To Buy or Rent – Not Just an Emotional Decision

Here’s an interesting piece that ran in the Seattle Times today: To rent or to buy? The story of two couples

The decision to sell their house and go back to renting has meant more time and even more money for Jill and Dan Keto and their family.

“The point is, putting money into a house is not a wise allocation of funds right now,” says Keto. “And just because you have a home does not mean you will be happy.”

About the same time the Ketos were going from owners to renters, another 30-something couple and their 3-year-old Great Dane mix went the other way.

After renting an apartment on Capitol Hill for several year, Shana and Michael Graham decided to buy their first house. One of the reasons they made the jump was because they saw prices falling.

“You have to think of it as perceived value until you really have to sell it,” he says, comparing the housing market to the stock market. “It’s just a perception at this point about how much you would make or lose because it’s always changing.”

It’s interesting to read the rationale of people that are making these decisions right now.

Here are a few other tidbits pulled from the article:

The best thing to do is not think of a house as a short-term investment, says Danilo Pelletiere, research director for the National Low Income Housing Coalition, based in Washington, D.C.

“Ask yourself if you will feel really badly if you buy a house and it falls in value,” says Pelletiere. This won’t happen if you are buying for the right reasons — because you like the house and plan to stay for a while.

Anyone who plans to live in their house for five years or more would still be safe to buy, according to Pelletiere, who says that rule of thumb still applies even in this declining economy.

These comments are similar to something that was said in yesterday’s comment thread by Steve Tytler:

We may not bottom out on home prices this year, but if you are buying a home to live in for the next 10 years, who cares?

What Steve Tytler and Danilo Pelletiere both seem to be ignoring is what commenter patient pointed out:

If I can get the home 10% cheaper by waiting another year it will improve my cash flow for the time I have the mortgage. That is surely something to care about.

I ran the numbers on a scenario like this to see how much money we were talking about. Here’s what I came up with:

Say you are in the market to buy a home today, priced in the $400,000 range. You have $40k for a down payment. We will assume 5% interest rates.

If you buy now, your monthly outlay for principal and interest only is $1,933. Over a 10-year span, you spend $231,960.

If you wait a year and buy a similar house for 10% cheaper, your monthly outlay for PI is $1,718. Over a 10-year span you spend $206,160.

That’s a monthly savings of $215 (over 10%), while the 10-year savings is $25,800.

To me, saving $25,800 over the course of 10 years is nothing to say “who cares” to. Danilo Pelletiere said that if you buy a house for the “right reasons,” you won’t “feel really badly” if the price goes down. That’s all well and good, but passing up a savings of over $200 a month is a matter of my financial bottom line, not my emotional well-being.

What’s also amazing to me are some of the comments left by Seattle Times readers on the story:

So now the renters won’t have enough deductions to use the long form. No mortgage interest deduction, no property tax deduction, no sales tax deduction.

The only advantage I can see with renting is that you have no debt. But you forfeit all that leverage and tax deductions.

In addition to the favorable tax treatment realized by a homeowner in the form of itemized deductions and capital gains exemption, one should also consider the current actions of our federal government.

Clearly it’s going to take more than a year and a half of falling home prices to shatter the ingrained perception in many people’s minds that buying a home is always the right decision, no matter what.

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.


  1. 1
    DavidB says:

    I don’t think many people understand how our tax system works.

    It’s great to be able to deduct mortgage interest but the fact is that you have to pay the interest! I think many people think they save dollar for dollar off their taxes for each itemized deduction. The fact is that if you pay $100 in interest and your tax rate is 30%, you’ll pay $33 less in taxes not $100! The other $67 you paid is gone!

  2. 2
    Denis says:

    What this tells me is that before long we will have yet another housing bubble. And this time I will know how to trade it! :-)

  3. 3
    pfft says:

    “The only advantage I can see with renting is that you have no debt.”

    “Clearly it’s going to take more than a year and a half of falling home prices to shatter the ingrained perception in many people’s minds that buying a home is always the right decision, no matter what.”

    And it’s going to take some time to realize going into big debt without being cautious isn’t a good thing.

    Don’t forget the money you’d save renting for half the costs of owning.

  4. 4
    The Tim says:

    Don’t forget the money you’d save renting for half the costs of owning.

    Of course, but I didn’t focus on that in this post since the example couple in the Seattle Times article was paying an equal amount in rent to what their former mortgage was. I assume they moved in much closer or something. The article says their mortgaged home was in Issaquah, while their rented home is “on the Eastside.”

    Even though they may not be saving any in month-to-month rent vs. mortgage, I bet they have much shorter commutes and lower gasoline costs.

  5. 5
    dogwood says:

    The idea that you’re forgoing a significant tax break by renting only applies if you have maxed out all tax-deferred options, such as 401k/403b. For 2009, this limit is $16500 per working person under 50. That means that a working couple can reduce their taxable income by $33,000 per year on this exemption alone. And this doesn’t even take into effect any matching funds from an employer.

    I know several people who put hardly anything into tax-deferred plans because they “can’t”, yet they still make that monstrous monthly mortgage payment and ooze condescension about renters. (But their granite countertops and stainless steel appliances are awesome! Barf.)

  6. 6
    DrShort says:

    “If you’re buying to live in it for 10 years, who cares?”

    I agree with this statement, but given the state of the economy, I don’t have full faith that I’ll be able to stay for 10 years. What if I lose my job and have to relocate? This statement is only true in a booming job market.

    A few years ago, I wouldn’t have worried because I was confident I could find another job in the area. Today, I’m not so sure.

