Reader Mail: Why Don’t You Want to Buy A House?


I’m pretty sure I read in one of your articles or comments that you didn’t plan on being a homeowner one day. I was wondering about why that might be. My parents try to be pretty practical when it comes to money and I’ve heard them say things about how rent is basically throwing away money and its better to have that money go towards a mortgage. Obviously it makes sense to rent while we’re young, but I was just curious why someone who is really into spending wisely wouldn’t want to own a home. Maybe I’m missing something? — S.S.

A few years ago, my friend Matt declared the following: “I don’t believe in residential property as an investment.”

Yesterday, while Skyping from across the pond, Matt announced that he was saving up to buy his own one-bedroom flat. I laughed and quoted his words back to him, and he smiled and said that he had changed his mind.

Changing our minds is something we do over the course of our lives. We decide we don’t want to be lawyers anymore and launch a food truck business. We say we want children, and then decide not to have them, or vice versa. We don’t want to be homeowners, and then, one day, out of the blue, we come across a house, and we think, “why haven’t I lived in you all my life?”

My short answer to why I don’t want to be a homeowner one day is that it’s simply not something I want right now. Will I change my mind one day? Quite possibly!

Here’s the thing about Matt declaring that he didn’t believe in residential property as an investment: When he made that statement, he had been a homeowner, and when the housing bubble burst, he lost a lot of money on his home. A recent report by online real estate database Zillow shows that about a third of homeowners in the U.S. are underwater on their homes, or owe more on their mortgages than their homes are worth.

Here’s something personal: My parents are part of those homeowners who owe more on their home than their home is worth. Here’s another thing that’s personal: They believe that they will not be able to pay off their home without my help, and if you’ve been following along, you know that they are depending on my financial help when they retire in a few years. In a way, I already have a mortgage, except the house isn’t mine. Ask me again why I don’t plan on being a homeowner.

Conventional wisdom says that renting is just throwing away money, so a mortgage is a way to go. I’m sure Matt and my parents believed in this same conventional wisdom before the market made them do some rethinking. Unfortunately, the American economy does not operate by conventional wisdom—it’s unpredictable, and we are constantly arguing about what direction we need to head in (should it be austerity, or stimulus?).

But life does go on. Despite losing money on his previous home, Matt now wants to buy again. It’s something he wants to do because it makes sense for his life right now. He understands the risks—he’s lived through them. I pull out this card quite often, but only because it’s true: You do what makes sense for you, when it makes sense for you.

A few days ago, I was reading the Home and Garden section of the Times when I came across an article about two young men who rent an apartment in Brooklyn, and how they had bought a home in the Catskills with a view of the mountains for $117,000. Their down payment was $3,000, and their mortgage is $850 a month, with annual property taxes of $3,500.

I thought, I could do that too. I could have a house like that. I could have my name on a deed one day. If only.

 

Photo: Flickr/Mike Babcock

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26 Comments / Post A Comment

RachelG8489 (#1,297)

I could own a home one day, maybe. If I decide I’m okay with moving out into the far-out suburbs of whatever city I’m calling home. If I’m okay with being stuck in that place pretty permanently. And if I’m willing to take on all the costs of fixing anything that breaks myself. That’s the scariest part, to me. If something goes wrong in a place I rent, I get to call the super or landlord, who has to fix it. Our sink was clogged? Call the super, and he comes by at 10pm to fix it. Something goes wrong with the plumbing in my parents house, which they own? That’s a couple hundred dollars, minimum. And at least half a day off work, because the plumber isn’t going to come by at my convenience.

City_Dater (#565)

It is not “throwing money away” to pay a landlord to provide a roof over your head, which the landlord is obligated to repair and maintain for you. Ask people who are still paying for a house that is no longer worth even the original purchase price, which they have to take care of themselves, about “throwing money away.”

No one says it’s “throwing money away” to buy groceries, or toothpaste, or any of the other things we need and pay for every month.

Limaceous (#30)

@City_Dater Exactly! And no one ever says paying mortgage interest is “throwing money away” either.

The house you live in is a consumption good, not an investment. That means you can still decide it’s a better idea to buy versus rent, but what you’re buying is a place to live. And that house starts depreciating the moment you move in (roofs leak, kitchens need updating, etc.) and you have to pay for all the repairs.

Now, a house, which is a depreciating asset, generally sits on top of land — which can appreciate or depreciate with startling volatility. But most of the value is in the land. (Location, location, location and all that…) The two are of course inextricably linked (houses generally aren’t moved, though it is possible!) which is why people often conflate the two.

navigateher (#555)

@Limaceous “And no one ever says paying mortgage interest is “throwing money away” either.”

