Money Pit 2: More Banks, Less Hanks.
January 4, 2011 11:06 AM   Subscribe

Can someone explain to me how buying residential real estate in a major/expensive U.S. metropolitan area makes any sense whatsoever? I'm really not seeing it right now (and yet I would love to join the landed gentry).

GF and I live in a rental apartment in downtown Boston, which is experiencing a crunch in the rental market. Our apartment is expensive (and parking is extra), and we look forward to moving on to someplace else. We have been seriously considering buying a condo either downtown or in the close 'burbs.

That said, we're both highly rational people, and the numbers don't make any sense to us. We're looking for a condo that is at least approximately equivalent to the square footage we have now and, broadly speaking, about as nice (accepting that part of the niceness of your condo is that you own it). We'd like to have kids at some point, so schooling is a factor--either good public schools or having enough free cash for a private school.

The mid-winter listings market is not popping right now, but reasonable enough places seem to be offered from $450K-$650K (figure a mortgage at 4.5-5.5% for 80% of that), plus condo fees of maybe $300-$600, taxes at about $4000-6000, insurance, maintenance, improvements, etc.

Add it up, and you've got a cash outflow of easily $3500 per month. Factor in the mortgage interest deduction and the property tax deduction and you might be down to $2600 on a tax-effected basis, but that number obviously goes up as the mortgage amortizes.

This does not compute. I love the idea of buying, and, at our current jobs, we can afford those prices (have the down payment, pre-approved for a mortgage, the whole nine yards)--but, if jobs were to be lost, or other emergency expenditures to arise, $3500 is a big fucking nut to crack each month. With a rental, you can downsize or move away if need be.

Yes, I've seen the NYT buy vs. rent calculator; and with some inputs, it does make sense to buy after a few years. Granted, payments of principal on the note are like a forced savings account, but 1) we're already saving and 2) the "savings" in early years are quite minor compared to the total cash outlays.

Am I missing something here? I'm aware that gain on a subsequent sale is tax-free to certain limits--but I'm more of the "housing as a consumable" rather than an investment camp. It feels like everyone I know owns or is buying, and that home ownership is some incredible rite of passage--but I look at the numbers and think that everyone is a sucker. Is everyone a sucker?
posted by Admiral Haddock to Home & Garden (45 answers total) 21 users marked this as a favorite
I'm in your camp (and NYC is even worse) but... you can predicate an argument on super low mortgage rates and high future inflation that makes owning look like a pretty good proposition. Of course you have to believe rents inflate as well, and they might not if house prices stay flat in nominal terms (which is what I think is likely to happen as we regress back to historical ratios of income/price)

Basically unless you think inflation is going to be high singles or something like that, then yes lots of people are suckers. The psychology is pretty straightforward on why that is.
posted by JPD at 11:12 AM on January 4, 2011 [2 favorites]

demand in those populated metropolitan areas tend to be consistently high- turnover tends to be high as well- so it is easier to find someone to rent the place if you need to move for your job, or temporarily move, or easier to sell if need be. the price may be high but hopefully if you buy well and the market gods are smiling at you, you should be able to resell for same or higher price (lots and lots of caveats on that last statement are necessary but can't type them all- just think about the last crisis). in non-metropolitan areas, your land value is more likely to go down because they just built up that unused lot into something smelly and annoying to look at, while if the area is already built up you have less risks like that. not a real estate agent, just some thoughts
posted by saraindc at 11:13 AM on January 4, 2011

This post might be helpful.
posted by donovan at 11:13 AM on January 4, 2011

Don't forget about the other costs of home ownership, too. Hot water heater broke? Gotta pay someone to come even look at it. Need a bathroom repair? There goes some more money. Even if you're Bob Vila, you've got to pay for the supplies and everything for repairs. Not so for renters! I'm with you on the suckers part, at least for expensive cities like NYC, Boston, etc. Owning in NYC is for people who have more money than sense. On the other hand, buying in NYC or Boston NOW vs buying sometime in the future may be the smart move if you're dead set on buying in a city, but even then, it depends on where the housing market goes, which is kind of a crapshoot.
posted by Grither at 11:15 AM on January 4, 2011 [3 favorites]

I think that as our society has moved away from cradle to grave jobs the goal of home ownership, particularly in younger life, has come to make less and less sense. You buy a home on the side of the city you're currently living on, and 3 years later you change jobs and have an hour commute.