  7. 7
  8. 8
    shane says:

    According to the graphic that accompanies the article I can get a $420,000 house, with 10% down, for only $1,084 a month. Sweet deal really, who could argue with that?

  9. 9
    pfft says:

    “I bet they have much shorter commutes and lower gasoline costs.”

    It seems like just yesterday that gas costs were a factor in housing! still good to think about for the future.

  10. 10
    Robert says:

    The housing costs will be affected by Obama policies. He wants to get debt going really strong – so he is trying to spend himself out of the mess that is created so far. Bailouts will be going strong throughout 2009.

    The issue is then – will just spending and getting into bigger debt be the right long term answer? And how will that affect the housing?

    For the short term – everybody knows this is a good thing. But who will pay off this huge debt? And how?

  11. 11
    Groundhogday says:

    Yep, us bitter renters certainly miss out on that leverage. And who wouldn’t want to leverage a depreciating asset at 10:1?

  12. 12
    Ray Pepper says:

    Dr. Short made a very insightful statement. In the current economy just what if you lose your job and must relocate. Unless you found a GEM and can unload it easily you better be very sure before you pull the trigger.

    There is no rush renters. Prices are going no where for years to come. Take your time and find that GEM!

  13. 13
    Alan says:

    If you have the opportunity to pay down your 6% mortgage or put your money into a 5% investment, the tax deduction makes the 5% investment more attractive.

  14. 14
    dave says:

    I recently made the decision to rent rather than buy and I think this is one of the best financial decisions I have ever made. I am able to rent a nice home in Medina with a great view of the lake for $3,500. The owners pay about $500 per month for yard care. The taxes on this property are above $1,000 per month. I checked out the cost of this home on Redfin. The home was purchased in 2002 for well over a million dollars. Considering a standard loan for ,2002 and a 30 year fixed, the owners must pay about $7,000 a month in mortgage(if they even have a mortgage). I know I miss the tax credit, but so what. This is much cheaper to me to rent than buy. The real estate market will continue to decline as the economy falters. I can use the funds I would have needed for a down payment for other investments.

    My suggestion is to rent rather than buy a home at this point.

  15. 15
    The Tim says:

    shane @ 8,

    According to the graphic that accompanies the article I can get a $420,000 house, with 10% down, for only $1,084 a month. Sweet deal really, who could argue with that?

    Whoa, I didn’t notice that. How the heck are they calculating that number? The principal + interest alone on a $378,000 mortgage @ 5.5% would be $2,146. Add in insurance and taxes, and even after you subtract the “tax benefit” I’m betting you come in at at least $2,500 a month.

    Something is seriously wrong with the Times’ calculation.

  16. 16
    pfft says:

    “Something is seriously wrong with the Times’ calculation.”

    toxic mortgage?

  17. 17
    SG says:

    Another way of looking at things that may be interesting as well. Let’s say that I can buy a $400K house today. Not considering any savings because of lower cost in renting, let’s assume that I’ll be able to buy a $400K house 2 years from now. As someone who works in a more expensive (housing-wise) area such as Bellevue/Redmond, my $400K today will probably give me a house with a optimistic commute of 40 minutes during traffic hours. If the real estate price goes down by 10% in 2 years, with the same $400K, I’ll be able to afford a similar house with a average commute of say 30 minutes or better. So, after 2 years, I’ll start saving 20 minutes daily (86 hours in a year). Assuming everything else remains constant and I sell my house in another 7 years. So, here is my math for how much time I’ll save in commute starting from today and after 9 years (when I sell my house) –

    1. First 2 years renting (20 min vs 40 min commute) – 346 hrs (173 hrs/yr)
    2. Next 5 years of owning (30 min vs 40 min commute) – 430 hrs (86 hrs/yr)

    So, I end up gaining a total of 776 hrs (32 days!!) of quality life (life not seating behind the wheel) over 9 years. Talk about having a better quality of life by owning a house!!

  18. 18
    Sniglet says:

    Anyone who plans to live in their house for five years or more would still be safe to buy, according to Pelletiere, who says that rule of thumb still applies even in this declining economy

    This theory that real-estate “always” goes up for the long term just doesn’t hold water. As we’ve discussed on numerous other threads, places like Japan give ample evidence that prices can keep dropping for decades. If we are heading into a long period of deflation (which I think we are), then almost any place you buy today will be worth considerably less 5 years from now.

    That said, I am not against buying, so long as it really wouldn’t impact your financial or emotional well-being if the value were to drop substantially. I agree with the comments about how people should buy to have a place they want to live rather than for investment reasons. So long as a 60% or 70% price drop wouldn’t cause you significant grief, then go right ahead and buy a house right now.

  19. 19
    Jonness says:

    “Yep, us bitter renters certainly miss out on that leverage. And who wouldn’t want to leverage a depreciating asset at 10:1”

    Good call :) In addition, if renters want leverage they can always buy into the futures market. Unlike housing, there’s actually a mathematical chance of earning money leveraging futures.

    Leverage typically equates with risk. But in the current housing market there is no risk because we know the future direction of prices with 100% certainty. Thus buying a house is not a risk. It’s a concious decision to throw away several hundred thousand dollars over the next 5 years (personal situation dependent of course).

  20. 20
    Jillayne says:

    Other factors and costs to throw into the mix.

    Hot water heaters that bust and need replacing. Washer, dryer, refrigerator, oven, dishwasher, furnace, that will all need to be maintained, fixed and replaced.

    Roof, paint, landscaping.

    Then consider the “time” factor of taking care of the house. Yes, it’s true that renters will also need to clean the inside of the house but typically people buy homes that upgrade their space such as more bathrooms (to clean) and more floor space (to vacuum, sweep/mop.)

