6 Reasons Why You Should Never Ever Buy A House

[editor]

This seems like the sort of thing that should promote rational, well-thought-out discussion on HAIF. Or not.

Why I Am Never Going to Own a Home Again

The article makes it sound like you're better off buying lottery tickets than a house.

“But its an investment,” you might say to me. Historically this isn’t true. Housing returned 0.4% per year from from 1890 to 2004. And that’s just housing prices.

[ricco67]

This seems like the sort of thing that should promote rational, well-thought-out discussion on HAIF. Or not.

Why I Am Never Going to Own a Home Again

The article makes it sound like you're better off buying lottery tickets than a house.

As much as I don't like the guy in the video because he seems like a bit of a tool, he does have some points that do hit home.

When you own a piece of land, you are going to (theoretically) live in it for quite some time. One of the issues is stated:

C) Maintenance. No matter what, you’re going to fix things. Lots of things. In the lifespan of your house, everything is going to break. Thrice. Get down on your hands and knees and fix it! And then open up your checkbook again. Spend some more money. I rent. My dishwasher doesn’t work. I call the landlord and he fixes it. Or I buy a new one and deduct it from my rent. And some guy from Sears comes and installs it. I do nothing. The Sears repairman and my landlord work for me.

I don't wanna worry about anything when I get home from a long hard day. No worrying about the shingles, no inspecting the siding from time to time. No yelling at kids to get off my lawn...etc. A condo (or rental) suits me just fine.

[crunchtastic]

He makes some very good points. In my view, the greater risk is being tied to a home because you can't sell it. In today's labor and housing markets, being tied to a mortgage you can't get out limits your mobility, and you very ability to make a living. All the junior economists on HAIF will scoff at skimpy anectdotes, but I personally know people who are unemployed, have had their house on the market for months, but can't afford to move for a job because they won't have enough cash flow to either pay 2 mortgages or their family's expenses to stay in the house while they rent elsewhere. It's not proof of anything related to real estate markets, but damn I can't imagine feeling trapped like that.

The uniquely American cult of home ownership is a separate topic in and of itself. Niell Ferguson has a good perspective on how we (and the English speaking world generally) has come to this idea of property ownership in his book The Ascent of Money. (He is much more of a Chicago schooler than I care for, but the book is and interesting and well done history nonetheless.)

I'll say this, given the current market, my age, my income and business, if I were single and had to do it over again this very point in time, I would not buy a house. I'd otherwise invest the money not spent on insurance and maintenance, and keep myself free to move about for work. I got very lucky profit-wise on the first home I sold, but these days if you think you'll make a sale that even covers your costs, IMO you're taking a very big gamble. And you will have to sell at some point, most likely sooner than later.

[Fringe]

Everyones different. There are people that definitely should rent and those that should own. I would never suggest my daughter own a place because it's easier to let her landlord take care of the upkeep. Of course that also depends on the landlord. The landlord she has now does a good job. The last one, a very prominent Montrose slum lord, would take weeks to fix anything and than it would be done half/ass because he didn't want to put in any money into the house's upkeep. Also she may change jobs at any time and need to relocate.

Me, I don't have a problem repairing stuff and get great satisfaction out of doing the work myself. I have owned 5 houses and even with repairs I have made more then enough to keep moving up to where I am now which is probably where I will remain for the rest of my life.

[sowanome]

I've always agreed about the taxation, maintenance and liquidity issues, however he fails to mention the expected annual increase of "Rent" that your GREAT LANDLORD will charge you over the years. Not to mention various move-in/move-out fees and other administration fees. He's also obviously forgotten about the simple Supply vs. Demand rules and the fact that over the next 25-30 years most metro areas will at least double (even Detroit may have a huge population increase). It's sort of like the "Parking Space" issue in Manhattan and Chicago, just 15 years ago you could buy a parking space in a prime area for less than $15k where as today those spaces run upwards of $30,000...But I guess you can't technically live in a parking space?

The guy definitely has validity in his argument, but I can't imagine a landlord not increasing your monthly rent in a 5 year period....Now wonder there's a huge rental industry, just too much money to pass up!

I'm a greedy Landlord and I approve this message!

[lockmat]

I've always agreed about the taxation, maintenance and liquidity issues, however he fails to mention the expected annual increase of "Rent" that your GREAT LANDLORD will charge you over the years. Not to mention various move-in/move-out fees and other administration fees. He's also obviously forgotten about the simple Supply vs. Demand rules and the fact that over the next 25-30 years most metro areas will at least double (even Detroit may have a huge population increase). It's sort of like the "Parking Space" issue in Manhattan and Chicago, just 15 years ago you could buy a parking space in a prime area for less than $15k where as today those spaces run upwards of $30,000...But I guess you can't technically live in a parking space?

