First-time home buyers as academics

[dismalist]

I think he just means that if he absolutely had to cut and run, he'd be able to do so at a profit, and use that fuel life elsewhere. Of course, it could end up being but a drop in the bucket of a down payment in some locations, but also in many it could be substantial  fraction of the value of a good home.

In the same location for a similar house, prices would also have risen at the same relative rate!

For  a different location or a different house, one could have purchased at the same time as the original purchase [at a different price].

The only improvement from a pure price rise is to sell, and then to buy a smaller house, spending or saving the rest.

First, not a he if you're talking about me (interesting assumption. . .)
Second, this thread is about the relative risk of buying a house pre-tenure. Most people who don't get tenure are going to be moving elsewhere, so would need to sell their house and buy one (or rent) wherever their new job is. So what you say here doesn't apply--you (a) have to move, not buy a house in the same area, and (b) unless you can see the future, you could not have bought a house in the new location earlier. The question is if you would be better off renting or buying if you do end up needing to sell and move. I'm saying that isn't a question you can answer in general-- it is specific to each housing market. This should be pretty blazing obvious.

I'm merely being critical of the ability to make money on the house one owns and lives in just because house prices are rising.

Price differences across space work just like price differences across time. As far as pure price differences are concerned, there is no difference between renting and owning.

Note that rents are tied to house prices. Suppose you have to move to a high housing price city. As a renter, you will be worse off because rents are higher in the high price city. Suppose you own and sell. With that money you can afford only a smaller house in the high price city. You are worse off. [The opposite for moving to a lower housing price city.]

Aside from control over the property, the difference between renting and owning lies in the timing of costs. More of the cost of owning is up front -- closing costs and what not. Hence, the rule of thumb to not buy if one is going to live in a place for fewer than five years.

In the end, whether to own or rent depends on the degree to which one likes control over the property and the degree to which one is risk averse. Different people will arrive at different conclusions.

[Puget]

The question is if you would be better off renting or buying if you do end up needing to sell and move. I'm saying that isn't a question you can answer in general-- it is specific to each housing market. This should be pretty blazing obvious.

IF you just moved to a town to take a job, how could you know the answer? 
The statement, " it is specific to each housing market. This should be pretty blazing obvious" seems to me to be assuming certainty.

IF you knew a) the rate of change of houses in specific blocks in a specific town over a short period and b) whether your contract would go the full time toward tenure (whether you would have the full 6 years, or be released after a pre-tenure review), and finally c) whether you would ultimately gain tenure at the end of the tenure process, then this decision would be "pretty blazing obvious".

I will also add that we could add to the uncertainty that YOU like the school and town and YOU want to stay.  That YOU like that house and neighborhood and dont want to move (and that your life circumstances dont change making that house unsuitable  - because you got married, divorced, had triplets, or adopted triplets! 

The bottom line is that for a newly hired untenured assistant professor (who may even have tons of student loan debt) there is usually little certainty! 

I will add that debt adds risk!  (Beta is a measure of financial risk.  look up "Hamada Beta" to see one estimation of the formula relationship).  It may be better for a new hire to concentrate on paying down debts incurred while finishing grad school and saving a down payment.

Finally, even the salary is unknown, actually.  Will you be OFFERED to teach summer classes?  How many?  Are they guaranteed to make?  My own advice is that you should NEVER DEPEND ON SUMMER MONEY!  It is not guaranteed!  Live on your 9 month wage and IF you get paid in the summer, that is money that you can use to pay down debt or save up a down payment (or for retirement, so you never need to teach another summer!).

Refrain:
Debt adds Risk
Risk is bad for your mental and financial health
Summer money should never be counted on (and Never depend on it to make ends meet!)
Renting is not a sin!  There are many times it is the wisest option as it adds options!
A new hire (transplant to a city) is unlikely to have the insight to have any degree of certainty to know many things about the job, the housing market, or even their own life circumstances! 


last word.