    Houses typically also mean….pets! Think about the hours spent cleaning up dog poop, walking the dog, vet bills, pet food, I suppose renters have pets, too so maybe this isn’t a good analogy.

    Instead let’s talk kids. Sometimes the home is purchased because folks want to settle in “before we have kids.” The expense of daycare for an infant is shocking. Let’s not even talk about the little things like how you’ll be spending many dollars on this kid for the next 18+ years.

    First time homebuyers accumulate new consumer debt at a rapid pace. This is one of many reasons why I believe underwriting guidelines will continue to tighten.

    The graph accompanying the article is extremely misleading.

  21. 21
    The Tim says:

    I emailed the article author about the misleading graphic laying out the totally preposterous costs of buying, and she said that it was other Times staff that selected the data for that chart, and she would let them know of the problem. I also filled in a “request for correction” at the Times website.

  22. 22
    Alan says:

    This is the calculator the Times used.

    Plugging in their numbers gives the same result.

    The calculator defaults an assumption of 2% annunal home appreciation over 10 years.

    I think they then calculate the total interest paid, subtract out the appreciation and tax savings, and then divide by 120 (number of months over the 10 year period).

    From the calculator:

    The calculator above uses these items in its calculations: private mortgage insurance, homeowner’s insurance cost, loan closing cost, cost of selling a home, property tax, homeowner’s tax saving, and rent increases. Calculator results are estimates only.

    So they are assuming you sell the house after 10 years and calculating the final cost.

    The calculator does not allow a negative housing appreciation rate. If you set it to zero you get $1805 monthly payment and renting is better by around $7k.

    But that doesn’t pass my smell test either. Initial interest payment on $1732/month. Taxes are an addition $350. Since the down payment is 10% there is also PMI — I don’t know how much that is. They give back 28% of that for tax deductions, but they don’t credit the renter for the standard deduction ($2800/year for 10 years).

    Also, I think you can rent a much nicer place for $1569/month than you can buy for $420k.

  23. 23
    Alan says:

    Oh yeah, it also doesn’t count lost income from the downpayment that cannot be invested elsewhere.

    I think this is just spin to encourage people to buy houses.

  24. 24
    jon says:

    Actually their graphic simply says that those are the numbers that you get if you go to the website and type in those numbers. And that is a true statement. They used the default value for “Yearly Home Value Increase Rate” of 2%. The website appears to amortize that into the monthly payment.

  25. 25
    Saul says:

    “Say you are in the market to buy a home today, priced in the $400,000 range. You have $40k for a down payment. We will assume 5% interest rates.”

    It may be fair to assume 5% interest rates now, but what if that’s not true in a year? What if the mortgage market is even more screwed up and you can’t even get a loan? What if all the newly printed bailout money causes inflation and rents go up 10% next year?

    I am looking forward to see what happens in the coming year.

  26. 26
    Voight-Kampff says:

    Obviously there is that singular point in time that is the ultimate time to have bought any given stock… its lowest point, but you can still make money buying at many different points in time, and people do just that, many people make money ( many loose too ) .
    People have stated several times on this site that you have not made any money on a house if the value is up, until you sell it. Money in your hands only goes up or down on the day you sell. So doesnt that count if it goes down?
    In “the tims” scenerio , you could save over 25K by waiting to buy at a 10% discount, but what if after waiting, you end up buying a house that costs 25k more than the original because the deals are so groovy, you save nothing.
    My Parents bought a house over 35 years ago and NEVER ever even considered or appraised the value of it until a few years ago ( its worth 17X’s what they paid, even if it was 3X they’d be happy), was it ever a bad deal, could they have done better with other investments, could they have bought 10% cheaper a year after they bought it, Im gonna go with…who cares ( I know they dont ).

  27. 27
    2kt says:

    Sniglet, here are some numbers to compare Seattle and Tokyo.

    Per capita income in Tokyo is about $36,500 and median 1,100 sqf house in decent area of Tokyo sells for about $450,000, 650 sqf apartment in good area sells for about $450,000 and that is after huge decline of 20 years. On per sfq basis Tokyo prices today are about double of what Seattle prices are today and per capita income in Seattle is about $30,300.

    For $300/mo in Tokyo you can rent 120 sqf “apartment” without a bathroom.

  28. 28
    softwarengineer says:


    What tax break? Tha bigger the house/mortgage; the bigger the maintenance paid out [albeit even if the house theoretically goes up in value since you bought it, the profit is capital gains if you pull out of the real estate game [don’t reinvest] for more than 2 years.

    No wonder all the investors want things fixed in two years, if they sold their Seattle house in 2006 for top dollar to cash; they had better have kept good maintenance receipt proof for possible IRS inspection.

    Ohhhh….because the 3 year avg thing, the 2009 property taxes go up in the Seattle area anyway, lol

  29. 29
    Andy says:


    Ah, you too understand that real estate depreciates????
    My friends, finally, some sense among our real estate debt pushers.,…

  30. 30
    buystocks says:

    VK @ 25,
    I truly hope your point isn’t “don’t think about it, just buy it, it worked for my parents”…

  31. 31
    Ben says:


    Tokyo is one of the largest metropolitan areas on the planet, and one of the most dense too. Japan has the second highest GDP of any country on the planet, and Tokyo is the epicenter for that.

    To compare Seattle to Tokyo is pretty specious IMO. You compare Tokyo to New York, London, Paris.

    How much RE does $450k buy you in New York right now?