The guy definitely has validity in his argument, but I can't imagine a landlord not increasing your monthly rent in a 5 year period....Now wonder there's a huge rental industry, just too much money to pass up!

I'm a greedy Landlord and I approve this message!

Rent goes up but so do property taxes. At least you can always go find a cheaper apartment.

[samagon]

I haven't been a property owner long enough to say that property tax changes aren't as much as rent changes, but I just can't see how it would even be comparable.

[lockmat]

I haven't been a property owner long enough to say that property tax changes aren't as much as rent changes, but I just can't see how it would even be comparable.

I've never stayed in a apt long enough to know. How much does rent usually increase?

[crunchtastic]

Forget property tax, it's insurance. Mine has gone up anywhere between 8 and 30 percent every year I've owned. No kidding. My insurance is now more than taxes. Homeowner premiums rates will continue to rise, and rise faster than the rate of inflation.

Don't get me wrong, home ownership has been a positive experience for me. I like to garden, I hate hearing other humans in their nasty habitats through the walls, etc. But, I was once one of those people who kept a small bag with passport, cash and change of clothes packed and ready to go in my closet, just in case. Apparently I've had a hard time giving up the illusion of unobstructed mobility. Still, it's an important consideration--mortgages can really tie you down if the circumstances aren't right.

[lockmat]

Forget property tax, it's insurance. Mine has gone up anywhere between 8 and 30 percent every year I've owned. No kidding. My insurance is now more than taxes. Homeowner premiums rates will continue to rise, and rise faster than the rate of inflation.

Don't get me wrong, home ownership has been a positive experience for me. I like to garden, I hate hearing other humans in their nasty habitats through the walls, etc. But, I was once one of those people who kept a small bag with passport, cash and change of clothes packed and ready to go in my closet, just in case. Apparently I've had a hard time giving up the illusion of unobstructed mobility. Still, it's an important consideration--mortgages can really tie you down if the circumstances aren't right.

Dang. I heard insurance is more for an older home, is that true?

[sevfiv]

For the space I have the mortgage/escrow/maintenance (thus far) is less than a comparable rental. And maintenance, eh. I like it.

[RedScare]

Right after Ike, my insurance doubled. Part of it was because I raised the level of coverage (my first agent mistakenly quoted the minimum coverage as the maximum), part was Ike. It dropped back a bit this year, but is still 75% higher than when I moved in. Property taxes jumped 20% last year, after HCAD figured in my new garage. Overall, my mortgage payment is about 20% higher than when I bought the house 7 years ago.

Owning a house is a love-hate thing. I love owning the property, and renovating it, and planning new things to do to it. I hate maintaining the yard, the ever rising taxes and insurance. But, the biggest love-hate is the subconscious part. I love having a place of my own to come home to, but I am shackled to this place. I cannot move without renting it or selling it. I do not travel nearly as much as I used to, partly because of the trouble of making sure it is secure while I am gone. This would be less in a condo, but having a yard is good for the dogs.

These issues are rarely considered by those buying a house. They fall for the sales pitch of realtors, mortgage brokers and politicians that home ownership is the pinnacle of the American Dream. It isn't, but the tide is against you. This is not unlike the belief that lower prices in the suburbs makes suburban home ownership cheaper. People rarely consider the commute, the higher costs of maintaining large yards, and other costs unique to the burbs. But, overall, I must admit the positives have outweighed the negatives for me, if only because I bought in gentrifying neighborhoods. I made more profit selling my first house 5 years later than my brother has accrued in 20 years in the Woodlands. This is not to say he regrets building in the Woodlands, but the point of the article applies more to his situation than mine. Both of my homes appreciated rapidly (the last year notwithstanding). His never has, due to the rampant new construction up there.

[august948]

Forget property tax, it's insurance. Mine has gone up anywhere between 8 and 30 percent every year I've owned. No kidding. My insurance is now more than taxes. Homeowner premiums rates will continue to rise, and rise faster than the rate of inflation.

My experience has been it's both. But at least with taxes you can go argue with HCAD. I've done that twice in the last 11 years and got reductions both times. The last time, this past spring, I went down to argue it with them and discovered they had bumped my appraisal up because they mistook a pool I set up for my kids on the patio for an in-ground pool. Fortunately, they have overhead pictures of each property (scary good pictures as it happens) and I was able to easily point out that it was not an in-ground. I was all set to argue comp prices and got a better reduction just by correcting are error. I've shopped my insurance a couple of times, but haven't found anything better and it still goes up each year.

