Economics of Renting vs. Owning

[Covertibility]

From the article posted:

Page 5

"The fact that falling prices in Japan, over the last eight years, do not seem to have led consumers "postponing" purchases in anticipation of further falls must also be judged as a positive sign. Indeed household savings rates fell more in Japan over the last decade than they did in the United States, albeit to a higher level."

----

So how is the aging population to blame if the savings rates fell during their deflationary period? They weren't saving even if they anticipated prices to fall.

And not a damn thing in the article relating an aging population to a cause of deflation. What was the point of posting a link to the article.

 

[canyonman00]

Quote from Covertibility:

They weren't saving even if they anticipated prices to fall.

Sounds an awful lot like ~ Americans! Maybe they said to hell with it, the government will work it out. :eek:

I say they're living on the logic that there will be someone somewhere who'll pay more for this than they did, one day.

I also think that implied appreciation bull is starting to come apart a bit at the seams again. Therefore it will need a shot in the collective a** so folks again start to believe that it (real estate) is worth more.

The overspend, trade up, buy it because its bigger game must continue. It's what a lot of folks have played into as a way to lock in some saving since they weren't going to do it any other way. Folks actually plan to sell every so many years to get the money out. They trade up because the money allows them to. Not because they need a new home, they just want one. I think the old fiscal models that folks use has lost a part of its understanding. That being hold until maturity, payoff.

I've rented for the last fifteen years. I've also owned rental properties during that same period. I've toyed with the possibility of owning/building for the past few years, but I don't see why I should still. I have a good savings plan and my stocks have done ok (not great, just ok). My income has afforded me several fiscal cushions. My whole life policies are nearing maturity. Unlike many of my peers, I've spent and stayed well within my means.

But I had a fiscal plan early on in my career, and it didn't involve home ownership. So while I might be a little further ahead with ownership, I deemed that it was not worth the headache, for me. Even now the planned home is more for cool stuff (solar power, modern style stuff all over, etc.) not for appreciation, security or a sale. Unlike early on in life I can actually afford the home that I want now. And I'd have to make very few compromises in the things that I'd want in it.

The reward for that patience is real fiscal security in just about every aspect. The past ten years have really been a boon too! I've two of the coolest apartments (both over 2,500 sq. ft.), a few nice vehicles, and I'm still young enough to enjoy it all. And God willing, I've still got 30 or 40 years to add to the kiddy!

 

[lilboy716]

yes... aging population is one of the reasons behind causes of deflation. in case of japan, the aging population was quite large, proportionally speaking. and older folks usually spend alot less than their younger days. they worry about their meds and food more than new plasma TV and S-class mercedez. this accounts for the demand side of the equation, and reduces the velocity of money

part of the reasons why savings rate goes down because aging population no longer have the income they used to have in their work years. sure, they can reduce the amount of money the spent, but *they are usually net spender, not net savers.* as the aging population grows, you'll see their net savings being withdrawn to pay for expenses. there maybe other structural problems that's causing this phenomenon

since our net savings rate is in the negative terrirotry, there are lots of fat left in the RE & stock market, because americans in general feel that they're wealthier than before.

* Fallen asset prices.

guess what had happened in the late 90's, and what *we will* refer to as the mid 00's, in 5-10 years from now.

* Imported deflation

a good type of deflation? through increase efficiency and higher productivity? or just plain old cheap foreign labor?

* Insolvent companies

* Insolvent banks

bad RE loans... could that happpen here?


the article was in my to "to be read" list for the summer... i'm too busy reading other computer engineering papers which deals with strided prefetching on similiar to what's in the pentium 4's, so i can implement it in a simulator. i am also writing a translator for a automatic verification tool using OCL as the input language. i have 2 weeks left

Quote from Covertibility:

From the article posted:

Page 5

"The fact that falling prices in Japan, over the last eight years, do not seem to have led consumers "postponing" purchases in anticipation of further falls must also be judged as a positive sign. Indeed household savings rates fell more in Japan over the last decade than they did in the United States, albeit to a higher level."

----

So how is the aging population to blame if the savings rates fell during their deflationary period? They weren't saving even if they anticipated prices to fall.

And not a damn thing in the article relating an aging population to a cause of deflation. What was the point of posting a link to the article.

 

[Pabst]

I agree with Convertibility that Japan's aging population had little effect on the collapse of the asset bubble. The Japanese economy was NEVER predicated upon at home consumerism. Asset prices however were predicated upon high savings rates. Saving and investing is not always prudent. After all buying a depreciating Porsche would have been money better spent in 2000 than buying JNPR and the like. Asset bubbles are caused by inordinately high savings.

In the U.S. I've seen first hand that increasing longevity has buoyed home prices. 25 years ago it was rare to see men live well into their 80's. Because of advanced heart and cancer treatments people hang on much longer. That phenomena has checked much normal supply (particularly in condominiums) off the market. Think about it. If theoretically people lived forever, what would that do to RE prices. Through the roof, eh? Between millions of immigrants bidding the low end and millions of older American's who live longer, there's been a distinct demographic benefit to ownership.

