It is democratic and forward-looking to rent. You can spend more time doing your particular craft rather than tending property; you can invest in something everyone benefits from, such as windmills, rather than build equity in something selfish.
There are vast efficiencies in letting a landlord handle maintenance (one snowblower for 10 buildings, for instance), and landlord can handle discreetly some of the social coordination that condo owners can’t escape.
I am waiting for the architects to catch up. Since the “affordable housing” legislation, concentrations of apartments such that one can gracefully shift from one building to another if an animosity erupts, such concentrations are evaporating. Our municipality aims to be rid of us altogether, in favor of condos and “affordable” housing, which pay PILOT payments (in lieu of taxes, lower) instead of ratable property taxes.
I am waiting for apartments to go up that don’t advertise how loaded they are with luxuries (in my gentrified area), with an entire what I call “global warming” area (kitchen). Where are the apartment buildings with geothermal heating?
I am also waiting for the tax code to make non-home-ownership more viable. I think I’m paying about 25 percent more for the things I cannot deduct since I don’t use Schedule A, itemized deductions: what I pay the church, what I pay for noninsured medical expenses.

Buying vs Renting:

One person on the program (I just turned it on at that moment) explained that one should add about 40% to the base mortgage payment to gauge the total cost of owning.

That’s an interesting number. I usually calculate the number from scratch.

Here are pieces:

A 20% down payment for instance isn’t free, that’s money that could usually earn at least 3-4% somewhere (at the moment only 2%, but that will rise). So tying up the 20% downpayment *costs*.

Taxes and insurance are significant, and actual numbers for instance are around $350 on even just a median $180,000 home in most places.

So when Tom asked about the $2500 mortgage vs the $2600 rent, the missing part of the question was adding in all the costs of owning, which would reverse the order and put something like at least a $3200 (or more) owning cost vs the $2600 rent, in that example.

Another way to quickly gauge renting vs buying is to use the rule-of-thumb ratio of price.

When the purchase price of a home is more than about *140* times the monthly rent, the home is more expensive to own than to rent over a 5-7 year period *if* the house price isn’t going sharply up or down more than is typical (gradually rising at the rate of inflation).

So this ratio, 130-150 times monthly rent, is the magic number to gauge house prices.

My mortgage payment is about $1,065.00. To this I add taxes $309 plus a condo fee $351. Add to this utility costs (none are included in the condo fee) and I am looking at about $2,000 a month. On the other hand, it would cost that much to rent a similar place anyways. So I am down the 20% downpayment and the renovations costs, but I got myself a nice place that I enjoy. It will not give me a return on my “investment” in the near future, but neither will that Mercedes I have always wanted to buy or that vacation in Europe we took. Nice things cost money. I accept that simple fact of life.

It’s said that rents are going down. (Calculated Risk blog for instance)

This is because during the recession, many people are moving in with relatives or sharing rent with others (doubling up).

Both house prices and rents will depend a lot on the general economy, along with the fact that we had a housing boom and thus a housing surplus. The surplus means lower prices of course, as we are seeing, and the trend isn’t finished yet.

The language being used by the guests goes to show how much we’re all still wrapped up in a bubble market. They refer to the current market as “abysmal” and hope that it will “stabilize” or “recover”. The problem is, recover to what? The overly inflated prices that everyone got used to?

Housing is the only physical asset that I can think of that people expect to rise in value. Anything else you buy, such as a car or washing machine or computer, you expect it to lose value, as well as cost additional money in maintenance. But that doesn’t prevent you from buying it, because it provides a useful service to you. A home is the same type of asset. It provides you a service (putting a roof over your head) and deteriorates over time and requires maintenance. Yet everyone still expects it to magically increase in value by 10+% each year.

Other investments like stocks can behave that way, but that’s because the underlying company is growing and producing more, but unless you run a farm, your home isn’t producing anything. If homes are supposed to be an investment, what exactly is the mechanism that allows them to grow in value, other than a bubble?

Dan, I think you’re right, and it will take years more for people to get it that the old world is gone.