That said, you asked for arguments for home ownership. The biggest argument is that you own something. In an apartment you have very little say over what happens, landlord decides to sell/gets foreclosed on- you're out of a place to live. 10 years from now you will be paying more in rent then you are now, whereas with the right type of mortgage your payment stays mostly flat, while (in theory) your equity goes up.

So at some stages of life home ownership can make a lot of sense, if you're closing in on retirement age and want to stay in the area that you're in indefinitely then buying is a solid option. If you're early in your career and want to be flexible then buying doesn't bring much to the table for you.
posted by dadici at 11:16 AM on January 4, 2011 [1 favorite]

Don't forget about the other costs of home ownership, too. Hot water heater broke? Gotta pay someone to come even look at it. Need a bathroom repair? There goes some more money

Well, the OP mentioned condo costs, so the monthly maintenance costs will definitely cover the hot water heater. Although I'm not going to say if that's a benefit or not.
posted by griphus at 11:18 AM on January 4, 2011

Well, a huge part of your problem is that you're in Boston, which is one of a dozen or so cities where real estate prices are hugely inflated, even post-housing bubble. In many of those cities (Boston, Bay Area, NYC), it just doesn't make sense to buy.
posted by chrisamiller at 11:19 AM on January 4, 2011

I think this is a much better rent vs. buy calculator, but still you have to make a lot of assumptions.

I think the Grinda article is a pretty good one - if some emergency situation occured and you couldn't rent out a property for about your monthly payment, then no it doesn't seem worth it to buy in that market.
posted by muddgirl at 11:23 AM on January 4, 2011 [1 favorite]

I think it's smat to conceive of housing as a consumption item, and not an investment.
posted by dfriedman at 11:24 AM on January 4, 2011

Yeah, your problem is inherent to Boston (or SF, or NYC), not necessarily a "major metropolitan area". I bought in Chicago 18 months ago, my payments on my 2/2 are less than my rent was, and I already stand to make money if I sell.
posted by Oktober at 11:25 AM on January 4, 2011

There are too many variables to declare that everyone is/is not a sucker for buying/renting.

Buying doesn't make sense for you right now, at least, buying where you want to buy - and that's one of the variables. I mean, houses are much cheaper in some parts of the country - but you don't want to live in those parts. You want to live where you are.

I have friends in a big expensive city who went in together on a three-apartment house; they didn't do it when the market was particularly cheap (it never is), but they didn't do it at the top of a bubble, either. And it made, and continues to make, total sense for them. They got a normal 30-year, fixed rate mortgage, and from what I know about the rental market, they're not doing worse than they would be if they were renting, not by a long shot, and are not subject to the vagaries of rising rents, crazy landlords, etc.
posted by rtha at 11:27 AM on January 4, 2011

Is everyone a sucker?

Some people are, some people aren't. If rent and mortgage payments are roughly equivalent, then you should buy. If you foresee being priced out of your rental and otherwise plan to live in the same neighborhood for a long time, you should buy. You didn't mention how much you pay in rent, so I couldn't tell you whether it's worthwhile to buy or not.

On the other hand, if you're saving ridiculous amounts of money and have very low rent, then renting can make a lot of sense.

The major thing you might miss out on by not buying is missing out on the increase in real estate prices: a 5% increase in real estate, per year, is a lot of money in absolute terms. I think that the "trick," as it were, is to buy a place that is a good value with the assumption that eventually while you're there, there will be a large runup of real estate prices, and when that happens, you'll be well-placed to take advantage of the gains made. And if you didn't own, you'd have to suffer through a large runup in rent, while your mortgage would remain constant.

Can someone explain to me how buying residential real estate in a major/expensive U.S. metropolitan area makes any sense whatsoever?

The short answer is that buying in that location is always going to be in high demand, and gains in the real estate market will be higher than gains in less attractive areas, but you have to minimize your expenses to make this worthwhile.

the monthly maintenance costs will definitely cover the hot water heater.

Not necessarily: in my building, each unit has its own hot water heater, so I'm responsible for its maintenance (granted, my condo fees are rather low).
posted by deanc at 11:27 AM on January 4, 2011

The crunch in the rental market is just going to get tighter as more and more people opt out of homeownership. That's true in my little city as well as larger metro areas.
posted by headnsouth at 11:28 AM on January 4, 2011

I think that the "trick," as it were, is to buy a place that is a good value with the assumption that eventually while you're there, there will be a large runup of real estate prices, and when that happens, you'll be well-placed to take advantage of the gains made.

