Moving away from homeownership

By Felix Salmon
February 22, 2011
appeared on All Things Considered this weekend, I got an incredibly gratifying email from a listener in McLean, Virginia, who's moving to Jupiter, Florida:


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After I appeared on All Things Considered this weekend, I got an incredibly gratifying email from a listener in McLean, Virginia, who’s moving to Jupiter, Florida:

You were talking about the fact that taking your money out of one house and putting it into another means you’re still stuck in one place – just a different one – and trapped into an economic nightmare in which you work and work just to sustain a lifestyle you’ve faked yourself into because you now own a house. You’re so right, and something else that struck me was that I’ll never have cash to do the kinds of things I enjoy – travel, mostly… I  have always felt stifled by a mortgage, condo fees, taxes, and basically, that “stuck” feeling…

I am going to continue renting my little place by the beach down here for a while, and continue to keep my very nice Mclean condo rented out, so that mortgage is paid, and give a little more thought as to why owning a house is really anything more than a self-imposed prison of bricks and sticks!

It’s easy to glorify the wonders of homeownership because of all the psychological reasons for wanting it — the place to call one’s own, the nesting instinct, the desire for stability, the feeling that it’s silly to put lots of work and love into a place if it ultimately just ends up benefiting the landlord. But at the same time, the downside of homeownership can be truly enormous and devastating, and renting carries with it a very American sense of freedom, I think, and a world of opportunities.

Richard Florida likes to talk about how it will take decades to reshape the American psyche into something where renting an apartment in the city is considered even more desirable than owning a house in the suburbs. I’m hopeful that one consequence of the housing bust will be an increase in the number of nice suburban houses being rented out, like my correspondent’s in McLean. Which means that it might not be necessary to re-architect the national lifestyle to one which is much denser and more urban before we can start seeing renting becoming increasingly prevalent in white, middle-class neighborhoods. After the renters move in to the place in McLean and their neighbors start getting friendly with them, perhaps the stigma associated with renting might start to erode.

25 comments

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We used to rent in the city. Now we own in the suburbs.

(1) The commute to downtown is the same length. Commuter rail is wonderful.

(2) Owning is without question cheaper than renting. And our mortgage payments will end less than 20 years after we purchased.

(3) We have a yard. Fruit trees. Gardens. Not a cramped 1000 sq ft apartment in a dingy building surrounded by concrete.

If you like cities, be my guest. But the “downside of homeownership” is greatly exaggerated. Instead of railing against imagined risks, why not right about WHO should own? Because there are absolutely people for whom that makes sense.

Buy your home if:
(1) It is no more expensive (on a cash-flow basis) than renting.

(2) You are in a stable situation and will not need to move within 10 years.

(3) You are stable financially, ample reserves even after making a 20% (or larger) downpayment, no other large debts to carry.

All these renters will be in deep doo-doo when they retire. Their cash income will need to be tens of thousands of dollars a year higher to support their rental habit, and the higher rents they pay during their working lives will translate into reduced savings with which to generate that income.

Posted by TFF | Report as abusive

Gotta agree with TFF here. Your bias toward city living seems extreme, in multiple posts, and you don’t seem to care to explain it.

I work out of my home, and can live practically anywhere. I have a mild claustrophobia in cities, with the crush of people and closeness of buildings, so will probably never live in one. I choose owning in exurbia right now, but will probably switch to renting at some future time. TFF is right, not only are there certain people who should or should not own, but there are certain times in an adult lifespan where one may make sense over the other.

Posted by Curmudgeon | Report as abusive

This is your support for the proposition? Someone “feels” stuck, but isn’t really, ’cause they did, afterall, find a way to move, to Florida.

And, now they are renting and someone else is paying rent and enriching them by building equity in a real property asset in McLean. Oh, that’s a bad deal.

Posted by AmicusAlso | Report as abusive

To TFF I would politely ask, what is “stable” these days?

Neither jobs nor taxes nor anything else in life is predictable ten years in advance. With the current crisis, this is doubly so.

Can you predict when you buy a house that your children will be happy in the public schools? If not, what do you do? Spend 10-20k per year, per child for private?

