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This is a great case (for and against) owning a home.

I'd like to add this is also why HOAs are worth avoiding. Imagine owning your own home but losing the freedom to do whatever you want with it and now having to put up with HOA bullshit instead of landlord bullshit.

They can also take your home if you get behind on your HOA dues. And fine you for rules they can create on a whim (and take your home if you fail to pay fines).

The disturbing thing is that the number of HOAs and the % of cities they inhabit is growing rapidly. Many developers create HOAs during development to keep the area looking nice until all the properties are sold off (and as soon as that happens the HOA is run at the whim of whomever picked up the rains from the neighbourhood).

Ultimately HOAs are anti-freedom, but nobody bats an eyelid because in the US only "freedom from government" is taken seriously, while freedom from employers/companies/organisations is all but ignored as a social issue. It is disturbing.

I just hope that for anyone unfortunate enough to live in a HOA area, they have non-crazy/non-sleazy people running the HOA. I also encourage everyone to get involved in their HOA otherwise risk getting bonkers rules passed by some nutjob who moves in and wants grass within 2 cm.

Part of the reason I walked away from my last home (a townhouse) was the HOA/TOA.

I was deeply underwater, could not come up with the difference to sell, and the HOA threatened to fine me $100/day if I wanted to rent the place out. Tossed the keys back to the bank, have a nice day (disclaimer: this only works if you have enough income to weather a credit drought; don't take it lightly). Something interesting about the housing crisis was that so many people lost their homes, lending guidelines have been reduced to allow you to purchase another home after 3 years from a foreclosure date instead of the historical 7 years.

Next time I purchase in 2-5 years, I would never again purchase in an HOA. I have yet to have someone provide evidence that an HOA maintains or increases a property's value.

Sounds more like, don't get deeply underwater with a house.

HOAs are agreements between the tenants and each other. As I bought my house, I made sure that I agreed with the HOA. I've even looked at some neighborhood's HOA and decided to shop elsewhere because of it. Some HOAs are bad, some are good.

> Sounds more like, don't get deeply underwater with a house.

Right, I'll get right on controlling macro-economic systems.

> HOAs are agreements between the tenants and each other. As I bought my house, I made sure that I agreed with the HOA. I've even looked at some neighborhood's HOA and decided to shop elsewhere because of it. Some HOAs are bad, some are good.

Also, right. You have almost no control over the board of the HOA you join, and are at the mercy of others in your "community". At least with a local government, you have due process. You have none with an HOA.

> Right, I'll get right on controlling macro-economic systems.

Or put more than 5% down on a house. IIRC, 20% down was enough to weather the 2009 crisis for the majority of the country (aka: Not Detroit).

I know that some cities (like Detroit) had a particularly bad situation. But those cases are atypical. A big problem was the sheer number of people buying homes with very little money down.

Or, if you're gonna be getting a FHA loan and buying a property on _extreme_ leverage, understand the tremulous situation you're in and that you're severely at risk for being underwater should the market tank.

> Also, right. You have almost no control over the board of the HOA you join, and are at the mercy of others in your "community". At least with a local government, you have due process. You have none with an HOA.

HOA's are beholden to the conduct described in the HOA bylaws, which serves as the constitution / due process of the HOA.

> Or put more than 5% down on a house. IIRC, 20% down was enough to weather the 2009 crisis for the majority of the country (aka: Not Detroit).

I had put 30% down (~$60K), and lost all of it, plus 2 years of payments. Chicago suburbs.

> HOA's are beholden to the conduct described in the HOA bylaws, which serves as the constitution / due process of the HOA.

You know how I know you've never attempted to sue an HOA for violating their bylaws?

I suspect parent poster's point is that the HOA board are not who you are accountable to. You are accountable to the HOA rules. The board enforces them. Most HOAs I've encountered are structured in a way that prevents boards from making significant changes to the bylaws. A good set of HOA bylaws require a super-majority to make major changes to key points.

If you weren't allowed to rent, was that also the case when you bought the house, or did that change during your ownership? It's hard to blame the HOA for enforcing rules that were available for your review at the time of purchase.

> If you weren't allowed to rent, was that also the case when you bought the house, or did that change during your ownership? It's hard to blame the HOA for enforcing rules that were available for your review at the time of purchase.