I have heard this before and I don't understand how it works. To "take advantage" of a pricing run-up, you'd have to sell your home and - what? Start renting? Wouldn't rents be higher at that point, too?
posted by backseatpilot at 11:35 AM on January 4, 2011 [1 favorite]

Look, for some people renting is a much better deal then buying. Generally the forced savings account is a good way to look at it. If you rent for 10 years at 2k a month then move out, you have spent 240k on housing. If you buy at 500k and pay 3k (as 2k payment + expenses ) a month for 10 years, then sell for 500k you come out with 260k - the 120k that you have put in over what the rent had been = 140k. Now then this is a gross oversimplification but you get the idea. You get something back on the rent you are paying. It does not work out like that for all situations. And if you have to sell in a down market, you can get screwed (though if you are buying a new place you can make it up on the other side).

Yes, if you loose your jobs and cannot pay out of savings, bad things can happen. If that worries you to much, don't do it. If you are never going to be able to build up savings to weather that job loss because your mortgage is too high, don't do it.

A big part of buying is cause you want to. You can change that ugly carpet to hardwood. Or have that purple room you always wanted. Or whatever.
posted by d4nj450n at 11:44 AM on January 4, 2011

Hot water heater broke? Gotta pay someone to come even look at it. Need a bathroom repair? There goes some more money

Do you hire people to pump gas for you, too? Learning to fix things is easy.

I bought a big house, which I share with 2 other people. The $$ they pay me nearly covers the mortgage, so that I not only live almost rent-free, but in 24 years I'll own my home outright. Even if it's worth less than half what I paid for it, I'll make out like a bandit.

Am I a sucker?
posted by coolguymichael at 11:45 AM on January 4, 2011

I found when buying a house that I had to avoid condos because the condo fees were what pushed the mortgage amount higher than my rent at that time. I also had to move about a mile farther from Center City in order to find something affordable. Now I pay about $50 more a month for my mortgage for about 3 times the space. This doesn't take into account all of the things I had to buy - furniture, dishwasher, etc. It really depends on where you live on whether it makes sense to buy and how low the interest rate is at the time of purchase.
posted by useyourmachinegunarm at 11:47 AM on January 4, 2011

I have heard this before and I don't understand how it works. To "take advantage" of a pricing run-up, you'd have to sell your home and - what? Start renting? Wouldn't rents be higher at that point, too?

Well, that's a good point: you can't "take advantage" of the runup in a traditional sense of an investment, but you can insulate yourself from a corresponding runup in rents. But unless you're going to live there forever, when you move in the future, you will have more equity to take with you when you sell and buy a new place (which will also be more expensive, but you might want to buy that new place anyway, and you will be better positioned to buy it from the standpoint of having owned your first place). I'm just saying that your advantage of buying in the situation is huge-- EVENTUALLY there may be a runup in real estate prices. When that increase happens, you want to be owning, not renting.
posted by deanc at 11:51 AM on January 4, 2011

Before I owned a home, I considered home ownership to be:
- A giant money pit
- A thousand headaches
- A scam designed to keep you in debt forever.

Now that I own a home, I'm pretty certain that I was right. I hate all of the headaches and hassles of home ownership. Home ownership sucks, but it sometimes sucks less than renting:

If my water heater breaks, I have to pay for a new one. However, I can have it replaced and running within 24 hours or less with BADASSWATERHEATER 3000. If I rent, it's up to the landlord as to when it gets replaced and the quality of the replacement unit.

If I decide that I want to paint the living room hot pink, I can do it and I don't have to get anyone's approval (HOAs can suck it). If I rent, every change I make has to be made with the knowledge that I have to undo it before I go.

If my wife decides that she's going to plant 30 sunflowers in the front yeard, she does it (and has). If I rent, that kind of awesomeness doesn't fly.

