You still hear of people in these markets snagging homes for like 5% down even with the competition. Maybe I misunderstand, but you don't pay any realtor any money until you buy the home. Seems that there isn't any pain being 'in the market' continually getting out offered 99 times out of 100, if it means you get an offer that one time and are going to be renting anyway until then. Plus the whole time you are presumably saving more money and coming up with a stronger down payment.
In my neighborhood now, people rent for considerably more than they would pay per month if they bought here. They want to live here but nothing is for sale. It’s large single family homes. Renters tend to be people who have frequent job transfers and people who are having custom homes built nearby.
Also I’ve never rented anything for less than what I could own something comparable. Maybe you can in some markets. But generally I expect to pay more monthly. It’s a trade off for avoiding everything that comes with home ownership. Down payments, maintenance, and the overall commitment. It’s hard to just pick up and move when you have to go through the process of selling, making contingent offers on another place, multiple closings, all that.
The rent is higher but people will still take it for a lot of reasons. Inability to get approved for a mortgage, not wanting to deal with the sales process if you expect to move around a lot, etc.
I tried to sell my old house and despite being priced low just to get it sold, it sat on the market after we had already moved. We ended up deciding to see if we could rent it but weren’t sure how the process would go. In our area we didn’t see any home rentals listed except for a couple that were excessive (double what a mortgage would cost).
After months of not selling, we listed it for rent at a price I thought nobody would pay and it rented in 1 day, sight unseen. The renters insisted on paying a deposit as soon as possible because they didn’t want to lose the property.
For a first dip into the home rental market, I was shocked at how high the demand was.
People also have a lot of received wisdom of how they were brought up in the burbs and just assume you HAVE TO buy.
There's plenty of markets where prices/rent are upside down and you might as well rent indefinitely.
People forget you are either renting housing or renting money to "own" housing.
If you are disciplined enough to save the difference, renting can be better in some markets.
Mostly its HCOL coastal cities where people are accepting ridiculously low rental yield because they are banking on price appreciation.
If you don't know if you want to be in X location for the next 5.. probably more like 10 years, there's not always a solid reason to buy.
As per a conversation I had with a realtor, they don't buy houses to rent them out, since the wear and tear of the renting lowers the eventual sale price. Since the price for houses has been going up steadily for over a decade now, it's financially advantageous for them to leave the houses empty and wait for a sale.
Somewhat agree, especially with the localized nature of the market, but you do have to account for the fact that a mortgage is essentially paying 90% rent to the bank for the first ~1/4 of its lifetime, and the opportunity cost of tying up your down payment in housing vs other investments.
It’s why I find it odd that first-time homeowners describe themselves as, well, owners - in all likelihood you just have a new landlord - the bank - and the penalty for not making rent is quite a bit worse. Especially if you’re looking at a short time-frame e.g. less than 5 years, if you sell at the exact price you bought, you’re out essentially all of your mortgage payments (pure interest), opportunity cost of down payment appreciation, buyer and seller fees (not insignificant), property taxes and insurance (usually rolled into the mortgage but worth mentioning), and maintenance. You very likely lose to renting.
One aspect that’s relevant is the ratio of rent to mortgage payment for an equivalent property in a given locale - and this varies strongly. Some markets are very favorable to renters and vice versa.
You’re right that it’s all relative, but that’s not necessarily true.
Where I live buying is much cheaper than renting and even if my home is worth 25% less than I paid for it by the time it’s paid off I can come out ahead because I still have an asset worth let’s say $100k and I’ve spent less money than I would renting. That’s without factoring in the other reasons people buy homes.
If I read that correctly, it sounds like you’re assuming that rent is lower than buying, which is not true in many places (including my own city). Many people buy rental properties because they can charge hundreds more dollars...
I suspect that renters magnify the difficulty of getting a property, which psychologically prevents them from seizing the opportunity. You need less money down than you think. The income is the important thing.
Bad assumptions in the article. Firstly, rent in major cities (like where many of us live) is higher, sometimes much higher, than the mortgage payments for similar properties (home prices in my area give a mortgage payment of around 1500... rents are at 3k).
