Comments on: Revisiting rent vs buy A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Maria2011 Thu, 24 Nov 2011 14:26:05 +0000 Excellent discussion.
Although the NYT Calculator and most of this discussion seems to be dealing with the US market, I have tried to apply it to Europe.
Very few European markets are doing well. And except for very few major cities, it is almost always cheaper (read well, I’m not saying ‘better’) to rent.
Especially for 60+ semi-retired and restless, travel-hungry people like myself.
Say I do have the EUR 300.000 in cash needed to pay for a very nice apartment in Lisbon. Why on earth would I freeze that money, when I can also rent the same, or a similar apartment for EUR 1100/1200 per month? I’ll make some interest on secure investments and saving accounts.
In Winter I could go and stay 3 months in a 5* hotel on the Turkish Riviera for an average EUR30 per day.
Mind you, that includes my round-trip flight, transfers, a double suite for single use, all meals and drinks, internet and daily cleaning.
Egypt would be another option, when things were less stormy.
Friends and family can use my apartment in Lisbon when I’m not there.

What I read from this debate is that most people defending Home Ownership, do so for emotional reasons. They either have just bought one, or are trying to sell their house, which isn’t going too well.
There’s nobody honest enough to say: “Sh@t, you’re right. I wish we could sell and rent instead”.

In the old days you bought a house for your family, close enough to work. Many made their career within the company and never left.
These days are different. Companies move, and will get rid of you when you do not move with them. Universities have no space, so you have to go and get your degree at the other side of the country. Or somewhere else in Europe.
Imagine you are stuck with a mortgaged house you can’t sell. What do you do?

I doubt very much that the average m2 prices of houses in Europe will increase in this decade. Those countries where the interest rate on mortgages were tax-deductible (Netherlands, e.g.) are gradually abolishing this option.
The result is that people are getting worried, and start putting their houses on the market.
Few are buying, because that deduction was one of the FEW reasons their monthly costs were similar and only slightly higher than rental.
A dark picture ……

My tip: when you see a wonderful home, or an apartment in a wonderful area, try to make a good rental deal. I bet your purchasing price will be lower next year!!

By: Helen22 Wed, 23 Nov 2011 16:10:57 +0000 You has introduced an excellent post. You created your ingredient and not much to talk about. It’s like this wide-spread undeniable proven point that you can not debate with actually not wide-spread, everything has its different. Thanks for this details.
KB Homes

By: bib Sat, 24 Apr 2010 10:52:17 +0000 that’s right redrob, because rent doesn’t always follow inflation and it highly depends on the supply & demand of the house rental market. It is a no brainer that renting is definitely a better option than buying a house at this very moment. And the home prices will definitely be adjusted before it slowly climbs back up again.

By: bib Sat, 24 Apr 2010 10:46:26 +0000 Okay,i did not say that CPI measures the cost of living. I meant that CPI is a partial indicator of inflation, and inflation has partial impact to our cost of living. And notice that the housing prices were hyper-inflated for the last decade and the cost of living grew at a slow but steady rate. We are now entering the adjusting period until home prices return to normal, or, higher wages and hyper inflation should kicks in for a year or two to match with the existing home prices (which is not likely to happen). The US is not an emerging country, so its home prices shouldn’t be this expensive. Again, any possibility could exist; the existing home price could maintain at the current level if:
(1) there’s a high demand of home purchasing – driven by need or irrational desires (must be backed up by the buyers’ ability – as in financial power to be able to afford a down payment, having a stable job that pays well, with excellent rating)
– however, since all those “no down payment mortgage” and “zero down mortgage” offers are no longer available, plus many people nowadays either have credit problems or they just can’t afford to buy a house at this price due to the reality (wages aren’t great, and lifestyle)
– and that rent is always an option and a substitution for buying a house ;)
(2) irrational speculators/investors plan on resuming the unfinished asset bubble that went busted in 2008.
– this COULD happen, but they probably wouldn’t take the risk to hold these properties for another years just to watch the values of these properties to fluctuate within the current pricing levels.

By: tony-3 Fri, 23 Apr 2010 17:16:03 +0000 first of all the question of buy V rent is moot no one ever truly owns a house if you have a mtg and dont pay your bank then owns it if youre able to have a home w/o debt don’t pay the taxes and the state or county will take away your useing it in short you have the right to sell /rent /live in it but you never really own it to the point where you can do any thing you want with or to it

By: DanHess Fri, 23 Apr 2010 15:26:12 +0000 Felix —

I didn’t say that house prices will move at the same rate as inflation, but that they move in the same direction, i.e. “rise with inflation” in the long term. Those of us with mortgages are concerned with nominal prices because that determines our gains or losses. The rent/buy question therefore hinges on the direction of nominal prices.

My view is that houses on average are about fairly valued, after the crash, based on price-rent ratios (see my above link) and the fact that interest rates are low, making affordability high.

If I may be so bold as to venture a guess as to where you are coming from… Due to a lot of factors including mounting debt, perhaps you expect interest rates will be meaningfully higher seven years from now, exerting downward pressure on house prices.

The Fed is not impotent. They know now to pay attention to house prices. They have purchased mortgage debt via the bazooka of quantitative easing to drive down interest rates and will certainly do so again if house prices turn south again.

In a hard money system, a debt-deflation would be in the cards now, after a massive credit binge. But quantitative easing changes everything.

By: redrob25 Fri, 23 Apr 2010 13:37:47 +0000 bib,

The CPI and core inflation numbers that the government has put out have been extensively modified since 1980. You cannot trust their numbers unless you know what they measure. They do not measure the cost of living. They measure only a very small and modified portion of the inflation that people will see in their every day lives.

By: redrob25 Fri, 23 Apr 2010 13:36:29 +0000 Rents right now are actually going down in most places due to over supply. And we have high inflation. Therefore, rents do not always rise when we have inflation. This is a fallacy.

By: bib Fri, 23 Apr 2010 09:28:36 +0000 and i assume felix is thinking what i am having in mind – that the “short term” of the housing market will collapse until the current over pricing phenomenon is corrected. But yes, it is true that in the long run, (assuming that the location of the houses are ideal) the housing prices will beat inflation; but again, what inflation are you talking about? look back to 10 years from now, and look at the most recent months’ CPI and inflation indicator. Where’s the hyperinflation? none. So, the housing prices must needed to be adjusted (short run & mid run) before it goes up again (long run).

By: bib Fri, 23 Apr 2010 09:20:58 +0000 us_house, felix has made some good points and he just didnt clarify everything about economy. your assumption is correct – that the rents would go up if cost of living goes up. But one thing you should pay attention to here is the inflation rate – it is not going anywhere. And I could see interest rate will start going up again in a year or 2. There are 2 possibilities: (1) the housing prices will stay at this crazy level until inflation multiplies in the following years. (2) housing prices will truly drop to a point where market will recognie that as a fair market price.