs. buying. After taxes, my living expenses were only a
few thousand dollars more a year to buy vs. renting.

If I want to move, I don't have to sell my place, I can simply rent it out.
Given current rates, I can do so for more than my monthly mortgage payment.
Not only that, but my property is worth about 40% more than what I paid for
it. I can actually use my equity in my house to finance another home and flip
one to a rental.

Maybe purchasing isn't for everyone, but it certainly is for some. In the end,
it depends on your finance situation and location.

~~~
pedrolll
Yes, you're special because your home is in an area where people want to rent
it. Every home-owner certainly does not have this advantage. In your case it
makes more sense to buy than in others.

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Unregistered
When calculating the cost of purchasing/ renting, are they including condo
fees, property/school taxes. In some areas the tax/condo fees alone exceed
typical rents.

~~~
analyst74
This is one of the most overlooked cost for first-time home buyers, all the
cost in condo fees and taxes are not going to contribute a cent to your equity
either.

~~~
Caerus
Also, utilities. I only pay for electricity at my apartment, and thanks to
some 12" stone walls it's quite low. I talk to people my age who have bought
homes and their utility bills can be as much as 40% of my rent.

~~~
roel_v
Maybe it's different in your area, but most areas I have experience with, no
utilities are included in the rent. Plus a lot depends on how the place is
heated/insulated (or cooled/insulated).

~~~
bzbarsky
The utility situation really depends on the area, yes.

For example, my experience renting in Chicago is that water, heat and hot
water were typically included in the rent. That's most certainly not the case
everywhere.

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systemtrigger
> it’s cheaper to buy a home than to rent in 74% of America’s 50 largest
> cities

This "statistic" wouldn't happen to come from a company that earns its revenue
primarily through the buying and selling of houses, would it?

Most Americans should rent, especially in today's dark economy. The average
American is unskilled, has not saved for retirement and lives paycheck to
paycheck. Such a person should avoid big purchases because accumulating debt
is a gamble on future earnings.

~~~
leviathant
When my wife got accepted to West Chester University in SE PA, we went looking
for a place to rent in the nearby area. Coming from Harrisburg, where I could
rent a house for $500/mo, I was blown away that a 2br apartment generally ran
$1200/mo (Stop snickering, New Yorkers)

We decided to buy a 2br fixer-upper on the cheap and ended up with a mortgage
of ~$600/mo. That was five years ago. We've since renovated the crap out of
the house (it's now the nicest on the block), bought a second house in
Philadelphia (wife's getting her PhD at Penn now, and I can now walk to work),
and are about to put it out for rent. We'll be getting at least $1200/mo for
it.

Renting's okay while you get your financial situation together. Maybe most
people shouldn't live paycheck to paycheck. You don't have to be well off in
order to make a budget. If you look at my social security statements, I was
making jack squat while I lived in York PA, and still managed to squirrel
money aside.

Some people's lifestyles are more conducive to renting. I quite like having a
place I can mangle and customize as I see fit. Some people like not having to
worry about maintaining their building and grounds. Maybe when I can't do
things for myself, I'll go back to having a landlord, but especially given how
low mortgage rates are right now, I feel fortunate to have bought a house or
two.

~~~
systemtrigger
You and your PhD wife do not sound average, which serves my point that buying
a house is a gamble on future earnings. You both are investing in yourselves,
improving your assets and generating wealth. The average American watches 4
hours of television a day, he isn't prudent.

> Maybe most people shouldn't live paycheck to paycheck.

Strike "maybe most" and I agree with you.

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ww520
Gross Rent Multiplier (GRM) is used in evaluating rental property investment.
One rule of the thumb ratio is 1% for monthly rent over purchase price. For
ratio over 1%, you will most likely make money after finance cost and taxes.

It can be used to evaluate renting vs buying decision for home buyer. If the
likely rent for the house you are buying is close to or over 1%, buying has
more advantage. If it's far below 1%, renting costs less.

~~~
hessenwolf
So rent would be 12% per annum? Meaning if I pay 1k per month, the place is
worth 120K? Enjoy finding that in a place that isn't shit-tastic.