 

[Covertibility]

I find it hard to believe an aging population can create such a dropoff in aggregate demand that it would lead to deflation. I have yet to see anyone make the case. Like the deflation the US experienced in the Great Depression, Japan's deflation has been attributed to a collapse in asset prices (RE and the stock market) along with bad loans, bankruptcies and whatnot.

If anyone is betting on such a similiar occurence, your all in bonds and gold right?

 

[drmarkan]

I think that the problem with the original debate is that it all depends on circumstances. I own a home and I will tell you that I have made a killing. I bought the home May of 2003 for $385,000.00 with $150,000.00 down. I borrowed $235,000.00 which comes out to a payment of $1735.00 a month including T&I. I rent 3 of the four rooms out to friends for a total of $1325.00 a month. I pay the electricity and live in the master bedroom. Basically I am paying $525.00 a month. The house now appraises for $700,000.00 (I'm in Southern California). So on a $150,000.00 investment, I have made a capital gain of $315,000.00 in 3 years which is tax free because the home is set up as a primary residence. That makes me feel that owning is better than renting. However, if I lived in Michigan, I may not feel the same way because house values there don't move the same way. Also, if I wanted to, I could sell the home and buy a townhome for $450,000.00 and never have to pay another mortgage.

Of course the person that buys the home from me will most likely not have as cherry a situation that I did, so maybe they should keep renting rather than buying.

 

[jficquette]

Quote from drmarkan:

I think that the problem with the original debate is that it all depends on circumstances. I own a home and I will tell you that I have made a killing. I bought the home May of 2003 for $385,000.00 with $150,000.00 down. I borrowed $235,000.00 which comes out to a payment of $1735.00 a month including T&I. I rent 3 of the four rooms out to friends for a total of $1325.00 a month. I pay the electricity and live in the master bedroom. Basically I am paying $525.00 a month. The house now appraises for $700,000.00 (I'm in Southern California). So on a $150,000.00 investment, I have made a capital gain of $315,000.00 in 3 years which is tax free because the home is set up as a primary residence. That makes me feel that owning is better than renting. However, if I lived in Michigan, I may not feel the same way because house values there don't move the same way. Also, if I wanted to, I could sell the home and buy a townhome for $450,000.00 and never have to pay another mortgage.

Of course the person that buys the home from me will most likely not have as cherry a situation that I did, so maybe they should keep renting rather than buying.

Why do you think you could sell it for $485k? Put it on the market for fun and see what offers you get.

You forgot to consider the opportunity cost of having $150k laying dormant.

You are also living with 3 other people and have NO privacy.

You would have been better off renting a one bedroom apartment and investing your $150k in the market and have the freedom to move and go where ever you like. Now your stuck in a house that you own.

John

 

[OldTrader]

Quote from jficquette:

Why do you think you could sell it for $485k? Put it on the market for fun and see what offers you get.

You forgot to consider the opportunity cost of having $150k laying dormant.

You are also living with 3 other people and have NO privacy.

You would have been better off renting a one bedroom apartment and investing your $150k in the market and have the freedom to move and go where ever you like. Now your stuck in a house that you own.

John

You ought to be required to re-read your post until it sounds as stupid to you as it did to me.

150K "laying dormant"? As he said, he made a tax-free gain of $315K over 3 years. Not exactly "dormant". I'd call that an excellent gain AFTER-TAX.

Further, he lived for $525 per month...I suggest you check around to see if you can find a 1 bedroom apartment (your recommendation) for anywhere even close to that. I know a guy spending 3X that for a one bedroom.

Finally, if he sells for the appraised value, he can buy a condo for cash. No payments at all.

Why don't you explain how well your renting a one bedroom apartment went over the last 3 years.

OldTrader

 

[jficquette]

Quote from OldTrader:

You ought to be required to re-read your post until it sounds as stupid to you as it did to me.

150K "laying dormant"? As he said, he made a tax-free gain of $315K over 3 years. Not exactly "dormant". I'd call that an excellent gain AFTER-TAX.

Further, he lived for $525 per month...I suggest you check around to see if you can find a 1 bedroom apartment (your recommendation) for anywhere even close to that. I know a guy spending 3X that for a one bedroom.

Finally, if he sells for the appraised value, he can buy a condo for cash. No payments at all.

Why don't you explain how well your renting a one bedroom apartment went over the last 3 years.

OldTrader

Until he sells his place he hasn't made anything.

John

 

[drmarkan]

Quote from jficquette:

Why do you think you could sell it for $485k? Put it on the market for fun and see what offers you get.

You forgot to consider the opportunity cost of having $150k laying dormant.

You are also living with 3 other people and have NO privacy.

You would have been better off renting a one bedroom apartment and investing your $150k in the market and have the freedom to move and go where ever you like. Now your stuck in a house that you own.

John

Old Trader already covered the obvious, so I would just like to comment that this is one of the goofiest replies I have ever read. That is saying alot considering I've had discussions with ZZZzzzzzzz in the Chit Chat Forum.

I wonder what you plan on doing with all the money you would make if you had the $150,000.00 to yourself. If you get married, I can tell you that wifey's first order of business is likely going to be buying a home. She isn't going to want to rent.

As for having "no privacy", I can tell you that I actually like my friends. We keep to ourselves when we like and you have someone to hang out when you're bored.