Most HOAs have a limit as to the number of units that can be rented out due to FHA/Fannie/Freddie GSE financing guidelines, as they want the complex to be owner-occupied primarily. Several people, unbeknownst to me, had purchased their units with the intent to rent them out, causing our limit to be reached before I had even purchased.

Sounds like you couldn't live within their rules then. Why rail against the HOA? Those provisions are there for a reason and it seems like you understood the reason.

> Why rail against the HOA?

If an HOA doesn't maintain or improve your property value, can you provide what purpose it serves over traditional local government (besides collecting dues for shared landscaping needs or common area maintenance)? I rail against unnecessary bureaucracy whenever possible, especially HOAs.

Keep a consistent standard of quality across the community, which has immense value for me.

If you're happy with a non-essential non-governmental organization body exerting that amount of control over your property, more power to you.

I'll continue to push my legislators hard, both at the local and state level, to remove whatever power is available to them.

Serious question, why do you look to de-power the legislators at your local and state level? if you don't agree with them, find a state/city/county with policies and government you agree with. Unless you disagree with all forms of governance, in which case there is no point in discussion.

> Serious question, why do you look to de-power the legislators at your local and state level? if you don't agree with them, find a state/city/county with policies and government you agree with. Unless you disagree with all forms of governance, in which case there is no point in discussion.

I look to de-power HOAs, not local or state government. Government should be accountable; HOAs have been proven to not be.

> traditional local government

Some counties don't have much traditional local government. Some cities are very well regulated, and HOAs aren't needed. Others are just unregistered unregulated cities for the most part.

I mean, most counties do provide police and school services. But my HOA resolves parking issues (including the cost of towing vehicles), as well as pothole repairs. In another nearby county, the county presumably covers those sorts of issues and HOAs are much smaller (the other county is more urban)

> It's hard to blame the HOA for enforcing rules that were available for your review at the time of purchase.

That's kind of an odd assertion. You can't blame the HOA for the HOA rules? Sure, you have some responsibility yourself if you didn't read over the rules, but that doesn't mean the HOA rules can't in themselves be terrible.

That is exactly what I meant.

Great point about HOAs. I should talk about this. It seems like newer the property, bigger the HOA bullshit is.

THe house I bought is still considered ok for HOA fee ($30/month) but I know some newer communities are charging $100 or more per month.

I recommend buying a house that is may be in a community where HOA fees are low (hint: look for older homes in older neighborhoods)

> I'd like to add this is also why HOAs are worth avoiding. Imagine owning your own home but losing the freedom to do whatever you want with it and now having to put up with HOA bullshit instead of landlord bullshit.

HOA bullshit is along the lines of "Don't paint your door pink", or "Consult with HOA / Neighbors before putting up a fence". Even a hugely regulatory HOA is more free than a landlord.

> Ultimately HOAs are anti-freedom, but nobody bats an eyelid because in the US only "freedom from government" is taken seriously, while freedom from employers/companies/organisations is all but ignored as a social issue. It is disturbing.

HOAs are the smallest government that people are going to be potentially a part of.

Maybe I prefer living in an area that cares about a somewhat consistent architecture? Maybe I like living in an area where the HOA mows the lawn for me.

If you don't like HOAs, then don't get a house with an HOA. But for me, I lose "freedoms" I never really cared about (I don't want a pink door, I'm not going to lease my property short-term with AirBNB), and gain assurances (such as no Hookers / Sex Orgies next door as my dumbass neighbors screw themselves with AirBNB).

Finally, and this sounds a bit classist... but HOA dues serve as a barrier to keep selfish people like you away from the neighborhood. This is definitely the case for gated communities, although it isn't a major concern for me personally.

But snooty people want to live with only other snooty upper-class people within the neighborhood... and HOA dues serve as a non-trivial barrier for them and their community.

There are plenty of reasons that make HOAs beneficial to the neighborhoods they serve.

I agree with you. I'm sure there are good/bad HOAs, but I think they are much easier to change through the yearly elections/bi-anunual meetings than individually dealing with a problem neighbor.

