Sunday, September 18, 2011

Why I don't want to buy a house

I've been thinking a lot about the notion of buying a house. Yet, the more I think about exactly what's involved in buying a house, the sheer amount of money, the pitfalls, the nightmare of paperwork, the more I wonder whether it's really worth it.

Now, I don't know everything about what it takes to buy a house. I probably know very little, and so a lot of what I'm going to be pointing out may be easily refutable or just plain incorrect. However, what I want to convey is an impression – an impression gleaned from the news, from discussions with people, from my general absorption of what information is "out there" about buying a house. And I wonder how many other Americans in my position have a similar impression about buying a house, and who are holding back for similar reasons- and whether the housing market isn't bouncing back because of those fears. And finally, I want to know whether it's possible, and how, to convince me and those who think like me, that buying a house isn't as horrid as all that.

Or maybe I'm absolutely right about all of this.

The money

The biggest thing keeping me away from buying a house is money. First, there's the money that has to be spent up front for a down payment and closing costs. That's tens of thousands of dollars, and it's a lot more money in today's environment than it was during the heyday of the housing bubble, when everyone bought more house than they could afford. These days, you have to have a massive down payment and tons of money in the bank as a reserve, and that's just what you need to get a bank to look at you.

Additionally, before one can even start saving the money for a down payment, one has to pay off all one's debts, and get one's credit score in tip top shape. And in an America where consumer debt, student loans, and medical bills are a huge part of everyone's life, that's not an easy prospect. So there's another huge chunk of money gone before you can even think about buying a house.

Then, after you've finally bought the house, and signed the massive piles of paperwork, and gotten locked into a 30-year mortgage, you start making payments. Over the life of that 30-year mortgage, you end up paying more than the house is worth just in interest payments. A $200,000 house ends up costing you $400,000 or more. Back in the day when real estate prices were skyrocketing, that might not have been a big deal, because the value of the house was guaranteed to increase over the life of the loan, thus ensuring that you could build equity. These days – who knows? Beyond which, in any other circumstance, paying that much interest over and above the cost of the thing you're buying would be considered usurious, or at least, a very bad investment. Imagine if you bought a car for $10,000, and over the life of the loan, you ended up paying $25,000 for it because of the interest rate. That's a horrible deal – and one that I'm sure someone with bad credit is paying somewhere. But that's the point – it sounds like a bad deal. If someone could explain to me how throwing $200,000 or more away on interest payments is preferable to throwing $1,200 per month away on rent (when that rent generally comes with free maintenance and other perks), please – be my guest.

So that's the money end of it. Save every penny, scrub your credit clean, pay half the average American annual salary in down payments and closing costs, and then flush $200,000 or more down the toilet in interest charges over the life of your loan. How is that a good thing to do?

The paperwork

Buying a house involves reams of paperwork, much of it written in obscure legal language that the average American cannot begin to understand. And the banks don't make things easy. I've heard so many stories of people dealing with a six-month or longer process where they have to send things to the bank multiple times, and go through all kinds of hassle, just to get to the point of figuring out whether they can actually buy a house. Then, just when everything seems to be going well, something snags, and the sale falls through. Meanwhile, you have to live somewhere. Seriously- when you're planning to move into a house and everything's lined up, only to have the sale fall through at the last minute – what the heck do you do? Presumably you've given your move-out notice to your landlord, and you don't have another place to live lined up, so…then what? You scramble to find another apartment, move into it, and then start the process again?

And even if the paperwork goes smoothly, and you buy the house, you can't tell me that you've read every page of what you signed. What legal pitfalls have you willingly signed yourself over to? Do you know the precise details of what happens if you miss a payment? What else don't you know about the tome of a contract you've just signed?

The pitfalls

Every day brings a new story of a bank that screwed something up and foreclosed on someone by mistake. There you are, having gone through every bit of hassle, and shelled out all that money, and you're paying your payments just as you should – but someone on the other end screws up and suddenly you're teetering on the brink of homelessness. Sure, you can hire a lawyer to fight for you, but there's no guarantee that you won't lose your home, along with all the time, money, and hassle that went into buying it in the first place. Plus you're now out thousands of dollars in legal fees.

And what if something does go wrong, and you suddenly find you can't afford the house anymore, or the house value decreases and you find yourself underwater? What do you do then? Walk away? How can you walk away from all of the time and money you already spent trying to get into that house? Sure, that's a "sunk cost" fallacy, but that's been proven to be a powerful motivator.

There are other pitfalls as well. You buy the house, do the inspections, and everything looks fine. Then, suddenly, after everything's final and you're locked into the mortgage, you discover toxic mold hiding in your attic. That's on you now. You've got to spend thousands of dollars to remedy that. Or anything that goes wrong with the house. A water main blows and soaks your living room. That's on you. Sure, you have property insurance to take care of some things, but you've still got to keep a reserve of thousands of dollars in savings just in case disaster strikes.

Taking all of that into account, why isn't renting a smarter move?

When you rent an apartment or a house, it's easy. You pay a deposit, sign a lease, and move in. Boom, done. Total outlay: A couple of thousand dollars. Signing a lease usually takes just a few minutes. If something goes wrong with the apartment – if the dishwasher breaks, or the toilet clogs, or there is toxic mold, it's the landlord's responsibility to fix it – and if they don't, then (under certain circumstances) you have the right to move out and break the lease.

So there you are – paying $1,200/month in rent (for example), enjoying free maintenance and hassle-free living. Maybe you live in a building with nice perks like a gym or a hot tub, or a really nice roof deck with a gas grill. There's no fear that someone will screw something up and leave you homeless, there's no worry about what the apartment will be worth in 30 years, and if you end up hating the place after a year, you can move out.

I don't know about you, but that sounds like a smarter move to me.

Tell me, then, homeowners – where am I wrong?