The title on the post itself (and the slug in the URL) is "Why I Am Never Going to Own a Home Again" (emphasis mine). In the article, the author states "there are many reasons to not buy a home," and the reasons are from his perspective, which presumably is what his friends are asking for.
However, the title here on HN makes it sound like the author is suggesting nobody ever buy a home again — probably not his intent. Sure, there are numerous reasons for not buying a home just as there are numerous reasons for buying a home — it depends on your situation.
I can personally relate to some of the author's arguments. Having rented out the house I bought 5 years ago while I'm living abroad, I'm essentially paying a 2nd rent to make up the difference between what I'm getting from my renter and the sum of my mortgage, taxes and homeowner's insurance.
Read the article. The author is definitely saying nobody should buy a home again. He structured the article as advice using his own personal experience.
Just because we had different interpretations, you shouldn't assume I haven't read the article.
To me, there is a difference between saying: "From my personal experience, when my friends ask my advice, I present them these reasons for not buying a house," and: "Nobody should ever buy a house."
>If nobody bought a house, who would we rent from?
James is saying: don't buy a home and make it your primary residence. He is fine with buying real estate (homes, condos, apartment buildings, REITs, etc) as investment properties.
An added interpretation of mine: he assumes that you would have a property management company take care of the landlord duties for you. In the case of REITs, it's really hands off.
Sources:
By the way, this is going to sound like a contradiction: but I think housing is a great investment right now. I think housing prices have gone down far enough and I can list the reasons why housing as an abstract investment concept is going to go higher from here.
- from the linked article
Rather than spend $100-200k+ on a down payment for a house (which is like throwing money away since it is completely illiquid as long as you own the house) you can put that money in a portfolio of diversified REITS (REZ is an ETF of residential REITs, for instance) if you truly believe in housing. You can do it with some leverage as well if you believe in the idea (like 90% of Americans do) that you should leverage up 200% the single largest investment in your portfolio (your house).
The man's got a point. And I say that as a homeowner of nine years.
The first point I would make is that unless you're independently wealthy, you're either going to be renting housing or renting money. All else equal, thirty years later you'll own some money or you'll own some property, respectively. The trick is in the "all else equal" part, because given rent versus price ratios, interest rates, and inflation expectations one or the other may be a far better deal.
Secondly, in a lot of desirable areas renting an equivalent property is far cheaper than buying. A lot of that has to do with the fact that rentals aren't usually quite as nice in terms of location, condition, and accoutrements as owner occupied places, but the effect often remains after correcting for this.
Good reasons to own your house? If you have pets, finding a rental can be really hard. If you enjoy renovating and general handypersonship maintenance might be a feature as well as a bug. Finally, if market conditions make it a no-brainer.
Tl;dr don't pay more in mortgage than you'd be comfortable paying in rent, and don't feel like you need to own a place to be a grownup.
Another good reasons to own is that when you own a home, no one can kick you out. When you rent, whether you live there next year is at the landlords discretion. A landlord may decide to sell next year, to renovate, to find tenants who never complain, to let their children live there, etc.
Also, fixed mortgages stay the same price, but rents rise.
I understand that your point probably is "as long as you pay your mortgage and taxes, no one can kick you out". I think the likelyhood of being kicked out in both instances is extremely low if you continue to pay your rent/mortgage.
In the 13 years that I rented, I was forced to move once because the landlord's kids were moving in, once because we had a baby and the apartment had lead paint, and once because the building was being renovated. My point wasn't merely theoretical.
last year there were a number of stories in the UK press (not that that is necessarily an indicator of accuracy) about renters having a month's notice to move out as the landlord had defaulted on the mortgage (and not informed the tenants).
They were lucky not to live in the US! Since the foreclosure crisis began, a lot of people have found out their rental home was foreclosed when the sheriff showed up on their door to evict them.
There is not one right rule to follow. It all depends on investment trends, the cost of maintenance, the competition for tenants.
In Australia, where 98% of people live on 2% of its land, buying can make sense because it is a hedge against travelling time. As population grows, competition becomes more intense for suburbs that are closer to the city, buying a plot means that you have got a shorter commute than future residents.
Ownership is also a hedge against rent rises. A retiree who is risk averse may find it better to own the property they live in rather than try to pay rent on a fixed pension.
"Lets spell out very clearly why the myth of homeownership became religion in the United States. Its because corporations didn’t want their employees to have many job choices. So they encouraged them to own homes."