We hired a great faculty member 2 years ago.  He brought in credit toward tenure and we did his Pre Tenure Review this Academic year, and he would go up for tenure in 2023 .  Some committee members asked, "Do we have to wait?  Can we offer him tenure now?"  So he is a shoe in to get an offer for tenure  in 2023. 
He just quit.  While he loves the place and the area, his wife Does NOT!  She wants to go back to the NE part of the country and be closer to her family.  So he is faced with the "Green Acres" situation in reverse, except that they have a child, so the option for him to stay is, in reality, non-existent. 

Clearly, IF he had known how unhappy she would be here/away from her mamma, he would NOT have purchased a house!  Even though he was on a short tenure clock and the risks looked limited!  While housing prices have gone up, have they gone up enough to cover the commissions for selling?  The added moving costs (which are never fully reimbursed)?  At this point, the decision is not financial, so he will take whatever loss he must take.

"Pretty blazing obvious" referred to the fact that it is housing market specific, not that the ultimate decisions would be obvious.
Most places, 3rd year renewal is almost universal, so isn't much of a risk. Finding out about the housing market is really not challenging, even if you are new to an area. There are data! You can consult local experts! As to the rest, yes of course there is uncertainty. Life is uncertain. You have to make the best decisions you can given what you know at the time.

[Puget]

I think he just means that if he absolutely had to cut and run, he'd be able to do so at a profit, and use that fuel life elsewhere. Of course, it could end up being but a drop in the bucket of a down payment in some locations, but also in many it could be substantial  fraction of the value of a good home.

In the same location for a similar house, prices would also have risen at the same relative rate!

For  a different location or a different house, one could have purchased at the same time as the original purchase [at a different price].

The only improvement from a pure price rise is to sell, and then to buy a smaller house, spending or saving the rest.

First, not a he if you're talking about me (interesting assumption. . .)
Second, this thread is about the relative risk of buying a house pre-tenure. Most people who don't get tenure are going to be moving elsewhere, so would need to sell their house and buy one (or rent) wherever their new job is. So what you say here doesn't apply--you (a) have to move, not buy a house in the same area, and (b) unless you can see the future, you could not have bought a house in the new location earlier. The question is if you would be better off renting or buying if you do end up needing to sell and move. I'm saying that isn't a question you can answer in general-- it is specific to each housing market. This should be pretty blazing obvious.

I'm merely being critical of the ability to make money on the house one owns and lives in just because house prices are rising.

Price differences across space work just like price differences across time. As far as pure price differences are concerned, there is no difference between renting and owning.

Note that rents are tied to house prices. Suppose you have to move to a high housing price city. As a renter, you will be worse off because rents are higher in the high price city. Suppose you own and sell. With that money you can afford only a smaller house in the high price city. You are worse off. [The opposite for moving to a lower housing price city.]

Aside from control over the property, the difference between renting and owning lies in the timing of costs. More of the cost of owning is up front -- closing costs and what not. Hence, the rule of thumb to not buy if one is going to live in a place for fewer than five years.

In the end, whether to own or rent depends on the degree to which one likes control over the property and the degree to which one is risk averse. Different people will arrive at different conclusions.

In my experience rental and sale markets are not nearly as in synch as you state. As I've said, I'm paying less for my house than for rent on a one bedroom apartment, and if I sold the house today I'd do so at a sizable profit. I'd hardly describe that as a wash.  I'm actually very confused about why you think it is.

[dismalist]

In my experience rental and sale markets are not nearly as in synch as you state. As I've said, I'm paying less for my house than for rent on a one bedroom apartment, and if I sold the house today I'd do so at a sizable profit. I'd hardly describe that as a wash.  I'm actually very confused about why you think it is.

Not $ for $ month for month, because different costs [maintenance] are due at different times in the life of a house, but charged uniformly in rents, but per cent changes.

Yeah, the profit was my original point. If you were to sell your house, you would not make a profit unless you decided to buy a smaller house  [or become homeless:-)], or move to a lower housing cost city.

[Puget]

In my experience rental and sale markets are not nearly as in synch as you state. As I've said, I'm paying less for my house than for rent on a one bedroom apartment, and if I sold the house today I'd do so at a sizable profit. I'd hardly describe that as a wash.  I'm actually very confused about why you think it is.

