apartment therapy changing the world, one room at a time

Ugh. Tell me about it. I'm 33 and living in Chicago and rent a pretty cool apartment - with a big yard at a pretty reasonable price. But yet everyone always asks us why we don't buy a house. The only reason I'd want to buy a house is to avoid the possibility that our landlord is going to up the rent too much or kick us out to turn the place into condos.

“If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.”

...

To me, this means that homeowners can be relied on to pay more property tax, spend more of their stimulus payment at Lowe's and will work our behinds off, adding to measured individual productivity levels, in order to keep that mortgage paid.

There are great advantages, like being able to pay off your house and live mortgage/rent free, but I think the push towards home ownership has a lot to do with the national economy.

In Europe, a larger proportion of people rent, there are tons of options, and renters are not marginalized socially or societally.

I am so glad you mentioned the article by Krugman who I so much respect. He is always on target about everything. In particular this point about renters. I have been a renter all my life until I moved out of NYC. Now I own my home and am very happy with it. In NYC a rented home is as important as an owned one because in a city which places you socially by where you live the way you live and how you adorn your nest tells a lot about your sense of self.

In cities renters may live in a place for years and contribute to the energy by their contribution and creativity to the culture of the community. Renters especially in NY pay high taxes for worth while services and are yet to be acknowledged for their contribution to their community.

I think it's less involved with patriotism, as Krugman says (though private ownership is a huge bedrock of national identity), than with risk-aversion and security.

Home ownership forces people to be fiscally responsible, to make a commitment to invest in their future security. House payments go toward equity/lasting ownership, whereas rent is basically money down the drain. Once the mortgage is paid off (albeit after many many years), your house is yours. Rent never stops, no matter how long you pay it.

Should everyone be a homeowner? No. It's best to wait for the right time both in terms of market values and your own financial standing, otherwise you run the risks that Krugman outlined with such foreboding. There are clearly trade offs - less flexibility in pursuing jobs, less asset liquidity, and having to brave the fickle housing market. In the long-run though, *responsible* home ownership has its rewards.

The Times published an awesome financial model that really shows when and how the economic advantages of home ownership take effect - if they do at all. AT referenced it if I recall correctly.

The reality is that if you are financially responsible and do wise things with your money the "traditional" advantage of having a home as "the" place holder for equity is false.

With that said, nothing can quite replace the joy of ripping down walls, installing a 150 gallon Jacuzzi, buying your first Weber Genesis, owning a dozen power tools and putting shag carpet on the walls of your basement rec room.

I detest Paul Krugman, but even a broken clock is right twice a day.

I've actually had this conversation several times in the last few days -- people look at me like I'm nuts when I say I am perfectly happy renting.

I want to continue living in the New York City area. If I bought, I'd be paying monthly maintenance charges, which are just like rent, on top of my mortgage. And for the privilege of doing that I'd have to put down at least 20 percent and pay all sorts of exhorbitant fees and closing costs. Not worth it to me right now.

It's true, owning protects you against the vagaries of a landlord--you can't be evicted and you are pretty certain what your monthly housing costs will be. But as a renter, you also have the right to walk away when your lease is up. You aren't dependent on the condition of the housing market when you decide it's time to pack up and move on.

So there are plusses and minuses but owning a home is not a panacea for everyone.

JH4285,

I agree with you post so much that I don't even have to express my own opinions. You captured every single one.

Good job!

There are three questions people always feel the need to ask my boyfriend and I.

1. When are you going to get married?
2. How do you live without owning a car?
3. When are you going to stop renting and finally buy?

Enough! Why are these things expected in America? Obviously plenty of people have gotten along fine without these things.

Our Gov't encourages home ownership:
Primary Reason:
1. To receive taxes. Back in the day if people didn't want to pay they didn't. Owning a home and have ability to take that home away encouraged prompt tax payment by our fine fed gov't.

Secondary Reason:
2. A way for local officials to increase revenue without uttering the words tax hike through property value estimations.