The risks associated with homeownership are severe and have manipulated so extensively over the past 20 years that we don’t even know what they are!!! Hate to cite Rumsfeld here, but it’s the unknown unknowns that’ll kill you every time. What’s going to happen to interest rates, inflation, Fan/Freddie, the mortgage interest deduction, property taxes, etc.–no one can answer these questions right now because they are all in flux.

You may be secure in owning right now, but there is no way under God’s green heaven that you can be secure signing on the dotted line for the foreseeable future. And that is why real estate is stick in a quagmire for the next year or two.

Posted by LadyGodiva | Report as abusive

“trapped into an economic nightmare in which you work and work just to sustain a lifestyle you’ve faked yourself into because you now own a house. You’re so right, and something else that struck me was that I’ll never have cash to do the kinds of things I enjoy – travel, mostly”

I flew from Portland to Chicago next to this lady last fall. I was going to Chicago for a confrence, she was going “just because” on Jet Blue’s all you can jet pass.

I guess I wish people thought of home ownership more like socitial ownership. I have no problem with renters like Felix who max out their 401k’s, IRA’s, and 529 plans for their kids… and who are also deeply invested in whatever community they happen to live. Renters like Felix are the exception rather than the norm though.

When an entire generation of grasshoppers turns 65 with at best a few years worth of living expenses saved up do they intend to start a revolution or work until death? That’s the path of living month to month and “doing things you enjoy like travel” ends.

Best hopes for more of us not planning to die broke.

Posted by y2kurtus | Report as abusive

LadyG, you can’t apply the stability criteria just to the decision to buy a house, but not to rent. You don’t know if rental property inventory will decline, or if there will be renatls available in the school district you want your kids to go to (which, coincidentally, was the reason my wife and I bought our first house when we were 41). You have to make the decision based on what you believe the conditions will be over the time span you are concerned with. If you have the belief that it doesn’t matter because you can’t predict the future, then you might as well be a CEO of a publicly traded company and manage your life on a quarter to quarter basis, and hope the government bails you out when people stop buying what you are selling.

I’m with TFF and Curmudgeon here, and would also add two things to their arguments: renting is a hassle when you have kids and don’t want to move a lot, especially because apartments are not a good choice; and more importantly, there is no guarantee there will be a steady supply of single family homes for rent, as renting houses and condos is a horrible investment. You either get stuck with negative cash flow and pray for inflation, or get a 1% or 2% return in exchange for a horrible job that pays nothing. Most people who rent out houses do it because they are stuck with them, not because there’s money to be made (or they actually believe there is).

For somebody like Felix, with no kids, who needs to be in the city constantly, renting makes sense, especially since homes there are absurdly overpriced. I just wouldn’t make the blanket statement that it’s best for everyone.

Posted by KenG_CA | Report as abusive

The quote Felix used was from my letter, so I wanted to pen a quick response to those who might feel the need to denigrate me, and offer a bit of background. Who knows? My perspective may still be valid, even if it differs from yours.

I am an award-winning, masters-educated writer, researcher, editor, and educator. As convenient as it might be to put me in a box with the woman to whom you sat beside on that airplane to Chicago, Mr. Y2Kurtus, I must tell you that you have the wrong box.

I actually have incorporated multiple dimensions into the planning for my future including retirement plans and various investments; and yes, I am also a homeowner. Several years ago, home ownership was considered a wise investment. Now, even in a sought-after neighborhood near the Nation’s Capital, my beautiful condo apartment has lost in value nearly all of the $60,000.00 cash I put down to purchase it. I took out a straightforward 30-year mortgage loan, and have excellent credit, so the fluctuation of the interest rates doesn’t affect me. Even still, just because the rent covers the mortgage, all of the ancillary costs (repairs, insurance, taxes, and condominium fees) come out of my pocket, and they are steep. I lose money on the place, every month, and sure, I might not always, but the real estate forecast for the foreseeable future is not looking good for me and my investment.

My letter to Felix was simply to thank him for offering me a different perspective – that perhaps planning for MY (not your) future would entail seeing other parts of the country (and the world) and growing in compassion, empathy, and global perspective, as much as it does accumulating material possessions.

The reason my letter came about is because I love where I live these days; so much so, that I can’t imagine living anywhere else, and was considering selling up in DC to buy down here. When I heard Felix talking about how home ownership is not necessarily the wonderful investment it used to be (for SOME people), I wanted to thank him for validating what I had been considering: that I don’t need to jump out of one mortgage just to jump right into another. I want to enjoy my time here, my work, and my freedom to move (because I am single, and I don’t have the same long-term planning concerns as someone with a family might have) as that is the current state of my life.

