[Plantagenet]

Your comparison of renting vs. home buying is disengenuous, as it assumes the house buyer sees no appreciation in the value of his house during the 20-30 period of the loan.

That is a ridiculous assumption.

Houses in the Seattle area have doubled in value in just the last 8 years. Try adding in another 2-4x the purchase price as profit for the home buyer when he sells after 20-30 years and then redo your analysis including a 1-1.5 million dollar profit for the home buyer.

You also assume rents won't rise over the next 20-30 years. This is another crazy assumption.

Try increasing the amount of rent the renter pays each year due to inflation and compare that to a mortgage loan whose payment amount is set at the time of the loan and doesn't change for 20-30 years.

That would be a more fair and honest comparison.

[strider3700]

$this->bbcode_second_pass_quote('Plantagenet', 'Y')our comparison of renting vs. home buying is disengenuous, as it assumes the house buyer sees no appreciation in the value of his house during the 20-30 period of the loan.

That is a ridiculous assumption.

Houses in the Seattle area have doubled in value in just the last 8 years. Try adding in another 2-4x the purchase price as profit for the home buyer when he sells after 20-30 years and then redo your analysis including a 1-1.5 million dollar profit for the home buyer.

[Plantagenet]

Real estate investments, like any other kind of investment, are risky.

If you can't deal with the risk or stress of seeing your real estate depreciate, then you shouldn't buy a house or other real estate.

[emersonbiggins]

$this->bbcode_second_pass_quote('Drifter', 'T')hey should have included that.

[Gigashadow]

$this->bbcode_second_pass_quote('Plantagenet', 'Y')our comparison of renting vs. home buying is disengenuous, as it assumes the house buyer sees no appreciation in the value of his house during the 20-30 period of the loan.

That is a ridiculous assumption.

Houses in the Seattle area have doubled in value in just the last 8 years. Try adding in another 2-4x the purchase price as profit for the home buyer when he sells after 20-30 years and then redo your analysis including a 1-1.5 million dollar profit for the home buyer.

[Plantagenet]

Pick any period you like.

Over the last 200 years the average annual increase of a home's value has been ca. 1% over inflation per year.

Over that same time period the return on rent has been zero.

Which is greater?

[emersonbiggins]

$this->bbcode_second_pass_quote('Plantagenet', 'P')ick any period you like.

Over the last 200 years the average annual increase of a home's value has been ca. 1% over inflation per year.

Over that same time period the return on rent has been zero.

Which is greater?

[Plantagenet]

Gosh...I thought I did answer his question.

Pick any extended period over the last 200 years, including the last 8 years, and home values have increased more rapidly then inflation. In clear and obvious contrast, the return on rent during any period has been zero.

Of course there is no reason to assume real estate will continue to be a good investment indefinitely into the future. During the great depression in the US or the time of the black death in Europe, when populations dropped in some areas by 20-40%, real estate prices collapsed for extended periods of time. Investing in real estate or other investment vehicles is inherently risky. Each person must make their own judgements. IMHO, a careful buyer can still find values in real estate and make good investments today, but then I'm looking mainly at beach properties and such here in Alaska and not at real estate in the inflated markets of California etc.

[emersonbiggins]

$this->bbcode_second_pass_quote('Plantagenet', 'P')ick any extended period over the last 200 years, including the last 8 years, and home values have increased more rapidly then inflation. In clear and obvious contrast, the return on rent during any period has been zero.

[Twilight]

Unless you are an actual property management firm, houses are not investments, they are places to live, so any appreciation is incidental. People should be more worried about not being ripped off at the top of a market, the terms they accept and the quality of construction, than whether they can sell at a profit at any point on the curve in the next few years. The latter works only in a bubble. It is a stupid question to be asking. If you have to ask that, why the hell are you buying? Too many people are trying to game as an investment something that isn't. Buy now and let me know how it works out for you selling in five years, and what your maintenance costs were. The utility of a house as an investment is incidental to its primary purpose, treating it as a reason to buy is stupid.

[emersonbiggins]

A few things to ponder from someone who, admittedly, doesn't fully understand all the economic forces at work in the area of real estate:

1. Real estate as an inflation hedge:
As stated by others, RE has historically beaten inflation, e.g. 1% per annum, dubious as such a comparative figure might be. However, hedge gains are likely negated by losses in maintenance and the perennial drain, property taxes (which, coincidentally, also run about 1% per annum here in TX).

2. Owning a mortgage versus renting in light of PO:
Advantage is easily to the renters, as "job security" will likely be anything but in the upcoming financial turmoil. One missed payment, and all the assumed equity is sold on the courthouse steps, locking families out of the presupposed advantage of owning, likely forever. "Doomed to rent." - like other renters, but with bad credit (foreclosures) on record.

3. Real estate vs. a Collapsing Economy:

I see easy credit as a conduit to catalyze cheap energy into useful things for most of us, like automobiles and tract houses. The market for houses, of course, increased exponentially due to the advent of long-term, fully self-amortized, low-interest mortgages, but, more explicitly, was the result of a tremendous rise in the production of cheap energy that fueled projects in large-scale mass production, despite the collapsed state of the economy at the time. That being said, the other side of the depletion curve will ensure that financial instruments relied on in the past for building a large, homeowning middle class will all but disappear in the face of dwindling natural (and, thus, financial) capital to support it all. Simply put, there will be no more 5% 30-year fixed mortgages, and, even if, no way to make long-term commitments towards paying such debts, essentially ending the long experiment with an American middle class. This is why I'm a doomer, folks - the capital is simply not there to suspect otherwise.

[grabby]

You should rent at this time, for the next few
You should rent
you should rent.

[eastbay]

Pick any extended period over the last 200 years, including the last 8 years, and home values have increased more rapidly then inflation. In clear and obvious contrast, the return on rent during any period has been zero.


The next 200 years may see significantly less appreciation in 'real' home values than the previous 200 years. The same hold true for the next 20-30 years compared with the previous 20-30 years. Things will soon change.

[Plantagenet]

$this->bbcode_second_pass_quote('Twilight', 'U')nless you are an actual property management firm, houses are not investments, they are places to live, so any appreciation is incidental......The utility of a house as an investment is incidental to its primary purpose, treating it as a reason to buy is stupid.

[kadoomsoon]

You don't want to be left holding onto a house.

[Plantagenet]

$this->bbcode_second_pass_quote('kadoomsoon', ' ')People will need the extra money saved now, instead of later, becasue it seems there will porbably be no liklihood of any of us retireing if in the next few years everyone looses their houses anyway.

[emersonbiggins]

$this->bbcode_second_pass_quote('Plantagenet', 'h')ouse price inflation has been matching the inflation in other hard assets like gold and oil.

[ZombieHordeLeader]

In the US taking a mortgage for a home is a great way to establish a short position against the USD. That fixed mortgage payment is going to be worth dirt long before the mortgage is fully paid.

[emersonbiggins]

$this->bbcode_second_pass_quote('ZombieHordeLeader', 'I')n the US taking a mortgage for a home is a great way to establish a short position against the USD. That fixed mortgage payment is going to be worth dirt long before the mortgage is fully paid.

[Plantagenet]

Oil has gone from $26 to $83 bbl since 2000. I don't find it surprising that houses, gold and other things are also inflating in value.

I'm willing to predict there will be more inflation in the future. The Fed's whole policy is predicated on creating moderate growth and moderate inflation. Inflation is BUILT IN to our economic system.

One nice thing about buying a house is that when you set up your repayment schedule for the loan, the monthly payments are set for the next 10-30 years. People who buying homes often wind up paying a fraction of the prevailing rent in an area as rents tend to rise annually with inflation.