U.S. homeownership falls to the lowest levels in almost 20 years, blared the headlines. Lots of articles explained “Why Your Home is Not a Good Investment” and why Americans think owning a home is better for them than it is. It seems that America’s former love affair with real estate is over.

Blame the recency effect. People have a disconcerting tendency to give more weight to what just happened than long-term trends. This is why the monthly jobs report, a very rough estimate, has such an outsize impact on the markets. This same effect is what is driving people toward renting over buying.

A little context is needed.

Let me preface this by noting I was very bearish on U.S. residential real estate in the last decade. All the metrics — median income to median home price, cost of renting versus owning, residential real estate value relative to gross domestic product — showed an extremely overvalued market by two to three standard deviations. Before it was all over, economists Carmen Reinhart and Ken Rogoff argued that we were in a credit bubble and housing was due for a 35 percent crash. Continues here

 

Category: Credit, Data Analysis, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

45 Responses to “Why Does Everyone Hate Home Ownership ?”

  1. barbacoa666 says:

    I suppose I’d start off by pointing out that most people don’t have the ability to perform the basic financial analysis that tells them whether renting or purchasing a home is the right decision. Hey, even Morgan Housel is inadequate analysis. First, you are extremely unlikely to rent a $250,000 property for $1000 a month. Generally speaking, the landlord needs $2500/mo to make a small profit. At $1000/mo the landlord is probably losing money hand over fist once a mortgage, insurance and tax bills, and repairs are factored in. And most likely the landlord is going to raise the rent over time as well. So while your stocks will be worth more, you’ll have paid a lot more rent than he’s accounting for.

    • Iamthe50percent says:

      Yes, house rentals here in the Chicago Northwest suburbs seem to run around 1% of appraised value per month.

      • James Shannon says:

        Replacement Cost for my home as determined by insurer $385K, current market appraisal as determined by taxing authority $221K, paid $300K in May 2003. This is what happens when a Government, owned byCentaMillionaire$ and Billionaire$ allows them to steal Trillion$ of dollars from Million$ of home owner$ and no one is prosecuted for ALL the well documented Banking FRAUD!
        The GAME is rigged and the consumer now knows that! Housing is NEVER going to recover, many like me will never forget, and never get over the lesson learned!
        This Government does not Give a Shit about the 99%, it only cares about ALL theCentaMillionaire$ and Billionaire$, something that should be obvious to anyone who can think!
        All those stolen TRILLON$ will go untaxed as they flee our economy in search of cheap labor! We are so screwed!

    • VennData says:

      I have an acquaintance who is a commercial lender who in the mid ’00′s explained that it was impossible for homes to fall below the price of construction.

      Obviously we was wrong because of the credit problems. All the day traders could only make their numbers by leveraging their bets. That game is continuing for fewer name daytraders every quarter. Note the growth in activist investing is a function of that method being unreplicable by computers.

      So they want to put computers out of business because they can’t compete.

  2. Thalamus says:

    Home ownership is very rewarding in a debt based economy so long as earnings and financial leverage keep increasing. We’ve hit the wall on both, and as inflation continues to rob peoples budgets, the housing portion in the budget will shrink, forcing housing prices to go down with them.

    • VennData says:

      Inflation? What inflation?

      • ch says:

        Venn-

        Either you’re being sarcastic or you don’t cut the checks for healthcare, insurance, education or groceries in your household.

  3. BennyProfane says:

    “Paying down a mortgage is forced savings versus paying rent, which is money gone forever.”