Here is the problem with renting. Landlords are not all very good with keeping up the property. In some cities such as Boston you most likely will have to live in a student area which loses it’s charm after one turns 30.

Owning is an investment in your future and a guaranteed roof over your head as long as you can make the mortgage.

With renting your basically throwing money out the window.

I own my house and I own the garden, I can plant what I want, in my case it’s vegetables and flowers.

When I rented it was always something, lack of heat, noisy neighbors, walkways not being shoveled.

I like owning my house, I don’t like what has happened to the value of it.

“You can spend more time doing your particular craft rather than tending property; you can invest in something everyone benefits from, such as windmills, rather than build equity in something selfish.”

Uh, excuse me Ms. Dibble, but… We have a 2,200 square foot basement that we run a cnc prototyping shop out of. Our house ( I designed and built) is 3,200 square feet of living space in addition to the basement. Everyone who lives in the house works the business. None of us has to go anywhere to work. We get and send a few deliveries a week. My wife and I have a 1997 lexus (the big one) that we barely drive and paid-off in 2001. We don’t watch tv or have cable. We don’t have debt. We don’t consume much. We don’t use much energy. We do live in an upscale area in a great house, and pay lots of taxes for the excellent public schools and services here.

Are we building equity in something selfish? We pay a considerable amount of taxes (and will be paying more) for windmills, solar panels, Wall Street crime, dead Iraqi kids, etc. Maybe you should do your thing, and save the judgment for Sunday. We have our causes too. Our trying doesn’t have to look like yours.

Luxi, I was trying to be succinct. I too work at home, like many of the people in this apartment building, and it intrigues me that the building is a nice temperature when those with outside jobs are away, and then the building is chilly when they come back. I think they should be here using the warmth.
My point about investing in productive things like new technologies (windmills) was ably supported by the letters that followed mine. And I would concur that when we want something fine, like a trip to Europe, or extra clothing or books, or more square footage than needed, that is what money is for. It is not exactly “selfish” to “have” selfish choices at hand, ready to roll when possible. But to expect selfishness of homeownership to pay off bubble-fashion was a fantastic bit of capitalism.
On another subject, did anyone notice that the president, in his news conference, apparently does not understand that renters are in a different league when it comes to philanthropy? He said if the rich get to deduct 35% rather than 39% of charitable deductions, well, compare that to the bus driver who makes $50,000 a year who gets 25% for the charitable deduction. Renters get zero percent, although granted we get the “standard deduction.”
It is not often I get to hear someone say the government “subsidizes homeowners,” as I believe I heard today on the show. More often renters are accused of not paying any taxes (property taxes), as each homeowner in city council cites the number of years he has paid. I have taken to citing the amount my building pays, and point out we have never had a child in the schools. Well, a couple of months twice.
This population point may have a side I don’t understand to it. The governor of New York State lately (a month of so ago) referred to wanting more people in the state, as if that were money in the bank. Maybe he was thinking of the forthcoming census and possible congressional seats. I don’t know. But renters in my city could have a whopping 50% vote if we had a cause and a unifying organization. That percent is getting chipped down by condos, but along the way the realtors, lawyers, and bankers get plenty of dollars.
I believe the statistics about people being more settled if homeowning are less than accurate. Renters can feel more a part of a community, and it is easy to relocate to a place with another bedroom, within walking distance. Communities with good rental properties, and good tenants, despite all the preferences built into the tax code, tend to thrive.

The discussion of how to nurture such communities should begin, i think. How to finance them, how to build them smart (energy and transportation-smart). Banks give me the very cold shoulder, as does my city, when I try to advance this.
Those of you who live in suburbs or countryside probably have no idea what I’m talking about. Even here, people refer to rental housing as slums, any disparaging word at hand.
To tell the truth, it is a luxury, a selfish luxury, to be a renter. Help at any hour for any problem. Nice neighbors within a yell away. All that.

To Alex:
——-

You are a wise person indeed, however I doubt, with a condo, I guess you are living near your workplace or atleast nearby urban areas rather than the suburbs and I doubt you have to mow, shovel etc that a “homeowner” would have to do.

Will be glad if I could now about that.

God Bless America!!