Not sure why you were downvoted, but it is a valid opinion and one I share. HOAs are excellent for some people (me included) and not excellent for others. I don't get why people have so much HATE for HOAs when they can just as easily choose not to live in them. Just because they don't work for your lifestyle doesn't mean they are a bad thing.

The problem is you are probably going to live in your house for 5 to 30+ years. There is not guarantee the sane governance your HOA provides today won't be insane next year.

I am thinking of buying a house in the coming years and plan to avoid HOAs like the plague.

> There is not guarantee the sane governance your HOA provides today won't be insane next year.

Participate in your HOA elections.

I don't think "guarantee" means what you think it means.

As others have said, there are sane ones and insane ones. Sometimes you need them. Where my dad lives, for example, there's a shared private road and the maintenance/plowing of that has to be managed. One could certainly not live there, of course, but you really have no way to avoid some sort of HOA in that circumstance. (In general, it's probably also true that the more space and separation you have from your neighbors, the less need for a HOA to mitigate conflicts and standards. Tall fences make good neighbors and all that.)

An HOA could be structured such that it only has the power to do specific things. Need the HOA to maintain a shared road? Structure it such that maintenance of that specific road is all it can do, and all it can raise fees for. Also set it up so that changing the HOA responsibilities requires a unanimous vote.

The real trick to having a good HOA is probably structuring it such that it cannot morph into a bad one.

In some areas, HOAs are nearly universal. HOAs are often a compromise that you have to make.

HOA's really aren't that evil. Here's the benefit: You know those neighborhoods where every home has a truck on bricks out front? Where you're trying to sell your home but the guy to the left and right of you have let their garden go? HOA's solve those issues.

We live in an HOA and the people are super chill - we're busy working to build a nature walk through a communal area.

Yeah they can get a little gossipy and there are as many horror stories as there are bad neighborhoods in the country, but in most cases they actually help, especially for lower income neighborhoods. My in-laws live in a more rural area with an HOA and while they're always complaining about the gossipy nature of it, the alternative is clear: A few blocks outside the HOA some guy has turned his front-yard into an actual motorcross track and tears it up on weekends with dirt bikes.

I had a case recently with a neighbor running a business out of their home. At one point they had 30 customer vehicles parked out in the street and around the neighborhood. In my previous HOA-free area, we had a similar problem but had no recourse except to try to convince the county zoning commission to be bothered to do something -- we eventually had to move as the local homes each had 10-20 vehicles parked out in front.

In my current HOA neighborhood I sent an email and made a phone call and the problem was solved in a couple weeks.

My current house isn't part of the neighborhood HOA because the developer messed up the paperwork for several homes, and we're not required to be members. This only became apparent when we received a letter from the HOA asking if we wanted to join and "enjoy the benefits" of a well maintained community. We had been paying the HOA fees for 4 years before this notice arrived, be we declined to join. They've invited us two more consecutive years, but we'll continue to decline.

Our city maintains the roads, parks and school, the individual homeowners maintain the sidewalks. The HOA maintains the landscaping in two locations, and that's about it. I don't want the encumbrance of having to follow some insane HOA rules about paint color, or antennas, or such, so I'll pass.

This sounds like the best possible scenario for you. You basically get all the benefits of the HOA and none of the drawbacks.

Did they reimburse you for the 4 years of dues that you didn't actually owe?

No reimbursement, and though I hadn't been liable for the dues, I didn't feel it would be worth the effort to try and recover them.

I would never live in a neighborhood without an HOA or CC&Rs.

Yes, they are anti-freedom and for me that is a good thing. I want my neighbors to treat their property and shared spaces in a way that allows me to live in peace and keeps my investment safe. No, I don't want my neighbor to have the freedom to paint their house lime green.

> (yes it is not a typo. It is over $1000 per month). You are paying for all the schools and other stuff that you have access to.

(Genuine question, not from the US)

Isn't that what income tax is supposed to pay for?

I'm continually amazing to hear how much tax Americans pay for how little they get.

think of it this way. In Europe etc, you pay higher income taxes but then you get these benefits. In US, you pay a bit lower income taxes but then you pay these additional taxes like property tax. Did I mention that some states in US charge property tax even to keep a car ? (looking at you Virginia :)). But then we don't have things like VAT etc. So it evens out somewhere I guess. Except healthcare situation. That is a topic for a separate discussion.