3. Consumer based economy- you gotta fill the house with something?

With that said the real culprit is affordable housing and development. I'm actually considering purchasing Storage Containers and having remodified because home prices here in DC are ridiculus and the only communities I can afford also have the highest crime.

I'm with JH4285 and tallguylehigh.

Right now, ownership is priced at a premium over renting when it should be the opposite. I've owned and I've rented. In most of CA, it's far cheaper and far less hassle to rent then own. I'm back to renting and really don't mind it. Renting has enabled to save 1/3 of my gross each month. I can put away the max allowed 401k contribution and put the rest into a money market. I pay less taxes now then when I owned and that money is liquid in case of an emergency. This allowed me to pay cash for my new car last year. Not having to pay 6% on a 72 month car loan is some pretty nice savings.

A leveraged asset is the most illiquid of investments. If you are lucky and live in a single location long enough to pay down your mortgage, you still have taxes, ins, city fees like water and sewer, and maintenance. Those never go away. Any interest tax benefit you may get (beware the AMT), is wiped out by property taxes. If you live in an area with HOAs and special assessments like Mello Roos - you will never come out ahead.

Someone mentioned this above and it's a very important thing to consider before buying - mobility. My first 15 yrs as a working professional, I lived in 7 different cities. If I had to sell even 3 times during those years, having to pay the transaction fees each time would have made RE an awful choice. This is assuming I didn't have to sell at a loss which many people are doing now. And if I get a better job offer in another city? I'm off like a prom dress. Much better to take your savings and invest in CDs or mutual funds.

My husband and I would love to own our own home one day just to be able to do anything we want to it, but right now, with housing market the way it is, we are glad to be renters who can move anywhere and not have to worry about taking a hit selling our home. I don't think either renting or owning is better, it just depends on your personal situation. When my husband and I are done with grad./law school and finally have "real jobs" then we will buy. Until that day comes, we are perfectly happy to call our landlord when the water heater breaks!

This is obviously a case of what came first: the chicken or the egg. I think the government/politicians made this policy (that is advantageous to homeowners) because most Americans own or want to own a home and it would be a great way to get votes. I highly doubt the federal and local community governments conspired to get more money out of you by tricking you to settle down.

AND there is nothing wrong with encouraging homeownership. It is the quintessential American dream to be able to afford a home. IF you have kids, it often makes more financial sense to pay a mortgage than several thousand dollars for rent a month, it provides stability and an investment in the area and the community. The problem is letting people who are not in financial shape get a mortgage or a much too expensive house. This is what lead to the current crisis. Not everyone who wants a house is in a position to properly afford it.

Also, how do you know the people in Asia or Europe who rent don't want to buy? Perhaps the norm is to rent in many countries (especially crowded, expensive ones) however maybe they would love to own a home but can't afford it.

I don't see the point of Krugman's column except that you need to carefully think about things you might do before you actually do them. E.g.:

(1) Balloon mortgages are bad.
[Most of the time that's true. So if you can't afford the loan, you can't afford the house.]

(2) Long commutes are bad.
[So ride the train or buy a condo or smaller house closer to your office. Not everyone can/should own a country estate.]

(3) Bubble markets are bad.
[Yes they are. So are stock market bubbles and rental market bubbles, each of which also happen sometimes. So be careful how & when you spend your money.]

(4) Houses tie you down.
[Yes they do. So do jobs, spouses, spouses' jobs and pets.]

All his reasoning seems to boil down to "think before you buy," which is always good advice but doesn't suggest there's anything wrong with home ownership as a goal. High percentages of home ownership tends to create and preserve wealth and ameliorate class distinctions.

Reducing barriers of entry to home ownership, as the current tax system does, is not the same thing as "biasing" the system against renting.

I think this is forgetting that in many cases, certainly here in los angeles, the land on which the house stands is worth far more than the house. Adding to that, property ownership is one of the most fail proof ways in this country to build wealth. If anything i think we're obsessed with building wealth more than we are with home ownership.

bottom line, involving emotions in economic decisions can be a very dangerous (but tempting in this case) practice.

