The two-year housing decline is worsening

[Dan J 277]

Yes, but in our current market, the average ownership of a home is 7 years. If you never plan to sell it, thats a different story. Because of the changing career environment, assuming that you will buy a house and never move is short sighted. While some people stay in the same city for years and never move out, many people move to different cities, or get relocated by their job. If you only owned a house for a short period of time, you wont have enough equity to come out of the deal with money in your pocket. In some case, you may come out of the deal owing the bank money.

you too have some valid points.

the point i am trying to get acros though is that for most folks, regardless of how long they stay in the house, should not look at purchasing a house as an investment.

they should purchase it because it will make them happier because they own a home. The mtg payments are the cost of such happiness.

Daniel

:energetic:

You can make any place you want a "home". It doesn't have to be a house, an apartment can do just fine. It all depends on the people living in it If you really want to "own" a house regardless of it being a good financial choice for your situation, well then thats up to you.

[AnaAndDaniel 0]

Yes, but in our current market, the average ownership of a home is 7 years. If you never plan to sell it, thats a different story. Because of the changing career environment, assuming that you will buy a house and never move is short sighted. While some people stay in the same city for years and never move out, many people move to different cities, or get relocated by their job. If you only owned a house for a short period of time, you wont have enough equity to come out of the deal with money in your pocket. In some case, you may come out of the deal owing the bank money.

you too have some valid points.

the point i am trying to get acros though is that for most folks, regardless of how long they stay in the house, should not look at purchasing a house as an investment.

they should purchase it because it will make them happier because they own a home. The mtg payments are the cost of such happiness.

Daniel

:energetic:

You can make any place you want a "home". It doesn't have to be a house, an apartment can do just fine. It all depends on the people living in it If you really want to "own" a house regardless of it being a good financial choice for your situation, well then thats up to you.

i agree. totally. each person has their own definitiion of happiness.

Daniel

:eneretic:

[GaryC 7]

Yes, but in our current market, the average ownership of a home is 7 years. If you never plan to sell it, thats a different story. Because of the changing career environment, assuming that you will buy a house and never move is short sighted. While some people stay in the same city for years and never move out, many people move to different cities, or get relocated by their job. If you only owned a house for a short period of time, you wont have enough equity to come out of the deal with money in your pocket. In some case, you may come out of the deal owing the bank money.

you too have some valid points.

the point i am trying to get acros though is that for most folks, regardless of how long they stay in the house, should not look at purchasing a house as an investment.

they should purchase it because it will make them happier because they own a home. The mtg payments are the cost of such happiness.

Daniel

:energetic:

You can make any place you want a "home". It doesn't have to be a house, an apartment can do just fine. It all depends on the people living in it If you really want to "own" a house regardless of it being a good financial choice for your situation, well then thats up to you.

I think we have an "apples and oranges" thing going on here. I am not wanting to buy a home for an investment per say but as a way of avoiding throwing 13 years worth of rent down a rat hole. Even if I only get back enough to buy our plane tickets to PI 13 years from now I would still see myself as ahead. Plus as long as I don't re-finance I will know what my payment will be each month. When renting the landlord could raise it every year if he wanted. For me it's a hedge against the unknown and a way to recoup some of the money I give to the landlord each month. Plus we would have the advantage of being able to do what we want to with the house. If I decided I didn't like a wall I could rip it out if I wanted to. Renters do not have that luxury.

[mawilson 2,133]

You can make any place you want a "home". It doesn't have to be a house, an apartment can do just fine. It all depends on the people living in it If you really want to "own" a house regardless of it being a good financial choice for your situation, well then thats up to you.

GaryC will come out a winner no matter what. If his mortgage payments

are the same as his rent, he simply cannot lose. The choice is "flush the

money down the toilet" vs "pay off his mortgage."

[w¡n9Nµ7 §£@¥€r 123]

GaryC will come out a winner no matter what. If his mortgage payments are the same as his rent, he simply cannot lose.

Unless he buys in location where prices drop. Historically, the midwest has been very prone to this.

[mawilson 2,133]

GaryC will come out a winner no matter what. If his mortgage payments are the same as his rent, he simply cannot lose.

Unless he buys in location where prices drop. Historically, the midwest has been very prone to this.

So what if they drop? He's not going to sell it now, and there is NO WAY IN HELL

his house will cost less 13 years from now.

[Fandango 1,439]

For the sake of argument, let's say Gary pays 80k for his house, and pays it off in 13 years. And at that time the house is worth 40.