If that was their plan (which I doubt), it wasn't very effective. Americans move much more frequently than people in most other countries.
Possibly true, but what if employees had the additional flexibility that being tied down to their homes prevented? I think you are confusing this effect with a more general bias towards mobility relative to other countries.
The most recent housing market collapse has made America much slower at readjusting to restructuring of the economy--for example, workers in Florida can't easily sell off their homes to move to a different location with greater job density, for instance. I'd like to see more data supporting your assertion.
Main reason for the lack of mobility for places other than US is because of the size of the mobilizable area one can take. Before the formation of EU, Europeans can only move within their own nation, and comparing that to US, you can see the big difference in terms of land size and number of cities to choose from.
With that regard, one need some other forms of statistics to compare if there is no such housing prison (which exists all over the world) and how would this different from the current situation.
Buy a house because you want someplace to be your own, that you can customize, and really be part of a neighborhood, and not worry about asking a landlord for permission.
I bought a house because all the apartments I looked at for the price were dumps, and in a house at least I had incentive to fix the stuff that made it a dump.
Thats why I divided the post between "financial" and "personal". The personal stuff is my own reasons, the "financial" stuff is why I think financially buying a home is a big mistake.
The financial aspects depend a lot on where it is. In and near the large urban areas, no, owning a home does not make financial sense. But in small towns, well away from the large cities, it is a different matter. Rents vary from one area to another much less than home prices do.
I moved in 2001 from the DC suburbs (College Park, MD) to Cumberland MD. The duplex I rented was about a third what it would have cost in College Park. Later, I bought both sides of the duplex, for less than a sixth of what it would have cost in College Park.
From what the Places Rated Almanac said, that sort of variation is normal across most of the country. Note that in my case I even stayed within the same state, so I didn't benefit from the regulatory and tax changes that occur in some inter-state moves.
Exactly. I'm sure that the author's reasons for not buying a house are all perfectly valid to him, but there are many other people who don't just see their home as a pile of dollar bills with a bed inside.
There must be some ancient evolutionary tic that makes us want to tear down walls or put nails in them or paint them.
And? Most people decorate their homes, put up art, paint, or otherwise like to decorate and furnish their homes. It's what makes it feel like a home rather than a box you sleep in each night for, and I'm sticking my neck out here with a guess, a plurality of humankind.
>Starting March, 2009 I was renting an apartment directly across the street from the New York Stock Exchange. It was fun. I’d look out the window and see Wall Street. How exciting! Before that I lived in The Chelsea Hotel with Chubb Rock. Last year we decided to relax and move a little north. Now I look out the window and see the Hudson River. And its quiet and I can walk along the river in the morning with no noise.
I can't imagine that was cheap. Most of the article is inflected with desire to retain hoards of cash and sleep on top of a pile with many beautiful women (well, that's the undertone). Yet he's blowing what must be a huge wad on an apartment in NYC in an upscale area.
One big macro-scale drawback to home ownership is that it impedes labor mobility: It anchors homeowners to a particular city and makes it harder for them to consider moving elsewhere to find employment. A few months ago I heard economists on Marketplace saying this was a significant national policy problem.
Labour mobility is a relatively new concept too. In the days before nuclear families, people have large extended families to rely on for childcare, and are in a better position to look after their elderly without having to send them to a nursing home. I'm not saying labour mobility is a bad thing, but they have their own policy issues.
I could easily refute all the points in that article if I had the time. I'll suffice to give this example:
"A" buys a $100,000 house, "B" rents a $100,000 house. Both pay about $1,500 per month. At the end of 15 years, "A" owns an asset worth $100,000, "B" owns nothing. You decide.
I agree in theory, but in practice people don't go from renting houses to buying identical houses---they always trade up: from a 2 bedroom apartment to a 3 bedroom condominium, from a 3 bedroom house to a 5 bedroom McMansion, etc.
Because of this the costs of ownership once mortgage, taxes, utilities and maintenance are tallied up are often more than what a person was previously spending on rent.
Secondly, his major point is that home ownership involves a cash down payment. Its' not a case of person A/B spending 1500 per month, its a case of person A buying a 100k home and paying 20k in cash for the right to a loan. That 20k may have been better spent in more volatile and profitable investment than home ownership.