Taxes and insurance combined make up roughly half of my mortgage payment so any relief on either goes a long way.

[TheNiche]

I've never stayed in a apt long enough to know. How much does rent usually increase?

Between 2000 and 2010, the average rent per square foot for apartments in the Houston region increased from $0.718 to $0.886. According to this inflation calculator, which goes by the Bureau of Labor Statistics' CPI research, a good purchased in 2000 for $0.718 would have, on average, cost $0.91 in 2010.

[samagon]

For the space I have the mortgage/escrow/maintenance (thus far) is less than a comparable rental. And maintenance, eh. I like it.

Too true.

Just on the cost of the home I make out like a bandit.

Toss in the 2 car garage, space to have a garden, the fact that if someone decides to jack the rent, or worry about a pet deposit, or any other deposits that are not going to be returned for whatever reason.

I agree renting is great for some, but not for me, the intangibles are where it's at.

[TheNiche]

Overall, my mortgage payment is about 20% higher than when I bought the house 7 years ago.

That compares to a 23% increase in rental rates. Taking into account all the extra effort and the inconveniences that go into a house...yeah, an approximate 3% difference over 10 years of renting doesn't seem that bad.

This would be less in a condo, but having a yard is good for the dogs.

I have a yard. It's much larger than yours. I have mature oak and pine trees. Plenty of shade. My neighbors are all white, but older and less annoyingly douchey. I live within about three miles of you. I rent. I almost certainly pay less than you do in interest, insurance, and property taxes (or the imputed interest on the opportunity cost of your equity) net of the value of your tax deduction.

Don't get me wrong. I'm not trying to rub your nose in it or anything. Your house is definitely cuter than mine. And hey, it contributes to a new historic district; you should be proud of that, or so it is said.

[samagon]

Between 2000 and 2010, the average rent per square foot for apartments in the Houston region increased from $0.718 to $0.886. According to this inflation calculator, which goes by the Bureau of Labor Statistics' CPI research, a good purchased in 2000 for $0.718 would have, on average, cost $0.91 in 2010.

My house is 1400 sf, even in 2000 I would have (on average) paid more to live in a comparable sized place with these amenities (2 car garage, yard, etc) than I am paying, in 2010, a month for mortgage, insurance, and tax to own my house.

I think, if you live in a house through the full term of the mortgage the down payment that you 'lose' is probably equal to the cost of movers and non-refundable pet deposits etc, that you would pay over the years each time you move from one apartment to another.

I think this article (or one like it) seems to crop up once a year or so from various sources. Until you start thinking about the hidden costs involved with renting (as well as the ones that are pointed out in the article for home ownership) it's a lot less clear which way you should go.

in my mind, it seems that at end of the thought process, the question is, do you want to be able to pick up and move at any point (and are comfortable with the instability it may bring), or are you happy being grounded in one location (and also comfortable with the restrictions that come with owning)?

[marmer]

I'm actually paying significantly less in mortgage, insurance, and taxes to live in a tract house in Pearland than I did to rent in a duplex in Montrose in the late 80s. Forget about inflation, I'm talking just dollar value. And I have a larger, newer place with pretty good schools. Of course the downsides are the multi-thousand dollar hits for maintenance and the hundreds of dollars a year spent on commuting.

[crunchtastic]

I hadn't been over to the Big Picture in a few days, and sure enough Ritholz has good commentary on the original blog post. also some good comments:

http://www.ritholtz.com/blog/2011/03/looking-again-at-housing/

Looks like we're all saying something similar--once you crunch the math for location and circumstance, the cost differences can really be marginal. It's the intangibles that count. Red did a good job of summing up my situaiton as well. One thing is for sure: it takes time and cash to maintian a place, moreso for a freestanding home single family home, and much more so for an old place. Man, and you're not kidding about the travel. I used to fly down to the islands 3 or even 4 times a year, visit friends out of state. Not no mo'...And I still haven't started my deck dismantling and patio build, which was supposed to be this year's spring project.

[samagon]

I'm actually paying significantly less in mortgage, insurance, and taxes to live in a tract house in Pearland than I did to rent in a duplex in Montrose in the late 80s. Forget about inflation, I'm talking just dollar value. And I have a larger, newer place with pretty good schools. Of course the downsides are the multi-thousand dollar hits for maintenance and the hundreds of dollars a year spent on commuting.

there's always the option for home warranty. you have to pay year over year to keep it going, but they'll cover the cost of most repair issues.

if you want to get down to it, when you rent, the price of maintenance/repair is built in to the monthly cost. if you're a fix-it-yourself kind of person, as a renter you can't option to fix a problem yourself and not pay the cost of having someone else fix it.

