First-time home buyers as academics

[dismalist]

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.

All true, but it doesn't help.

--Gaps between [cost of] owning and renting. Sure, but they cannot be systematic and are surely temporary. Otherwise rental properties would be sold and converted or owned properties would be rented out.
--Rent control. How do I get a rent controlled apartment? Probably bribery. :-)

[Puget]

I feel like we're going in circles here.

I'm not talking about selling a house in one place and buying a house in the same place. We don't have one national housing market--Housing prices do not rise uniformly. If you are selling because you didn't get tenure you are almost certainly moving. Now, you might move to a higher or equal CoL area, in which case some of these arguments apply, or you could end up in a lower CoL area, in which case you will be better off. As long as you have bought in an area where house prices are steadily rising, houses sell fast, and you couldn't save money by renting, whatever happens next it is hard to see how owning is going to leave you worse off than renting.

Nor am I talking about buying a house during your campus visit. Sure, rent for a year or two and get the lay of the land. That's very different advice than renting until after tenure.

As to scoping out a house for sale over multiple days-- that's a pretty funny thought around here. That house will be sold long before you make up your mind. . .

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. 

No, that's what I keep trying to explain-- this may be true many places, but not everywhere. I'm paying less for mortgage, insurance and property taxes on my house than I was paying in rent on a one bedroom apartment.  You can claim that shouldn't happen based on whatever economic theory but that's what does happen in my area, and I don't think it is alone. There is no money to be saved by renting that could be put into some other investment.  Also, rents keep going up, whereas a fixed-rate mortgage is locked in.
The rental stock and the owner-occupied stock are also just completely different-- there are not houses for rent, only apartments and condos. These are not interchangeable units of housing.

[Hibush]

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.

All true, but it doesn't help.

--Gaps between [cost of] owning and renting. Sure, but they cannot be systematic and are surely temporary. Otherwise rental properties would be sold and converted or owned properties would be rented out.
--Rent control. How do I get a rent controlled apartment? Probably bribery. :-)

In college towns, I find that the rental housing and purchased housing markets are fairly decoupled. The renters are either transient students and college visitors or people who can't get a down payment together. Then there is everyone else. Both of the rental groups are really easy to exploit through high rent. Nice houses don't convert to student housing or low-cost rentals because they don't match the renters' needs and the depreciation through wear would be high. In the Northeast and upper midwest college towns, new construction isn't having a big influence either.

[Ruralguy]

This is not the case in my town.  There are a number of professionals who live in apartments for years. Its not the norm, but there are a significant number.

[dismalist]

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.

All true, but it doesn't help.

--Gaps between [cost of] owning and renting. Sure, but they cannot be systematic and are surely temporary. Otherwise rental properties would be sold and converted or owned properties would be rented out.
--Rent control. How do I get a rent controlled apartment? Probably bribery. :-)

In college towns, I find that the rental housing and purchased housing markets are fairly decoupled. The renters are either transient students and college visitors or people who can't get a down payment together. Then there is everyone else. Both of the rental groups are really easy to exploit through high rent. Nice houses don't convert to student housing or low-cost rentals because they don't match the renters' needs and the depreciation through wear would be high. In the Northeast and upper midwest college towns, new construction isn't having a big influence either.

As I said upthread, it is certainly true that it is hard to find identical or near identical rental and sales properties in a single location, at least in the United States.

If that were true everywhere, the situation would be like with prices of cars. Whatever the prices, they hang together because supply adjusts, if it is allowed to.

[dismalist]

I feel like we're going in circles here.

I'm not talking about selling a house in one place and buying a house in the same place. We don't have one national housing market--Housing prices do not rise uniformly. If you are selling because you didn't get tenure you are almost certainly moving. Now, you might move to a higher or equal CoL area, in which case some of these arguments apply, or you could end up in a lower CoL area, in which case you will be better off. As long as you have bought in an area where house prices are steadily rising, houses sell fast, and you couldn't save money by renting, whatever happens next it is hard to see how owning is going to leave you worse off than renting. 

...

No, that's what I keep trying to explain-- this may be true many places, but not everywhere. I'm paying less for mortgage, insurance and property taxes on my house than I was paying in rent on a one bedroom apartment.  You can claim that shouldn't happen based on whatever economic theory but that's what does happen in my area, and I don't think it is alone. There is no money to be saved by renting that could be put into some other investment.  Also, rents keep going up, whereas a fixed-rate mortgage is locked in.
The rental stock and the owner-occupied stock are also just completely different-- there are not houses for rent, only apartments and condos. These are not interchangeable units of housing.

Yes, we are going around in circles.

My main conveyance is the statement that you don't make money on a rising housing market if you own.

Tenure is a red herring. Rent vs. buy is about desire for control and risk aversion.

Why you got so lucky in rent vs buy I have no clue. To explain one would have to take account of lots of variables, such as market segmentation [a là Hibush, above], surely zoning rules. This I am not going to do.

[clean]

I feel like we're going in circles here

I'm paying less for mortgage, insurance and property taxes on my house than I was paying in rent on a one bedroom apartment.

Great.
There are certainly arbitrage opportunities.  But a true arbitrage doesnt require any out of pocket money and that is not true of buying a house.

A new hire (especially a new graduate!) is not likely to have enough money to put down on a house loan.  Even if they are ABLE to do so, there are significant risks and outweigh the savings in rent.

Also, your local conditions are truely local!  How far would one have to go to equalize the rent/own situation?  It may be better to commute an hour to find reasonably priced rental property than risk being non renewed/denied tenure/ find a better job/ get married and need a bigger place//whatever, than to add the HUGE risk to your financail life that a house (especially one that eats all your cash or requires you teach summers to afford)  can cause you.

I agree that there are places evidenced by Puget, especially in 'college towns' where

there are not houses for rent, only apartments and condos. These are not interchangeable units of housing.

(which i am sure is not absolutely true... if someone needed to rent a house, one could be found, there are professionals, and certainly there are plenty once we increase the driving distance!!) 

Im glad that you found a house you liked.  I warn you though, that as that housing stock ages, or the wealth of the students' parents increases, SOMEDAY there WILL be houses for rent that WILL be rented by a group of students, and then a fraternity/sorority of students and you dont want to be the OWNER of the house next door! 

Mahogony is right that this boils down to how Risk Averse you are.  I am risk averse and admit it.   In my experience, too few, especially new PhDs who have been living on graduate student wages and are now "a doctor" are ready to jump into a 'doctor's lifestyle' when it is an illusion at best and until tenure is just too risky to attempt! 

But hell, it's your money and you can spend it anyway you like! 
In the old fora there was a Digging out of Debt thread.  I posted lots of advice there to those that had made errors! 

[mamselle]

Did we re-start that thread?

Might be good to do if not...

M.

[mahagonny]

Or announce, with a flourish, that you have changed genders, and go ahead and buy your property. Then they'll have to give you tenure, long as you have your work looking as it should, unless they are prepared for horrible publicity. But you were planning to have your work thoroughly done anyway. After you get tenure, you can change back.

[mleok]

I should mention that at my current institution, we provide about $70K as downpayment assistance to new faculty, and there is a subsidized loan program that only requires 10% down with no PMI, and with less stringent debt-to-income ratio requirements. It is a variable rate mortgage, but the rate change is capped at +/- 1%/year, and it is indexed to the rate of returns on the university's endowment's investments in the stock market. When I moved from the midwest over a decade ago, this is what I used initially to finance my home.