Not $ for $ month for month, because different costs [maintenance] are due at different times in the life of a house, but charged uniformly in rents, but per cent changes.

Yeah, the profit was my original point. If you were to sell your house, you would not make a profit unless you decided to buy a smaller house  [or become homeless:-)], or move to a lower housing cost city.

That's just non-sensical. Its like saying it doesn't make a difference if I leave all my money in a checking account (equivalent to paying rent-- no returns) or invest it (equivalent to buying). Sure, there is some downside risk to buying, but also potential profit. In addition, rents here have been increasing steeply but my house is locked in at a fixed (and pretty low) interest rate. Percent changes in rents and housing prices also don't match here-- maybe over the very long term, but not at the scale that people operate on in the housing market typically. Maybe your logic makes sense based on some idealized economic formula but not my reality on the ground. 

[mamselle]

Echoing to say I know of folks in the 2008 mess who were fine precisely because they rented, didn't need to sell, and just stayed put.

And I also recall the old CHE thread on the topic, and that was (in fact, at that time--I signed on c. 2006, I think) one of the conclusions on that thread, that the distinctions had more difference than they were sometimes allotted.

I'll never be buying anything, anyway, so my interest is hypothetical; it's a moot point for those of us who will be renters all our lives, anyway.

M.

[dismalist]

In my experience rental and sale markets are not nearly as in synch as you state. As I've said, I'm paying less for my house than for rent on a one bedroom apartment, and if I sold the house today I'd do so at a sizable profit. I'd hardly describe that as a wash.  I'm actually very confused about why you think it is.

Not $ for $ month for month, because different costs [maintenance] are due at different times in the life of a house, but charged uniformly in rents, but per cent changes.

Yeah, the profit was my original point. If you were to sell your house, you would not make a profit unless you decided to buy a smaller house  [or become homeless:-)], or move to a lower housing cost city.

That's just non-sensical. Its like saying it doesn't make a difference if I leave all my money in a checking account (equivalent to paying rent-- no returns) or invest it (equivalent to buying). Sure, there is some downside risk to buying, but also potential profit. In addition, rents here have been increasing steeply but my house is locked in at a fixed (and pretty low) interest rate. Percent changes in rents and housing prices also don't match here-- maybe over the very long term, but not at the scale that people operate on in the housing market typically. Maybe your logic makes sense based on some idealized economic formula but not my reality on the ground.

Let's keep the arguments separate and specific.

Your house has appreciated in value. I assume all houses around you have appreciated in value. Sell your house. Yes, you have more cash now than you spent on your house. Now, where are you going to live? You can't wrap yourself in cash to keep the rain out. You'll buy a house like the one you had before, which appreciated just as much! No profit.

Or buy a smaller house or move to a lower house price city. Then you have money left over.

[Rents follow house prices in the long run, not $ for $, month for month. Also, it's hard to get an exact match in sale and rental properties in a single location, at least in the United States. ]

[mamselle]

But you'll still get some money out of it and be able to buy something.

That's not nothing.

Was it Octo, also on that thread, who had two unsaleable (or unselling) homes on her hands that finally had to be sold at a loss?

The point was to get something out of them, as I recall; by the time she bought her next place, its down-payment may have come out of savings, again.

People do have to do stuff like that. It's part of life, as I recall, and you can't always just predict or plan it the way you think it should go.

M.

[Kron3007]

In my experience rental and sale markets are not nearly as in synch as you state. As I've said, I'm paying less for my house than for rent on a one bedroom apartment, and if I sold the house today I'd do so at a sizable profit. I'd hardly describe that as a wash.  I'm actually very confused about why you think it is.

Not $ for $ month for month, because different costs [maintenance] are due at different times in the life of a house, but charged uniformly in rents, but per cent changes.

Yeah, the profit was my original point. If you were to sell your house, you would not make a profit unless you decided to buy a smaller house  [or become homeless:-)], or move to a lower housing cost city.