What makes home ownership attractive, in my opinion, is that landlords ruin people's lives and there isn't much in place to stop them. If you have a good landlord you're lucky.

Most that I've dealt with require big fees to move in, big fees to move out, big fees to break a lease, require you stay for an extra two months after you give your notice, and find stupid reasons to try to keep your deposit, which means that they can literally trap low-income people who can't get enough money together to both get into the house and out of the apartment.

Add to this the fact that they can and will raise your rent and change their terms, decide you can't have a dog / grill / birdfeeder / party / extra car / painted wall / insert-innocuous-item-that-makes-you-happy-here; they fail to repair things, they fail to eliminate bugs and mice, and so on.

Sure, maybe keeping an apartment is in disrepair is illegal for the landlord, but they do it anyway, and again low-income people don't have the time, money or resources to take it to court so they live with it.

I'm in the Midwest, and I'm sure it's better in some areas, but the Midwest is big and contains a lot of renters.

So I hope that everyone will become a homeowner, not because I expect a certain lifestyle for everyone, but because I wish freedom for them.

Krugman always has some interesting economic theories in his opinion pieces. While I theoretically agree that "responsible" home ownership is the way to go, very little of this current crisis has been "responsible."

"Home ownership forces people to be fiscally responsible, to make a commitment to invest in their future security. House payments go toward equity/lasting ownership, whereas rent is basically money down the drain."

Interest-only loans anyone? How about all those who have used their homes as a continuing source of cash, draining equity to purchase their favorite designer wares? Reverse mortgages? None of those indicate lasting ownership/maintaining equity in a home. A big feature of the current crisis was the changing view of a home as a place to live into a big picture of a piggy bank.

Further, people are still buying with 3-5% down, and this behavior continues to be aided and abetted by the government in the form of FHA financing and DAPS.
http://online.wsj.com/article/SB121426681678998589.html?mod=hpp_us_whats_news
http://calculatedrisk.blogspot.com/2008/06/daps-will-not-die.html

I was a long time renter that recently became a home-owner. Between property taxes and interest payments, I "throw away" a similar sum of money each month as when I was renting (and we always assume that Congress will not stop-gap the AMT at the last minute). Further, the "costs" of home ownership (the furnace dying, pipes freezing then bursting) that in the past would have been taken care of for us are now our expense. We do not get the money back. Do I regret my decision? No. But I never would have bought back in 2005-2007 despite my family's encouragement to do so mostly because of what myself and my husband viewed as the (irrational) hysteria to own a home, almost regardless of the price to do so.

A part of me can't believe that the people even believe the quintessential American Dream is to own a home. Change the world, maybe. Own a home? Not really - not for me at least. It was something we did when we had 20% down, 6 months of living expenses still in the bank, and found a place we loved. But given all the press the housing market has gotten, and how frequently questions about your housing plans pervade relationships, yes America is obsessed with the idea of home ownership, and no, that is not changing.

I agree with JH4285. The majority of people I have known, as well as myself, are renters. Due to the rising costs of rent in NYC, many of my friends are purchasing homes. Those who is it not financial feasible or who do not want that responsibility are still renting.

Jacklyn - Do you get this question too? If you don't have children, you're going to regret it later on down the line. And my boyfriend and I aren't even married. That one really annoys me.

There is a good book roughly on this topic called the two-income trap:

amazon linky

It talks about how families have completely leveraged themselves to pay mortagages so that they are dependent on two-incomes to meet basic monthly expenses. This has ultimately resulted in less financial security because back when one-income was the model, when you hit a financial crises you always had a second person who could go out and get a job. It undermines the financial security argument of owning when owning requires you you to commit all of your economic resources.

I bought my first home, a co-op in Manhattan, about 18 years ago. It was the best financial decision I've ever made. I've built up equity and gotten yearly tax deductions.

Most importantly: If I had not bought an apartment when I did, I would not still be able to afford to live in NYC. My mortgage & maintenance are less than half of what I'd have to spend on a rental of the same size.