My wife had very strong feelings about home ownership and I deferred to her judgment. I won't call it a boondoggle, but I generally feel as though I've been proven right in my original perceptions of it. If I were single, I'd rent forever.
posted by DWRoelands at 11:57 AM on January 4, 2011 [2 favorites]

Yes, it depends SO MUCH on where you live, what the rent vs. mortgage calculations are, and what you're looking for in a home. We pay less in mortgage (including insurance and taxes) for our house than people in our area pay for a comparably-sized rental townhouse; of course we do have maintenance costs and all and lack various amenities of an apartment/townhouse complex (pool, exercise facilities), but I feel pretty good about it. (And don't forget to include renter's insurance in your calculation of the cost of renting vs. buying. A lot of people include the homeowner's insurance, since the bank MAKES you get that, but forget to include renter's.) Rental rates where we are are simply fairly high compared to cost of housing. Some of that is because one of the big employers tends to bring people to this location for 2 years and then send them back out elsewhere, so young professionals and families that would otherwise be "buying" candidates simply aren't here long enough to do so.

When we bought, we were looking for a YARD as a big thing, which is difficult to get in a rental where we are. So that was a big incentive in buying. The neighborhood setting was important to us; in an apartment complex we wouldn't be able to get that, though there are at least some rentals in more "residential" neighborhoods. The "forced savings" is also nice; we're looking to move somewhere larger (at some point) now that our family is growing, and we don't have to "get together" a down payment; we'll get an adequate downpayment for our next house out of this house. Just from living here and paying the mortgage. But again, so much of that depends on what you want out of your housing and what types of housing are available where you are.

Psychology also matters. My husband HATES renting and wanted to buy and be building equity as soon as reasonable. (We had a little game where we'd look at what percentage of the house we owned based on equity vs. original purchase price, and decide what bits of the house were ours and what were the bank's.) I don't mind renting as much as he does, but I do like the "permanent" feeling of owning, as it turns out. Although lemme tell ya, when I think about dealing with repainting, I think how lovely a rental would be. :)

BTW, because of financial concerns, we qualified for a mortgage on only one salary and made our purchase price range calculations based on only one salary. That may not be feasible in such an expensive market, but it's provided us with a lot of peace of mind w/r/t fears of financial instability and being "locked in" to a house. (And gave us the option for me to work part-time while home with the spawn.)
posted by Eyebrows McGee at 12:02 PM on January 4, 2011

Rent vs. buy calculations make sense only if you can rent something comparable to what you intend to buy. Renting someone's 20-year-old bungalow is not equivalent to buying a brand new home. Renting an apartment with a shared lawn area is not equivalent to buying a house with a lawn of your own. Want exercise equipment in your apartment? Your lease may not allow it, but it's no problem in a house you own. Hell, condos often have living advantages over apartments (such as better construction and sound insulation). Those things all have value associated with them; don't sell them short and be sure you are comparing apples to apples.

In our case we wanted a yard for the dogs and an "office" for each of us that could double as a guest room when we had company. The upstairs laundry, vast master suite, the copious amount of storage space, and huge up-to-date kitchen with granite and gas were pluses that we probably wouldn't have wanted to pay rent for (as they would come with a bunch of stuff we didn't want or need) but are happy to have in our new house. We bought new construction because the styling was up-to-date (didn't need immediate renovation) and because it is covered by a warranty, limiting our maintenance expenses for 10 years.

According to the NYT calculator linked above, we will break even between years 3 and 4 compared to what we had been paying in rent on a place that is neither as big or as nice (though slightly more conveniently located). That's slightly optimistic, because we have already put in some improvements and bought new stuff that we wouldn't have needed if we'd continued renting. But still, it seems like a good deal to us.
posted by kindall at 12:09 PM on January 4, 2011

Buying doesn't have to work for everyone. I couldn't imagine it in NYC, and it sounds like it's expensive in Boston from what you're saying.

But I'm chiming in alongside Oktober that some major cities do have decently affordable markets. My husband and I bought a single family 4 bedroom/2 bath home in Chicago this summer and are paying (including insurance and prop tax escrow) about $800 more a month than we were to rent a 2/1 apartment. Not chump change, but easily within our incomes and that's not even taking into account the mortgage interest deduction.

We like fixing things and owning a home and everything that entails, despite having a leaky roof on day 2 after moving in that needed a total tear-off and replacement. At least when things go wrong we can hire someone competent immediately rather than wait around for a landlord to get his shady and rarely available maintenance guy to do it.