  32. 32
    Jill says:

    I am the renter that was profiled in the Seattle Times story. They didn’t print all the juicy details. I can tell you that on an annual basis, we are WAY ahead financially, even without the tax benefits of owning. Additionally, were able to take our capital gains and free monthly cashflow and invest in appreciating assets in the 8-20% annual range. I would rather have our money in performing assets than depreciating assets. Right now, homes are depreciating, period. We haven’t even seen the Alt-A and Option Arm tsunami that is ahead, which will drive down real estate even further. Bottom line, the real estate bubble has forced young, productive people into massive debt slavery. And for what? To say that they “own” their home? They don’t “own” their home, they “owe” the bank. Check out more on my blog

    The only silver lining in home ownership that I can see, is that with the gov’t bailout, inflation is on the near horizon. People that have huge mortgages will see their debt get inflated away. That’s convenient, if they still have a job and can continue to pay their mortgage.

  33. 33
    mikal says:

    Ben, 2kt put in a comparison of average median wages. Andy, my parents paid $27,000 for theor house in the early sixties. Andy,has their house depreciated? I wouldn’t buy right now but am pointing out the flaws in your arguments.

  34. 34
    David Losh says:

    Real Estate depreciates and professionals depreciate properties. The Real Estate is the land and land value. The quotes talked about here are based on the idea that the price of land never goes down because they are not making any more of it. That phrase has to do with land and land only.
    The highest and best use of land is an in city parking lot. There is very little up keep. Land can have obsolete structures on it that negatively impact the value of the land.

    Anyway, I wanted to address appreciation of Real Estate. The most common comment I have heard over my thirty year association with the Real Estate business is that you are paying off a property with “future dollars.”

    When you buy a home and start paying today your dollar goes so far. In time your dollar buys less and less but in terms of your mortgage payment it is paying more and more. Future dollars are inflated in most cases and I think we’ll see a period of rapid inflation in the near future.

    Your rent however is tied to what the land lord can get by supply and demand. If your theories are correct there will be massive demand for rentals. The supply will increase, rents will come down and once things settle out inflation will continue on it’s relentless march. If you own the mortgage stays the same, rents go up over a ten year cycle.

  35. 35
    Amy says:

    We’re renting right now and it makes good financial sense but I miss my home A LOT! But, I was one of those people who really enjoyed being a homeowner. I love to garden, paint, decorate, etc. It’s kind of a passion for me. Also, I’m a space person so going from 3,000 square feet to 1/3 of that wasn’t fun. It’s a special joy to hear the guy next to us hack up his lungs every morning and the people above us to shower and go to the bathroom. That I can’t put a price tag on. I would pay almost anything to have my privacy back.

    We relocated here 18 mo. ago and sold our house for top dollar. Of course, coming from the Midwest, that won’t buy much here, even as prices are falling.

    I don’t miss the cleaning, but I do love a home and we are trying to save. I do miss the tax deduction. I just wrote a check to the gov’t for another $6,000. We’re one of the few couples actually maxing out our 401k so our home was helpful in keeping our taxes lower. Plus, we had state tax too so we got additional deductions for the home.

    I don’t miss the $495/mo heating bill for that big old brick house in the winter. I pay only about $100 mo total for all of my electric. Water/Sewer/Gas/Trash is together about $50/mo to the condo complex where we rent.

    There’s no real option for satellite because of the complex so I’m stuck with cable prices. We do bundle our services and get free long distance plus a land line with voice mail. I have a work phone too so I don’t use a cell. Hubby has one and that’ s more than enough.

    So, there are trade-offs. Yes I’m saving money but at the paltry 2% I’m getting now in money markets and additional tax I have to pay for the priveledge of saving, it’s getting old. True, if I’d risked my equity in the stock market instead of tucking it away for the next house I’d be down 40% now but there’s not a lot performing right now in terms of assets. We did make another small real estate investment overseas and hopefully that will be wrapped up soon, but that’s a small sum and a longer term thing.

    In terms of lifestyle it has allowed us to pay cash for the adoption of our child. Although the process is very long so even that seems distant. We also paid cash for a car. Our old one died. Renting has allowed us the freedom to decide to stay here or go somewhere else next summer. (Winters are hard here.) We’ve had the chance to travel, which has been awesome because I have wanderlust, especially since I have no home anymore. I’m in gypsy mode. We’ve been able to give more to our church and the other causes we care about at a time when many non-profits are suffering.

    I think the biggest thing I don’t like about renting is that there is no “goal”. With a house, if you love it you are motivated to do things with it, pay it off, have people over, mark the seasons with planning and plantings. It can be a treasured oasis. It can provide a sense of permanence and calm in a very unsettling world. That’s what my house back home did for me. It was a sanctuary. It was a great outward expression of myself.

    I’ve done the best I can with where we’re at but renting is always temporary. You don’t want to improve someone else’s home or make changes only to have to put it back the way it was in a year. I’m very goal oriented so that’s been hard. I don’t regret renting, I just want to get off the tread mill. There’s no sense of progress.

    It’s also hard working full time and feeling like there’s nothing I’m working toward.
    Saving is easy if you do it right but it’s not exactly something to can see and touch like a home. I worked my butt off for my house back home and I appreciated it so much. I know I’ll feel that way again when I have another house.

    Having said that I’ve no wish to pay $3,500 a month for some crappy rambler that looks like a glorified mobile home. The ugly split 70s homes do nothing for me either. If I buy anything here it would really have to knock my sock off. I’m not looking for a home just to say I have one. I’ve seen people in rat traps before. You can’t make a silk purse out of a sow’s ear. Period. Someday you’ve got to unload this thing and it better be worth it.

