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Is Home Ownership Essential to the American Dream?
Old 04-23-2013, 09:15 AM   #1
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Is Home Ownership Essential to the American Dream?

I can't imagine not owning our own home, or more directly, homeownership not being more cost effective than renting all (costs) considered. But the economic choice between home ownership and renting is intriguing and worth following to me.

The decline in home ownership appears to stem from working age folks mostly, and understandably (job mobility). And the ever higher cost of buying a home in many MSAs.

Thought it might be to others as well.

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3 in 5 adults believe that "renters can be just as successful as owners at achieving the American Dream.

I am not arguing that America will or should shift from a nation of owners to a nation of renters. My main point is that tilting the home ownership rate back from its high of 70 percent to say 55 or 60 percent — not too far from where the U.S. is at today — would seem to be line in with greater labor market flexibility and economic dynamism.
Renting the American Dream - Richard Florida - The Atlantic Cities
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Old 04-23-2013, 09:21 AM   #2
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I think there are situations where renting is better, sure -- but I also think the growing trend toward preferring renting is a form of "recency bias" where people look at falling or stagnant home prices and deciding that buying doesn't look like a good long-term proposition. Factor in an increasingly mobile society where no one has job security in their current location, creating a perceived need to be flexible in terms of where you live, and that also tips the scales toward renting.

That said, for someone who knows they plan to stay put for a long time (like 10 years or more) and, if they need a mortgage they expect to have a stable income for servicing the mortgage, buying is likely the better economic decision -- but even then there are non-economic factors involved. Just as some people feel insecure with ANY debt (even that which they can easily pay off), some people feel uneasy about being "tied" down to a house.
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Old 04-23-2013, 09:27 AM   #3
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As a homeowner, I am still biased toward the flexibility of renting. Only reason I bought was an exceptional circumstance of receiving a large forgivable grant. Especially for people who enjoy travel and lack local family ties or other permanent ties, its hard to recommend that lack of flexibility if it is a huge part of their financial picture.
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Old 04-23-2013, 10:11 AM   #4
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My 30 yr mortgage will be paid off in August. I think owning a home and not having a mortgage payment soon is one of the essential legs of my ER financial planning. I like the feeling of owning my home in contrast to those who abhor debt. This is obviously a personal preference.
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Old 04-23-2013, 10:17 AM   #5
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Many in the workforce learned that home ownership can be a boat anchor when it comes to mobility needed to go where the jobs are. Generations ahead will be taking these lessons and making decisions based upon the value of free time and the luxury of packing up and moving if things are not going well in the local economy.
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Old 04-23-2013, 10:20 AM   #6
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Financially, it seems unlikely that adding a middleman to the situation by renting would be cheaper in the long run. Though surely there will be short-term situations where renting may be cheaper due to supply and demand.

Personally, I want the freedom to do what I want with my house. Especially to make modifications that suit us better and may add value for us rather than someone else. I feel constrained in a rental.
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Old 04-23-2013, 10:30 AM   #7
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Every time I consider this issue of the increase in renters nationwide, I'm reminded of Potterville in the movie 'it's a wonderful life'. It's a sign of how the banking system is no longer supporting the so called 'American Dream'. Credit Union membership is up lately, I wonder if that's because the banking system has let down so many folks.
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Old 04-23-2013, 10:39 AM   #8
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Financially, it seems unlikely that adding a middleman to the situation by renting would be cheaper in the long run. Though surely there will be short-term situations where renting may be cheaper due to supply and demand.
Agreed, at least for someone who stays put for many years. In that case a decision to rent would essentially be a decision to pay a "premium" for the ability to remain much more mobile. That's particularly true for people who are facing a likelihood of needing to relocate often to stay employed until such a time as they no longer need it.
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Old 04-23-2013, 10:47 AM   #9
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More of my net worth derives directly from real estate ownership than from w*rk. Population grows but they ain't making more land. Increasing demand for a limited supply leads to higher prices. Leverage that long-term increase via a cheap, tax-reducing, inflation-beating mortgage and you have the tools for making FIRE. But let's keep that quiet otherwise there won't be as many people to pay us rent. ;-)
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Old 04-23-2013, 10:56 AM   #10
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More of my net worth derives directly from real estate ownership than from w*rk. Population grows but they ain't making more land. Increasing demand for a limited supply leads to higher prices. Leverage that long-term increase via a cheap, tax-reducing, inflation-beating mortgage and you have the tools for making FIRE. But let's keep that quiet otherwise there won't be as many people to pay us rent. ;-)