That's just non-sensical. Its like saying it doesn't make a difference if I leave all my money in a checking account (equivalent to paying rent-- no returns) or invest it (equivalent to buying). Sure, there is some downside risk to buying, but also potential profit. In addition, rents here have been increasing steeply but my house is locked in at a fixed (and pretty low) interest rate. Percent changes in rents and housing prices also don't match here-- maybe over the very long term, but not at the scale that people operate on in the housing market typically. Maybe your logic makes sense based on some idealized economic formula but not my reality on the ground.

Let's keep the arguments separate and specific.

Your house has appreciated in value. I assume all houses around you have appreciated in value. Sell your house. Yes, you have more cash now than you spent on your house. Now, where are you going to live? You can't wrap yourself in cash to keep the rain out. You'll buy a house like the one you had before, which appreciated just as much! No profit.

Or buy a smaller house or move to a lower house price city. Then you have money left over.

[Rents follow house prices in the long run, not $ for $, month for month. Also, it's hard to get an exact match in sale and rental properties in a single location, at least in the United States. ]

Yeah, housing prices going up are really only a major benefit for people who have multiple properties, plan to downsize, or plan to move to a lower cost of living area.  Otherwise, it really just means your property taxes are going to be hiked. 

Still a good idea to own if you can, but it isnt the cash cow many see it as.

[clean]

"Pretty blazing obvious" referred to the fact that it is housing market specific, not that the ultimate decisions would be obvious.
Most places, 3rd year renewal is almost universal, so isn't much of a risk. Finding out about the housing market is really not challenging, even if you are new to an area. There are data! You can consult local experts! As to the rest, yes of course there is uncertainty. Life is uncertain. You have to make the best decisions you can given what you know at the time.

1,  "most places, 3rd year renewal..."  I dont know that this is accurate. 
At my place I can say this:
In the case I mentioned above, candidate successful, but quit to move 'closer to (wife's) family.  Is now selling a house purchased only 2 years ago.  Will he even break even?
Case 2.  Pre tenure review - terminal contract awarded
Case 3 Pre tenure review - allowed to continue, but tenure highly questionable
Those are the 3 Pre Tenure Reviews in just MY department this year.    IF you are saying that 'most renewals are positive' then 2/3rd of our cases had the OPTION to continue working (for now) even though 2/3rds will not be here in 18 months. 


" Finding out about the housing market is really not challenging, even if you are new to an area. "
How do you know what the traffic pattern will be on school days? 
In college towns, summer traffic patterns are different from Fall  (just as parking is impossible on campus the first 1/2 of the term, but much easier the second half)
How do you know if the neighbors are crazy or noisy?  IF you rent, you can drive by the potential house on different days and different times of days. 
There is little data on which neighbors have barky dogs, or weekend teen parties or shade tree mechanics that are revving engines at 8 am on Sunday.

IF you rent first, you have TIME  to figure these things out and so, so much more!!  All the advice you can get does not substitute for first hand experience and knowledge of an area. 


BUT IF this is simply a financial decision:
As a new hire (especially a new PhD), do you Have a down payment?  (Remember, just because the bank is WILLING to lend the money does not mean it is a good decision for YOU!  (They make money keeping you in Debt and paying interest!)

Do you have an emergency fund to support the costs of owning a house?


Bottom line is this:
My advice is now, and on the old fora to get out of debt quickly, live on less than you earn, save save save early and often for retirement so that you ahve the OPTION to retire, and to pay cash for your car, keep it well maintained,  and drive it til it costs more to repair than it is worth.
Long term, owning a house is essentially prepaying rent.  (Still, even if you 'own' a house, you STILL pay taxes and insurance that can total equal 30% of the cost to rent - in my area anyway-  and as the owner you pay all home repairs. 

[dismalist]

Yes, we can deal with owning vs. renting again:

Long term, owning a house is essentially prepaying rent.

That is an illuminating way of saying it.