    I like Ray’s word GEM. My old house was. It was a 2 story brick on a corner lot in a great neighborhood in the shadow of a big city. I was meticulous about maintenance. We had a new roof and copper gutters on the house before it was put on the market. (Insurance paid for it due to hail damage.) It sold in 4 hours for full asking price in a chilly real estate market. The appraiser had to come back twice just to make sure he could get the numbers to work so we knew we were right at the line.

    I wouldn’t buy a house unless I found a GEM I just couldn’t live without.

    That may or may not be here. But if you’ve got a real GEM, then you know what you’ve got. It’s rare and no matter what the broader market does, you’ve got something really special. I hope I have another someday.

  36. 36
    DrShort says:

    Amy —

    Brilliant post. Your comments described exactly how I feel too. While renting is a better financial decision for me right now, there is something missing.

  37. 37
    David Losh says:

    That really is a beautiful comment Amy. It’s level headed. You can buy well and keep a home using financial sense.

  38. 38

    I also think your post is great. I think it really describes how a lot of people feel, kinda describes the hard to describe satisfaction of owning a home….
    And of course you’re right about the number of ugly, way overpriced homes out there, the rat traps with granite counter tops, the “lipstick on a pig” homes…
    But hang in there. The number of GEMS should be increasing, and at some point you’ll find another house you love and that you can comfortably afford.

  39. 39
    2kt says:

    Sniglet is the one that compares the US property boom to Japan. When doing so, things need to be put in prospective. Most notably, the fact that after 10-year boom prices in Manhattan are about on par with Tokyo today and that is after Tokyo declined about 60%-70% from the pick.

    You can either compare median income to median property prices (apples to apples) or go for density and desirability, etc, etc. When inventory is high, prices are impacted negatively regardless of density and desirability.

  40. 40
    b says:

    Folks talking about possible massive inflation above, here is Krugman yesterday on the massive DEflation coming:

    The CBO is predicting somewhere in the range of 3.5% deflation for the coming year. The Fed right now is just trying to pump so much money into the system we end up at 0-1% inflation. The only way we don’t end up with deflation or zero at this point is some magical 2009 V-shaped incredible recovery that takes everyone by surprise. I would put the odds of that at 1:100 myself. Remember, cash is king in deflation and tying your free cash into something already depreciating (and which is easy to lose if you get laid off) is probably the worst financial decision you can make.

  41. 41
    b says:

    mikal –

    Such comments are meaningless. You might as well say “hey, Steve Ballmer went to work for some small company in the 80’s. A lot of other people did too and got laid off, but he is a billionaire now. Is he a jerk??”. The fact is you and I have no idea what housing will look like in 30 years from now, but hindsight is 20:20. The only way to make this kind of decision is to look at things on the short term horizon, is it going to be cheaper to buy today or next year? That we can answer with more confidence, but nothing is ever perfect.

  42. 42
    wreckingbull says:

    The only meaning I extract from Mikal’s boilerplate comment is that homes are still grossly overpriced. We will never see a home that cheap again, but we have already started to see prices fall back to the trend line on which that 27K lied.

  43. 43
    Scotsman says:

    Reality is coming around to “cull the herd.” In three years NO ONE will think of real estate as an investment for a full generation.

    And to those thinking/hoping that inflation will soon be back on the horizon, erasing past mistakes and restoring a false sense of prosperity, don’t hold your breath. The government can’t print money fast enough to make up for the wealth that has been lost, and will be lost over the coming years, somewhere around $20 trillion in the U.S. alone. Plus, there are other constraints:

  44. 44
    Alan says:

    Great comment, Amy.

    I think all of the “bubbleheads” here want to own too. If we didn’t we wouldn’t keep coming back to this site.

  45. 45

    For those of you who are predicting a seriously inflationary environment:
    Will housing be excluded from those things that are going up?

  46. 46
    magnolia44 says:


    Great post discussing both ends of the spectrum


    Assets appreciating 8-20%…. what and where? If you guys have that going on pick up the phone and call the white house, they could use you. There is no such thing.

  47. 47
    Jill says:

    Well said, Amy. There are huge emotional variables with home ownership, and I think a home is the most emotional purchase one can make. Like you, I enjoy making my home a sanctuary and working hard to make it reflect my personal tastes. The tendency in a rental is to not do these things, or at least make changes that you can take with you when you move. It’s hard to make a rental “yours”.

    We still have parties (just threw a big one last night), plant flowers, and enjoy life in our rental. In fact, we have an organic veggie garden to grow our own salads all summer long. But that’s not to say I don’t miss some aspects of home ownership, many of the things you mentioned.

    The thing I don’t miss is the disproportionate amount of time we spent slaving away maintaining our house, in the yard, etc. I never would have had time to write my book in the house that we owned, because I always felt compelled to take on just one more project. Renting gave me the mental break and time to pursue other creative endeavors.

    We do plan on buying a home again, just not right away. We view real estate as an expense, not an asset or ‘investment’. But a roof over your head is a necessary expense. The cost of that expense is coming down, and I believe Seattle real estate will return to 1999 prices. We’ll probably pay cash for our next house. We just don’t like being in debt, even mortgage debt.

  48. 48
    Jill says:

    Magnolia44 – Gold ETF’s, and even plain gold bullion in a Perth Mint account are 30% in the last 2 years. If you want solid investments in a bad economy, you should check out EuroPacific Capital

    Of course, we had some investments that took a dive with the market crash. But still on a net basis, we are ahead of where we would be with our money tied up in real estate.

  49. 49
    Alan says:


    I think housing is preinflated. If we have inflation, then prices/salaries are going to catch up to housing, but housing isn’t going to go up as much.

    Of course, that is assuming we don’t see hyper-inflation.