I guess it depends upon what you mean by 'long term'. Most of us won't be alive in the 'long term' as per my definition. But then I'm a former geologist
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Old 04-23-2013, 11:49 AM   #11
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See

http://www.nytimes.com/2013/04/14/bu...dont.html?_r=0

Where it is pointed out

"Home prices look remarkably stable when corrected for inflation. Over the 100 years ending in 1990 — before the recent housing boom — real home prices rose only 0.2 percent a year, on average. The smallness of that increase seems best explained by rising productivity in construction, which offset increasing costs of land and labor."

From a pure investment point of view real estate is not really that good of an investment. Perhaps good as an inflation hedge.
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Old 04-23-2013, 12:47 PM   #12
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Originally Posted by heeyy_joe View Post
Many in the workforce learned that home ownership can be a boat anchor when it comes to mobility needed to go where the jobs are. Generations ahead will be taking these lessons and making decisions based upon the value of free time and the luxury of packing up and moving if things are not going well in the local economy.
This is a generational thing. I stayed at my same job for 30 yrs and that was pretty much the expectation when I started working. People who moved around were corporate types and the corporation helped with the moves. Over the decades, as people and employers broke their bonds mobility has become more important. Also, from a financial perspective it depends on the current status of inflation and interest rates. Housing prices inflated a lot after I bought my house.
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Old 04-23-2013, 01:09 PM   #13
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This is a generational thing. I stayed at my same job for 30 yrs and that was pretty much the expectation when I started working. People who moved around were corporate types and the corporation helped with the moves. Over the decades, as people and employers broke their bonds mobility has become more important.
Interestingly, I have never worked for an employer who did not openly encourage homeownership as a way to keep employees servile and docile. The bigger the mortgage, the more you depend on that paycheck.

It became very clear last year when DW's employer moved us to the west coast. Key employees were offered incentives to move, all of them tied one way or the other to homeownership. We have been pressured to buy some expensive piece of property here. We have resisted and DW's commitment to the company has been called into question more than once. It makes you wonder whom the dream of homeownership truly serves.
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Old 04-23-2013, 01:12 PM   #14
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Quote:
Originally Posted by heeyy_joe View Post
Many in the workforce learned that home ownership can be a boat anchor when it comes to mobility needed to go where the jobs are. Generations ahead will be taking these lessons and making decisions based upon the value of free time and the luxury of packing up and moving if things are not going well in the local economy.
This is a pill I just got news of last night that I may need to swallow. I've been relocated twice in my short 8 year career, and both were "Cadillac" type relocation packages - packers, movers, house buyout, realtor fees, points on new mortgage etc were all covered by the employer. Well a new opportunity has come up and it isn't clear if they will pay the realtor fees and what not to sell my house. That's a $30-$35k hit right off the bat (although, I would still make a little on the house).