When renting you are always at the mercy of your landlord, and you can never customize your living space the way you want too.

Of course you have to think before you buy - duh - but that doesn't mean that home owndership is a bad thing. Not by a long shot.

This article (and comments) have cheered me up considerably. I'm about to turn 35 in a few days, and I have been feeling incredibly down about the fact that I'm the only one of all my friends who doesn't own a house.

Although I previously owned a condo with an ex, and I love my current apartment immensely (which I have carte blanche to do what I want with, short of taking down a wall), I still felt like I was missing something or falling short as an adult.

I still want to buy a house someday, but I guess I'm not feeling so much like I'm falling behind now.

One reason that I love my co-op is because I truly have NO intention of leaving Manhattan. So it always made perfect sense to me to own. The thing that will never change is the fact that rents will go up. If you're lucky, your pay raises will out-pace those escalations.

However, if you KNOW you want to always live here, and you get some temporary down-payment-cash infusion that's sufficient to get yourself into a co-op or condo, AND if you can qualify for a 30-year fixed mortgage, then you're kind of golden, because THAT portion of your monthlies will NOT go up. And if you're in a building whose board is populated with the kinds of financial geniuses that mine has, but which I, personally, am not, then THEY will work like dogs to ensure that your monthly maintenance fees don't go up. In my case, it really helps that my building only has studios and 1-BR's.

However, if you live in a very fancy co-op where the small size spaces are a small percentage, then you have filthy rich people who want to renovate the common areas SO often that the maintenance fees become astrnomical, which is fine with them, because they're loaded and can afford it.

So... there are MANY things to think about when you're considering whether to buy or rent.

People who change jobs and change cities probably should do what I did, unless they have the stomach to deal with the possibility of having to sell in a tough market, and/or to deal with sub-tenants, which can be fraught with peril.

Last time I checked, renters don't pay taxes on their rent, do they?

Many people are better off renting, particularly if they may need to move in a few years. The costs to move between rentals are minor compared to selling one house and buying another. There is a 6% loss from real estate commissions, and at least another 3% loss for excise taxes and mortgage origination. That's 9% of the value of the house lost, not counting actual moving expenses.

Real estate is also not a good financial investment outside of cashing in on a now deflating bubble market, or a willingness to become a long term landlord. From the 1930s on, the average return has only been about 3% annually, making a home a store of value against inflation, not an investment (vs. 8% for the stock market). You'll of course pay at least 1.5% just in property taxes and maintenance.

The real issue is that many americans are not financially savvy or even financially literate. They also have a ridiculous sense of entitlement. The housing bubble demonstrates this very clearly.

I think a big issue is buying a house you can actually AFFORD. Not only do you have mortgage payments, but expensive items break and need to be replaced. Roofs, boilers, appliances, floors...

Another factor is the cost of buying in your market vs. renting. House prices are still 3x's the "average" two family salary in Boston where I live, way above the national average, which means that a lot of buyers sign on for extra fees and longer mortgages. Taking even longer to build up equity.

My partner and I hope to own a home someday. When we do, we'll buy something small(ish) and within budget.

I generally I agree with the principal that owning is not better than renting. I am a renter and happy I choose to stay a renter. Most of my friends who bought homes are pressuring me to do the same. They usually start asking me when I’m going to buy right after complaining about how all their money goes into the house, how they would like to take a job in another city but don’t think they will be able to sell, or missed a whole day of work waiting for the plumber. Also a lot of people I know had to make compromises when they bought, they live in not so safe neighborhoods, not close enough to public transport for an easy trip work or walking distance to the grocery store. I weighed the costs vs the benefits and renting is the right chose for me, and it isn’t an irresponsible financial decision.

Not only do I see this as a personal decision but also from the point of view of a city planner. Neighborhoods with high ownership directly result in neighborhoods with more civically engaged residents, better maintained properties, and more stable population. In this respect the outcomes of ownership are positive, and therefore are and should be encouraged through mortgage interest tax breaks (on your income tax, not your property tax) and mortgage assistance.