Third and lastly, a house can lose value. Did the major employer leave the area or downsize (e.g. Detroit most prominently, Ghost towns, and a scattering of towns all over US that relied on heavy industry)? If so, then your house value has fallen. Did the area fail to gentrify or did you buy in a bubble? If so, then your house value has fallen. Has there been a disaster that the economy hasn't recovered from (e.g. Katrina, coal slush floods in W. VA, BP oil spills effect on homefront properties)? If so, then .....
The argument that a house is an investment fails because it is the least liquid of investments, and thus harms the buyer the most when the prices fall. You can always sell your stock even in a strong downturn, but who is going to buy your drafty McMansion situated in an edge of town neighborhood in a down economy?
The analogy is similar re: stock. Is your $25 citigroup stock really worth selling @ $3?
Most likely those people sold at .60 cents.
Most people who are losing money in real estate were also selling stocks at the bottom (2 years ago) and were buying tech stocks with two hands in 1999.
> Most people who are losing money in real estate ...
Many people are losing money simply by having the value of their houses fall. They don't want to sell, but their so called "investment" is worth half the price today on the open market than it was when they bought it. Realistically, they may never recover the value they spent in their lifetimes.
Depending on the market, there are times when renting is actually cheaper than buying, also considering that you pay taxes, repair, and maintenance on a house you own.
Not really. I know the US has exceptionally low interest rates, but in every other country I've ever lived interest rates are almost always higher than rental yields. Properties that are yielding higher than the current interest rate are the exception rather than the rule. On that basis, you're paying a premium to "own" your home.
The only benefit of owning in such a market is that purchasing means you draw a line in the sand, "A" is now more in control if their monthly rent. But they're not in complete control, interest rates rise, the building needs to get repaired, there's those not insignificant legal and other costs associated with purchasing in the first place. That adds up to quite an expense. Meanwhile "B" doesn't have those concerns, and a great deal of flexibility and liquidity.
I'll personally stay "B", and my investment properties will be limited to those rare gems that are cash-flow positive within a year or two.
In the UK at least, rent is higher than the equivalent mortgage payments at the moment. I pay around 2/3rd the cost of what friends pay for their rented property and this is common across the country. This has been caused by the decline in mortgage lending.
It depends on when people bought and the region of the country. I see the exact opposite picture here in a rural, northern area.
My small 2 bedroom end of terrace costs me just more in mortgage payments than a 4 bed detached house in the same town. The reason? I bought at peak of market in 2007 whereas the people renting out the big houses bought 10+ years ago when such houses cost little more than my shoe box. Given the total lack of a job market, too, the rents have failed to increase.
Well, depending on the size of the house.
I've seen apartments go for around $500/month in areas where a decently sized house is about $100,000 to buy. So, it's not that unreasonable to expect to rent a house for $1,500/month.
In some markets (like St Paul where I am) "B" doesn't pay as much as "A". For example right now I rent a sweet house for $2500 that I've been told the mortgage is 3600 + a hefty association fee + prop tax + maintenance.
Oh not to mention the value the property has already lost since purchase, and is still modestly loosing each and every month.
My wife and I didn't sell our first house when we moved, we're prepping it to rent out. It was a serious fixer-upper, so we renovated the bejeezus out of it while living there (learned a lot and bought a bunch of tools). Average rent for a property that size is easily double our mortgage payment - which is why we bought instead of renting in the first place.
Even factoring in taxes and maintenance costs, renting out that first house, even at the low end of what we could get for it, we'll handily subsidize our current residence as well as pay off the old house. Even if we were to sell it, the quality of work we put into it more than pays for the time and money we put into renovations.
Any good investment plan involved diversification.
If you buy one house, one bad tennant could mean six months or more of no rent payments while you go through the eviction process and try to get someone else in there. One really bad tennant could cause tens of thousands of dollars of damages.
Not so clear cut. A needs to put something down for the house, let's say the standard 20%. B invests those $20k at a conservative rate of return, say 5%. After 15 years, B has $41579. Also, A will have to pay maintenance costs on the house, which are very hard to estimate. On the other hand, A's house might appreciate, he gets a tax deduction on the interest paid and B's rent might go up over time. My point is there are a lot more factors at play here.