    I think large scale payouts of FDIC is the biggest risk for inflation. In the absense of that, we will continue to see the credit unwind and continued deflation.

  50. 50
    anony says:

    I appreciate your takes on this Jill and Amy.

    Amy, could you afford to get into a rental house? It seems like it would be worth it for you. You might not do much maintenance and improvements, but you could garden and get the privacy you seek.

    It reminds me of all the friends who suggest I purchase a condo since I’m not willing to pull the trigger on a house right now. And how would that improve my situation? Apartment-like living but with debt and depreciation!

  51. 51
    Voight-Kampff says:

    my point ( if I had one) was that if you are buying a house for an investment and watch the value daily, you will be very disappointed.

  52. 52
    Objectivity says:

    Inflation seems to be a big buzz word right now. There is nothing inflationary about this environment.

    Sniglet has been right on for months…we are in a deflationary period that will under cut how our country operates.

    Short the dollar (UUP)…Obama will kill it. (because he has to)

  53. 53
    Voight-Kampff says:

    I would sincerely appreciate comments on something,

    I am in a presale contract to buy a condo down town, ( yes, I know it seems crazy in this environment, I put a deposit down 3 years ago ) at the price I am getting it for, I could rent it out and probably cover most of the mortgage based on downtown rental rates ( +/-$200 ) I am not an investor, and I am planning to live in it at least 5 to 10 years. Isnt that what some of you refer to as a GEM? or am I crazy to close at this point?

  54. 54
    Jbeans says:

    Amy, I could have written your post almost word-for-word. Although it took us eight hours to sell our house last June, so you’ve got us beat there. (But we sold for over asking price, so there’s that.)

    Renting feels a bit like spinning our wheels. I want to get involved in my community but I know we are not likely to buy in this neighborhood, so I don’t. It’s a weird kind of limbo. Still waiting for anything in our target area to become a gem — so many properties just sitting for months with no movement, so many unrealistic prices from sellers who bought at the peak and have no equity to buffer a price drop. And I’ve yet to talk to anyone in Seattle (outside of this community) who doesn’t think it’s a great time to buy, even as they tell you about how many people they know who are out of work.

    We do plan to buy but have yet to see anything that we want to live in for 10+ years, at least not at the prices that are out there right now. So we’ll keep renting…it’s definitely cheaper!

  55. 55

    Without knowing some juicy details, it’s hard to say whether it’s a GEM, or whether you’re crazy, or both…
    …If mortgage, taxes,insurance, and HOA fees are similar to what you could rent it out for, AND it’s the kind of place you’d consider renting yourself, AND similar condos are for sale for significantly more money AND you can easily handle the monthly payments, AND the HOA has adequate reserves and has done a good job maintaining the property and no major assessments are expected, AND you really like the place, the why not?

  56. 56
    jon says:

    “There is nothing inflationary about this environment. …

    Short the dollar (UUP)…Obama will kill it. (because he has to)”

    How is killing the dollar not inflationary? High unemployment can stop inflation, but only if the unemployment affects most skill areas. The new spending is specifically targeted to give jobs to as many people as possible. That is exactly what they would do if they wanted to start inflation.

  57. 57
    Scotsman says:

    I doubt we can kill the dollar because while we are hurting, other countries are hurting worse. Going forward I expect to see all major currencies deflating at the same rate with the net effect that nothing seems to be changing. In the end, the dollar will remain one of the stronger currencies if only because of the U.S. military and the fact that we are 1/3 of the world economy.

    The stimulus program will not work for several reasons. First, it’s too small and too short term to really have an effect relative to the wealth that has already been lost. Second, the required deficits and related tax increases will kill any positives over time as the emphasis shifts from spending the stimulus to paying for it. Lastly, government spending never creates the right kind of jobs- jobs associated with innovation and long term growth prospects. Stimulus programs are band-aids, not cures. They only push the problems down the road, into the future.

    There won’t be any significant inflation for a decade or more. The current level of debt must be worked down, the U.S, economy must be completely rebuilt along with a manufacturing base that produces real wealth and value, not just fees from financial transactions. Wage increases from productivity gains and low unemployment are the only way to drive inflation over the long term. None of those are even close to being a reality at this time, or in the foreseeable future. And “printing” without the associated debt is illegal unless the constitution is changed, so that’s not going to happen either. Inflation just isn’t going to happen.

  58. 58
    Voight-Kampff says:

    thank you for commenting, to anwer your questions
    1)it is a new building under construction ( olive8 highrise ) so HOA info is unavailable. It will have a warranty I think?
    2)renting it out would cover mortgage and taxes, (probably not HOA dues).
    3) I would definitely rent it( I am considering buying it after all )
    4) similiar condos are for sale for significantly more ( at least 30% more based on price per sqft )
    5) I sold my previous condo 2yrs ago ( many thanks to this site…many thanks to “the tim” ) so I can afford it.
    6) I really like it.

  59. 59
    mikal says:

    B., It depends on the company. Housing is what it is as a whole. I have been drinking all day and was really hoping from a comment from Matthew when I came home. Next weeks AFC title game should be really good.

  60. 60
    Jonness says:

    “don’t think about it, just buy it, it worked for my parents”…

    It worked great for his parents 35 years ago. Unfortunately, it didn’t work so well for my neighbor. His house will be auctioned at the court house steps in Feb.

    Chances are, his parents paid a historically affordable percentage of their income for the house–unlike what the people he recommends to buy now will have to pay.

  61. 61
    b says:

    VK –

    If its anything like the other new condos around that area, HOA will run about ~$700/month. And judging from building standards the last few years, I wouldn’t be surprised if you had a decent assessment to fix something major in the building within 10 years. Since you are unsure of the HOA do you even know if its going to be allowed for you to rent it out?

