It's still better to buy a home

Try that with a 20% decline.

Whoops...

'If you bought a house in Los Angeles in the early 1990s, you were "catching a falling knife." Home values were falling.."

And guess what. Even after prices bottomed you still had another 5 years before they took off again. With real estate there is no need to catch a knife or do a lot of investigation to figure out when the bottom is in. There has never been and will not be this time a V-shaped recovery.

"Whatever the current market, it remains that people who intend to be in their homes 10, 15, 20 and 30 years from now will do just fine."

This is a patently false statement. First, if you had bought at the top of the 80s bubble you were just about even after 10 years. Why the hell would you pay a big premium over renting to own?

Second, this isn't always the case that it gets back to even. Real estate crashes aren't exactly common events. Prices have not recovered in Japanese cities in 19 years (and they have a lot more to go!). Maybe we aren't the same, but the absolutes of this article are rediculous.

Furthermore. The average person lives in a house 7 years before moving. Maybe you aren't that person, but 10 years is an awfully long time for all but those who are finished with life changing events (kids, marriage, salary that won't increase/decrease dramatically).

"It's all about inflation"

Yay journalists that went to community college. Actually, it's all about deflation now. And the last thing you want is a fixed debt on a depreciating asset in deflation.

The assumptions are based on a small bubble being followed by a larger one.

Even if this large one is followed by a small one, the numbers will look bad for buyers. If we just return to historical norms, this will be destructively bad...

You know that was published in 2007. Maybe he's changed his tune since then.

RE borker... absolutely.

Another of my daddyisms... know your source...

The problem in Manhattan is how many people can buy their lifetime apartment. In the suburbs, you buy a four bedroom house and unless you are planning to have more than three kids, if the value gets cut in half as long as you make your payments you can sit there forever. Its sad if you had hoped to upgrade but nonetheless. However, if you buy a 2 bed in Manhattan with one kid on the way and hope to upgrade when you have a second child, if you bought poorly, you are basically fucked. Sure you can sell at a loss and buy something bigger and roll that loss into the new mortgage, but that is a terrible how do you do.

Good point.

Rhino86, totally with you. It's all about the time horizon. My view is that unless you are pretty confident that you can live in your next apartment at least 7-10 years, rent. The only exceptions are a RE market that you are absolutely sure will go up or a market where owning is meaningfully cheaper than renting.

"Of course, in real life the actual numbers will differ. But as long as inflation whittles away the purchasing power of the mortgage payment, the odds will favor the homeowner over the renter."

Not in times of asset-price depreciation.

"Note that home appreciation has not been mentioned."

LMAO.

"Better than investing: Even if the value of the house doesn't rise, it will compete very well with the return a renter could get on the down payment. The homeowner will pay the mortgage off in 30 years, bringing his equity to $150,000, even with zero appreciation."

That's not investing. It's paying off a debt.

"For the renter, the down payment would have to return 4.22%, after taxes, to accumulate to the $150,000 value of the home after 30 years with zero appreciation."

Average long-term gain of S&P 500: 11%.

"Does this mean we can spend carelessly on houses? Sorry, no."

Yay! Yay!

"It means inflation will protect us from all but the worst housing markets -- if we give it enough time."

Not at all. First, this statement denies the existence of asset deflation, which is what we're experiencing, and will take years to recover from. Second, it assumes that rents increase or decrease with inflation. Also not necessarily true - they rise and fall with incomes. Third, I didn't see transaction costs mentioned anywhere, nor are the "figures" for maintaining a home mentioned at all. Add that new roof for $20,000, that new siding for $20,000, amortize them over the average 10 years that people keep their homes, and you've added $4,000 a year to carrying costs that tenants don't have to pay.

This article is a crock.

> My view is that unless you are pretty confident that you can live in your next apartment at least 7-
> 10 years, rent.

Why would the long horizon change that?

A long time horizon is still much better with a 25% discount. The cost of waiting (and even a second move) will generally be a drop in the bucket compared with the capital loss avoided.

nyc10022, my statement was meant to be much more general, not just specific to today. If you have a long enough time horizon, you should consider buying. Even then, buying at/near the top of a bubble is probably not a good idea, though.

But my point was that with a shorter time horizon, you should rent almost regardless of market (with the two possible exceptions noted, neither of which comes close to being true today).