> So it evens out somewhere I guess. Except healthcare situation

And higher education.

Depends on what level of education; K-12 is generally funded out of property taxes.

There are roughly 3 governments every American is part of. Maybe 4.

1. Federal Government

2. State Government

3. Local Government (usually County level)

4. City Government (sometimes)

Property Taxes fund #4 and #3 typically. Sales tax (kinda like VAT) fund #4 and #2. Income tax fund #1 and #2. Obviously, it changes from location to location. Some states don't have property tax or sales tax.

Schools and Police are typically a function of #3.

Note that schools being supported primarily by local property taxes is how you consistently get bad schools in poor areas, which tends to be a self-reinforcing cycle.

Not at all. In the US, we fund the schools through a combination of property taxes and gambling, and local property taxes go to fund local schools, rather than being spread evenly across the system.

Without that system, it would be too difficult to maintain racially-segregated tiered government schools, and white people who had the ability would leave government schools altogether.

I don't see why living in a home and investing in it are mutually exclusive. The way I see it, my monthly housing payment is an investment in addition to a cost of living. Sure it costs more in maintenance, but you also get more customizability. You can paint the walls whatever color you like. You can tear the carpet up and replace it with hardwood or vice versa.

I agree. What I am saying is that don't buy a home just for the financial reasons. Of course, there is a value in building equity over time if you stay long enough in the house. But take that as an added bonus and not a must have requirement because this is exactly what burned a lot of people after the 2008 crash.

I disagree, I think you should buy them for financial reasons, just maybe not as financial investments. Over a lifetime of providing shelter for yourself, buying your property almost always works out better financially.

Not sure I agree with the downpayment math considering growth in Seattle and Redmond where I am is between 7.5% and 9%. 20% downpayment for a $750K home (modest here) would be $150k which could take you a few years to save during which you're watching your dream home's price pull away from you.

I hear you about the risk of being underwater and your proposed solution is to build up a pile of cash that you're prepared to lose if your home price drops below purchase price. But what prevents you from building up that same pile of cash after buying the house if you need to get out of the mortgage? You're going to lose it either way if you want to move and you're underwater.

Incidentally if you are interested in a zero down mortgage, Navy Federal is a great option, alternatively you can look at places like the NASA credit union which is easier to become a member of (no military affiliation required, IIRC you just join the NASA society or something like that).

You may have to pay PMI if you don't have 20% equity. This can cost you a lot of money over time - especially if it will take you years to get 20% equity. And it likely will take you a long time due to the fact that mortgages are structured such that you're mainly paying interest on the loan the first few years creating nearly no equity.

So if you buy a house with 10% down if may take you many years to get to 20% equity while paying PMI all the while. And exposing yourself to more foreclosure risk. If you don't have 150k (plus another 50k for buffer) liquid then you probably can't afford the 750k home and look for something cheaper or continue to rent and invest the difference between rent and mortgage to possibly stay ahead of the property values of your area.

However, YMMV.

The same cases where you would want to go with 10% down instead of waiting to get 20% (such as increasing home prices in the area), are probably the same cases where you can refinance in a few years and take advantage of the increased assessment value to get 20% equity so you can drop PMI.

Indeed - but now you are a speculator. There is no guarantee that the value will go up, that you will be able to refinance, that your credit will be any good then, that you will even have a job among a myriad of other things.

I don't believe the typical person should take on that type of incredible risk.

You are always a speculator when financing any portion of your house. You can lose your job in either scenario. By holding out until you have 20% down, you are speculating that the housing prices will not drastically increase in that time.

> I don't believe the typical person should take on that type of incredible risk.

If you can't afford it, you shouldn't do it. I'm talking purely about maximizing value by minimizing amount paid overall. Sometimes you will be better off waiting to get 20%, sometimes you are better off taking advantage of current market conditions. In both cases, there is the the chance that your decision ends up costing more than the other strategy, depending on how the market performs.

Nobody ever seems to acknowledge the possibility of another across the board 30% drop in prices all over the country. This is my main reason for not buying. I think another severe, deflationary recession is almost an inevitability. Apparently I'm almost alone in remembering that housing can go down a lot.