    Sorry, that has become a cliche of sorts, justifying purchases throughout the bubble, and even now. My answer to that would be, hey, you gotta live somewhere, so, how do you liquify those “forced savings” when it comes time to cash in? What then, if you are lucky enough to sell at the price one imagines one’s house is worth today? If you downsize in the same neighborhood, chances are, after transaction costs, you may have a little cash to use for ourself, but, not much. Nope, you’re going to have to move from an expensive metro area like NY/NJ/CT, SF, or LA, to Florida or Arkansas to liquify a decent portion of the “forced savings”. That isn’t happening, and probably won’t happen, because older people hate to move, and if they do, want to stay close to relatives and a social network. They certainly don’t want to live in Arkansas. For the sake of this argument, lets just ignore the fact that millions are paying a substantial first and/or second mortgage at a late age (and may very well be underwater, still, on those loans), and have no savings to speak of otherwise, so work until one drops is the future for them, so moving from their last job is out of the question.
    Maybe if one was planning to leave a nice inheritance to the children, then I could see the “forced savings” argument, because the kids will benefit from those years and years of “savings” after the dirt is on the graves, and the home is now liquified in the estate sales. Otherwise, I fail to see how such an illiquid asset can be used in retirement as income. You gotta live somewhere.
    I’ve been renting for over 12 years since a divorce, and I thank the sky many a time I wasn’t sucked into the RE pyramid scheme of the last decade, and put my money into other much more liquid investments. Now I’m buying a condo for retirement times in a very affluent town, at a 30% discount from 2004 prices. I am not looking at it as an investment, or, “forced savings” for myself at all, just a place to live that is much nicer than equivalent rent around the neighborhood. I am fully prepared to watch the value drop within the next five to maybe ten years. If I was still married (shudder), I’d probably be in debt until my grave for something that is way too big for my needs, but the wife would have probably used the “forced savings” argument to ladder up into the RE status game. A lot of good it would have done me.

    • Woof says:

      I guess I’ve grown too PC, but Josh’s characterization of property taxes as a good way, to paraphrase, to keep the rabble out rubs me the wrong way.

    • ysarig says:

      A lot of people bought houses for the wrong reasons, for the wrong price, and in the wrong location. They are usually the ones that tend to default or are underwater. In many cases, it is because they got bad information and had unrealistic expectations. All of this doesn’t contradict Barry’s points.

      Buying your own home IS a kind of a forced saving. The old saying “if you rent and invest the difference you will end up with more money then buying” may be technically correct but the practical truth is that most people will NOT invest the difference (or not most of it). Most people will use the money in their daily lives (there is nothing wrong in doing this as long as you have enough money saved for retirement or rainy days, which is the point of saving).

  4. Molesworth says:

    Benny Profane,
    Your (shudder) made me smile. Glad you found peace and no longer attached to a soul sucker.
    Barry R,
    Good to know your partner Josh owns his house outright and at such a young age. Not the case for most though. That’s either a one percenter phenomenon or the result of staying in one place and paying it off over thirty years.
    I expect lack of job security and the need to be maximally flexible and mobile puts home ownership on the back burner.

  5. flocktard says:

    “Nope, you’re going to have to move from an expensive metro area like NY/NJ/CT, SF, or LA, to Florida or Arkansas to liquify a decent portion of the “forced savings”. That isn’t happening, and probably won’t happen, because older people hate to move, and if they do, want to stay close to relatives and a social network. They certainly don’t want to live in Arkansas.”

    I’m kind of in the same position. I have a ton of equity in my home with a small mortgage left, and since I bought 20 years ago, I’m sitting pretty equity wise. But I can’t downsize in my own area to make it worth my while, and no, I don’t want to leave the community I’ve been living in since 1962. So I ponder what to do from time to time.

    • BennyProfane says:

      Well, if you could care less about the kids getting any inheritance, take out a reverse mortgage or HELOC and live it up. He who dies in debt and with the most toys wins, I was once told.

  6. rj chicago says:

    Totally second your argument there Benny – I have been renting the last few years after my wife and I sold a big ol’ home she had to put money into due to a divorce. The price tanked 20% from 2006 to 2010. Put the proceeds into the market and voila’ new nice place this year on the horizon for a discount compared to years past.

    • lucas says:

      It does not sound like the price “tanked.” 2006 prices were unreasonably high bubble prices, and the wrong number for an anchor. Your 20% correction likely brought the value of the house down to more reasonable levels, but maybe not enough to qualify as recovery from the sick fever.

  7. Iamthe50percent says:

    Forget the house as investment. Consider the house as a purchase to consume. Do you consider your car an investment? Even though the value declines, most people are better off buying their car (and dumping it when it ages too much) than renting. Due to quirks in the tax laws, the situation can be different for a business.