People new to a community could end up with the “lemons,” landlords who don’t like being responsible, being connected with the best plumbers, roofers, etc. It’s best to have landlords whose other business is running a local hardware store.
I am given to understand that landlording has become unattractive because in Massachusetts, at any rate, the laws have evolved to favor the tenants, and courts are full of tenants trying to get a triple settlement. Alas.
I read in the paper that in Massachusetts the lobbying group for “affordable” housing has drowned the legislature with lobbying dollars. Putting up such housing is a tax break and an interest-rate break for developers, but for renters, it preys on idiots — to make a point. If I am paying the “affordable” rate of 30 percent of my income, then every additional dollar I earn is effectively “taxed” by my landlord/ developer at 30 percent. Renting is only viable financially if the equivalent money a homeowner thinks he is stashing away as equity in his home is being socked away in some non-home investment.
In other words, rent money is indeed going “out the window” if you think it might be going to pay for a mortgage. But if you think you’re paying for heat, services, and local property taxes, then you can tell if you’re getting a good deal. That good deal should be a lot less than the cost of a mortgage, because for one thing, a fair number of renters are setting that portion of their money aside for a downpayment on a home.
The secret of rental joy — for self and city — is to have enough good landlords and enough give/extra capacity in the rental stock that people can sort themselves into congenial communities.
I am waiting for apartments buildings with electric outlets so I can plug an electric bug car by the porch. The guy who called in saying he was renovating a two-unit into a four — I bet he’s insulating, but if history is a guide he’ll be looking to rent at higher cost. He may say that is necessary. Building codes require it. Then again, subsidized SRO’s that have gone up here locally have shocked the town fathers by costing something like a million dollars a unit. My reaction? Where is my tent. The lobbyists in Boston have made living impossible unless you are making the builders of single-family homes rich as you go.

Jeffe wrote: “Owning is an investment in you future and a guaranteed roof over your head as long as you can make the mortgage.” That is ridiculously useless statement.

There is no more safety net in the “owning” a home than renting. If you can’t make the mortgage it’s gone, if you can’t pay the rent, you out. What’s the difference? Legal rights? Renters have many right against eviction that are on the whole balance with home owners’. And a house can be lost due to more than just not paying a mortgage—tornado, mold, fire and more. And many insurances policies don’t cover complete replacement costs to damaged homes meanwhile the renters can have insurance on their belongings.

Also, besides mortgage payments, try not paying property taxes and see what happens to the house. Moreover, if income is decreased, a renter has an option to find a cheaper apartment. How easy is it for a home-owner to get his mortgage rates reduced?

Of course, home-owners can sell their homes while the renter has nothing, right? How many people are upside in their homes now? Is it a buyers or sellers market?

Jeffe can be “throwing” his money out the window of his own home. If he wants a real investment, put it into something other than a non-productive asset, like a home. He can get more education (earning-power), buy stocks that pay dividends or just stay at his home less and spend that time working a second job…

My parents never owned a home. They rented all their lives. The rents went up, but their wages never really increased to the same %. Then there was retirement.

My parents died with nothing. No home of their own, no equity, nothing to call on in the back half of their lives, and no legacy.

On the other hand, my husband and I bought a house we could afford 28 years ago. We have more than $500,000 equity, and this is at current tanked prices. You tell me what was the better long term strategy?

Rent if you must, but no one can ever convince me that owning a home–that you can afford–is a bad decision. Renting your whole life is often a raw deal in the end.

Kremora MacLeod your statements and personal attack is absurd and just as useless. I own a home, I rented for years. I’m better off in my home. By the way those disasters your talking about if your a renter you only have insurance for your stuff. Your out on your butt. I on the other hand have disaster insurance and can rebuild my home. If your smart you get enough insurance to cover this. I pay my property taxes as it’s part of my mortgage your talking crap. As far as a worthless investment, well I did not buy my house as an investment, if you do your a fool. You buy a house because your ready to put down roots and want a home. Renting in Boston where I live is awful.
I have a friend who pays over $1200 per month for a dump that is raising the rent. We pay the same amount per month for my mortgage and we have 3 bedrooms, a pretty good size garden. His rent goes up every year, what I owe goes down.