One major disagreement I have with Krugman is that he sights these tax breaks as part of the cause of sprawl. You can site many misguided policies of the federal government for causing sprawl but not tax breaks. The most blatant is the transportation bill which makes it is easier to get funding for new construction (exurban off ramp or Hwy extension) than for maintenance (city streets). The end result being property in the suburbs development has a hidden federal subsidy in that the cost of the infrastructure to get there is not reflected in the cost of the home.

I also disagree with Krugmen’s entire paragraph that ends with “investors who want to provide rental housing are on their own.” There are numerous funding sources for developers and owner of rental housing, and even more for lower income housing, there are also many way to get assistance for renters.

I have used to many words to say there are benefits to both renting and owning but I would trust an economist to help you make the choice.

i agree with Jim G up there.
i think it all comes down to "think before you buy" and most people aren't thinking it through enough.
people seem to be jumping into a house because they look at the monthly mortgage payment and say "i can do that" and don't look at any other factors and other expenses that come with owning as everyone has pointed out. so then they get into trouble.

it's silly to argue that one is better than the other (renting vs owning). it depends on YOUR situation.

My dad always told me this: when you rent long term, all you have at the end is a pile of rent receipts. When you own, you have made an investment.

I am still young and by no means am able to buy anything but my feelings are when you own you can do anything with it, why spend money to remodel something that you won't reap the benefit of? You have the opportunity to make something into exactly what you want and not have to rely on some management company or live with it with no hope of improvement-like my stupidly planned kitchen.

Granted everyone's situation is different and I think that you should do a lot of research before you buy anything "investment" worthy.

I think we have to consider that what was true for our parents may no longer be true for us. God knows what will happen to housing prices when all the Baby Boomers start moving.

What people have presented as their most convincing arguement to buy over rent is what amywashere's dad said: Ya got nothing to show at the end of the day but receipts.

I suggest that I've had much more than that. Never on my own would I have been able to afford some of the beautiful, historic houses I've been lucky enough to rent. The absolute peace of mind knowing that any leak or creak will be entirely taken care of by someone else is priceless. And at the end of the month, I'm not dropping most of my income on a mortgage payment I won't see any return on for years.

The second most common point against is that we renters can't do anything to our apartments. I might be very lucky, but several of my landlords have let me/us do a lot of changes--taking up carpet, re-tiling, painting, changing lighting fixtures & appliances--almost always covering the costs or deducting from rent.

Even if people are romanced by the "own," we need to acknowledge that as long as we have a mortgage we're actually just *renting* from the bank.

Owning, maintaining, and then selling my house drained me of so much time, money, and energy that I never want to do it again.

If I were a millionaire, I might have a different opinion!

"Home ownership forces people to be fiscally responsible, to make a commitment to invest in their future security. House payments go toward equity/lasting ownership, whereas rent is basically money down the drain. Once the mortgage is paid off (albeit after many many years), your house is yours. Rent never stops, no matter how long you pay it."

So renters are all losers with bad credit, no money in the bank and can expect to die penniless and alone? You make us sound like thieves and crack-addicts...

I live in San Francisco, and renting the same place for 14 years has allowed me to live 18 blocks from my work, forego car ownership and it's expenses, eliminated property taxes and maintenance costs and keep me in shape since I walk and take public transit. Instead I have a 401(k), I take two extended vacations out of the country twice a year, I have a nicely-decorated/furnished home in a safe building, I have great credit and minimal debt.

Do I wish I had a nicer kitchen and bathroom? Sure, and so does my Sister who lives in Suburbia with her husband and 2 kids on a 1/2 acre in a 2500sf colonial that they "Own". They spend at least 90 minutes a day in their cars going to and from work/daycare/grocers, etc, incessantly mow lawns and maintain the house, pay property taxes, can't afford frequent vacations - Yet they bring home nearly twice what I earn!