  8. couragesd says:

    just to piggy back on barbacoa666′s comment. Rents are unlikely to stay at $1,000 the duration of a lifetime. In my 20′s I could rent an entire house in San Diego for $500-$750. Yes, and they would throw in a free TV to boot! 20 yrs later the price would be about $2,500 – $3,000. There are many other costs with home ownership, but in my 40′s, understanding the long term trends of wages, i foresee very little potential of an incredible increase in my income. Do I want to see my rent go up 300% in an increasingly smaller place when I am planning on retiring? Add on that the insecurity of being at the mercy of a landlord trying to make a profit, especially as more large investors buy up properties. I do think renters rights is going to be an evolving issue.

    • Moopheus says:

      My wife and I rented and saved during the bubble, and bought a house post-crash with a 20% down payment. Now, five years later, we probably couldn’t afford a house in this neighborhood. Or rent, for that matter–apartments around here are going for 50-75% more than we pay on our mortgage. It’s like all of a sudden everyone around just forgot what we just went through and the mania took over again. We’re so glad we’re not out looking right now. We’re also glad we don’t have people living above us any more.

  9. Mr.-Vix-It says:

    Let’s get something straight. When you buy a home, you do not own it. Your landlord has merely changed from an individual or housing company to a bank. That is why so many people that bought homes ended up losing them because they never owned them. Also, it is dubious at best that most people put 20% down. Maybe true for homes above $1 million but for most of the country, it is unlikely they could scrape together 20% let alone 10% for a home. No, housing will become strong again not because people save more but because banks will inevitably loosen their lending standards down the road as the government and Fed did nothing to discourage reckless lending down the road. For the time being, banks are being relatively strict but that too will pass as the government needs the populace to become debt slaves with your 5:1 leverage or else it is very hard for a government to control people who are not financially enslaved. When you have financial freedom, you don’t have to listen to anybody and can do what you want. That kind of leisure is not good for any government. The truth is many people who buy homes should not and unfortunately they do not see that they have been tricked into believing that they are entitled to the American Dream when they are in no way financially capable to attain the dream. Bottom line, the American Dream is not for everyone and people shouldn’t be tricked into thinking that it is for everyone.

    • ch says:

      Mr. Vix it –

      Amen. And don’t forget that in most states in the country, EVEN if you pay off the mortgage to the bank, you still owe annual property taxes.

      Locally here, that’s 2% a year…FOREVER. So even if you own your house “free & clear”, you are really still renting it from the government.

  10. Willy2 says:

    - A house is a consumption item, not a investment. Although A LOT OF people think that way.
    - I don’t hate Home Ownership !!! Houses simply have to become much cheaper for me to even start considering becoming a home owner (again).

  11. BottomMiddleClass says:

    I’ll throw out 3 more reasons why people don’t want to buy a new home.

    1.) Job insecurity – why nail yourself to a mortgage if you’re not sure you’ll be able to find a job in the area in five or ten years?

    2.) A different kind of fear – possible declining home prices aside, when your apartment floods or weird black mold starts growing in the air ducts, you can move. When it happens to your house you can be out thousands or tens of thousands of dollars. In the worst case you could have a mortgage on a condemned property if insurance doesn’t cover the disaster. (think of all the media stories of flood victims who STILL don’t have their home back) For exampe: https://www.readthehook.com/96658/cover-mold-house-family-devastated-spore-war

    3.) Bad Neighbors – a few years ago the house next to us went up for rent and a bunch of unsavory types moved into an otherwise nice neighborhood. These guys would literally hang out on their front porch in their boxers drinking beer and throwing the bottles into the front yard and street while blasting loud music (loud music that visibly vibrated windows in MY house) and occasionally fighting and even firing a gun one night. When the landlord finally had them evicted a few months later the inside was nearly destroyed. During those few months when I was trapped next to them calling the cops every other night, I was telling everyone I know “do NOT buy a house… EVER.” And I want to stress this was a nice, quiet neighborhood before these creeps moved in and thankfully quiet again after they were forced out.

    • Robert M says:

      3 sounds like you preivewed the new Seth Rogan movie. The reality is you are too correct. Even on the Mainline of Philadelphia the ability to rent a home meant that the characters were not adults whom needed a place to live but to crash while going to college.