To answer your final question, I don't think of housing as an investment so there are no "suckers" or winners/losers. We bought because we wanted what only buying could get us (rentals of this type are rare): a single family home with a garage and a backyard and a basement. And we plan to stick around til the darn thing is paid off, barring unforeseen circumstances.

Oh, and one thing the NYT calculator and the like don't take into account - comparing our 2/1 apartment to a 4/2 single family house with three times more living space is complete apples to oranges. I wouldn't be surprised if renting something actually equivalent would cost more than our mortgage.

On preview, I see others already made my points more eloquently than I did.
posted by misskaz at 12:11 PM on January 4, 2011

I think the problem is that you are trying to stay in the same location in as nice of place. Try looking at options in slightly less attractive locations, or slightly lower quality places, and then run the numbers again.

But sometimes it just makes sense to rent.
posted by bluedaisy at 12:16 PM on January 4, 2011

There are way too many factors, both personal, professional, financial, etc to consider buying a house ALWAYS right or ALWAYS wrong. For me, I knew the following (I'm in NYC):

1) I would be able to pay off my mortgage in 15 years
2) Tax abatement meant extremely small property tax
3) Deductions on car and other insurance for homeowners create savings elsewhere
4) 9 years with a crazy landlord pushed me emotionally into never wanting to rent again (it's like never really know who you're dealing with until too late)
5) I really like fixing shit/making improvements. The ability to take on any project I want (including fixing stuff that breaks, etc) was a bonus to me and not a negative
6) Once I pay off the mortgage I'm living rent free. Even past retirement. I did not look at this as an investment to be flipped in 10/15 years..I looked at it as HOME. If I rent, I'll be renting FOREVER. If I won, I'll only be paying a mortgage for 15 to 30 years.
7) I felt there would always be a solid market in NYC for either re-sale or turning it into a rental.
8) I had no plans of ever leaving my company.

So, it's all extremely personal. For me, it's been great.
posted by spicynuts at 12:19 PM on January 4, 2011

Sanfran, DC, Boston and NYC haven't had their real estate bubbles popped yet - slightly deflated, but house prices are still waaaay out whack. It may take another year or two for pricing to come back in line with buyer's income levels. This is largely because Boston and SF's IT-centric economy wasn't hit quite as hard as other places, DC is booming because of record government spending, and NYC is NYC. Less panic selling going on, more patient sellers, fewer foreclosures, etc.

If you're in Tampa, Orlando, Vegas or SoCal, you'd be a lot better off in terms of buying a house.
posted by Slap*Happy at 12:26 PM on January 4, 2011

Do you hire people to pump gas for you, too? Learning to fix things is easy.

It's not so much about a DIY ethos (I will usually do small home repairs on my rental unit, just because I'm a nice tenant like that). It's that, if the roof is leaky, or there's a problem with the plumbing or the wiring, it can be a HUGE financial outlay for a homeowner. As a renter? Not my problem until the roof leaks on my furniture, the toilet won't flush, or the wiring causes a fire. And then the answer is usually to call the landlord and complain, not figure out how to replace the roof.
posted by Sara C. at 1:19 PM on January 4, 2011

I really hear you. I'm in a similar situation. It seems like several of my friends and peers are buying while I'm stuck in a one bedroom basement apartment in DC.

The thing is, I've done the math and while interest rates are low, buying does not make sense for me right now. Sure, my husband and I could probably make it work but it sounds like it would be an ordeal. We would have to compromise on the money we spend on housing per month for sure but also location and size of place. I think we're both young and sexy so hey, let's live downtown while we're young and sexy. When we decide to do the family thing, we can make sacrifices and move to the suburbs. For now, let's stay put and keep saving money.

Another way to think about it is that it's like dating. You can sign up for several dating websites, make an Excel spreadsheet with details about your prospects, and basically treat it like punishment. Or you can check things out once in a while, see if The One is on the market, and making a move then.

I'm a Suze Orman fan and she made a big point a few weeks ago about how home ownership has always been part of the American Dream but the new American Dream should be sleeping at night - knowing that if you lost your job or if your lady got pregnant, you would be okay. If home ownership would compromise your ability to sleep at night, it's not worth it.

