Comment by seanc | Hacker News Reader

Comment by seanc | Hacker News Reader

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People buy things for all kinds of reasons that aren't discussed in the article.

Convenience!

For me this is a prime motivator. I have sufficient demands on my time that added expense of owning a car is worth the 20 minutes it would take to access the closest virtu-car, and the 90 minutes I save every day driving in stead of busing.

I have enough space in my house for cold storage and a freezer. This means I can buy food in bulk and don't have to go to store as often.

Security!

Landlords kick tenants out out now and then. Rents can go up all of a sudden. My family rented for a long time when I was a kid, and we got booted out of several houses when the landlord decided not to renew to lease for one reason or another; wanted to give the house to a relative, wanted a pile more rent, et. cet.

Agency!

For some people home improvement and 'puttering around the house' is a big source of pleasure and recreation. Many people express themselves with the work of their hands, and owning tools and infrastructure to build things and so forth is important too them.

Finally, NRP's planet money has a great blog about the issue of buying vs. renting housing: http://www.npr.org/blogs/money/2010/11/05/131105373/the-frid...

tl;dr: this is about way more than money. It's about personal value choices

The "security" aspect goes both ways. Owing money, which the vast majority of us will if we want to buy a house, is one of the principal insecurities of life. Given the current status of the housing market, that should be obvious to everyone.

Being forced to move out of your rented home seems a lot less severe than having the bank foreclose on your "owned" home.

Debt is only an insecurity if your income is insecure.

A renter with a long term lease holds just as much obligation as a home owner as far as that goes.

I would say that the risk of getting the boot from your rented dwelling is much larger than the risk of getting foreclosed.

The risks associated with foreclosure can be mitigated to some extent by the homeowner. Management of cash flow, pursuit of income security, adequate savings, all of these things are in the homeowners domain. Many many homeowners have secure incomes and live with extremely small foreclosure risk.

A renter can see the building sold out from under him and be out on his ear no matter what he does.

The bottom line is that this stuff leaves the realm of objective mathematical truth and enters personal risk profile and values very, very quickly. For some, income will have wide error bars and they need lots of flexibility. Someone else might have union seniority in a government job and be able to predict their income for the next twenty years.

> "Debt is only an insecurity if your income is insecure."

For the vast majority of the population, income is insecure. I think that's part of what the author is getting at: by adding debt insecurity, one disproportionately seeks to make their income more secure.

i.e., Taking less risks, doing less things, and generally trying desperately not to rock the boat, and being less happy as a result.

> "A renter with a long term lease holds just as much obligation as a home owner as far as that goes."

I'm not aware of any rentals with 25-year leases. Most leases I've ever signed have been 12-18 months. Also, the mortgage payment on an equivalent place is, in my experience, >2x the rent. I can lose my job right now and pay off the rest of my lease without breaking a sweat. Heck, if you're really paranoid about it you can insure yourself against it.

On the same income, all other expenses be equal, etc etc, a renter has a lot more free cash flow than a guy paying a mortgage. Not only that, he can pivot much more easily, since his obligations are dramatically much more short-term. It's both easier to build the rainy day fund to pay the rest of his lease off and he's able to cut down his costs much more quickly than, say, trying to sell off your house that you can no longer afford.

This translates into real-life in major ways. People who are mobile, have few obligations have much more firepower at any negotiation table. When you can walk away to a better gig in another city and have your bags packed in 3 days, you can extract much better results.

Which isn't to say renting/avoidance of long-term obligations is always a good idea, but IMHO it's a very good idea while young. Your income curve will be steeper due to your ability to negotiate, and you will have much more freedom to find the life you're looking for.

> "the mortgage payment on an equivalent place is, in my experience, >2x the rent"

People buy rentals in order to generate positive long-term cash flow. In a sane housing market, rent will be only slightly less than mortgage + taxes + insurance in the short term, and rent will rise with inflation while mortgage payments stay fixed. Thus, after a few years, rentals bought in a sane market will generate positive cash flow; otherwise it would be foolish to buy a rental property. (If you compare the historical price-to-rent ratio in most cities [0] with the expectation of price-to-PITI of 14 [1], you'll find that renting is indeed slightly cheaper over the short term, but only by about 20%, not 100%.)

In the situation you described, where mortgage is >2x equivalent rent, that's a sign you're in a bubble market. In such a market, it's a terrible idea to buy. (IIRC you're in Seattle, which is almost twice as bubblicious as the national average. It has been a terrible idea to buy in Seattle [2] for most of the last decade.)

> "all other expenses be equal, etc etc, a renter has a lot more free cash flow than a guy paying a mortgage"

If the guy with the mortgage bought in Seattle between 2003 and 2009, he's going to have poor cash flow, but that's not a criticism of buying in general, it's a criticism of buying at a bad price. In a normal market, the renter should have more free cash flow over the first few years, and the buyer should have more free cash flow starting about 5-10 years in.

[0] http://money.cnn.com/magazines/fortune/price_rent_ratios/ -- see the P/R ratio tab

[1] using this calculator to determine monthly PITI; the rest of the math is straightforward. http://www.realestateabc.com/calculators/PITI.htm

[2] my good friend Tim runs http://seattlebubble.com/blog/ , so I've been following our crazy housing market since 2005.

> " In a normal market, the renter should have more free cash flow over the first few years, and the buyer should have more free cash flow starting about 5-10 years in."

Agreed, except that AFAIK there hasn't been such a market in the US for years, if not decades, in any major city. Heck, I come from Canada where I know some people also buying their first home - housing up there in any major city is also as bubblicious as it is here, to varying degrees.

In just about any major city I've looked at, renting is massively cheaper than buying, which after the housing crash is very puzzling.

The "normal market" I described existed in most mid-sized and large US cities up until about 2002. There are a couple special cities like New York, where the "normal market" hasn't existed for a long time; one might conclude that the rent-vs-buy calculations are being done on a multigenerational basis.

Renting is still quite a bit cheaper than buying in many regions. This is because the crash isn't done yet. Give it another 3-5 years.

A great blog post from Tim Ellis on buying vs renting: http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buyi...

It should be noted that Tim wrote this near the peak of the housing bubble in Seattle (Kenmore neighborhood). The house he identified for $425k in that piece would now sell for about $300k, which puts monthly costs at about 25% more expensive than renting instead of 78% more expensive.

In a completely average, non-bubble housing market, buying (counting insurance, taxes and breaks, maintenance, etc.) is about 20% more expensive than renting in the short term, but after 5-10 years of inflation and rent increases, renting becomes more expensive. There's a definite tradeoff between short-term savings with no equity but high flexibility vs. long-term savings with equity and permanence. That tradeoff was slanted heavily in favor of renting in Kenmore, WA in 2007, but as Tim's conclusion notes, it is not always so; whatever your situation, "run the numbers ... and do what works for you."

That is a good post, but as Christopher Mayer points out on the NPR piece, you have to be very careful about the market.

Cities with historically strong housing markets, such as Seattle and New York, have a very high ownership premium. Other cities with a more traditionally flat housing market, such as Pittsburgh or many rural communities, do not.

So if you live in Seattle like Tim, by all means, renting might be better for you. But in Madison, Wisconsin you might spend the same amount to own a house as you do to rent one.

YMMV.

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