tag:blogger.com,1999:blog-6704573462403312459.post1271277591143665722..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: Why (not) rent your home?JP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-6704573462403312459.post-18461113855086332902016-08-21T22:16:41.528-04:002016-08-21T22:16:41.528-04:00I used to be one of those people who said that all...I used to be one of those people who said that all the time. Times have changed and many people do not want to be saddled with a mortgage today despite the financial benefits. They are content living in a <a href="https://rpmlongbeach.wordpress.com/2016/07/28/long-beach-property-management-company-can-help-handle-your-tenants/" rel="nofollow">rental</a> and it really is a great resource for the homeowner. That check coming in is like early retirement for us.Kendrickhttps://www.blogger.com/profile/07209956441520890232noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-36361528165501407472015-11-08T09:41:55.210-05:002015-11-08T09:41:55.210-05:00There are some basic economics that become distort...There are some basic economics that become distorted in the current currency-war world economy.<br /><br />A few of these basics are:<br /><br />1. Housing is a depreciating asset. An old house is worth less than a new house.<br /><br />2. The land a house is built upon is a non-depreciating asset (they are not making land anymore).<br /><br />3. Both land and house are located within larger human community that will have economic tides.<br /><br />A currency-war environment (as presently underway) is an economic framework with constantly increasing monetary assets. Some people are the direct beneficiary of the repeated increases; some people are stuck with secondary benefits from the repeated increases. Housing, land, and ETFs are all secondary beneficiaries but ETFs come before land for the ease of trading (closer to being money as an asset class). <br /><br />You correctly point out that housing provides shelter, something that money does not provide. Can all of us confidently assume that we will ALWAYS have enough money to trade for the shelter we need?<br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-4334357261403073972015-11-07T12:42:24.365-05:002015-11-07T12:42:24.365-05:00This is a topical post considering the upward-spir...This is a topical post considering the upward-spiral of certain Canadian real estate markets. <br /><br />There are many talking points when comparing housing and equities, but to keep this short I'll address the point you made, "Those who tell me I'm throwing my money away on rent and should buy are implicitly counseling me to take on a lot of leverage."<br /><br />It's both interesting and bizarre that Canadians, especially, are so comfortably driven to buy a house (aka utilize a lot of leverage) but they would NEVER do the same to purchase public equities. It's a really weird cultural bias, but also supported by a lack of knowledge of risk, return, true cost, and continual marketing from certain entities. <br /><br />I would say the greater bulk of house owners/mortgage holders consider their house to be an investment when it's actually a depreciating durable good and without constant input of new capital (even when mortgage free), the returns will be negative on that "investment". <br /><br />As well, with the bond bull now dead, the only thing driving house prices is demand, and who knows how long that will last. <br /><br />There are definite pros and cons to both renting and buying, being well aware of them all can only help in making better decisions to achieve your personal and financial goals, whatever they may be. Anonnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72287439775764765152015-11-07T06:32:05.411-05:002015-11-07T06:32:05.411-05:00The return on/of direct financial claims is taxabl...The return on/of direct financial claims is taxable – both income and capital gains. Not sure how that composes with EFFs, but in any event the total return is taxable at some rate.<br /><br />Neither the capital appreciation nor the non-pecuniary recurring return on housing is taxable. Plus mortgage interest tax treatment - deductible in the US although not in Canada. While financial claims can be financed with deductible interest.<br /><br />These tax elements are significant in a complete analysis, I think.<br /><br />I don’t buy the “born short housing” meme as an analytical concept. But I think “not long” is a powerful motivator to buy in the face of eternally rising nominal real estate prices.<br /><br />(IMO - to be short an asset means you profit monetarily from a decline in its present value. That's not the case in simply not owning a house. And you don't become long an asset simply by eliminating a short position it. A flat position is defined in between - which in this case is simply not owning a house.)JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-86996037921222477072015-11-06T22:45:48.816-05:002015-11-06T22:45:48.816-05:00On the other hand, especially if you plan to move ...On the other hand, especially if you plan to move frequently:<br /><br />4. Renting a house avoids the high transactions costs of buying and selling illiquid houses.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-15282687744104722142015-11-06T22:37:48.161-05:002015-11-06T22:37:48.161-05:00Somebody has to own the houses. In equilibrium, it...Somebody has to own the houses. In equilibrium, it should be a wash, except:<br /><br />1. Renting a house from yourself resolves the moral hazard problem between tenants and landlords<br /><br />2. We are born with a short position in housing services, and buying a house covers that short position.<br /><br />3. The tax system is biased in favour of renting a house from yourself (since you don't pay income tax on rent you pay yourself).Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72911919360973689772015-11-06T06:02:42.078-05:002015-11-06T06:02:42.078-05:00Unknown, you show a real lack of any knowledge of ...Unknown, you show a real lack of any knowledge of how markets work, while calling others an idiot! Very nice. For instance:<br /><br />"First, you can't borrow at today's mortgage rates to buy stocks."<br /><br />Right. And you don't think the fact you can borrow cheaply to buy a house is ALREADY FACTORED INTO HOUSING PRICES, thereby negating this advantage?<br /><br />This is "market" analysis from someone who hasn't gotten econ 101 and yet calls others names.gcallahhttps://www.blogger.com/profile/10065877215969589482noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-5426096550766293562015-11-06T06:00:11.820-05:002015-11-06T06:00:11.820-05:00"In most smaller, slower growing, remote area..."In most smaller, slower growing, remote areas, renting will be more attractive, while larger, faster growing, denser areas, owning will often be more attractive. Congested areas will have more static supply but increasing demand leading to appreciation with income, so once your income growth slows, it will be better to buy."<br /><br />This is only true if this is unexpected. The same for the landlord moving you: this factor, as far as it happens regularly, is priced into rents already.gcallahhttps://www.blogger.com/profile/10065877215969589482noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-81245755033246804682015-11-03T23:24:31.507-05:002015-11-03T23:24:31.507-05:00Yep, good point.Yep, good point.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-21686880810690165782015-11-03T23:18:25.163-05:002015-11-03T23:18:25.163-05:00" If you buy stocks, it is on margin and you ..." If you buy stocks, it is on margin and you are paying higher interest rates."<br /><br />Fair enough. If the bank won't give you a large enough loan, then open a futures account, put in $50,000, and perpetually roll over an appropriate number of S&P emini contracts. <br /><br />"if markets were in fact efficient, they'd price homes cheaper to account for that added risk / upkeep cost! "<br /><br />Yes, and that's what I meant when I wrote: "To compensate for all these drawbacks (which are sizable), a home must offer a pretty high expected return."<br /><br />Anonymous: "Some people spend their own money on houses and stocks, and that reduces the relevance of different borrowing rates for buying houses vs. stocks."<br /><br />Yep, we can also run this exercise from a different starting point: I want to invest $500,000 in cash, what do I do? Buy a home straight up? Or invest in ETFs and rent?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-11195692872795902482015-11-03T23:06:30.280-05:002015-11-03T23:06:30.280-05:00All good points.All good points.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-52099013930708998302015-11-03T21:21:29.550-05:002015-11-03T21:21:29.550-05:00If you somehow know that you will stay put, then r...If you somehow know that you will stay put, then renting is risky, because you can't lock in a rent. Of course you can always move to a lower rent location, but that may be unpleasant.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-48060412297582583572015-11-03T18:56:17.805-05:002015-11-03T18:56:17.805-05:00Unknown:
1) Some people spend their own money on h...Unknown:<br />1) Some people spend their own money on houses and stocks, and that reduces the relevance of different borrowing rates for buying houses vs. stocks.<br />2) "extra risk" is compensated by extra return.<br /><br />I'm guessing that JP won't bother to answer your rude post. As my friend Craig says, that would be the intellectual equivalent of clubbing a baby seal.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-81933936530056968502015-11-03T17:01:45.951-05:002015-11-03T17:01:45.951-05:00This is the stupidest analysis I've come acros...This is the stupidest analysis I've come across in ages. First, you can't borrow at today's mortgage rates to buy stocks. If you buy stocks, it is on margin and you are paying higher interest rates. Your whole argument rests on the assumption that you can borrow at the same rate to buy a house or stocks, and you clearly can't. Second, you believe markets are efficiently pricing homes so that the return of homes and stocks are the same, but homes have all that extra risk. Of course, if markets were in fact efficient, they'd price homes cheaper to account for that added risk / upkeep cost! Congratulations, you are an idiot. Anonymoushttps://www.blogger.com/profile/16453462428751449969noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-56555444608854011072015-11-03T16:56:46.537-05:002015-11-03T16:56:46.537-05:00Housing is local, ETFs are national to world. Geo...Housing is local, ETFs are national to world. Geographic concentration can increase risk or it can reduce it through wise selection. In most smaller, slower growing, remote areas, renting will be more attractive, while larger, faster growing, denser areas, owning will often be more attractive. Congested areas will have more static supply but increasing demand leading to appreciation with income, so once your income growth slows, it will be better to buy. As housing and employment are somewhat closely tied, this can also mean more cyclical risk. Credit constraints mean many for whom buying would be better are not able to and that population growth will lead to somewhat greater returns. Taxes can also affect these, both income and property depending on your relative position. Renting can also cost thousands when your landlord decides to move in/sell/raise rents/redevelop and you have to move and that can happen somewhat often though is easier to do when you have to. Lordhttps://www.blogger.com/profile/06747994571555237739noreply@blogger.com