The value has gone down, but I’m still ahead. The notion that losing a job is worse for a home owner then a renter is complete BS. You get behind in your rent your out. You get behind in your mortgage and your out. There is no difference, owning is better for stability.

I hated renting, it was a waste of money. I sold my first property, a condo and put the money not a house. Try doing that with your rent money. The only person your making rich is your landlord.

Kremora as for the stock market, yeah that’s turned out real swell for a lot of retirees lately.

I’d be interested to hear what the guests have to say about inflation.

Most of the comments concerning the comparison of rents vs. mortgage imply that rents will always be the same level that they currently are. We’ve been living in a world of 2% and 3% inflation for the past decade, a moderate period in history. I bought a home in a Washington DC suburb in 1998 for $114,000. In 1998 dollars, my mortgage was comperable to rent (slightly lower). Over the past 11 years, my mortgage has remained about the same (increased slightly to reflect higher taxes due to increased value), while rents in the area have more than doubled. Similarly, my parents bought their home in 1979 for about $19,000. Their mortgage is $252 a month (almost paid off), while rents in the area (a suburb of Pittsburgh) are almost tripple that.

One could make the arguement that the flood of public spending is going to inevitably lead to higher inflation in the future than has been typical over the past decade.

So… what about inflation?

Landlords do not always take care of property and sometimes you don’t get deposit money back even if you are a good renter.
Bring a lawyer into the mix and it ends up costing you and not the landlord.
When you rent the walls, the floor and the garden are NOT yours. You gotta live with white walls, grimey carpet — you can repaint when you move (I’ve moved about seven times and I would hate to keep painting my bedroom periwinkle).
I’ve been renting for 10 years and there is always a sense of knowing that the place where I sleep is not my permanent home.
Laws in each state are different when it comes to renting but in Idaho there is not much out there to protect renters.
If the landlord sells, pack up your stuff, off you go.
I waited for a year to get bathroom repairs done and windows to a basement fixed when stray cats started nesting.
You know what happened?
The landlord put up cardboard and styrofoam and I got a shower head instead of a handle (which is what was broken), kitchen sinks always break, cause the fixtures are from the 60’s…
Nice.
New rentals in the area of south central Idaho where I live are $1,000. Buying a home would be cheaper than renting new.
I’d love to buy but that is something that won’t happen until my wages improve, fuel prices improve (or alternate transportation becomes more affordable — cause there’s no way I can afford the trendy Pruis). Also, food and other amenities seem to have shot up in the recent past, so those prices must decrease as well.
It would be so nice to go back to school…broaden my horizons…but what good is a masters in photography???
Maybe I’ll become a famous photographer!
I guess if you have the luxury to think renting is forward-thinking you aren’t living in the places that I’ve called ‘home.’
***if you all know about any way that I can get at least some of an $800 deposit back that a landlord is holding (he won’t return my calls and I’ve sent letters without any response) I’d love to hear it!
****I have no money for a lawyer and leagal aid doesn’t track down landlords that live out-of-state.

This is so depressing. I still think the lobbyists for those who profit from property turn-over (realtors, lawyers, bankers for sure) are part of what makes rentals such a difficult proposition. I think the other part is the “affordable housing” legislation, which has meant that in the last 40 years, what goes up that is not the thousand-dollar variety has the lease restrictions I deplore. Developers get advantages, and it sucks all the air out of the economy-class market, if that’s expresses it.
There should be plenty of such housing, and not costing as much as Boston’s fabulous Big Dig, so to speak. There should be landlords galore who think the first thing you do after getting married is buy a multi-unit building so as to have some extra income (to pay your own taxes), to have people interdependent with you, and with whom to show off your skills in repairing faucets and outlets. Instead, it’s all a matter of greed. So depressing. I want to pretend it’s not true. I have looked throughout the U.S. for locations comparable to mine (which is being consumed by a science center — or was until a certain endowment fell to the current economic crisis); and even towns with lots of vacant apartments, where factories have taken their operations overseas, those landlords are converting those apartments to “affordable” units, or else are beefing them up in hopes of accommodating wealthy retirees enjoying the scenic whatever they have.