Secondly, you can get homes for way less than 20% down without huge jumps in total cost these days through various programs. The people making the choice between renting and buying are those who would be taking advantage of programs like FHA loans.
Every market is different, but there is a lot of housing supply in most of the US, prices are depressed and lending rates are the lowest they'll probably ever be in our lifetime.
I have a couple friends (from our generation) who are buying up duplexes. They can live upstairs and rent the lower and nearly cover their mortgage from the rent income. They are living for free and banking the savings for the down-payment on the next duplex.
Seems incredibly smart to me. You have a generation of people who've convinced themselves not to buy a house, driving up rents and driving down home prices. You can borrow money for next to free to buy those assets and rent them.
Even if you don't want to be a landlord, you can get a mortgage payment that is less than rent. Sure you have debt, but rent is just burning money every month. Even if your home declines in value, it probably won't lose as much value as you'd have paid in rent, so you're basically breaking even.
I've got a home in Boston. Zillow tells me it's appreciated 45% in several years. Since I (1) got a very low interest rate and (2) got a house in a hard to come by area and (3) would have to pay realtor fees to sell, why wouldn't I just rent it out when I decide to move somewhere else?
If other people keep doing that in their lifecycle (move further out when deciding to have kids), you end up with many homes as investments where the home owners have no intention to combat high housing prices, as that only leads to higher rents and more profits.
They bear the risk of prices going down. If I rent a $100k condo, and the housing market goes down 10%, I don't owe my landlord an additional $10k. (Schematically, my rent even goes down 10%).
Just anecdotal, but we're perfectly capable of owning in the place we recently moved (Portland), but are renting because of market uncertainty. I'd rather miss out and have homes go 100 up than miss out and have them go 300 down right after purchasing. We're happy to rent for a bit and wait it out.
I'd guess more generally people are playing that game purely based on borrowing rates -- if they think they'll be even a bit lower in 12 months, it might make financial sense to wait.
If you look at the stats, you’re very much outliers.
And if you’ve ever owned before (I have) and also rented (I have), the difference in ability to move and sensitivity to market conditions is dramatically in renters favor the vast majority of the time.
No renter is going to be looking at losing hundreds of grand trying to move in a downturn, for instance. Or like in ‘08, being stuck for years in frozen real estate markets or losing hundreds of grand or more.
No renter is ever going to get hundreds of grand in cash money on sale either, if things go well.
Just the paperwork involved in selling (let alone the other logistics) takes longer and is more involved than renting a new place, even in the tightest markets!
I think a lot of this is also landlords make up a smaller percentage of the market as you go up in price and when you get to a 1.8 million dollar home the rent will never justify costs to a landlord. Two facts cause this.
The first is it's always a better deal to live in a property than rent it out.(100% occupancy, no expenses to find tenants, no evictions, etc). Plus there are non-financial reasons people prefer to own. This means all things being equal owner occupiers almost always outbid landlords.
The second is high income individuals are more likely to be able to buy a home than low income individuals.
Basically what happens is in high income neighborhoods, owner occupiers(or developers) bid up the properties until it doesn't make financial sense for landlords to own them anymore. The returns just don't justify it, but the house might still be worth it for owner occupier because they get a better return and want to own a house or lock in neighborhood.
It's worth remembering that mortgage payments rarely include utilities, but some rental leases do.
Also, getting out of a rental is often as easy as just leaving. Some unscrupulous types forget to pay the last few months of rent before skipping out giving themselves an unofficial discount. When owners want to sell, they need to pay commissions, inspection costs, transfer taxes, title searches and a few more unexpected and hidden charges. The transaction can take months and that's when you find a buyer. Yes, many people like to focus on the extreme profits that some lucky people have found in the right neighborhoods, but housing prices do go down and they often go down by a staggering amount. When you're underwater on your mortgage, you're trapped. You might be able to afford the monthly payments but you can't sell because you don't have the spare cash to pay off the mortgage.
The high down payments evolved as a safety mechanism for the banks first, but also for the home buyers because markets fluctuate.
If you're just starting out it doesn't matter if homes are $100k or $1M, you don't have money to purchase.
People act like renting is some sort of evil forced upon people, but don't realize there is a big market for renting. People don't always want to own their own housing.
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