      As to the cohort in age above 30 homes are not a valuable good because the work market no longer provides long term stability. The Collegeville area of PA was once home to multiple drug companies; Schering Plough and PFE come to mind. Further south Astra Zeneca lives below the Mason Dixon line. The former was hit badly in the consolidation and now if Astra Zeneca is bought up the housing market there will collapse as they are the biggest providers of income in the area. No one will be able to buy these houses as the income will be gone. Philadelphia provides an opportunity only if you buy a newly constructed house so as to receive the ten yr tax abatement. the runover only occurs in that market when the children reach school age and the tax savings is lost in the childcare/education dilemma.

    • bear_in_mind says:

      @BottomMiddleClass: You nailed it! Uncertainties in employment, income, housing values, tax and monetary policies, healthcare, credit, debt, retirement — they all factor into purchasing a home in a way that were secondary considerations a decade ago. Plus, two stock market crashes and a national housing market reversal create a middle class facing a very, very different financial concerns.

      I know Barry is fond of citing “recency bias” as a cognitive error, but I have to ask, is it a “bias” if the conditions are still present in one’s own existence? You see, the conditions might not be present for Barry, Josh Brown, denizens of Wall Street and others of one-percent privilege, so of course, for them it’s full-steam ahead. They don’t have to think twice about buying real estate with interest rates at generational lows.

      But for an awful lot of people who have unprecedented levels of household debt, either due to underwater mortgages, extended unemployment, higher education loans, or uninsured medical expenses, they’re truly “pucked” with a capital F.

      Depending on their age, household composition and employment fortunes, some will eventually emerge to become new homeowners. Many more, however, likely will not. Time will tell.

      Finally, the issue with bad neighbors is hard to overstate. With more single family real estate being purchased as ‘investments’ to generate rental income and long-term capital appreciation, the issue of n’er do well neighbors will become a more prominent issue.

      I once owned in a nice upscale suburban neighborhood with a neighbor on one side who was racist toward anyone with more than a farmer’s tan, while the neighbor on the other side had a huge, dying tree that dropped massive branches (think 24-30″ diameter) into the backyard and partially destroyed the adjoining fence. They refused to pay a nickel toward removing the branches or repairing the fence.

      As much as I enjoy gardening and home improvement projects, I’m quite satisfied for now salting-away money that would have otherwise been consumed by mortgage payments, homeowner’s insurance, property taxes, etc.

  12. Livermore Shimervore says:

    Thank Goodness.
    Most Americans no longer have any business buying real estate. Yes I said it!
    1-Incomes are not rising at a level that can allow for both retirement saving and cost of home ownership expense. Not even close.
    2-The way mortgages are financed today by the banks blows up house prices. Middle-income buyers are approved for a loan and quickly discover that in markets with rising incomes, that loan doesn’t get you much. Response: lever to the hilt. Once the meat of the curve buy this way, fair value is toast.
    Worse, when prices retrace they fall hard because it’s based on speculation and not income growth.
    3-The way mortgages are financed today creates fertile ground for certain boom to bust cycles leaving home owners as captive pawns to the lend-to-securitize casino. Hot potato mortgaging…
    4-All of life’s other rapidly escalating must-do expenses leave middle-income home owners with a frequent choice: save, send only the minimum mortgage payment (and related rising costs) or consume more. Consequence: U.S. savings rate goes from double digits to single digits at exactly the wrong point in our nation’s fiscal trajectory.
    5-Middle-income buyers today must be more flexible today in switching jobs if they intend to advance their careers (and income) so that they can stay ahead of all the above costs. But they’re less mobile being tied down to the house. Meanwhile the renters take that higher paying job and if they’re smart they avoid high cost of ownership RE with their new found wealth and save/invest it instead.
    6- Local taxing authorities have picked up on where they can go to pick their resident’s pockets for more revenue. State passes a cap on property tax increases? No problem we’ll order new assessments of your home’s value. Zip codes with the highest incomes will see unrelenting property tax increases since the middle income zip codes are tapped out.

    Now there are exceptions, states where ownership costs are low and populations are rising. But these are not areas where incomes are rising, more like ‘high cost of living’ refugee states. If you were smart you picked up foreclosures or forced sales in those refugee states as income properties. But many of these bargains are gone. We’ll have to wait for the next RE bust. And it’s certainly coming because Americans are still in love with the pipe dream that home ownership provides not only housing but financial security as well. More like financial liability.