  62. 62
    mikal says:

    Jonness, whom are you quoting,or is it you are with us or against us? Where is your context? I never said that, but obviously you are having trouble with the point. Try again.

  63. 63
    Joel says:

    …inflation is on the near horizon.

    You had me until there.

  64. 64
    Voight-Kampff says:

    to b@ 61,
    thank you for responding,
    HOA dues will be around $500 per month. and yes I have read the bylaws, renting is acceptable ( with some restrictions )

  65. 65
    Voight-Kampff says:

    to jonness @ 60
    I think you were talking about my post, however I did not recommend anybody do anything, I was simply saying that it is not always a good time to buy realestate as an investment, but that some people buy for other reasons ( like my parents ).

  66. 66
  67. 67
    Jonness says:

    To VK @65:

    OK, I see.

    As for buying now, It’s just my opinion, but I’m of the mindset that what you buy should be somewhat in line with historical fundamentals despite whether what you buy is personally affordable to you or not.

    But the other side of the coin is that you are alive right now, and if you are extremely uncomfortable in your current living situation and would do better owning, then perhaps it’s worth it to buy. Life is for living. So I guess one has to contemplate the life reward points of the two separate pathways (buy now or wait) to see which one you believe will bring the most reward (personal fullfillment) over the course of your entire life. You could gain some good life now, but it could cost you in the long run. Somewhere there is a balance.

    Personally, I have to see prices at least level off before I’ll jump in. Others are no doubt in a much different situation from myself and might benefit from buying sooner.

  68. 68
    Steve Tytler says:


    I think you missed the point of my post.

    As I said, if you want to wait for the bottom of the market to get the absolute best deal on a home, more power to you!

    That’s a perfectly legitimate way to buy a home to get maximum return on your investment.

    But most people do NOT look at their home primarily as an investment. They look at it as a place to live and they get enjoyment out of it that is not measured by ROI.

    If everybody waited for the “bottom of the market’ to buy a home, they would only be able to buy a house once every 7 to 10 years, which is the length of the typical real estate cycle.

    The average person is not going to say, “Honey we need a bigger house, but the next real estate bottom is 4-5 years from now, we’ll just have to wait for prices to bottom out.”

    You get the best price you can get at the time you buy, that’s all you can do.

    I gurantee you that there are plenty of people who bought their homes at the peak of the market who are perfectly happy with their decision because they plan to live there for the next 10-20 years.

    They are not sitting around studying graphs and stats worrying about the equity they have lost. Sure, they are not happy but their home values have gone down, but if they are not selling, so what?

    Living in a cheap one bedroom apartment is obviously a more efficient use of your money than buying a 4 bedroom 3 bath house with a 3 car garage on a quarter acre lot … but which is a better lifestyle?

    There is no right or wrong answer.

    Money isn’t everything and lifestyle choices are just as important as ROI and I think too many of you number cruchers on this site fail to see that.

    For example, lots of people like to buy brand new cars. Personally I would never do that because I think it’s a waste of money, I always buy used cars.

    Most people who buy new cars know it would be cheaper to buy a used car but they enjoy owning a brand new car and they’re willing to take the financial loss
    that comes along with it.

    If eveybody had my attitude about cars, the car business would come to a crashing halt (which it sort of is right now).

    Many people know that it’s cheaper to rent than to own your own home, but they are willing to lose money in exchange for the pleasures of owning their own home.

    If everybody in the real estate market had the attitudes of the “wait until the bottom” buyers on this blog, the housing market would totally collapse.

    Now, I know that’s exactly what a lot of you are hoping for, but it’s not going to happen. Because as I said, most people buy a home for the lifestyle not for the investment return.

    You may think they are “stupid” for doing that, but that’s not going to change reality.

  69. 69
    deejayoh says:

    mikal // Jan 11, 2009 at 5:54 pm

    I have been drinking all day and was really hoping from a comment from Matthew when I came home.

    why do I find this so funny?

  70. 70
    DavidB says:

    “If everybody in the real estate market had the attitudes of the “wait until the bottom” buyers on this blog, the housing market would totally collapse.”

    The housing market is collapsing! It’s collapsed a lot more in some areas but anyone who couldn’t predict home prices decling in Seattle as recently as 2 years ago is a fool!

    The fact is not many people know much about finance or economics. They would rather read about what Angelina and Brad are doing then what the Federal Reserve is doing. They make emotional decisions to buy homes because they believe what they’re told and it’s what their parents did. They don’t think through the true cost of owning a home and they don’t consider what will happen if my spouse loses their job. Many people have no savings at all!

    I haven’t heard any good reasons given for why anyone should buy a home now versus in a year or two when prices have shown signs of stabilizing. The only reasons given to buy now are the same ones used during the bubble runup, “buy now or you’ll miss an opportunity to own a home because prices will increase”. “Buy no because interest rates will increase”.

    These are the same reasons given 6 months ago and now prices and interest rates are both lower! So why should anyone believe that prices and interest rates won’t be even lower 6 months from now?

  71. 71
    Objectivity says:

    Voight- save your money and buy it for half that price from the bank in 2 years. Think of the cash flow you’ll have then.

  72. 72
    Objectivity says:

    Jill, you’re gorgeous. Why didn’t they put a pic of you in the article?

  73. 73
    EconE says:

    Steve Tytler said…

    But most people do NOT look at their home primarily as an investment.


    Yeah….right. And the RE industry never “sold” it as one either, huh?

  74. 74
    Objectivity says:

    “biggest investment of your life”…”and the safest”…I was told this by the clowns dressed in suits and NAR pins throughout the bubble.