I also like "owning is paying rent to oneself". After a house price appreciation, can I still afford the higher rent necessary to make the investment in the home equal to the return earned elsewhere? :-)

Precisely, the rental rate = the interest rate + the depreciation rate.  If this were not to hold, one could make money by adjusting stuff. No,  this will not hold at every instant of time. There are shocks and adjustment times. But, long run, it's iron.

[bio-nonymous]

While I am no high finance person, it seems to me that by paying rent, you are giving your money to someone else (making your landlord's wealth increase). If you are paying down your mortgage, which includes more and more principle each year (especially if you are prepaying), you are keeping some of that money as equity, with the rest going to the bank. Presumably that equity is ~keeping up with inflation as your home increases in value. Once your home is paid, you at least have some of your money "saved" as indicated by the value of your home. If you paid rent for 30 years you have nothing. In the long run, how is renting better?

[dismalist]

I'm trying to think of a parable to make this clearer, as "...only by varied iteration can alien conceptions be forced on reluctant minds." (Herbert Spencer, The Data of Ethics, 1879)

Suppose you own two houses, identical in all respects. You live in one and rent out the other. The rent would be the same. You receive one rent from the renter and have no need to pay rent on the place where you live, so you keep the rent for yourself. You are paying yourself. Does it matter in which you live? :-)

Now, there is house price appreciation, identical for both houses. You must raise the rent on the house you rent out, for otherwise, it would not be earning the going rate of return on capital. But you must raise the rent you pay yourself, for otherwise the house would not be earning the going rate of return on capital either!

So, as the owner of both houses, you get an increased rental payment from the house you rent out, which just covers what's necessary to maintain the return on capital for the house you live in. You are no better or worse off upon the appreciation.

Maybe, upon house price appreciation, one can't maintain the going rate of return on capital. Then sell, and buy a smaller house.

The rent vs buy decision does not depend on these conditions. It depends on how strong one likes control and one's risk aversion.

[clean]

While I am no high finance person, it seems to me that by paying rent, you are giving your money to someone else (making your landlord's wealth increase). If you are paying down your mortgage, which includes more and more principle each year (especially if you are prepaying), you are keeping some of that money as equity, with the rest going to the bank. Presumably that equity is ~keeping up with inflation as your home increases in value. Once your home is paid, you at least have some of your money "saved" as indicated by the value of your home. If you paid rent for 30 years you have nothing. In the long run, how is renting better?

Long term I agree. However, ", it seems to me that by paying rent, you are giving your money to someone else" followed by the discussion of the mortgage, you are ignoring that the VAST majority of the first year(s) mortgage payments go to Interest on the loan.  So instead of "giving money to someone else", you are simply "giving money to the bank".  Likely more money than what you would have paid in rent. 

In the long term, you gain from buying because, as noted earlier, your house price is probably/hopefully keeping up with inflation, and your mortgage payment is fixed.  However, that mortgage payment has an interest rate, and that interest rate DOES include an inflation risk premium.  (It is certainly possible that risk premium could be inaccurate, in which case you refinance to a lower rate later, OR you smile every month you send a payment lower than it should be).

When starting a career in a new town, renting, even if it rewards the landlord for the risks he/she is taking is still better as it provides the tenant with many OPTIONS and freedom from repair costs, and job uncertainties. 

(for some math... a $150K mortgage (the loan amount) at 4 % a year, for 30 years has a monthly payment (excluding Taxes and Insurance) of 716.12 or a toatl of nearly $8600 plus taxes plus insurance - likely  to an escrow account .) 
IN the first year, only 2641.56 is paid off. 

(IF you rented, you would have saved the down payment and earned something on that money, paid no property taxes, no property insurance, no repairs or maintenance, and had the option to move to another place if this place failed to meet your requirements).

[Anon1787]

I'm no expert either but trade in the real estate market has much more friction than in the stock market, so I would think that there would be more persistent gaps between owning and renting that would affect the calculation.

If you are fortunate to live in a rent-controlled unit (setting aside the merits of rent control), you can invest the difference between the rent-controlled rate and the full market rate in more diversified and higher-yielding assets like a total stock market fund.