A thing that scared me at one point was that if I don't buy a place by the time I'm 35 and we get a 30 year fixed mortgage, I'll be paying that off until I'm 65 (duh but it scared me to realize that). But you know what? We can get a 15 year fixed. We can get a 30 year fixed and pay more per month. If it's something we want down the road, we can make it work. But until then, let's keep saving and see what happens.
posted by kat518 at 1:20 PM on January 4, 2011 [1 favorite]

If I were considering buying v. renting right now in the greater Boston area, I wouldn't buy unless I somehow encountered an unusual deal.

If another big tax credit for first-time home buyers comes along, that might be enough incentive (if I were a first-time home buyer). Without that, I don't see how it would make sense for you guys given the numbers you cite.

The market here still needs to settle a bit more, I think. We'd like to upsize a bit but right now it doesn't seem like a reasonable investment, and our financial planner agrees.
posted by Sidhedevil at 1:22 PM on January 4, 2011

The other thing is that a lot of people I know bought at around the same time, and they either did it because they were handy types who could take a risk on a somewhat dilapidated property, or because they had inherited enough for a down payment from a grandparent (or were given it by a parent out of the proceeds of downsizing). If you poke at the "everyone I know is buying" thing it might turn up that a lot of people you know are buying with those incentives, which might not apply to you.

The dirty secret of home ownership is that it is a lot easier for people who come from a background of middle-class privilege to make it happen, because even little chunks of money inherited from or given by one's grandparents can add up to a down payment. People who are 100% reliant on their own earnings are far more likely to rent, but nobody ever talks about that.
posted by Sidhedevil at 1:26 PM on January 4, 2011 [4 favorites]

YMMV, of course, but I bought a condo last year in Cambridge in the same neighborhood where I was renting. I now have a little more space than I used to, plus porches (yay, porches!). I used to pay $1050 for rent, and now pay $1300 per month (including condo fees and mortgage), so I pay about 20% more than when I rented. I haven't done my taxes yet, so I'm not sure how much I'm saving in federal taxes, but I've been told it should be significant.

For me, at least, it's a little more expensive to buy, but I felt it was worthwhile because I was building equity and could make any changes I wanted/could afford. And it's just really, really satisfying to be a member of the landed gentry.
posted by ldthomps at 1:35 PM on January 4, 2011

Is everyone a sucker?

One thing that we've sort of culturally lost is that you buy when you're ready to settle in one place for the long term. My Grandparents bought a house, and although they've passed on we still own it and it generates income for us (it is long since paid for, of course). My mother owns a home that is paid for, and making her Social Security income easily enough to live on (which it would not be if she still had a mortgage or was renting). My husband and I own a home and (although we dream of a bigger yard) its where our son will grow up and where we grow old.

So no, not everyone is a sucker, but until you have found a place where you want to live the rest of your life, home ownership isn't necessarily the best thing for you.

(Also, I would never, ever, ever, ever buy a condo. If I own a home, I want to own it, damn it, and not be beholden to some random group of people who want to tell me what I can and cannot do.)
posted by anastasiav at 1:55 PM on January 4, 2011

I bought a big house, which I share with 2 other people. The $$ they pay me nearly covers the mortgage, so that I not only live almost rent-free, but in 24 years I'll own my home outright. Even if it's worth less than half what I paid for it, I'll make out like a bandit.

Am I a sucker?

Time will tell. If you get a tenant or two who stop paying the rent and a sympathetic judge who decides to give them an indefinite break, you could be. I've seen it happen. It can get real ugly.

I'm not sure how much I'm saving in federal taxes, but I've been told it should be significant.

Or not. Standard deduction has been rising over the years.

My two cents - read David Crook's The Wall Street Journal. Complete Home Owner's Guidebook. ANd his RE investing book Much food for thought.
posted by IndigoJones at 2:19 PM on January 4, 2011 [1 favorite]

Seriously. I urge you to read the books
posted by IndigoJones at 2:27 PM on January 4, 2011

It depends on your individual situation. There's an old saying that real estate is all about location, location, location. It's absolutely correct. Location is king.

I bought my first home in my mid-20s. It was a townhouse condo, FHA financed (3% down) in Dallas (inexpensive market). Even for Dallas, my condo fees were extremely low which made the condo more attractive at resale. For a tiny down payment I got own my own place and started building equity. I planned to live there a few years, build equity and then sell it to buy a single family home.

A few years later, I got relocated for work*. Sold the condo and took the profit into a high cost market (San Diego). Bought an undervalued home in a great neighborhood. Post-bubble, I still have equity in the house. When we sell, we'll take that equity again.