True! I know people that have 800€ a month mortgage payments (I know because I was one of these people not too long ago) of which 600€ is interest and 200€ goes towards the actual loan. And everyone keeps saying, “but it feels so great knowing that you pay that money essentially to yourself, not some greedy landlord!!!!”. Because that would be so much worse than paying to a greedy bank, which is what you’re actually doing now.

I do think it’s bad to see housing as an investment. I’m starting to feel out buying a home for myself, and I make an effort to correct my friends when they refer to what I’m doing as investing. I don’t expect to reap any kind of profit from real estate at all, it’s just that I’ve lived in my city for 5 years. If I had a 15 year mortgage it would be 1/3rd paid off by now assuming I bought when I moved here.

myrna.minkoff (#272)

I hate when people call renting “throwing away money.” You’re paying a) for a roof over your head, and b) sweet freedom to leave whenever you damn well fell like it. That’s priceless.

lalaland (#437)

@myrna.minkoff Yes! I’ve moved every year since I went to college. Can’t imagine buying a house (even if I could afford it)!

aetataureate (#1,310)

@myrna.minkoff Man and seriously every time I don’t have to pay for a plumber/exterminator/electrician/painter/etc. etc. etc. it’s the best day.

MuffyStJohn (#280)

@myrna.minkoff Sing it.

My primary reason for never wanting to buy a home? I like being able to walk away. Same reason I don’t want kids or a husband. Commitment is so 20th century.

I really think that the “American Dream” of homeownership is simply becoming irrelevant for a large segment of society. When my grandparents bought their house, they did it believing they would be there for the rest of their lives. Although they moved away some 30 years later, it was because my grandfather had “retired” from GE and was asked to volunteer full time at Mystic Seaport. The house they moved to there was in fact the one they stayed in until they passed (30 years later.) That’s two houses, over approximately 60 years.

Now, however, I see friends and coworkers who are horribly underemployed (or simply unhappy with the increasingly awful, racist culture our politicians are whipping up), but who can’t leave the area, because they too are underwater on their homes. The days of being able to get a job and, barring extraordinary circumstances, knowing that that job is yours until the day they give you your gold watch, are gone.

I personally can’t even imagine tying myself down with a house, knowing how unrealistic it is that I’ll both find a job that pays a living wage, and be able to keep it. I’m more than happy to give a rent check to a landlord who will be responsible for repairs and upkeep, and the ability to pick up and go if I need to.

@TheCheesemanCometh Wow. Sorry for the verbal spew; I guess I feel fairly strongly about this.

franklinmonster (#1,541)

Home mortgage interest deductions. Didn’t see anyone mention them, so thought I’d bring it up. In the US, all of your interest payments on one home mortgage are deductible, as long as you have income to take the deductions against. In effect, the government pays 25% (or whatever your highest marginal tax rate is) of your interest payments. This is a huge subsidy for home owners, $304 billion nationally in 2010, most of that going to the wealthiest tax payers. There is no equivalent subsidy for renters.

These deductions are the biggest reason that home ownership has such a big financial advantage over renting. And while commentators have made good points about upside down mortgages and self-repair responsibility, home ownership is generally a superior financial option because of interest deductions. Whether this favoritism is smart public policy (NO) is another question.

@franklinmonster If it makes sense to itemize deductions, that is. It only made sense for me to do so the first year I owned my home and in a year when I had enormous medical expenses. For those of us who didn’t take out really big mortgages, taking the standard deduction is often a better deal.

City_Dater (#565)

@franklinmonster

Everyone I know who has looked into ownership (in New York City) has found that the monthly maintainence fee on any apartment they can afford is HUGE. Sometimes double or triple their potential mortgage payments. So even if they were able to get the tax break, the cost of ownership is just too insanely high overall.

ghechr (#596)

A primary benefit of home ownership that I see is that you have someplace to live that is not subject to sudden fluctuations (i.e. rent increases) when you are on a fixed income (i.e. retired). That, of course, assumes that by the time you retire your home is paid off or nearly paid off.

Fig. 1 (#632)

@ghechr Mortgage rates/interest rates can fluctuate. Granted, not as often as rent, but you’re not invulnerable.

mishaps (#65)

@Fig. 1 Yes, but (a) if you were smart/lucky enough to get a fixed rate mortgage, the rate will not fluctuate. You may refinance at a better rate, but it will not go up. Also (b) in @ghechr’s point, the idea is that you’ve already paid off the mortgage by the time you retire, so the only thing you have to worry about fluctuating is taxes, upkeep, and/or maintenance.

I tell myself that inflation will be my friend as a homeowner. Of course, I bought right at the start of an insanely low-inflation patch. Sigh.