I have heard 7% is a reasonable long-term.

~~~
ww520
Good deals of course are not plentiful. The 1% is a high threshold filter to
recognize the few good deals right the way.

Rule of the thumb is a rough guess, gut feeling kind of guess. For quick guess
without detail analysis, you want to build lots of cushion into the decision.
The 1% will "most likely make money" because it has lots of cushion built in.

You can do more detail analysis with CAP/IRR/interest rate for more marginal
deals.

7% annual GRM has too little margin IMO. Assuming operating cost
(expenses+taxes) is 40% of gross, that gives you about 4.2% CAP rate. You are
making a tiny profit after paying a 4% mortgage. Any down turn at rent,
increase at expenses, or vacancy would bleed it into red.

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cletus
I find the cultural differences with respect to home ownership fascinating.

In the US, people often own their own homes. Rarely do they own homes that
other people live in. Apartments are typically owned a single owner/landlord
(condos are different). Owning is a common dream, less so in cities
(particularly New York).

In the UK, home ownership and the property market is an obsession. It is a
common topic of conversation. People are heavily invested in their properties
and often seek to buy more of them. There is a strong attitude of "if I don't
buy now I'll never be able to afford to live here", particularly in London and
the Southeast (less so now I suspect). The North and West are somewhat
different. The market is highly speculative.

In Switzerland, the property market is essentially controlled. There is little
real estate speculation. Transaction costs are high. Capital gains taxes on
properties can be brutal, which strongly discourages speculation. Renting is
not frowned upon. For tax reasons, people often buy houses and never pay them
off. In Switzerland you get a tax exemption for interest but you also get
deemed income from the effective rent the property is worth.

In Australia, owning one's house is a cultural obsession. People often end up
owning multiple properties. There are few apartment buildings owned by one
owner (it's much more like the American condo system).

I think of all the systems I've personally experienced, I like the Swiss
system the most. It treats property as something you need to live not a
financial instrument to speculate on.

That system isn't applicable everywhere however. Switzerland is unique in that
it is fairly affluent, has a small population and very restrictive
immigration. So somewhere like the US has >40 times the population so even
excluding immigration, domestic movements of people can be incredibly large
creating market pressures in places like New York that Switzerland will simply
never experience.

Some years ago I saw an article (I'm sadly unable to find but the topic is
covered elsewhere in depth) in the UK which showed that the rate of home
ownership was inversely proportional to economic growth. The idea was that
home ownership reduces labour market flexibility (which it clearly does). I
don't know if the trend still holds up.

In Australia for example a family home can easily cost $1 million in Sydney.
If the household income is $200,000 and that family wishes to move to, say,
Melbourne and buy a new house they'll pay $20-50,000 in realtor fees and
$50,000+ in stamp duty on buying the new house so they need to make back
nearly $100,000 of after-tax income just to break even.

Sadly stamp duty is a cash cow for state governments in Australia so isn't
going anywhere anytime soon. Yet I think it's a real problem. Transaction
costs need to be relatively low. Financing requirements need to be relatively
to limit rampant speculation, particularly in overheated markets.

~~~
bartonfink
Hey, Cletus -

Somewhat off-topic, but what's the rental situation like in Australia for
those moving to the country? Are there substantial obstacles to a non-citizen
resident like there are in other countries like Japan? My wife and I are
planning a move, and this is something I've not been able to Google up very
well.

~~~
Tsagadai
Renting is quite expensive. The rental markets in Perth, Melbourne, Sydney and
Brisbane is very competitive. It is not uncommon for 50 people to show up to
inspect an apartment before renting. However, it is still possible to find
some real gems (for example, massive old houses and really quirky places).
Price is often relative to access and services, if you can drive you can
usually find somewhere cheaper that doesn't have access to public transport.

As for restrictions on foreigners, there is nothing like Japan's rules. Bond
is usually 4 weeks rent and rent must be paid in advance in most states.
Tenancy laws strongly favour tenants.

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gonepostal
This graphic only tells part of the story and the easiest part of the story.
What the rental/some of the economic fundamentals are right now. When deciding
to purchase for investment and to a lesser degree a personal residence, the
decision to purchase or not should be driven by the future not the present.

I am more then willing to invest in any city on that chart if I know some or
better, all of these: \- population is increasing \- employment is increasing
\- income is increasing \- the neighbourhoods I'm buying show pride of
ownership \- public transit improvements (highway, LRT, subway) \- supportive
government (proactive business development office)

Though this infographic is very cool/informative, buyers should concentrate
more on the future then the present. Just because it's cheap isn't sufficient
reason to purchase. And if you want to live in an area with a negative outlook
renting IMO is best.

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EvanKelly
For those of us (maybe just me) stuck on work computers in which we can't
upgrade from IE7, is there any way to access the data in a plain text format?

~~~
shashashasha
That's a bummer. We're using D3 and Isotope and I think D3 is breaking on IE7.
It works for us on IE8, at least...