I have news for you: Even once the mortgage is paid off (after 30-some-odd years, possibly more) Property Taxes, house insurance and home maintenance costs never end - If you do stop paying for one or all of these, you could lose your house one way or another just as I would if I stopped paying rent on my apartment.

IMO, Nobody really owns anything - We're all paying for the privilidge of using a space to live one way or another, and when we're dead it really won't matter whether we wrote our checks to a bank or to a landlord for the right to live in the space we called "Home".

I find it ridiculous when people say renting is "throwing money down the drain". Regardless of your situation (owner or renter), having a roof over your head isn't a wasted expense.

I live in Switzerland, a country where more people rent then own an apartment or house. But still, supposedly most people want to own their homes here, there is just not enough space and the prices are so high.
For me in this time and age there are also a lot of advantages in renting. You don't have to worry about the oven when it brakes, the landlord has to fix it. And if you get a job in another city you can just move and not think, but hey, we have a house here, what do we do? So many people in their 20s, 30s or even older move around so much it wouldn't make sense to buy a place, because they might move somewhere else in 2 years time.
Having to pay a mortgage can also add a lot of stress in your life. What if you lose your job? then you won't be able to pay the bills. And that has always happened, not just now with this new crisis. When you rent you can just move to a maybe smaller but cheaper place (if they exist, that is). To me renting gives you more freedom in a way (even though you can change less about your home).

I agree with a lot of what's been stated here. One thing that puzzles me is the limited-equity homeownership opportunity for lower-income people [in Boston, maybe elsewhere as well]. I can understand the logic of real estate as an investment but realize that the reality is far from that simple. As a renter, I imagine that my owning a home would be a "forever" situation, not something I'd do with an eye towards selling. But, limited-equity home ownership seems designed to enable people to own who wouldn't otherwise be able to, while eliminating or greatly reducing the investment potential of that home ownership. So, as long as we're saying that renters flush money down the drain, how are these two situations different?

I rented an apt. for 5 years and was fortunate to have a very good landlord and very cheap rent. My low monthly rent combined with living a debt free lifestyle, helped immensley in allowing me to save up money for the down payment on my first place.

Ten years later, I have since sold that place and purchased a home. The equity I have made is far greater than the returns on any of my traditional investments and yes, although I pay a good chunk of change in property taxes, I do get to write that and my interest off which in this day and age, being able to write anything off is a miracle in and of itself.

Property taxes paid by homeowners are essential in the funding of schools, state services and programs that are relied upon and used by many. Do I wish I didn't have to pay so much in property taxes? Yes. Is it aggrivating that taxes are mismanaged by the state and its multi-partied representatives. Of course. However, it does feel good to know that I am contributing to the bettermant of my fellow man.

I don't think a lot of people are as obsessed with home ownership as they are with having an investment and something they can borrow on, etc. I don't mean that in a cynical way, it's just that how often even on this website do we read people talking about resale value when it comes to remodeling. People are obsessed with making a place look like something someone down the line might want, rather than looking like a place they can see themselves in long-term.

I'd just like to point out that the federal government policy of encouraging home ownership has nothing to do with taxes. First, it's local governments that collect property taxes, not the feds. Second, the federal government loses out on a huge amount of income tax revenue by allowing home owners to deduct their mortgage interest. In my economics class in high school, we did a project on how to balance the federal budget. We balanced it almost entirely by dropping that deduction, which also happens to be infeasible politically.

Rent is too high here in Socal, especially 2 bedrooms

Buying just wasn't an option for me for a long time, it wasn't until rent prices started getting higher than what I would pay for a mortgage that I started looking to buy. But I don't see renting as wasted money, it fit my lifestyle at the time and I had a solid roof over my head. No regrets.

My main issue during house hunting was the obsession over HUGE mansions. I just wanted a nice small house that wasn't falling down, apparently that is unheard of. I settled for a modest townhouse with a mortgage payment I can afford. And as long as I don't put up a fence I don't have to mow my own lawn. Bonus!