  13. LeftCoastIndependent says:

    The 3 evils of personal finance are taxes, rent and interest. They are hard earned money that you will never see again. Buy a house and turn it into a rental down the road when you buy your next one. Do that over and over and before you know it, 30 years have gone by, depreciation will zero out your taxes, rent will be coming in, not going out, live in them for a few years before you sell them and the gain up to 250k will be tax free, and if the home is free and clear, carry the paper and earn interest instead of paying it forever. One drawback, you better enjoy fixing toilets and god knows what else.

  14. Livermore Shimervore says:

    P.S.
    Learn fromt he Swiss. Highly educated. They avoid home ownership more than any other advanced economy. And save about 8x’s as much Americans. And this is the trend among wealthier nations, more wealth means more asset class alternatives in investing, whereas for the poorer nations, owning their modest dwelling is all she wrote. Americans would be wise to follow one group and not the other.

    • lucas says:

      I heard that Swiss landlords actually offer nice houses to live in, as opposed to most of the garbage rentals in my town, 95% of which of one or more of the following problems: inadequate light, no parking, no laundry facilities. And that is before taking the condition of the rental into account.

  15. Al_Czervik says:

    @ Mr.-Vix-It

    Even if you “own” your home without a mortgage, it isn’t exactly free and clear. You must pay property taxes. In my home state, these are anchored to the purchase price with modest annual increases. Additionally, if you own a condo, you are required to pay the monthly assessments. Old people have traditionally economized by letting their homes fall into disrepair. Living in a condo doesn’t provide this option.

    I see homeownership and renting as just two different ways to finance a place to live. Each has advantages and drawbacks. The old saying that renters are left with nothing but a “pile of useless rent receipts” was made-up by someone with a product to sell and peddled to people uneducated about finance.

  16. Petey Wheatstraw says:

    I believe that much of the attraction to “owning” a dwelling is the psychological/emotional perception of having a home as opposed to having a place to stay. We likes us some personal/familial territory, and we scratch what itches. Of course, the unbiased reality does not jibe with the psychologically massaged perception. Cognitive dissonance is human nature.

  17. yuan says:

    Risk-reward. Owning a home seems like a lot of work and financial risk for very little additional pleasure.

  18. speedius says:

    I’m not sure if you’ve made the financial case for home ownership, but you’ve made a terrific case for being rich. Buy a house with cash, make sure it is expensive enough to serve as a socioeconomic moat, and live in sweet indifference, while your real investments net you a nice return.

  19. ashpelham2 says:

    I am currently running the numbers of this predicament myself. We sold a house in Charlotte in 2003 for a modest gain, after having only lived there for 2 years. Moved to Birmingham, AL. Property prices continued to climb through 2007, when the rug got pulled out. Bought our home in Birmingham in 2004, and still sit in it. Very little equity, maybe 25,000 if I’m lucky. This is a starter/empty nester home. I’m in my 30′s.

    So, I’ve paid on a mortgage, and raised children in this place. It needs probably 15,000 in improvements, namely, a new HVAC system. So, the question is, do we plan to stay? Job market in my field is pitiful here in the over-banked Birmingham area, with too many people in my line of work desperate for a steady gig. I’m gainfully employed.

    So, I’m trying to convince the wife, who isn’t on the mortgage in any capacity other than as my spouse, that we should sell, clear up the books, and start fresh in a place with some growth. Makes some sense. Fresh start, rent a while, re-establish in a new place outside of the deep, low-growth south.

    The rub is having a child about to start high school. Uncomfortable conversation or what?

    HELP…….

    • Livermore Shimervore says:

      My friend is in a very similar position. The proverbial “honey we need to talk”. My suggeston, clear up the books as you say with the both of you sitting in front of a financial planner. Let your spouse hear the consultants own words with *hard numbers* on: a) how much you need to put away each year to hit your goal of retiring on time or having income securtiy (the new American dream); b) how much owning the liability is pulling you away from that annual contribution goal (with things like $15K in repairs and c) charts!! on how much more you’d have if you dumped said liability with a bottom line estimate of the value of cash/stock/bonds you’d be sitting on.