Less expenses, he still walks away better than a renter.

[GaryC 7]

Gariep will come out a winner no matter what. If his mortgage payments are the same as his rent, he simply cannot lose.

Unless he buys in location where prices drop. Historically, the Midwest has been very prone to this.

Maybe, but over the span of 13 years I really doubt if the final balance will be a negative one. And as was pointed out, unless the value drops below what I owe when I sell 13 years from now I will still come out on top. And if it does I have a feeling that property values will be the least of my worries.

[w¡n9Nµ7 §£@¥€r 123]

GaryC will come out a winner no matter what. If his mortgage payments are the same as his rent, he simply cannot lose.

Unless he buys in location where prices drop. Historically, the midwest has been very prone to this.

So what if they drop? He's not going to sell it now, and there is NO WAY IN HELL

his house will cost less 13 years from now.

I agree.

But life happens. Sometimes you have to sell early (for whatever reason).

Interestingly enough, the reasons that drive people to selling before they had planned... happen a lot more in the midwest than anywhere else. It's just generally speaking the most depressed part of the nation.

[one...two...tree 2,762]

Sorry Lisa, you're wrong...

A Real-World Example

For the purpose of comparing renting to owning in this article, I’ll be using real-world data gathered from my area (northeast of Seattle). Although most first-time buyers tend to move from renting an apartment to buying a larger, stand-alone house, as much as I can I will compare apples to apples.

* For rent, I located a 3-bed, 2.5-bath, 1,840 sqft house with an attached 2-car garage, on 0.2 acres. Monthly price: $1,495.

* For purchase I found a 3-bed, 2.5-bath, 1,850 sqft house with an attached 2-car garage, on 0.22 acres. Price: $424,950.

The two homes are located within two miles of each other in similar neighborhoods, and neither is located on a busy road. We’ll assume that our hypothetical homebuyer is a married couple with $85,000 in the bank to make a 20% down payment. To calculate mortgage payments we will use a recent 30-year fixed interest rate of 6.25%.

Let’s look at how the monthly costs break down (approximately) for our hypothetical potential first-time homebuyer:

------------Renting --------- Buying

Rent/Mortgage: $1,495 -------- $2,093

Insurance: $20 ----------$163

Property Tax: - ---------$407

Tax Savings*: - -----($327)

Maintenance: - -------$354

Total: $1,515 ---------$2,690

*: (less standard deduction)

Right off the bat, you see that simply trading straight across from renting to owning results in a 78% more expensive monthly bill. That’s not exactly chump change. With even a slight upgrade from renting to buying (which most first-time buyers are prone to do), you can easily see how the total monthly costs would be more than double.

“If you rent, you’re throwing away your money.”

Common knowledge says that despite today’s large premium, buying a home is a “good investment”. Hey, at least you’re not “throwing away” your money, right? True, the renter in our scenario spends $1,515 every month that they will never see again. I wouldn’t exactly say it has been “thrown away” any more than money spent on any other good or service is “thrown away,” but granted, there is zero financial return on that money.

However, when you take a look at the breakdown of the homebuyer’s monthly expenses, a large amount is money that will never return, either. Insurance, property tax (less tax savings), and maintenance, add up to $517 every month that is being “thrown away.” Even worse is the amount spent on mortgage interest. Consider how much of a mortgage payment is applied toward loan interest throughout the life of a 30-year fixed loan:

Years % toward interest

0-5 ~80%

6-10 ~70%

11-15 ~60%

16-20 ~50%

21-25 ~35%

26-30 ~10%

In the first five years, approximately 80% of the mortgage payment goes toward interest. That’s an additional $1,674, for a total of $2,191 being “thrown away” every single month by the homebuyer for the first five years. Ouch! In fact, not until the homebuyer has been paying down the mortgage for over 20 years will the amount they are “throwing away” be less than the renter.

http://www.getrichslowly.org/blog/2007/07/...of-home-buying/

Edited September 12, 2007 by Mister Fancypants

[mawilson 2,133]

Sorry Lisa, you're wrong...

She's not wrong in GaryC's case.

[GaryC 7]

Sorry Lisa, you're wrong...

A Real-World Example

For the purpose of comparing renting to owning in this article, I’ll be using real-world data gathered from my area (northeast of Seattle). Although most first-time buyers tend to move from renting an apartment to buying a larger, stand-alone house, as much as I can I will compare apples to apples.