Next year, I might feel differently…but so might you. Either way, I don’t intend to die broke, but I thank you for your concern, nonetheless. Best, Elena.

Posted by ElenaKJupiter | Report as abusive

LadyGodiva, stability comes in various degrees. Without going into detail, our income is well diversified (four different jobs, any of which could be expanded to full time if we had the time). Only one of the four is sensitive to economic conditions.

You are correct that we couldn’t predict the schooling needs of our children before they were born. Happily we didn’t lock ourselves into an expensive town with “good schools”, because our special-needs child would not be well served in any public school system. (Special education operates under a deficit model, which pretty much ensures that any special-needs child will develop serious deficits.) If we were renting, we would have a very hard time affording private tuition.

One thing to keep in mind — many of the uncertainties surrounding home ownership also apply to landlords. If you believe people should be renters, then you ALSO believe that people should be stepping up as landlords.

Really the only difference between the two situations is the time frame involved. Landlords are in it for the long haul, while homeowners may need to sell if they are forced to move.

Posted by TFF | Report as abusive

Agreed with KenG. I’ve occasionally helped evaluate rental properties, and single-family houses rarely make sense from the perspective of a landlord. The economics make much more sense for 3-6 unit properties, partly because you can still carry the cash flow even if one of the units is vacant.

Didn’t Felix buy a condo in 2007? Or am I imagining things? For him, it was probably a REALLY BAD decision. Bad timing, bad market, bad situation. Might we be seeing the world’s worst case of “buyer’s remorse”?

Posted by TFF | Report as abusive

I have felt “stuck” in home ownership many times in my life. Now I feel more “stuck” with health care insurance availability (leave the state and it is gone!) than I do with home ownership. I almost think of my current home as a refuge from loss of healthcare insurance even though I have no desire or need to live here now. Feeling “stuck” is the result of tax policies and the Obamacare nightmare more so than whether one buys the real estate or not. Retirement is meaningless if you don’t have healthcare and are too young for medicare. The house can be sold but healthcare can’t always be replaced when you move!

Posted by iowafarm | Report as abusive

Buying a house is more of a lifestyle decision than a financial decision. When people figure that you they will make better decisions either way.

Buying a condo might be a more of a financial decision, I dunno.

Posted by bruce1963 | Report as abusive

I heard the NPR spot, and my sense was that you were largely right but overstating the case. Yes, renting is better for lots of people, and yes, a house is in many ways a burden and decreases mobility. But for a lot of people with the financial wherewithal to buy and a propensity for semi-permanence, the cost-benefit calculation is very complex, to the extent that for many people it boils down to preference. On the financial side, a home may not on average be the get-affluent-quick vehicle it seemed in the late great bust, but it’s generally not a bad investment, either, if you’re in it for the long haul – though that equation is slanted a good deal by our tax policy. Beyond finances, for many people the home is like an extension of your body or family, particularly if you’re into gardening. Ultimately though none of us really own anything, and I suppose with a different mentality and economy there’s no reason you couldn’t grow equally attached to a rented home you stayed in for 20+ years. Perhaps there could even be innovative financial incentives to maintain/improve the place.

Posted by adsprung | Report as abusive

This is a fine example of how pointless the “Blogosphere” can be. Felix writes a few paragraphs and considers it to be an opinion piece. I think Reuters should focus on “hard news”, and send people like Felix out to get a real job!

Posted by MerrillGrinch | Report as abusive

I agree wholeheartedly with TFF. The choice between buying and renting is both an economic and a lifestyle decision. By economic, I mean what you can afford and what your reasonable prospects of employment are. Buying a residence as an investment is stupid.

I own a house. I also own rental property. The people I rent to are generally young people who come to this West Coast city because it has a reputation for being lively and interesting. Many move after a while to other rental apartments — most of them in other cities. Some buy houses here, generally in neighborhoods that are less expensive. I agree that it makes sense for them to do so, if they are employed. Leaving aside any tax advantages — and there are tax advantages to landlords that presumably get passed to tenants — why would they not want at least the possibility of recouping their money when they eventually sell?