Mitch – two words: “long-term.” How many people these days can stay at the same place for 20-30 years so they can still be paying off the same mortgage of $250 a month?

I had a typo, “I hated renting, it was a waste of money. I sold my first property, a condo and put the money into a house. Try doing that with your rent money. The only person your making rich is your landlord.”

Ellen Dibbie you paint a Utopian world which would be nice.

Here in Boston and Cambridge there are a few communities that builders have designed and built that are a combination of affordable housing and market.

This to me seems to be the best way to move forward, I wish they had a larger percentage of affordable versus market value, however the builder is investing a huge amount of capitol and debt which they have to see a return on, otherwise why bother.

You are also a bit naive in thinking that people, the happy “interdependent” tenants of your multi-unit building would really care about your plumbing skills. By the way in Boston unless your a licensed plumber or electrician you can’t fix a rental buildings plumbing. First off any large job would require a permit, and inspection. There are laws and also the rights of renters in this city are pretty strong. It can take a year or more to evict a bad tenant. You mention greed, if you were a small property owner of one or two triple deckers in the Boston area chances are your not going tp be making much money on them unless you bought them over 15 years ago.

It does seem to me that the laws are squeezing the viability of the old rental culture out of existence. I think this needs to be changed. Necessity may change it. There are no longer the swarms of “rich” “retirees” seeking rentals.
Here in western Mass. the last few decades have been given over to these mixed developments you mention, part “affordable” and part “market-rate.” This works for some people. Not for a lot of us. I call and inquire. I observe too. It shouldn’t be the only game in town for multi-unit creation. But it is. Here is why.
Say I earn $25,000 a year, pay a third to health insurance, a third in taxes, and a third to housing. There is no money for food. If I earn additional money, it goes 30 percent less far because of the “affordable” lease. Second point: because I am not building equity in a house, I am building equity in savings and retirement accounts. The 30 percent income a homeowner is using for housing includes mortgage, a vehicle for savings/security. For me I would rather pay less than 30 percent in “good” years and sock away some profit.
So I get to a good year. I earn $45,000. At that point, they tell me, my “affordable” unit is paying full freight, and they are sorry, but those units don’t really serve those who do better some years, who “start to succeed.”
Another way of figuring “affordable” has to do with your savings. And there are limits. If you have savings, you are not eligible. Are they selecting for the losers among us?
And what about those market rate units? I would hope they would build some of them so they are really plain vanilla, so that those who cannot afford 30 percent can at least afford the minimalist units. (I do notice that the “affordable” units offer many things that I could easily do without.)
No, the minimalist units are not offered. Instead, the market rate units are designed to be even fancier than the affordable ones.
You say, well, they do have to make money. I am afraid they go in thinking they have to make a killing, not a profit. But I don’t know. I suspect. I fear.
I do notice that designs for single family homes are catching up. Look at the NOLA international competition for design of single family homes for New Orleans. NBC has run pieces on economical single family homes people have designed and built. No hope for the renters, however. No renters union to push their interests. Woe is me.

In response to the “long term” comment, I haven’t lived in the home I discribed in the Washington DC suburb for 7 years. While I lived there, I rented out the second bedroom for enough to cover the mortgage. I now rent it out for “mortgage plus”. Sure, there is maintenance every now and again, but I keep good books. The house (even in this market) is now worth $230,000. I’ve used the rent I’ve received over the past 7 years to double up the payments on the mortgage, so I only have $24,000 left to pay on it. I did pay a few mortgage payments before I got my roomate back in 1998, so I’ve spent about $7,000 toward mortgage payments, and I have spent about $21,000 toward repairs and improvements the entire time I’ve owned it. Basically, other people have bought $168,000 in equity for me.

I’d never suggest that buying is always a good idea. In the 7 years since I moved out of the DC area, I’ve both rented and bought additional houses. In every case I made a strong rent vs buy analysis and made a decision based on whether or not it would be a better business decision to buy than rent. I’ve always bought a smallish house in a swanky neighborhood that I could rent out and break even on if I couldn’t sell it when I moved. The market right now is full of houses that are good on the rent vs. buy analysis, and while the housing “bubble” will probably never return, the job market will. Rents are tied to wages, not housing prices, and rents will continue to rise.