Why is the title of the submission different from the article's? "Why You Should Never Buy a Home Again" sounds trollish. It's does not apply to a large number of people for whom buying a home is indeed a good idea. Please edit the submission title to match your current title:
This is a beautiful piece of link bait. His advice might make sense if you live in New York, but it doesn't work at all in most places in the country. If you live in the suburbs you can't find places to rent. If you have kids and care about where they go to school, you don't want to follow this advice. If you live in a city like Cleveland or Detroit or a hundred other Midwest towns where the price of a house can approach $50k, it may not be worth it either.
Yeah, I used to have a similar mindset before starting my (big) family. I can understand what he's saying (though very arrogantly) but I hope he's open to changing his mind someday, just in case.
He mentioned he likes having a hassle free life. Once you have a lot of kids, not only do you have your own hassles, you get to be a part of everyone's hassles and there's no such thing as a hassle free life.
All I'm saying is, never lock yourself into any mindset as circumstances can change.
This is a very biased view and it might become invalid in different market conditions. Just think of a great inflation or any market collapse. If you own a house, you can still live in there. But you can only burn your cash for heating.
As long as our financial system works, cash is of course the best form of an asset.
I just had the opportunity to sell a large 30-year fixed-rate bond with massive leverage into an overheated bond market with damn near a guarantee of serious inflation over the next 30 years. Thank you, Bank of America!
A simpler point I didn't see emphasized is that even when you "own" a home you do not own it. You're renting it from the government, home owners association and utility companies. Disagree? Stop making payments to those three entities and we'll see how long it takes for men with guns to come and evict or arrest you. Owning is renting. Free your mind.
I agree about the other two, but the utility companies one seems hyperbolic; if I actually wanted to live in a place without electricity, running water, Internet access, etc. supplied by someone else's infrastructure - which I do not own - I think I could very easily cancel all of those and be fine.
I agree with your point; but there is a big practical difference between paying 2% of your house's value per year in taxes, versus the 10-to-20% that landlords usually charge.
To compare another investment, if you were to save $200/mo away into an investment account bearing 9.0% (like an S&P index fund), this would amount to $368,894 after 30 years. The whole time these funds are liquid and accessible to you, not subject to foreclosure, nor is this a required payment. $400/mo is $737,789.
Except that money can't go into an investment account because you still need it for rent. Actually, around here I'd be paying about 50% more than my current mortgage to rent the same sort of house, so month-to-month it is a greater expense. So the only difference is you still have the down payment.
And even then, for me, having that downpayment makes little difference financially over the course of 25 years. I seriously doubt it would stay in the bank over that time.
I had an argument with a friend a couple of years ago along these lines; he claimed that renting was much more financially stable, but now he seems no more or less stable than myself... There is a lot of FUD around the "buy a house", "don't buy a house" argument, it's best to treat it all with a pinch of salt and make your own decision.
Mortgages are an excellent inflation hedge. Consider it--you borrow a large pool of dollars to buy the home. The value of the dollar drops through the floor. Now you are paying back the loan which was for a fixed amount and doesn't change with dollars worth half as much.
But surely the interest makes up for this. It wouldn't make financial sense for the lender otherwise; why lend money to homeowners if it won't beat inflation than, say, invest it in the stock market?
In the US, the interest is tax deductible, so if you have earnings to match against that, the effective interest rate to the buyer is only 2/3rds of the nominal rate on the mortgage.
Flipping houses, ah yes. This is a beautiful tax loophole created and endorsed by the lobbying NAR that enables salespeople the ability to make bucketloads of commissions based on unrealistic appreciation of house values in a very short amount of time. Housing market go boom, boom, bust.
(adds on to headline)..."if you have a difficult time reading market conditions, don't understand your financial situation and feel comfortable moving your belongings from house to house every few years."
Outside of property tax increases (at least in the State of Tennessee), the landlord can't increase rent on you if you've got a lease contract. Things are much stricter in many other states.
I think the GP was saying that the landlord was announcing a 10% increase in rent with only 30 days notice not an increase of rent for the last month of the lease.
Right. Maybe I overexaggerated by saying 30 days instead of 90. But sooner or later you get that notice "Hey, it's time to renew your lease. By the way, it's a 10% increase on the next year. Take it...or start looking for a new apartment. Good luck with the market out there."
Yeah, go buy a REIT or a housing-related stock. Then you haev all the investment benefits of owning a house EXCEPT
- you don't have to pay extra taxes
- no maintenance
- you can sell any second you want.
So go figure.