Here are the takeaways:
- You need to be in a market where buying makes sense. Dallas was a good place to make a first purchase. In San Diego, I probably would not have bought a first home. The down payment would have been prohibitive.

- Be extremely careful with condos. In a well maintained property, low condo fees are an asset. The condo market can be wacky depending on your location.

- Buy wisely. Like any other investment, look for things that are undervalued. Have a plan to extract equity.

* As part of corporate relo, my company paid points on both my selling and buying transactions. That was thousands of bucks that they wouldn't have given to someone renting. I would have still made money on the condo sale, but this made it especially good. You can't count on that obviously, but it was a nice bonus.
posted by 26.2 at 2:53 PM on January 4, 2011

I would just like to provide some moral support for you because my husband and I are in the EXACT same situation in DC, and in fact decided NOT to buy a house after we'd been looking for several months earlier this year. Yes, interest rates are low, yes there may be tax benefits, but it turns out that in certain places, it is just WAY more expensive to own than to rent, unless you're willing to compromise a LOT. And in our case, the compromises just did not work out.

For example, we saw a condo in the building NEXT DOOR to our apartment building that was 200 sq. ft. smaller, not as nice inside (uneven flooring, poor kitchen design, other things), but the monthly payments would have been several hundred dollars more a month and this was before condo fees! For a place that wasn't as nice as our apartment! So I totally know what you're talking about.

We decided to keep renting in DC, and I'm sure we'll have to move eventually when life necessitates it, but we'll figure that out then (benefit of renting). Buying a place just did not seem worth it to us at all, and in hindsight, we are both SO happy we decided to keep renting. Our lifestyle is much better right now.

Oh, and several people have mentioned condo fees - did you know that they can go up like $500 at the drop of a hat and you really have no say in that? I'm just saying. We saw condos here that cost $300,000 but had $1200/month fees. That is absurd.
posted by echo0720 at 7:23 PM on January 4, 2011

Response by poster: Thanks to all for the lively discussion. There's a lot of great insights here.

Condos are pretty much all you'll find in downtown Boston, and seem to make up the greater part of the housing stock in the Metro area, whether they're in big buildings or in triple deckers.

According to, the median price per square foot on their recent Boston sales is something like $370/sq.ft. In Las Vegas, it's $67/sq.ft. In Chicago, it's $144/sq.ft. DC is $406, and SF is a staggering $540. While I definitely would love the freedom of making my home exactly the way I want it, it's hard to swallow when my down payment would be about the price of the median U.S. home. It's kind of amazing--If we were to lose our jobs, we could take the down payment, buy a house outright for cash in Fort Lauderdale and use the rest of our savings to do nothing but sit around for the next two or three years while the economy improves.

The economics of this are staggering.
posted by Admiral Haddock at 7:31 PM on January 4, 2011

Response by poster: Also, further to Echo'0720's comment, there was a debacle here in Boston where the Boston Harbor Towers, which were designed by I.M. Pei had to go through something like $75 million in refurbs, which translated into one-time condo assessments of about 20% of each unit's value. This article in Boston Magazine notes a woman who had a $90,000 assessment--more than she originally paid for the apartment some years previously.
posted by Admiral Haddock at 7:38 PM on January 4, 2011

I just want to back up Sidhedevil's comment here. I realized a couple of years ago that the only people I knew who were buying in Large Expensive Cities were people with family money. I'm sure there are some people who save up a $70,000 - $90,000 downpayment by the time they're 30, but I think those people are in the minority. (No slur on the people lucky enough to have inheritances. But it was this "aha!" moment that actually made me feel a little better.)

Which is another way of getting at "it depends on the market". I have friends in other states who could get a place nicer than their rental for about the same price. To keep near my monthly payment I might find place about the same level as my rental, but in a crappier neighborhood. So in NYC/Boston/San Fran, I don't see it making much sense. Everywhere else in the country? Probably.
posted by lillygog at 7:57 PM on January 4, 2011

While I definitely would love the freedom of making my home exactly the way I want it, it's hard to swallow when my down payment would be about the price of the median U.S. home.

posted by lillygog at 8:01 PM on January 4, 2011

the median price per square foot on their recent Boston sales is something like $370/sq.ft. In Las Vegas, it's $67/sq.ft. In Chicago, it's $144/sq.ft. DC is $406, and SF is a staggering $540.