My two, 20-something daughters live in another, more expensive West Coast city. They rent rooms in apartments with roommates. They pay more for their rooms in that city than I rent some of my apartments for in mine. They do not anticipate ever having the means to buy a house in this very expensive city. At this time in their young lives, they are willing to make the sacrifice. They do not have families.

For someone with a peripatetic lifestyle it certainly makes sense to rent. For someone without a family, also true. For someone who lives in a city in which they cannot afford to buy, for pleasure or professional reasons, and who are willing to economize on space and personal autonomy, probably also true. I might also add: for someone who is physically or temperamentally unable to cope with the responsibilities of home maintenance, definitely.

I am 60-something. I would not dream of renting. I like our house. I garden. I built an addition for a study. Why on earth would I want to subject myself to the whims — however well-intentioned — of a landlord? Why should I, if I can afford not to?

Posted by jbernar | Report as abusive

If you think small then buying a house is fine. I am a regular IT professional; I’ve never made more than $150,000 dollars in salary. I’ve always done two things in life – rent nice properties and save and invest aggressively 1/3 of my paycheck. When I was young and single this could have been 1/2 my paycheck.

I now live in New York and we rent quite a large place. My friends who are home owners in NJ are always complaining about property tax, upkeep and not being able to sell. They are constantly worried about losing their jobs. They’ve traded there houses up over the years to own an asset that they can not sell.

I on the otherhand have just put my money in whatever was hot – .coms, gold, India, China, mining, energy, Iraq, etc. Im an amateur investor but I know its ok to get out before peak and sit on a 50% gain and if you invest this way you always make more money than a home. Recently, I easily had cash to put money into Egypt-centric companies two weeks ago during the rioting and they’ve gone up 15%. Its a no brainer.

So here I am at 42, recently unemployed, renting a nice place with my 2 kids. I have never had a high salary or inherited a thing but I have over 10 million dollars in assets. We travel when we want and eat what we want; and oh yeah while Im looking for a job my investment income is more than the salary I dont have.

So I hear people making 200, 300, 400Kk in the suburbs complaining about cashflow and I always think “Why do you own a house?”; it prevents you from invsting in what is hot and its an illiquid asset? Renting = freedom.

Posted by John2244 | Report as abusive

TFF, for the record, I bought my apartment (a condo, yes) in 2005. I paid a lot of money to live in a great neighborhood and got incredibly lucky: I’m one of the very few people who bought back then who can say that my property is now worth significantly more than I paid for it. On the other hand, I’m not selling any time soon, and I don’t consider the increase in property value to be an increase in wealth, it’s all far too theoretical and what goes up can always go down.

Posted by FelixSalmon | Report as abusive

Thanks, Felix, glad it is working for you. But perhaps that perspective might help you to understand other homeowners? Especially for those who prefer suburban life, renting in a great neighborhood might not even be possible. (Rental properties around here tend to be concentrated in a small number of industrial-style complexes.) Nor are we concerned about theoretical increases or decreases in the value of a property we have no intention to sell any time soon. It is a house we could retire in.

“They’ve traded there houses up over the years to own an asset that they can not sell.”

An interesting paradox, no?
* Buy a “starter property” for $150k with 20% down.

* A few years later, after prices have gone up 50%, sell for $225k (less $25k commission, financing, and moving costs), take the remaining $200k-$120k = $80k, and use that as a downpayment on a $400k property.

* Now prices drop 30%, and you owe $320k on a property that would sell for $280k. Your original downpayment has evaporated. The $80k cash in hand that you had momentarily while trading up has evaporated. And if you sell, you’ll owe the bank an extra $40k out-of-pocket.

That’s pretty much what we did — except we stopped after step one (keeping the “starter home”, which was probably an upper-class home when it was built 115 years ago). The increase in prices didn’t materially effect us, so the subsequent decrease had no impact either.

Posted by TFF | Report as abusive

The moral of the story? (If it isn’t already evident.)

When asset prices go up, you are poorer.

When asset prices go down, you are richer.

That equation holds true as long as you are in the accumulation phase of your life. It reverses in retirement, and is perhaps ambiguous for somebody nearing retirement, but for somebody in their 20s, 30s, and 40s, it is undeniably true.

Posted by TFF | Report as abusive

TFF – and those who bought before the bubble made out fairly well despite the recent drop.