* For rent, I located a 3-bed, 2.5-bath, 1,840 sqft house with an attached 2-car garage, on 0.2 acres. Monthly price: $1,495.

* For purchase I found a 3-bed, 2.5-bath, 1,850 sqft house with an attached 2-car garage, on 0.22 acres. Price: $424,950.

The two homes are located within two miles of each other in similar neighborhoods, and neither is located on a busy road. We’ll assume that our hypothetical homebuyer is a married couple with $85,000 in the bank to make a 20% down payment. To calculate mortgage payments we will use a recent 30-year fixed interest rate of 6.25%.

Let’s look at how the monthly costs break down (approximately) for our hypothetical potential first-time homebuyer:

------------Renting --------- Buying

Rent/Mortgage: $1,495 -------- $2,093

Insurance: $20 ----------$163

Property Tax: - ---------$407

Tax Savings*: - -----($327)

Maintenance: - -------$354

Total: $1,515 ---------$2,690

*: (less standard deduction)

Right off the bat, you see that simply trading straight across from renting to owning results in a 78% more expensive monthly bill. That’s not exactly chump change. With even a slight upgrade from renting to buying (which most first-time buyers are prone to do), you can easily see how the total monthly costs would be more than double.

“If you rent, you’re throwing away your money.”

Common knowledge says that despite today’s large premium, buying a home is a “good investment”. Hey, at least you’re not “throwing away” your money, right? True, the renter in our scenario spends $1,515 every month that they will never see again. I wouldn’t exactly say it has been “thrown away” any more than money spent on any other good or service is “thrown away,” but granted, there is zero financial return on that money.

However, when you take a look at the breakdown of the homebuyer’s monthly expenses, a large amount is money that will never return, either. Insurance, property tax (less tax savings), and maintenance, add up to $517 every month that is being “thrown away.” Even worse is the amount spent on mortgage interest. Consider how much of a mortgage payment is applied toward loan interest throughout the life of a 30-year fixed loan:

Years % toward interest

0-5 ~80%

6-10 ~70%

11-15 ~60%

16-20 ~50%

21-25 ~35%

26-30 ~10%

In the first five years, approximately 80% of the mortgage payment goes toward interest. That’s an additional $1,674, for a total of $2,191 being “thrown away” every single month by the homebuyer for the first five years. Ouch! In fact, not until the homebuyer has been paying down the mortgage for over 20 years will the amount they are “throwing away” be less than the renter.

http://www.getrichslowly.org/blog/2007/07/...of-home-buying/

That may hold true for the west or east coast but the numbers don't equate to my situation. I am renting for $725 and the homes I am looking at are in the $80-90K range. Also the rent and the mortgage payments are pretty much equal. So unless you are saying I will loose money in 13 years then I will come out on top.

[Dan J 277]

Pretty much any major city, Steven posted is even true for may places in Minneapolis. But then if you buy outside and commute to the city, you have to consider transportation expenses. Fuel, parking, wear and tear on your car can all add up. While I might save 50k on a house an hour a way from Minneapolis, I would be spending that much, maybe even more, commuting over that time.

Depending on your distance and car, fuel costs alone can add $100-$250 every month. If the place you work, requires you to part at a public ramp, like which is the case if you were to work in downtown Minneapolis, that can cost you $8-10 a day Which over a month can be another $200-$250 dollars. The alternative is park and ride, which would still be $5 every day. Its $2.75 for rush hour express fare in Minneapolis.

[Mags 112]

It would be YOUR house. You could paint it purple if you wanted.

This coming from the guy who painted his house Magenta?

It's adorable, how could he not want Magenta in his home?

[GaryC 7]

Pretty much any major city, Steven posted is even true for may places in Minneapolis. But then if you buy outside and commute to the city, you have to consider transportation expenses. Fuel, parking, wear and tear on your car can all add up. While I might save 50k on a house an hour a way from Minneapolis, I would be spending that much, maybe even more, commuting over that time.

Depending on your distance and car, fuel costs alone can add $100-$250 every month. If the place you work, requires you to part at a public ramp, like which is the case if you were to work in downtown Minneapolis, that can cost you $8-10 a day Which over a month can be another $200-$250 dollars. The alternative is park and ride, which would still be $5 every day. Its $2.75 for rush hour express fare in Minneapolis.

I live 5 miles from work. My gas costs me $70/month.

Peoria (more correctly East Peoria) is rather unique. It's a small town with a heavy industrial base. My wages would be considered good in all but the largest cities but the housing costs are very small town/rural.