
How renting became the new homeownership - kareemm
http://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/24/how-renting-became-the-new-homeownership/?postshare=2491435164438288
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kijin
Homeownership is the rational choice when (1) you expect to live in the same
place for a long time; (2) the value of a home is either stable or rising, and
is expected to continue like that for a long time; and (3) you have assurance
that if you need to liquify your assets on short notice, you'll be able to
sell your home or take out a second mortgage easily.

None of that is true for most people under 45 now. Lifetime employment has all
but disappeared. The 2008 financial crisis has shaken people's faith in
housing as a safe investment. You don't want to tie up a large percentage of
your net worth in an illiquid asset that doesn't gain much value, especially
if you need to be able to pick up your stuff and move across the country at
any time. Therefore, renting is the rational choice for us.

The problem is what to do when you're old. If you happen to own a 5-bedroom
house, you can rent out a part of it or sell it and move to a smaller house.
In either case, you'll have enough income to enjoy a comfy retirement. Owning
a home, in that sense, is like having a massive savings account.

Renters can get the same benefit if they save up a lot of money or invest
smartly, but that takes more discipline than just making mortgage payments
each month. I wonder how many renters are actually aware of this difference,
versus just spending their extra disposable income on fancy clothes, booze,
and gadgets.

~~~
logicchains
>Renters can get the same benefit if they save up a lot of money or invest
smartly, but that takes more discipline than just making mortgage payments
each month. I wonder how many renters are actually aware of this difference,
versus just spending their extra disposable income on fancy clothes, booze,
and gadgets.

I'd be interested to hear what Americans think of a policy we have in
Australia called mandatory superannuation. It essentially forces people to put
around 12% of their income into pension funds (they can choose which fund, or
possibly even self-manage it in some cases) that they can't touch until
they're retired, meaning that people who rent their whole lives and save
nothing can still have hundreds of thousands in savings to support them when
they retire.

~~~
kayman
I'm a US Citizen living in Australia.

I find the mandatory superannuation very refreshing and surprised the US
doesn't implement something. I feel if everyone saves 10% of their income for
the rest of their working life, it leaves you with something around
retirement.

The closest in the US is the company you work for can match upto 4%.

So financial advice in USA is put away maximum into 401k/Superannuation that
your company will match because if not, you are losing that free money.

As a current renter, the mandatory superannuation law allows me to make a
rational choice to rent when it suits me. Renting allows me the flexibility
and freedom to go where the work is. At least have the option to go where the
work is. If I owned a home, I wouldn't feel as free.

I plan on buying when it makes sense, but right now, I do not see any benefit
of tying up most of my wealth into home ownership.

I look at renting as a utility of life. I need to live somewhere and it costs
me x dollars. In retirement, I plan to have x dollars in retirement money to
pay for my rent then too.

On the other hand, I'm in IT. I don't ever plan to retire. Because when I
retire, I'll be doing the same thing...coding at home. Might as well get paid
for it. :)

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extra88
> The closest in the US is the company you work for can match up to 4%.

Is there actual regulation that limits how much a company can match? This [1]
refers to 6% as a common practice, not a limit imposed on employers.

At two universities where I've worked, the university's contribution to a 403b
(401k for non-profits) didn't require any contribution by the employee. At one
the university's contribution was 6.25%, at the other it was 5% for employees
under 40 and 10% for those 40 and older.

[1]
[https://en.wikipedia.org/wiki/Employer_Matching_Program](https://en.wikipedia.org/wiki/Employer_Matching_Program)

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phonon
Most companies only want to do a safe harbor match (roughly 3%-6%, depending
on how it's set up) on their 401(k) plans...otherwise the auditing (annual
testing requirements) requirements are a real pain.

[http://www.guidestoneretirement.org/ToolsandEducation/safeha...](http://www.guidestoneretirement.org/ToolsandEducation/safeharbor.aspx)

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dalerus
I think this is an overcorrection in the market. My wife and I purchased a
house, that we couldn't afford, and lost it when the market turned. We lost
most of our savings and have fought for years to get back out of debt.

We've both agreed that for us renting is the way we are going to go. I hated
homeownership.

~~~
Ygg2
What is the biggest problem when it comes to home-ownership? Mortgage? Lack of
agency?

~~~
raverbashing
\- Maintenance

\- Cost of rental more closely tracks income/economic situation, you're also
free to go to a place that costs more or less depending on your situation
(whereas in homeownership you're locked to a place and the cost is fixed for
decades)

\- You're less free to go where the jobs are (opportunity cost)

"Oh but you're not building equity" then your problem is in financial
education.

The problem is not homeownership per se, it is of locking yourself into a
long-term financial commitment for an overpriced asset _that you can 't
afford_ (even if today you can afford the mortgage payments)

~~~
zerr
But you can always sell the house, or rent it to others and move to cheaper
neighborhood (and rent there yourself).

To me, renting means losing money, while buying (or mortgage) seems like an
investment. After all, even if potential ROI is not that high for you, think
about further generations - your kids will be the owners of your house - and
again, they can sell whenever they need.

~~~
jholman
You cannot always sell the house. The market may have fallen, or rates may
have risen in a way that makes your home less affordable. Also, prematurely
paying off your mortgage might have punishing penalties, and also there are
frictional costs to selling.