As I scroll through these comments, I see a lot of references to how the “old rules don’t apply” and “a new world order”. Whenever I start to hear those terms thrown around, I know it’s time to go the other direction. The technology stock bubble was explained away as a “new world order… nothing is the same anymore” a few months before it popped. The housing bubble was described the same way even after it had started to collapse. Things go the other way too… This market will pass. There are fundamentals in this world. They’ll surprise you if you forget about them, and reward you if you have the courage to stick with them.

Nationally, house prices are expected to decline on average about 10-15% more at least. (see Calculated Risk blog for instance, one of many sites)

While the economy matters greatly, the story in most places is the simple fact of large supply, much higher than normal, of houses for sale, and a “shadow supply” of houses that owners would like to sale not currently on the market.

I think that means that buyers should bid low and look around a lot.

Ellen you also made some life style choices, at least it seems that way to me. I remember rent control, it was failed as landlords just did not have incentive to keep up the properties as they could not see any return.

Your missing the point, someone is investing a lot of money in the building of these properties and upkeep.
Without enough income being generated from the properties the incentive is gone.

However for a person in your situation with good amount of savings I would think this would be a great time to buy as the prices have gone down so much and you can get 30 year fixed ate about 4.5%. Say you buy a house that is $200,000, you will need 20% down which is a lot.
But then you have a mortgage for $160,000 which is about 700 or 800 a month. In Massachusetts the government is offering first time buyers around $8000 towards the down payment.

Jeffe, we lived in Framingham, Mass about a year back, and price were still crazy (to someone from Texas, where open land prevents suburb speculation spirals). Dinky houses of 1600 square foot built in the 40s or 50s were like $350,000, and that’s a 25 minute commute to Boston, if there is no traffic.

But a house for $200,000 in Mass makes me curious — where? We liked the climate.

Ellen, one interesting fact is people in the U.S. lived in less imposing homes until recent times:

“The average American house size has more than doubled since the 1950s; it now stands at 2,349 square feet. Whether it’s a McMansion in a wealthy neighborhood, or a bigger, cheaper house in the exurbs, the move toward ever large homes has been accelerating for years.

“Consider: Back in the 1950s and ’60s, people thought it was normal for a family to have one bathroom, or for two or three growing boys to share a bedroom.”

http://www.npr.org/templates/story/story.php?storyId=5525283

In Western Mass they are cheaper than metro Boston.

Right now you can find really good deals.
I know of a couple who bought a nice two bedroom condo (complete rehab) for the mid two hundreds in Roslindale. The condo next door to them just came on the market as foreclosure sale from a bank, it’s going for 200k or less.

I live in Hyde Park there are plenty of houses in this price range now, however a lot of them will need work.

But 200 to 250k in Boston is a good buy.

The thing is if you look at prices a lot of people are still asking way to much. You see houses listed for 400k that are really worth 300k or less. These properties are going to sit around and not sell.

The lon g term return on the s and p 500 is 10%.
this means, using simple math,that a property should sell for approx 125 times monthly rent.