We bought in 1999, $132,000 with 20% down. Just sold for $197,500 last week. Obviously not as much as we could have gotten at the peak, but still more than the purchase price + what we invested in it. We had a considerable amount of equity, which we then used to buy a bigger home in a better neighborhood that needed extensive interior renovations – and which we got for a song (owners had bought it in 2000 for $300,00, sold it to us for $239,900).

For the year before we moved in, the home had been rented out – as per Felix’s suggestion. But our new neighbors, I cannot tell you how ecstatic they are to see homeowners living there now. “It’s so nice to have a family move in!” the people on both sides of us have said. I’m getting the idea that the renters weren’t exactly considered stellar neighbors (given what they did to the interior of the place, I begin to understand it).

And that’s the rub to renting in the suburbs, isn’t it? Sure, some renters will take as good care of the place as if they owned it. And not all owners take care of their place. But if, per Felix, it’s “silly to put lots of work and love into a place if it ultimately just ends up benefiting the landlord” – that may not only lead to the decline of the rented home, but in neighboring property values.

As a suburban homeowner for 12 years now, I can tell you that when the house next door goes up for rent, other homes in the neighborhood may follow. Perhaps all the new tenants will be wonderful! Or maybe, for the neighborhood, it’s the kiss of death.

Posted by kgasmart | Report as abusive

Check that, second graf, owners had bought for $300,000 in 2007, and sold to us for $239,900.

Posted by kgasmart | Report as abusive

Just did a quick scan for homeownership rates in Hong Kong, notoriously volatile market for property.

Amazingly stable desire – there are clearly non-pecuniary factors influencing demand for housing.

John2244: “I’ve never made more than $150,000 dollars in salary” – you do understand that you’ve just said, ‘I’ve never made more than five times the median income in the United States’? (It’s always a struggle to be aware of our own biases).

Posted by AmicusAlso | Report as abusive

kgasmart, if you were to drive down our street you would know in a second which house is rented. You wouldn’t even need to wait for the police cars to show up with lights flashing, as they do half a dozen times a year. The junk cars on the mud-pit that used to be a lawn would be the first giveaway. The ramshackle garage/shed. The weeds…

Renting makes more sense (for both renter and landlord) in the city than in the suburbs.

Posted by TFF | Report as abusive

One thing is clear…the equation has changed (http://buildingstrategy.blogspot.com/), and so much of one’s perspective on this issue is driven by one’s own circumstances. It may be “popular” to have one or another position, but the real answers will be revealed over time with the decisions the younger generations make about whether, and when to own.

My husband and I bought our first home when we were 24-25 years old, 20+ years ago. There was a clear assumption and belief that it was the best possible long-term financial decision we could make. Now, as the mother of three 20-somethings, I can’t imagine any of them making a decision to buy for at least 10 years. And most of their friends feel the same way. Whether they’re in big cities or suburban communities, the implications of this paradigm shift could be significant for those who build and sell housing.

Posted by bldgstrategy | Report as abusive

My sincere apologies to Elena for placing her in the wrong box. It sounds like she lives a very impactful life.

My intent was to highlight the difference in perspective between the average homeowner and the average renter. One has a vested stake in their community the other can move on with a months notice… or none at all if the dammage to the unit quite obviously exceeds the security deposit.

A every month a renter pays someone else to occupy a space that is not their own. That leaves little incentive for the renter to improve or maintain the property and more imporntantly improve the community in which they live.

Are all renters leaches… no of course not. Are all homeowners responsible engaged citizens… again no.

Yet broad ownership of assets in general (houses, stocks, bonds, factories, whatever)is the very thing that seperates 1st and 3rd world nations. While Elena’s world view might be very differnt from mine, I’m sure that we both want the greatest good for the greatest number.

A huge wave of non-owners are about to hit the phase of their lives where they are less able and less willing to provide for themselves through their own labor. Poor choices by that group will impact society as a whole. I view that as an injustice.

Posted by y2kurtus | Report as abusive

The Landlords thank you profusely for this Felix. And so does Mr. Potter.

Elena, you’re in the wrong box for the wrong reason here. If we nationalize housing (along with a few other things too, including Reuters) you don’t have to set such a low bar for yourself and no one else does either.

Where’s the ipecac?

Posted by Uncle_Billy | Report as abusive