Anyways, if it's useful to you, the data we're pulling from is here:
[http://insights.truliablog.com/vis/rent-vs-
buy-q3/data/rvb-q...](http://insights.truliablog.com/vis/rent-vs-
buy-q3/data/rvb-q3-formatted.csv)

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tedkalaw
It's really cool to see information like this laid out. I'm from Chicago, and
even property downtown is not (as) expensive. I was always told that the bay
was more expensive, but didn't believe it until I started living in San
Francisco. We're planning on moving to San Jose, or somewhere a little further
away to try and minimize that effect.

Chipotle is 50 cents more expensive across the board here. Damn.

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bialecki
A big component missing here is location within a city. Having been in DC and
Boston, they're on the edge of buy/rent, but a big question is could I live in
the same neighborhoods or areas as I rent. If I can't, it's worth renting even
if buying might be better because it's closer to where I want to be.

~~~
wdr1
Same is true here in LA. The locations where there is a glut of housing is not
the same places where people want to rent.

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pnathan
Sort of a meta-comment, but that is a very very nice graphic.

~~~
prpon
Looking at the source, it seems to be built with jquery isotope plugin. I
couldn't see any similar examples at isotope site. Any one else know more
details on the implementation?

Also, the job growth numbers for each city look suspicious. Was there such a
jump in growth rate in Jan '11?

~~~
shashashasha
If you look on Isotope's site, we're just using a StraightDown layout, not
filtering anything, and animating the dots within each div individually.

Can't speak to the job growth numbers methodology as they come from
SimplyHired.com

~~~
prpon
Thanks for the info. Any tools you use for animating the dots and displaying
the stats? Or is it plain javascript?

~~~
shashashasha
The animations are done with JQuery's .animate method, and since the stats are
all across different ranges we're using D3's .scale and .quantize methods to
normalize our positions.

If you have more specific JS questions than that I can point you at @golike
who wrote all the code for this :)

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JonoW
Surely buying is the safest long term scenario? I wouldn't want to be renting
when I'm retired, as you become totally dependant on the rental market (i.e.
if rents shoot up, you're screwed). Even if the housing market tanks and my
house halves in value, at least I'll have somewhere to live.

If I look at my friends parents who live in some nice parts of London, there
is zero chance they could afford to rent the houses they live in now, the ones
they bought 30 years ago.

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jleyank
I've said this before but this looks like a new discussion so I'll say it
again: If you can switch jobs safely without moving, then yeah, buy a house.
If, however, a job switch will involve a move, you're daft to do so. Too much
risk in today's job market.

I'm thinking of the US marketplace, but I suspect it will hold up in similar
areas as well. Houses can/will be illiquid at times.

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6ren
Viewing this from Australia, where the 1 BR flat next door sold for $370K
($388K USD) this is very attractive. The bottom few ones are priced $50-$150K.
It's plausible to buy outright - _no mortgage._

However, unemployment ranges from 9% to 17%... I'm not sure how pleasant or
safe that would make the neighbourhood.

~~~
praxxis
I just moved from Melbourne, AU to Las Vegas, and its incredible. I have a
running joke with friends back in Australia that you can go out for lunch in
Vegas and buy a house with the change.

Having said that, I wouldn't trade my place in Melbourne for any number of
houses here :)

~~~
hugh3
Another important point which makes buying cheap US houses unattractive is
that being a landlord is a much less attractive prospect in the US.

Being a landlord in Australia is just a matter of wandering down to your local
LJ Hooker, handing over the keys, and watching as money starts magically
appearing in your bank account. If you buy a block full of cheap houses in Las
Vegas you'll be lucky if you can find an agent willing to manage them. If you
do, you'll be lucky if he can actually rent 'em out. And if you do rent 'em
out you'll be lucky if your tenants don't rip all the wires out for the copper
and vanish across the border.

Oh, plus there's property taxes. Yeech.

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Game_Ender
The New York times has a great site that lets you crunch the numbers yourself:
[http://www.nytimes.com/interactive/business/buy-rent-
calcula...](http://www.nytimes.com/interactive/business/buy-rent-
calculator.html)

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nh
anyone know of any tutorials to create this type of JavaScript? it looks
fantastic

~~~
tomelgin
I was also struck by the eye candy. Looks like they're using d3, with Isotope
for animations. The projects' websites should get you started:

<http://mbostock.github.com/d3/> <http://isotope.metafizzy.co/>

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ootachi
Both San Francisco and San Jose are near the bottom in job growth. This
surprises me, given the hiring market for engineers in the Bay Area. What
gives?

~~~
Aloisius
I don't see why it is surprising. Tech employs quite a small percentage of
people in the bay area.

~~~
kelnos
Anywhere I can find stats on that? I'm curious to see what the actual
breakdown is.

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sdfjkl
Is there something like this for Europe?