Pfft Manhattan looks at numbers and thinks "peasants". Average price/sq foot for 2 bedroom apartments is $1145/sq ft, 1 beds $830/sq ft. (Obviously skewed, but you get the point)
posted by JPD at 8:09 PM on January 4, 2011

Also re: coop assessments - NYC had several buildings where prices fell to zero during the early 90's recession because of maintenance issues in the building. Awesome.
posted by JPD at 8:10 PM on January 4, 2011

Response by poster: Yeah JPD, I'm from NYC, so I'm used to the high numbers (though I had thought that a move to Boston would better align my purchasing power with the rest of the country). I don't think Redfin is available in NYC, though, so I didn't include it in my little survey.

Le sigh.
posted by Admiral Haddock at 8:21 PM on January 4, 2011

I can't understand it all. The math on price/income is so out of whack its amazing.
posted by JPD at 8:47 PM on January 4, 2011

My comment isn't exactly related to the sheer economics of renting vs. buying, but if you're buying downtown, you're competing in a very particular market. It's a market that includes many hugely wealthy folks, an international client base, and real estate investors. If you go slightly outside of downtown, you'll find the prices drop considerably. Yes, you don't have the downtown bustle outside your door, but for some people that's a plus.

Here's a sweet house in Roslindale, home of some great restaurants, close to JP, close to Brookline, near the arboretum. You can be downtown in probably 25 minutes. $319k for 1200 square feet and a nice yard. If you figure 5% with a 20% downpayment (even at the listing price), you're talking $1300 a month in rent. Here is a 3 bedroom condo in Jamaica Plain with 1000 square feet at $312k - within a very short walk to the T, and you're downtown without needing to drive for a commute. Also near the Harvest co-op and other local places, a very short distance from Centre Street. If you got it for $300k and could put down a $65k downpayment, your mortgage payments would be $1260 a month, + $210 in condo fees, and $1835 in taxes a year... so something around $1600 a month, minus tax deductions etc. JP is still considered within city limits and you still get all of the tax benefits that incurs. Brookline taxes are much higher.

So... sometimes the answer is that people move just outside of their old neighborhood to afford something to buy, especially if you want something comparable in housing quality. You still want to make sure that it's fairly rentable (if necessary) and think about schools, commuting, the works. Those calculations might not be worth it for you. We were in the ridiculous rental crunch in Boston and realized we could afford more if we were willing to look just outside the downtown and Cambridge markets. We're also in the "housing is a consumable" camp and wanted a different quality of life and our home surroundings. We'd never be able to afford the amazing place we have if it was right downtown, and now that we're not there, we wouldn't want to move back. If we were to rent our house out in this rental market, we'd probably get 4x the mortgage payment (this is based on extremely similar listings on Craigslist that actually get rented out).

Please note this isn't a comment about the worth or investment choice of houses downtown vs. other neighborhoods, or the expectation of housing prices increasing comparatively downtown in the future, or whatever. But if your question is: how does it make sense for people to buy in major metropolitan areas? Well...this *is* how some people in your age range might be affording to purchase a home right now. It's still a bit of a leap of faith and a bit crazy all the same, but it's how we made it work in this city.
posted by barnone at 8:50 PM on January 4, 2011

We bought a house a couple of years ago, and moved from Somerville to Salem for it. We sacrificed a bit on ease of getting into Boston for price and neighborhood- now we are a ten minute walk to a vibrant downtown scene that we actually like better than the Davis/Ball Square area in which we used to rent. The commute is not actually that much longer becaus we're so close to the commuter rail. Our rent seemed likely to go up forever ("the green line is coming!" was our landlord's favorite statement), we constantly had to worry about our pets even though they were originally landlord approved, we never knew year to year if he'd let us renew the lease or if we'd be moving. And moving apartments is expensive- those first/last/security payments, paying the movers... Add to that haggling just to get a security deposit back and never being able to do anything permanent in an apartment. The psychology of owning a home made us a lot less stressed, at least from those factors. Of course, the money pit of having to fix everything that breaks in an old house has also been stressful, but at least our money is going to something that's ours. And if we stay in the house for 30 years, at the end of that we actually don't have to pay for it anymore.
posted by banjo_and_the_pork at 2:54 AM on January 5, 2011

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