All very interesting, but I have no interest in buying a house. I specifically want my resources in investments that are productive, for one thing. And I want to live in a building with a lot of other renters, with a landlord to tend to housing issues of all sorts. I don’t have time for that.
I do get the sense that the renters are not following this story as much, which is not surprising since homeowners have huge monetary interests in home values, where renters have other priorities.
Two other points.
In Western Mass. along the Connecticut River, in the Pioneer Valley, a lot of houses, as far as my knowledge goes, were built as rooming houses, for young women coming to town to work in the factories along the river. Canals along the river served the way railroads did in the second half of the 1800s. Many of these houses are now single family homes. I think my building might have been built at a sort of cusp, early 1900s, where horses were still in use, ideas of housing were shifting from rooming houses with a shared kitchen and dining room, to separate units. I too know what HB points out, that home size grew rapidly in the last generation.
The other comment. Mitch offered that rent prices track with income, do not track house prices. That is a dated idea, I think, because of the “affordable” housing legislation. People with salaries, for whom such housing makes some sense — although they are not part of the rate-paying tax base and seem in some way disenfranchised from at least the concern for tax rates because of that — they get housing whose cost goes almost opposite to their income. The people I know in housing like that conspire to hide their income, worrying that every reportable dollar gets close to ruining the deal that works for them.
A general availability of such housing, where the cost does not track available income, means that the rest of the market is warped. (Excuse me, you economists, if I don’t know what I’m talking about; this is just an observation.) It seems to me that new rental apartments are geared for those for whom cost is no object. So there is luxury housing or housing where the more you earn, the worse is your rent deal.
People who say, oh, if you don’t want to buy, you can rent a house, you and a clique of friends — what can I say? I don’t want a house. I don’t want to live in a planned community, in co-housing, or with six pals in a foreclosed house. I know I’m not the only one.
And I don’t think market is serving us well in letting apartment buildings go up to serve us — tracking in the old fashion with the kind of incomes various people do have — and if not now, when people are being foreclosed upon, then when will this happen? Just as it astonishes me how long it takes to get 21st century automobiles onto the roads, juas as it asonishes me how long it takes to get clean energy into the system, so it astonishes me how long it takes the US to focus on actual housing needs.

Stuart – S&P 500 is down 36% over 10 years. What’s your definition of long-term?

Like I said Ellen you made your choices in your life style.
Your at the mercy of the landlord’s whim and the yearly lease. I’m still not sure why your complaining about the rental situation if this is your choice. For some they don’t have a choice which is a different situation.

We need to use logic and reasoning to count the incessant cultural messages that owning a home is the best choice.

I’d suggest put this in a spreadsheet to calculate the true cost of home ownership, as I have done so for myself and many friends. It really exposes the ridiculous self-serving message of renting is like throwing money away. [If you don't rent a home, you will rent money from the bank via a mortgage, or lose potential interests].

For a shortcut, the cost is *at least* the following combined, in after tax terms:

1. opportunity cost: Home value * 5% * (1-margin tax rate)
2. property tax (about 1-2% of home value, depends on locale)
3. insurance (about $1000 per year, depending on locale)
4. maintenance cost (gardening/repair)

In addition, don’t forget the related cost:

5. an extra vehicle (7-8k per year)

Example:

400K home, total cost is about

400K*0.05*(1-40%)=12k
property tax=5k
and so on…

It adds up to at least 20K by simple estimate, even if you don’t count the extra vehicle involved.

==

Why item #1 uses home value than the down payment amount ? Because a fully paid down home costs the least. Any mortgage carried would cost more than the opportunity cost (5%) on average, that’s how the mortgage lender makes money.

Why item #5 ? Because by renting, a couple almost always can choose to live close to one’s workplace, reducing one vehicle. By owning a home, even if it’s chosen to be close to one spouse’s work, it’s a matter of time someone will change jobs, and they end up both commuting far.

If I have a complaint, it is not about renting. I have a fine, inexpensive place, where I don’t need a car. Zip Cars are available across the street. I just received $150 discount for next month’s rent because our building is losing our parking rights for a month. This is actually my estimate of the cost of owning a vehicle, not of parking it, and my apartment never needs a parking space, a boon to my landlords. The reason I have focused on rentals is the threatened loss of my entire neighborhood, a threat that will probably extend over 30 or 40 years, and has for about 15 already.
My complaint is the difficulty of investing my money what I consider far, far better for the Commonwealth of Massachusetts and the USA and the globe. Why is it so hard to get the managers of investment vehicles to offer this responsible choice, not grounded in bets but in actual productivity and a vision for the future? I should be able to check off “invest in the future” and have them know what I mean, not have to pay a lot extra and scope out for myself the various businesses that might meet that criteria. It is because a couple of the most staid investment companies don’t offer this choice that I look at probably no retirement at all.
This is not such a surprise to me. I can hopefully pay less in health insurance after age 65. I have skills that constitute a kind of cushion. I can I hope use Roth retirement funds as a hedge, tax-free, rather than as foundation. I am kind of glad that instead of investing more in retirement funds (that collapsed), I invested in my own well-being and skills.
I heard Geithner on two shows today talking about how banks should be investing in productivity, in businesses that show promise. That’s exactly what I hope for as well. How could we want otherwise. It seems to me that classy homes are luxuries that economies like ours, in the throes of massive change, cannot afford. Yet we have them all over the place. And a lot of people with a lot to lose build them, finance them, own them.
I am not opposed to homeownership as a choice, but I am opposed to making the rental choice so unfavored, which I think has happened because no one has organized the issues renters face. We have no good advocate.