Most times now though, appliances are too specialized to just pull the cover off and replace a belt with one from the hardware store for $5, you have to be an electrical engineer to try and repair one. but an electrical repair, simple plumbing issues, lighting the pilot on your gas heater, you can do most of that stuff yourself (if you choose) and save a bit of cash, in a rental situation you don't get that option, plus you're on the pace of the landlord.

sure, you can probably talk to the landlord (in some situations) and work a deal where he cuts the price of rent if you take care of the lawn (if there is one), or something else, but in big apartment complexes run by corporations rather than a guy renting a duplex or 4plex that isn't even close to an option.

I hadn't been over to the Big Picture in a few days, and sure enough Ritholz has good commentary on the original blog post. also some good comments:

http://www.ritholtz....ain-at-housing/

Looks like we're all saying something similar--once you crunch the math for location and circumstance, the cost differences can really be marginal. It's the intangibles that count. Red did a good job of summing up my situaiton as well. One thing is for sure: it takes time and cash to maintian a place, moreso for a freestanding home single family home, and much more so for an old place. Man, and you're not kidding about the travel. I used to fly down to the islands 3 or even 4 times a year, visit friends out of state. Not no mo'...And I still haven't started my deck dismantling and patio build, which was supposed to be this year's spring project.

on the plus side though, most people who live in apartment complexes don't bother to meet their neighbors and become friends, you've probably met some really great people with whom you have spent time to help ease the burden of not traveling as much. spontaneous dinner get togethers, block parties, drinking and relaxing with neighbors on the porch.

[ricco67]

I'm actually paying significantly less in mortgage, insurance, and taxes to live in a tract house in Pearland than I did to rent in a duplex in Montrose in the late 80s. Forget about inflation, I'm talking just dollar value. And I have a larger, newer place with pretty good schools. Of course the downsides are the multi-thousand dollar hits for maintenance and the hundreds of dollars a year spent on commuting.

I agree with everything you said, but one of the things that pushed me over the edge about living in suburbia (Jersey Village area) was the 2+hrs of commute and the logistics of my going to an Astros game.

Thank god I decided to rent instead of buying, otherwise I would be still be in that hell...with those insane neighbors as well.

[crunchtastic]

Dang. I heard insurance is more for an older home, is that true?

not necessarily. It's partly based on what it would cost to replace the home. So, an old wood frame house would be cheaper to insure than a newer brick place. But a frame house is more likley to be a total loss in the event of fire. There are lots of variables that go into the actuarial equation including build materials, types of HVAC systems, the nature of the land its built on, location, even architectural style. I do know this-- insurance agents have a tendency to vastly under insure an older home. Mine could not be rebuilt for $150,000 one guy told me was the max he would insure for. The old-growth wood floors alone would cost half that to replace. For your primary residence, always insure for replacement cost, not ACV.

[Highway6]

I've been trying to sell my wife on eventually buying land in the East End and letting me design something.. but i think I'm losing the argument. I had her hooked until kids came into the discussion. All of our family live in NW burbs, and when Highway6 Jr comes along in a yr or 2, we're going to need grandparents nearby if we're to both work. I'm now trying to sell her on the SpringBranch area as a compromise... not quite innercity, not quite suburban hell and 45 min commutes.

That article is way depressing by the way.

[samagon]

not necessarily. It's partly based on what it would cost to replace the home. So, an old wood frame house would be cheaper to insure than a newer brick place. But a frame house is more likley to be a total loss in the event of fire. There are lots of variables that go into the actuarial equation including build materials, types of HVAC systems, the nature of the land its built on, location, even architectural style. I do know this-- insurance agents have a tendency to vastly under insure an older home. Mine could not be rebuilt for $150,000 one guy told me was the max he would insure for. The old-growth wood floors alone would cost half that to replace. For your primary residence, always insure for replacement cost, not ACV.

you'll also get discounts based on security of the house and that sort of thing.

it depresses me that my insurance is based on what some actuary has calculated based on thousands of different factors that I have no input on.

at least it's not like car insurance, and on that note, at least I'm not under 25 any longer.

pertaining the original topic, I think anyone that buys a property as an investment and not as a long term residence (obviously unless it is your business to buy/sell land, be a landlord, or something else pertaining) will end up disappointed, just like the writer of the article.