Fig. 1 (#632)

Man, I have this conversation with my friends/family every three months, when I start to panic and wonder if waiting until the bubble pops is the wise decision. (Canadian, avg house price is 4.3x median income in my city.) What if I’m wrong? What if there is no bubble? What if this is the New Norm?

But, I don’t want to be house-poor, which is what we would be in this market. I don’t trust the shitty condo conversions here or the insta-townhouses being thrown up overnight. Also, I’d rather have 25% saved up (minimum) for down payment to avoid mortgage insurance fees. Hell, the more we have saved up, the better. Cash is king in negotiations.

But part of me insists there is a bubble. Who are all these retiring boomers going to sell their houses to?

Megano! (#124)

@Fig. 1 Toronto or Vancouver? I’m in Toronto, couldn’t afford a house here, don’t won’t to pay out the nose for a tiny, probably poorly constructed condo. Also I don’t even have a steady job or a career even, so there’s that.

@Megano! but you could live RIGHT NEXT TO THE HIGHWAY!

the thought of moving out into the real world of Toronto stresses me outtttttttt. why can’t things just be affordable?!

cryptolect (#1,135)

Maybe I think too much about catastrophic climate change, but I live in a low-lying coastal area and I’m worried I would become—literally—an underwater homeowner. I don’t ever want to leave my city, but I bought a place, it would have to be in the hilly neighborhood, which is unfortunately kind of boring.

Also, can someone in a condo explain to me how maintenance fees aren’t rent?

@cryptolect this would stress me out as a homeowner too, living in an area that’s frequently hit by hurricanes/etc.

ThatJenn (#916)

@cryptolect Maintenance fees take the place of what you would be spending on maintenance so the overall condo infrastructure gets maintained. It’s probably more apt to think of it as being like a very local version of property taxes than like rent, as you are paying directly for services the wider community provides that benefit you and save you money. Rent lumps it all together (the mortgage, the owner’s insurance, the owner’s property taxes, and maintenance) and isn’t nearly as specific.

I know you weren’t actually not understanding what maintenance fees are, so I hope this doesn’t read as patronizing or anything (conveying tone through text is hard!), but I do still think the comparison to property taxes is a much closer one. It’s also kind of like having a one-stop lawn service, roof service, and service for every part of your home that isn’t within your individual walls, and I will tell you, as a single family home owner, that those parts can be mighty expensive and it’s nice to have them taken care of separately (assuming your condo association doesn’t just blow your cash without keeping up the facilities, heh).

The trick is to (a) only buy a house where you want to live, rather than one you can afford but don’t want to live in; (b) avoid buying in enormously inflated markets (and yes, it’s possible to tell when an area is overpriced); and (c) buy a house with payments/ utilities that are equal to or cheaper than renting.

This means it doesn’t make sense for most people to buy if they don’t like to settle down or if they want to live in a city with a crazy housing market. (Or, for that matter, if they hate thinking about home repairs, have unstable incomes, or don’t care about having a space they can modify as they’d like.) But buying was an incredible deal for my family, and now that we’ve paid off the mortgage early the financial peace of mind we have is amazing.

la_di_da (#1,425)

As has been mentioned before, the decision to own a home requires calculating so many different variables that it’s impossible to give any blanket statement for our generation for or against. In smaller markets it’s totally possible to find a really good deal, I’m sure. The new economy requires a very mobile workforce, but at the same time everything is increasingly digital, rendering location limitations or expectations kind of meaningless. You can work out of coffee shop or a garage in some industries. Not all, I know, but some. Then it might make sense to build your nest, if that’s what you want. In New York, between maintenance fees and property taxes, not to mention skyrocketing prices–it’s almost never worth it, unless you’re buying a building you can rent out and know you’re there forever, or at least can run it from wherever you are. That’s a business not a home.

I will say this though. Once this housing bubble hits bottom (and I’m in no position to tell you when that will be) then I anticipate houses going back to what they always were: an investment that can add greatly to quality of life and adds greatly to equity but not necessarily as a way to make money. I read somewhere (can’t find the article now) that before the housing bubble in the end of the last century, houses really didn’t appreciate in value(beyond inflation and such, etc.), but never lost money either. Safe as houses and such.

I would love to own my own place–the idea of always having to ask someone else whether or not i can put up a shelf in my own bedroom or rely on someone else to replace an old stove is just really really annoying. I don’t know if will ever make any economic sense, but I’m so tired of dealing with terrible landlords.

jellyweebster (#7,498)

According to my experience the best way to save money is to guess the right moment of purchase. The same thing is about housing. Of course you need to have full information about the product you want to buy, prices and economic situation in the country and in the world. This lending cash store which suggests good interest rates also helps me. When the interest is low it is a good time to make beneficial purchase.

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