You cannot always necessarily rent to others. You may have strata / HOA rules
that prevent renting.

Buying with cash has an opportunity cost on your money. A mortgage is renting
money. Whether you rent a home or you rent money, either way you're paying
rent. You also have other "lost money" costs as an owner: maintenance costs
(and labour), property taxes, possibly condo fees, etc. So when you consider
the "losing money" aspect of owning, you're losing the interest payments, and
you're losing some other fees... but the part of your mortgage payment that is
excess of interest is not lost money (it's savings).

On other other hand, there are advantages to owning. In particular, if you
want to make a highly leveraged wager (5x being common), you can do that in
real estate. If you win at the wager, you can win a lot of money. (Of course a
casino lets you win a lot of money too, with extreme leverage, but the housing
market has no "house" extracting a vig, pun not intended). Also, many
countries have tax incentives for ownership. For example, US effective
interest rates are somewhat lower than the contractual rate, because the
government gives you some of it back at tax time (I think.... I'm not an
ardent student of the US housing rules).

In short, a statement like "you've always got options as an owner" or "renting
is losing while buying is an investment" is so oversimplified as to be
incredibly damaging.

The math is tractable for a modestly smart person, but it does take some
dedication.

~~~
toomuchtodo
I was one of those people who couldn't just "sell the house". My builder went
bankrupt, the remaining land was sold by Bank Of America for pennies on the
dollar, and I was ~$100K underwater. Doing the math (based on historical
yearly real estate appreciation), it was cheaper to have 3-5 years of bad
credit than 10-15 years of payments just to bring the house to neutral equity.
My HOA wouldn't allow me to rent our townhouse out because several people
bought them as investments, so we had reached "rental capacity" before the
subdivision was even complete.

I walked away, lost my $30K downpayment, 2 years of equity at $2K month in
mortgage payments, and have ~3 years of bad credit. With only that negative
mark on my credit, I still have a 680 credit score.

I'm never willing to bet again that I'll be in the same location for 15-30
years. I'd rather rent and take what you'd consider "equity" and invest it in
something I can get out of in less than 60 seconds (ETFs).

EDIT: Mortgage underwriting guidelines now limit a new mortgage until after 3
years of a foreclosure, not the traditional 7. Why _wouldn 't_ someone walk
away if it would take more than 3 years to reach neutral equity?

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rplst8
I think for many people renting is the only sane choice with the volatility of
the job market. You can't be tied to a house that is any significant portion
of your income once finding work forces you to move.

The sad part is that today, more than ever, where you live shouldn't matter
for many office jobs. But it does matter - to employers.

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Shivetya
TL;DR - investment companies are scarfing up lots in incomplete subdivisions
to build rental homes and they aren't just renting them to whomever has the
money

I live in one of those subdivisions that failed to complete before the housing
bust. About two years ago an investment group purchased the remaining eleven
lots and built homes strictly for the purpose of renting. HOA rules did pay
off as they had to keep to architectural rules and even minimum square
footage; 2400+

After talking to their builder, turned out it was two investment groups that
tend to work together, he was working on three separate subdivisions at one
time. All homes are rented by management companies, full background checks,
the likes. Being able to rent one, even this far out from Atlanta (think 25
miles) apparently is very desirable and not as simple as showing up with the
money. After a few years they either sell out right or do a limited rent to
own.

The surprise to me is that there is still substantial turnover in renters.
Used to be the rule was stay out of the sub 1k a month rent; the homes near me
are 1200-1500 a month; but out of eleven rentals I figure maybe half have had
the same families for the first year.

So while I see some subdivision have new building starting and even some that
never got the first house down I look close for the signs. Big home builders
will be building to sell to homeowners, if the builder doesn't display his
name except on permits its likely for rent.

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jonny_eh
The Y-axis is truncated on the first graph! So misleading!

[https://en.wikipedia.org/wiki/Misleading_graph#Truncated_gra...](https://en.wikipedia.org/wiki/Misleading_graph#Truncated_graph)

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learnstats2
The graph shows exactly what it is designed to show in an effective way, and
they explain it clearly in the text.

It's one of the clearest and least misleading graphs I can imagine. Starting
the Y-axis at 0 would only be less effective at making the point. The
Wikipedia section that you link recognises this.

Every graph is misleading if you assume it has properties that are not there.

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bill_from_tampa
Part of the reason for the 2008 market crash was the 'subprime home loan'
debacle, where lending policies encouraged persons who should not have owned a
home to nevertheless buy one and take on a mortgage. This policy (to increase
home ownership) failed, and the market corrected. We are back to where we were
in 1993 with respect to home ownership because the attempt to increase
ownership artificially failed, spectacularly.

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fsk
Rule of thumb: If you are sure you are going to be living in the same place
for more than 7-10 years, buy. Otherwise rent.

Remember that, instead of buying, you can rent and invest the difference. If
you made a spreadsheet with all fees and costs, you'll come up with 7-10 years
as the breakeven point.

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stkni
I'd assume that the laws of supply and demand will eventually correct this.
Interesting that the laws of leverage (i.e. it magnifies gain and loss) have
punished plenty of homeowners, and that will probably make the correction take
a long time to come around.

But that's no comfort for the generations that miss out.

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briandear
It feels like a lot of people in the Washington Post comments ought to read
Rich Dad, Poor Dad.