[crunchtastic]

on the plus side though, most people who live in apartment complexes don't bother to meet their neighbors and become friends, you've probably met some really great people with whom you have spent time to help ease the burden of not traveling as much. spontaneous dinner get togethers, block parties, drinking and relaxing with neighbors on the porch.

Correct!

It ain't sailing the Grenadines, but good neighbors are hard to come by.

[Marksmu]

That compares to a 23% increase in rental rates. Taking into account all the extra effort and the inconveniences that go into a house...yeah, an approximate 3% difference over 10 years of renting doesn't seem that bad.

I have a yard. It's much larger than yours. I have mature oak and pine trees. Plenty of shade. My neighbors are all white, but older and less annoyingly douchey. I live within about three miles of you. I rent. I almost certainly pay less than you do in interest, insurance, and property taxes (or the imputed interest on the opportunity cost of your equity) net of the value of your tax deduction.

Don't get me wrong. I'm not trying to rub your nose in it or anything. Your house is definitely cuter than mine. And hey, it contributes to a new historic district; you should be proud of that, or so it is said.

I own a house that I live in, and I rent a house that I obviously dont live in....the rent covers all expenses plus $100 always. If my property tax on the rental goes up...next year rent goes up. Its simple, and the renters pay the mortgage. Obviously I am partial to buying.

[dbigtex56]

I've never stayed in a apt long enough to know. How much does rent usually increase?

That's the (x) dollar question. I've been a renter for 35 years. It depends on the the property (is is it a jewel in the rough?), the landlord (does he appreciate stable self-sufficient tenants?) and the neighborhood (is there too much potential money to pass up?)

My previous two addresses had dramatic rent increases when the properties were sold. At the former, after living there for 16 years, the new owner wanted to increase my rent $75 and pro-rate the water bills among the tenants. At my last address, where I'd lived for more than seven years, the new landlord suddenly wanted to jack up my rent $100 a month AND then charge $20 extra a month for having a cat as a roommate - in addition for also demanding a $300 pet deposit. (I still do not understand the rational behind a monthly increase for a cat. He hardly ever took showers.)

In neither case did I want to move. I left behind a familiar neighborhood and some good friends. The stability afforded by home ownership is important to some people (they might want to wait around long enough to actually see that rose bush bloom) - and the sense of permanence may be important to potential employers, spouses, bail bondsmen, etc.

[lockmat]

Sounds like wsj indirectly boils it down to this...

All things being equal, most people probably would choose the freedom from commitment of renting over the responsibilities of homeownership.

That's why the government levels the field and gives owners a break in the form of the mortgage interest deduction.

Do yall really think if it wasn't for that then most people would choose to rent instead?

[Ross]

not necessarily. It's partly based on what it would cost to replace the home. So, an old wood frame house would be cheaper to insure than a newer brick place. But a frame house is more likley to be a total loss in the event of fire. There are lots of variables that go into the actuarial equation including build materials, types of HVAC systems, the nature of the land its built on, location, even architectural style. I do know this-- insurance agents have a tendency to vastly under insure an older home. Mine could not be rebuilt for $150,000 one guy told me was the max he would insure for. The old-growth wood floors alone would cost half that to replace. For your primary residence, always insure for replacement cost, not ACV.

I'm fighting my mortgage company on insurance. They want insurance for the full $200k amount of the mortgage, while the insurers say it would cost no more than $150k to replace a 60 year old Timbergrove ranch. I've had to go to the Texas Fair Plan to comply with the mortgage companies demands, which means I get crappy coverage on everything except a total loss. The insurance companies say they will pay to replace the house, even if it's more than the stated value. They use a cost calculator like Marshall Swift Boeckh to come up with the amounts.

By the way, don't blame the insurance agent, he just uses the numbers the companies require.

[Marksmu]

Sounds like wsj indirectly boils it down to this...

Do yall really think if it wasn't for that then most people would choose to rent instead?

I dont think so....I hate moving, I have two big dogs I will not agree to deposits/pet rent, and I sure dont want to be at the whims of a landlord. I will always buy. The government is going to do away with the mortgage interest deduction in my tax bracket soon anyways, and it will not effect my decision to own.

On a side note, a rental home enjoys a large number of tax breaks...you can deduct all expenses, including insurance, all repairs, as well as depreciate the house as an asset....while it appreciates (usually)

The only down side to renting a home as a landlord is dealing with the tenants...some are exceedingly needy..

A good rental home will always cover its costs...when you rent, you are not getting out of paying these cost...they are built into the cost of the rent. The only difference is that the landlord has to teal with the repair person...not you.