Ellen,

Your baseline investment vehicle should be TIPS (Treasury inflation protected security), which gives you about 2% above inflation. That’s the true inflation hedge and it’s a US gov bond.

In fact, TIPS should be the default option for almost all citizens.

TIPS can be bought directly from US Treasury (go to treasury direct web site) or from any brokerage firm by participating in the auctions from the US Treasury.

It’s risk free, and you don’t have to play Russion Roulette with fund managers.

With a return of inflation + 2%, it’s as good as the housing appreciation over the long term.

As some posters pointed out, the choice of owning versus renting ultimately comes down to as a lifestyle choice. They sometimes imply others have been too “calculating”.

I disagree with this view. It comes down to as a lifestyle choice. However, it can not be a wise choice if you don’t know the price tag. Anyone made a purchase without asking the price is a fool.

In fact, my casual observation is that most home owners are ignorant of the price tag. They rarely understand the opportunity cost of money not in the bank. They bought into the self-serving message “rents are like moeny thrown away”, but ignoring the fact mortgage payment consists of largely “thrown away” rent for money from the bank. They do not understand the loss of mobility often means one extra vehicle.

Only after fully appreciating the cost of each option, then you can make your *informed* choice.

TIPS — someone suggested that to me 40 years ago.
I’ve been thinking about FY’s investment suggestion in light of the banking show on Tuesday (3/31), which confirms for me my thought that the TIPS idea for “most Americans” is an idea along the lines of “affordable housing,” a kind of Trojan horse, something to put a smile on the face, to offer apparent security and benefit, but really benefiting the “elites” while mollifying/placating as many of the masses as possible, excluding them from America’s real promise — of progress, flexibility, people-driven change.
My reasoning goes like this. When the industrial revolution came along and robber barons began to surface along with the groveling poor, people like Karl Marx waxed verbose on the subject of ownership of the “means of production,” advocating that “the people” should own the means of production (which became Communism) — correct me wherein I’m wrong.
Now, here I am wanting to invest in the future economy (not the old dinosaurs or mathematical risks the banks cook up), I am wanting my populist piece of the pie. What I want of financial services people, banks and retirement funds, is to sort out who will be on track to be mineature (or larger) Google-like, Microsoft-like, Ford-like entities along the coming decades. I want them to evaluate risk among industries and companies, not – NOT – evaluating who can outdeal the other guy on the stock exchange.
So what do I think TIPS does? I think it is sort of stock in the US Treasury. Correct me if I’m wrong.
Well, I do think the government right now is having to do the Daniel Boone in pathbreaking into new ways of productivity, but I hope they don’t become like the Soviet Union, taking all profits. I pay taxes for them to run the shop, not to take over the kind of power that wealth can wield. (Big issue that.)
I hope the private sector is able to become productive the way the MIT guy today, Mr. Johnson I think, was saying the USA can do well at, given a fair chance.
Under fair circumstances, I should be able to support a portion of American private (productive) enterprise iand benefit from that, and we all should be better off because private moneys are undergirding that growth, rather than letting the Treasury do it all.
So far, is it China that is supplying the Treasury with their borrowed funds? And the idea is that I should loan them the money instead?
This begins to get over my head. I guess I don’t understand.
Maybe the Chinese are content with 2 percent plus inflation. Maybe they don’t want to get their feet wet among the dreamers/hell-bent workers that Americans know how to be.

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