  75. 75
    patient says:

    Steve T you are missing the point again. It’s not mainly about ROI it’s about cash flow. It’s two totally different things. If you buy at a higher price you pay a premimum for it every month as long as you have the mortgage, money that you could have used for other things or saved for retirement, college funds or whatever floats your boat. ROI can be positive or negative when you sell but cash flow is a constant reward or problem that is initiated when you put the ink on the paper. This is VERY important to consider.

  76. 76
    anony says:

    Steve Tytler said “Living in a cheap one bedroom apartment is obviously a more efficient use of your money than buying a 4 bedroom 3 bath house with a 3 car garage on a quarter acre lot … but which is a better lifestyle?”

    I think you are confusing rent vs buy with attached vs detached, which most real estate boosters tend to do (not saying you are a real estate booster). The fairer comparison would be cheap 1 bedroom apartment vs cheap 1 bedroom condo, or renting a 4 bedroom 3 bath house with 3 car garage vs buying it.

    There are real lifestyle differences between renting and buying. Why confuse things by comparing apples to oranges with the property type?

  77. 77
    Plymster says:

    Many people know that it’s cheaper to rent than to own your own home, but they are willing to lose money in exchange for the pleasures of owning their own home. — Steve Tytler

    Really? I’ve always heard the opposite. Anyone I’ve ever talked to has said that their homes were the best investments they’ve ever made (despite losing a bundle when forced to move due to job changes, etc). In fact, one of the common mythical arguments for owning a home is to “stop throwing money away on rent”. That hardly squares with your view, Steve.

  78. 78
    TheHulk says:

    For example, lots of people like to buy brand new cars. Personally I would never do that because I think it’s a waste of money, I always buy used cars.. — Steve Tytler

    Comparing buying a car vs. comparing buying a house is ludicrous. A car purchase is a loan you take with the expectation that the asset value WILL decline over time. The more expensive the car the higher the depreciation over the lifetime of the car. Every dang fool on the face of the earth knows this. (We are talking about consumer cars here, not collectibles. If you have a 100K classic mustang in your driveway in Medina and a couple of Bentley’s, you are batting in a different league.)

    OTOH when buying a house, you are buying into a heavily leveraged loan with NO GUARANTEE of the asset value when you sell that asset. Add to this the fact that you cannot *take* that asset with you if you have to move unlike the car.

    Rent vs. buy MUST be viewed by everyone as the most significant financial decision of their lives. When houses were appreciating it was the “best investment” you could make. Wasn’t that the mantra pitched by all those agents? Now that prices are tumbling it suddenly becomes “A place you buy that you call home, the price doesn’t matter”. You cant have it both ways.

    Yes, a house is a place you call home, but every single thing you have comes at a certain price. Only a stupid person would buy in this current environment. Read the news, read the blogs, educate yourself. Just remember that if you are thinking of putting 10% down and prices drop another 10% in the next year (which I am sure they will) you have lost all that money. Real estate is going to stagnate for at least the next 10 years. If you plan to sell after 10 years accounting for inflation, you will most likely lose 10-15% of the price of the house (including transaction amounts). Consider that carefully before buying.

    And oh yeah, Case Schiller will keep dropping between 10% and 15% for 2009 and 2010. After that between 5 and 10% for 2011 and 2012. I predict the “bottom-of-large-drops” in 2013 with no significant price changes thru 2018 (aside from inflation). Of course, if we get into a full blown deflationary cycle, all bets are off.

  79. 79
    Jonness says:

    There are those who raved on the merits of leverage when home prices were heading up, and now spend their time trying to convince those who know better that leverage is a relatively small and inconsequential factor when purchasing a home during a period of massive asset deflation and economic uncertainty.

    Not studying charts and graphs leads to what my neighbors are experiencing due to taking on too much leverage and risk during the height of a period of mania not witnesed since the years leading up the Great Depression. They lay in bed all night unable to sleep stressed out of their minds praying to God to save them from the worst nightmare they’ve experienced in their entire lives. Their house will be auctioned at the court house steps in less than a month. I can only hope they don’t contract a serious stress-induced disease like cancer while going through this. I’m not sure where they will go and how they will survive. They are out of work, out of money, and out of luck. And their two wonderful kids, who have had nothing to do with the underinformed hasty decisions made by their parents will co-suffer in the destruction.

    We’ve talked about fear and greed a lot around here, but what’s more important than either subject is keeping yourself physically and mentally healthy so that you can battle at your fullest ability during this terrible downturn coming upon us. My advice is to be extremely careful about how much leverage (risk) you expose yourself to at the front-edge of what is shaping up to be the most financially destructive storm in our lifetimes. Stay healthy, keen, and informed and only purchase a home when you are absolutely certain you can financially afford it.

    The best medicine in an environment such as this is prevention. Thus, try to error on the side of caution. We have many years to go before we see the bottom of this nasty mess. There is plenty of time to make an informed well-researched decision on when the right time to buy your next home will be. If you look at the house-decline charts in areas ahead of Seattle, it becomes clear Seattle is nowhere near the bottom. People are going to suffer and bleed before this mess gets straightened out. That’s a certainty.

  80. 80
    Jill says:

    Doh! Joel, I was thinking “in the near term” and “on the horizon”. Jeez, I’ll never get a job as an editor.

    Objectivitiy – Thanks. They did use a picture, but I think I was having a bad hair day or something because my friends asked, “is that even you?”

  81. 81

    […] Lastly, here’s a couple of national pieces that have been brought up recently by a lot of people, including an NPR segment featuring Jill Keto, who you may recall from a January Seattle Times article. […]

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