Anyone who takes advice from or goes into business with someone who could write "EXCEPT - you don't have to pay extra taxes - no maintenance - you can sell any second you want" is an idiot and deserves anything bad that happens as a result.
The problem is in the first two - taxes and maintenance. You are still paying your share of them. You are likely paying more, proportionately, than you would if you owned the property directly, because you are also paying someone else to handle them for you.
I think his post is a bit extreme. It depends on a lot of factors on whether to buy a house or not. I think most of his reasons aren't really valid for not owning a home.
I'll make some comments on his financial arguments:
A) If you pay off your home fast, you won't have anymore mortgage payments. And you actually own something that you might be able to sell later, getting some money back. If you rent, you won't see that money ever again. So technically your cash is good as gone if you rent. If you own, you can get something back at least.
This depends on the house you buy and the market. For example, I rented a lot until I found a good deal on a house. Now I pay less on my mortgage than on my apartment I rented.
The rent may increase every year too. At every place I stayed, they always raised the rent every year. At least with the home, you don't have to worry about that since you have the same mortgage payment every month.
B) Usually the seller pays the closing costs, especially at the current market. If not, negotiate so the seller pays. You don't usually have to worry about this if you're buying a home.
C) He's right on this one. The comfort of calling the maintenance person at my apt was one of the benefits over owning.
D) This is simliar to A). It depends on the market and the home you get. For me, the taxes + mortgage turned out to be simliar to what I paid in rent. Plus I now get a huge refund because of my deductions. So I paid around the same amount as my rent, and I got a bigger refund on my taxes.
E) I agree with the author. This is probably one of the disadvantages of owning a house.
F) I don't consider my home an investment. It's a place I bought to live in. I don't expect to make a profit from it. I have my stocks and mutual funds that I consider to be investments.
Now my comments on his personal reasons on not owning a home:
A) I agree with the author. This is same as E) above. I don't know why he put it twice.
B) I don't see how this is a reason not to own a home. The benefits of owning a home is that you can do whatever you want with it without worrying about the landlord looking over your shoulder.
C) I don't understand this argument as a reason for not buying a home.
D-F). Not everyone is same. Some people's hobbies are gardening and maintaining the home. They actually enjoy doing it. Some people like the sense of stability. But if you're like the author and like to change things up a lot and be mobile, a house is probably not good for you.
G) I got stressed when I rented because the landlord needed to raise the rent every year. Then I had to go through the stress of negotiating the rent increase. If I wasn't successful, I had the stress of budgeting for the higher rent or had the stress of packing all my junk up, finding a new place, and moving. So renting isn't always stress free.
H) This is true. But if you plan wisely, you should still have a lot of cash available for emergencies, even after buying your home.
The problem is that many in the US have been brainwashed into believing their house IS an investment and this justifies purchasing above their means, because "at least I'm not throwing the money away in rent."
Right. The big issue is people think they are wasting money on rent. But if you factor in mortgaeg, taxes, maintenance, etc it still comes to rent or more, EVEN when the house is paid off and there is no mortgage (but taxes keep going up)
It is not a bad idea to buy a modest size home that meets your family's needs for a reasonable price.
As you get older and have hopefully had a good career, try to own at least two modest homes and become a landlord.
There is a good chance that we will see a lot of inflation in the next 10 years or so. If this happens, owning rental property may help to protect your assets.
Places I rented over the years either had music blaring next door or loud parties periodically or I could hear other couples having sex, cockroaches from neighbors, etc. (this was in the nicer areas).
I've had my fill of all that. Owning a home is just as cheap as renting one in my area. The peace and quiet I have is priceless.
He also says >>> housing is a great investment right now. I think housing prices have gone down far enough and I can list the reasons why housing as an abstract investment concept is going to go higher from here.
How can he make such sweeping statements about the financial implications of buying a home without actually making calculations based on real numbers? Depending on real estate to rent ratios, the calculation varies dramatically.
However, the title here on HN makes it sound like the author is suggesting nobody ever buy a home again — probably not his intent. Sure, there are numerous reasons for not buying a home just as there are numerous reasons for buying a home — it depends on your situation.
I can personally relate to some of the author's arguments. Having rented out the house I bought 5 years ago while I'm living abroad, I'm essentially paying a 2nd rent to make up the difference between what I'm getting from my renter and the sum of my mortgage, taxes and homeowner's insurance.