  20. willid3 says:

    well some might get into buying a house (guess its easier to convince people to do that than to trust banks after the great depression). but many wont be able to for a long time, since most of the under 30 crowd have pretty heft education loans (for those who went to college any way, and those who didn? probably can’t afford I home even if they wanted to buy one. though just wait the banks still remember how to do those loans). and those over 30? probably are not into it, as they have just gone through a housing bust, and probably a job loss (es). and are still trying to recover from those. and some are too gun shy to think about a house as they saw how that turned out for those in homes, who got run over by the banksters.

  21. rob in tennessee says:

    I don’t think it’s a love/hate thing, Barry. There are a lot dynamics that are shifting rapidly. Baby Boomers want less house, Gen Y doesn’t want a house, wants an apartment or a condo. Gen X is stuck in a house underwater or barely above water. So there are no major demographic drivers. Yet.

    Homes are built to support a community, a way of life. It just seems no one wants that way of life anymore. (You didn’t want your dad’s Olds, now you don’t want his cape cod.) I own way too much home because I want my daughter to be in a great public school. I am not a fan of private schooling, Per Se, and don’t have a great deal of charter schools in the state.

    So, what I do have is a nice home in a decent neighborhood with a great school district. And this is my life for the next 11 years. What will it be like in 11 years? Another rental home or the sale of a home to buy a retirement home, depending on the market conditions. Either way is fine as it gives me either capital or income.

    Rents in the area go for about $3500/month, which is more than I am slated to get from Social Security. And I got to live there, take a tax deduction for a while and have a lot more space/land than a city condo for about the same or higher price, where condo fees and taxes go up annually. Not saying city dwellers are wrong, just not a great fit for my life. If I were single, self absorbed with no kids and no desire to start a family, it would be perfect.

    It’s just a changing of the guard. We will adjust the building patterns over the next 20 years and see what happens. Maybe suburbia becomes a ghost town. Maybe condo’s crash when everyone gets the itch for space. That’s happened more than once. I don’t see suburbanites itching to move downtown. Except to pick up cheap rental properties if it all goes bust in the future.

  22. CSF says:

    Over the long run I spend about double my mortgage on my home. Taxes, required maintenance, and “home improvements,” most of which add pennies on the dollar to my home’s value, effectively double my mortgage. Re-shingle a roof, replace a few windows, repave the driveway, or simply redecorate and the house bucks ($1000) really fly. With local rents at about 1/2 of 1% of home values, it’s hard to justify ownership on the numbers.

    Ownership is for those with savings and life / career stability. According to the Census Bureau, the average 18-year old American will move 9.1 times in his/her working life. If they buy in their 20s and 30s they will forfeit closing costs and real estate commissions, and worst case they will sacrifice career mobility because they lack the equity to sell their home and start fresh somewhere else. After age 45 the average American moves only 2.1 times.

    • Ralph says:

      You are comparing monthly rents with TCO, not monthly payments. Apples and Oranges

      • CSF says:

        Exactly. It is misleading to compare monthly rent with monthly payments, because the TCO is far higher than the mortgage payment.

    • Livermore Shimervore says:

      @CSF. I believe ownership is for the wealthy. Having savings and career stability as you mention is not enough as things can change in an instant (see 2009). Once you’ve depleted your emergency funds you now have a boat anchor to unload at the very momment when buyers are not interested. The consequence of this can wipe you out financially taking years to recover. And if you think you can punt that underwater liability and escape scott free, think again as the bank will get their pound of flesh out of you one way or another. The inherent nature of mortgage finance makes it highly probable that we will have a repeat of 2009 with very good arguments that it can be worse the next time around. The backdrop for all of this are that incomes are stagnant, and incomes will always remain as the only sustainable driver pushing home values north. It seems that in 2014 the reasons to avoid homeownership vastly outnumber the reasons to take on the risk. This before we even get into the long settled debate that stocks outperform real estate.

  23. bruder says:

    For many young people with taxable income buying a home makes sense for a number of reasons. First is that they can leverage in a tax advantaged manner. If you are a saver and investor then at some point your bond holdings will need to be compared to your mortgage and borrowing costs. Leverage makes less sense in this case. When you’re young you aren’t likely to have significant bond holdings and leveraging via a mortgage makes more sense. The second point is that if they didn’t have a mortgage to pay off many people wouldn’t save at all. This is especially true for people with middle and lower incomes. If they didn’t pay mortgage and thereby build equity it’s unlikely that they would have the equivalent savings.