Unfortunately, DW doesn't like renting. If I knew I'd always have a "caddy" relocation plan available to me, it's not that big of a deal. But, as I am learning, that isn't always the case, even though it is pretty standard in my industry.
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Old 04-23-2013, 01:16 PM   #15
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This is a pill I just got news of last night that I may need to swallow. I've been relocated twice in my short 8 year career, and both were "Cadillac" type relocation packages - packers, movers, house buyout, realtor fees, points on new mortgage etc were all covered by the employer. Well a new opportunity has come up and it isn't clear if they will pay the realtor fees and what not to sell my house. That's a $30-$35k hit right off the bat (although, I would still make a little on the house).
Consistent with my Megacorp experience. In my 20's thru 40's, MegaCorp would pay all seller/buyer RE fees, moving expenses, and even make a fair offer to buy the former home at market value - it couldn't have been more painless. In my 40's thru 50's, they paid all expenses but they would not buy homes any more. And when the 2008 meltdown hit, they put out an (unpublished) edict that they would not allow managers to relocate employees period - they weren't willing to pay any relocation expenses, even though the published policy on RE expenses was still on the books. They "asked" us to hire locally if needed...
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Old 04-23-2013, 01:24 PM   #16
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Consistent with my Megacorp experience. In my 20's thru 40's, MegaCorp would pay all seller/buyer RE fees, moving expenses, and even make a fair offer to buy the former home at market value - it couldn't have been more painless. In my 40's thru 50's, they paid all expenses but they would not buy homes any more. And when the 2008 meltdown hit, they put out an (unpublished) edict that they would not allow managers to relocate employees period - they weren't willing to pay any relocation expenses, even though the published policy on RE expenses was still on the books. They "asked" us to hire locally if needed...
My old company still does the cadillac plan. In '08, they would buy you out of the house, but not a condo or townhome. Of course, they're an oil giant.

I'm looking to switch companies and we've been clear we would need to be relocated. We got a vague email last night that they were prepping the offer and would offer a relocation package that included "packing, moving, 30-days living expenses in new location and they use a 3rd party to administer the rest." Question is, what is the rest? Hopefully I'll know in a day or two.
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Old 04-23-2013, 01:33 PM   #17
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Owning a home to me is almost like getting married. I never owned a place, or really even considered it, ER'ed at age 41.

However, I can certainly understand ownership, especially when you have really settled down.

The nice thing about renting is that I was always able to rent exactly the place that I needed. That means I rented a 1 bedroom place when, if I were buying, I would have bought a 2 or 3 bedroom place. I always was able to make my commute short. Even working for the same company in Silicon Valley for 11 years, my office location changed in a major way 3 different times. Each time I moved within easy commuting distance to my work location.
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Old 04-23-2013, 01:35 PM   #18
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I like owning my home now. I like the space, the quiet, the freedom to fix it up to suit us. As we age and are less able to do heavy physical work, we are paying to have it done and that's fine with me. The house is cleaner and the yard gets mowed

I can foresee a time when this is all too much and I'll prefer independent living in a retirement apartment - but not for quite a while, I hope. My 92 year old father is still in his home (although my brother moved in with him so he wasn't so alone).

But as to the greater issue - it seems like the change is due to lack of security in jobs, and for many, lack of ability to actually come up with a down payment. We on this forum are always outliers when it comes to saving money
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Old 04-23-2013, 01:41 PM   #19
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I think a lot depends on where you live. Here in San Diego the ownership costs are higher than the comparable rent costs. For example, a coworker rents a 3 bedroom, ocean view home, in Del Mar. (Ritzy area). The rent is FAR lower than what a mortgage payment would be - even at these low interest rates. He's in the process of buying a house, but will be spending more, and getting less (less desirable area - barely a view - only if you put your head at just the right position... ) He justifies it because he'll be building equity. But he also laments that he's losing the earning potential of his down payment... He's been saving/investing for these years... and got used to having that nest egg grow.

In my neighborhood (not nearly as chic as Del Mar) homes rent for about 20% below the comparable mortgage payment. But that is slowly changing... as interest rates decline.

(Of course many people bought these rentals long ago - and rent is just a gravy train on a paid off house.)
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Old 04-23-2013, 01:53 PM   #20
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Although I now own a condo, overall I prefer living in an apartment where there is a resident manager and professional service available.

To me the only downside to renting, and why I did eventually buy, is if you live in a land constrained market with a lot of immigration of well paid workers and renters, the rent raises can get annoying. I also was concerned about the current worldwide debasement of currencies, and felt that giving up some freedom in return for some protection from Argentina like outcomes might be a reasonable trade.

If I were rich, I would never have a house. The rich enjoy a different decision matrix.

I've been a homeowner, and it is essentially another job, and one which can make it hard to make relocations that you might like to make, or might benefit from.

Ha
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