  24. cowboyinthejungle says:

    Based on the replies above, I decided I must be built completely differently from most of TBP demographic. I love our home, for all the nonfinancial reasons mentioned in the article. I couldn’t care less whether it is a poor monetary investment. So are your kids, but I don’t hear a big argument over whether it is better to have children or be a Big Brother/Big Sister.

    The only financial consideration we had was “can we make it work in our budget?” Now, I am fortunate that the pittance we earn is exceptionally stable…beyond that, I cannot think of a better way to spend money. The environment for the children, local shops & restaurants, community involvement…all of it. Are there apartments in town that we could stuff ourselves into in order to save more cash? Probably. But whereas people here seem to discount/dismiss the pleasure derived from their home, that is 90+% of the reason we bought our place. Just a young Xer in the minority, I guess…

  25. DeDude says:

    In a comparable house I don’t think you pay less by renting. So if you know you are going to stay where you are, then it is not making much sense to rent rather than own. Heck if you like renting for all the “conveniences” you could purchase a property then have a rental agency rent it out to you. They take care of all the problems a landlord has too fix – yet it is you that harvest the landlord profits. There may be a few good places where rental markets allow you to rent cheaper than the landlords cost – but that is the exception not the rule.

  26. trafficengineer says:

    What I don’t get about US housing is – why should you almost always have to take out a loan to buy a house? Why can’t they build more houses which you can buy with 5 years or 10 years worth of savings? Condos fit the price range, but the HOA monthly rates are terrible. Also, the homes you get for 5 or 10 years worth of savings are usually in bad neighborhoods or too old and troublesome.
    I guess it’s a cultural thing, because the size of your home is a status symbol. So, you would take the maximum amount of risk your bank allows to look good among your peers. This culture has to change broadly for housing to stabilize.

  27. bear_in_mind says:

    Here’s another angle on the homeowner analysis to toss into the mix…

    Per the CFPB, Older Americans have seen the median value of their mortgage debt increase from $43.4K to $79K (45% by my calculus) in the decade from 2001-’11.

    I suspect a lot of that mortgage debt shift reflects the TBTF banks using media whores like former Tennessee Senator, Fred Thompson, to entice seniors into using reverse mortgages to “cash-in” on their home’s equity. Problem is, those mortgages are horrible financial products for most households who may have had other options had they done their homework. Instead, they get a $50-75K lump-sum in exchange for surrendering the deed to the property at the time of their death to the bank(s).

    In essence, they loaned $75K @ 8.75% interest in 1980 for the person to ‘buy’ the house (with the bank collecting $137K in interest over the life of the loan). Now 30+ years later, the bank is buying back the deed, but paying no more than 50% of the home’s current value, and frequently leaving the heirs with a hefty bill to cure the debt and keep the home after the occupants’ death.

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    Good afternoon,

    We’ve been tracking the increasing levels of debt among older Americans. Today, older homeowners are carrying more mortgage debt than ever before. For many of the roughly 4.4 million retired homeowners with mortgages, making monthly mortgage payments on a fixed income on top of other monthly expenses is a hardship.

    Check out our snapshot of older consumers and mortgage debt:
    consumerfinance.gov/reports/snapshot-of-older-consumers-and-mortgage-debt

    The snapshot gathers data from the Census Bureau, the Federal Reserve, and the CFPB’s own consumer complaints, among other sources, to show that:

    Today, fewer older homeowners own their homes free and clear. The share of homeowners with a
    mortgage increased from 22 to 30 percent between 2001 and 2011.

    The total median value of the mortgage debt also increased from approximately $43,400 to $79,000.

    To learn more about these and other findings, read our snapshot at:
    consumerfinance.gov/reports/snapshot-of-older-consumers-and-mortgage-debt

    We’re working to empower older Americans to make sound financial decisions and stay on track for a successful retirement.

    Thank you,

    Nora Eisenhower
    Office of Older Americans
    Consumer Financial Protection Bureau

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