The problem is entirely with how the 2008 bailouts were structured. There wasn't actually any market /correction/.

Only matters if you need to sell. Look at the market now, it fully recovered and then some in most areas. The only people that lost out were those that were forced to sell in a down market. Protip: Don't do that.

You're assuming the current price recovery is not a prolonged dead cat bounce. The next price event will be down, and then flat or declining for ages. There's no round two for the QE type events of the last ten years. Going forward Japan is the model. Assuming you don't get destroyed in a violent bout of deflation, you can anticipate near zero real price appreciation.

One day you and everyone else from ZeroHedge will be SPOT on. But as they say, markets can remain irrational far longer than you can remain solvent, or alive...

My bet is on technology continuing to drive our economy to new levels of productivity and prosperity, along with it bringing real wealth creation, wage growth and price appreciation for real assets.

Will there be corrections? Probably. Are we going to be Japan? Probably not, but if we are so be it.

> My bet is on technology continuing to drive our economy to new levels of productivity and prosperity, along with it bringing real wealth creation, wage growth and price appreciation for real assets.

Just like massive advancements in technology drove up asset prices in 30s America, or 90s Japan, or 1880s America for that matter ...

"20% downpayment for a $750K home (modest here) would be $150k which could take you a few years to save during which you're watching your dream home's price pull away from you"

No, the price would not pull away from you. With 20% down payment required to complete a purchase, real-estate prices would actually come down to an affordable level, like they used to be. The requirement would eliminate all the clowns with 0% or 3% down payments who buy houses they can't afford, jacking up prices for everybody else.

The model defaults to a 4% growth rate in home prices. If you want to assume a 7.5% growth rate, plug it in a few rows down from the down payment. The rent number will go negative, even with a 0% down payment.

But you will be assuming that Seattle maintains a 7.5% growth rate over your specified time period. (It would be nice for me, I'm in contract on a house in Wallingford.)

Re: 20% down... You're completely and totally right. It's 100% the prudent financial move.

However there is a bit of a problem with market forces in this regard. No (or little) money down mortgages have become almost the norm. The average homeowner puts significantly less than 20% down. This inflates home prices for several reasons:

1) People can buy more expensive homes on less money, allowing land owners to increase prices

2) Mortgage rates/plans are now structured to cover for the higher risk quotient (even if you do the usual 20% down you're still paying for the idiot who bought a million dollar home with nothing down)

3) Potential first time owners are forced to buy less for their money, further inflating that specific market which has huge ripple effects into the more mature sectors (first time home owners are far more likely to sell their current home and now there is additional financial pressure to make a profit, etc. etc.)

4) People, wisely or unwisely, exploit these new conditions to "play" the real estate game

5) The market becomes less sane the larger/more expensive the home, as the higher prices (even normally) encourage people to put less down

And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked.

There's a lot of economic intertwining here with QE, general interest rates, and the economy at large so I'm not going to profess to know what's really going on here, but the housing market is very close to "utterly f*@#ed" for the middle class with no foreseeable recovery. And that's not even getting into the pandora's box of how the new exploding rental market is also skewing the market heavily.

Quick thought experiment: How many people that are buying at 100k do you think have 20k in the bank? Now how many of those do you think have 20k to drop on a down payment? Now look at what 100k gets you in a modern metro area and cry yourself to sleep.

> And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked.

Having gone through a 'bidding war' twice purchasing my last two homes, I can say this not really the case as in the market dynamics you describe the appraisers can't keep up with market value and usually therefor those contingencies are waived as a prerequisite by sellers. This means the buyer needs to come up with cash for whatever difference between sale and banks appraisal price. This in turn results in deals falling through because people didn't have enough liquidity so now the seller requires proof of liquidity and actually prefer offers with bigger % down payment, even if the actual offer is lower. For the same reason all cash offers often get accepted over higher mortgage backed offers, just because there's less risk for the seller of the deal falling through. But yeah, to your last point, buying a house in any hot market sucks and comes with lots of challenges, the first of which is overcoming the absurd prices.

As a fairly rookie home owner I can relate to all of this.

I'd like to add though that in certain markets (SF Bay Area) it's nearly impossible to buy something with 20% down for a new time home buyer. My first home I purchased with 5% down, and just purchased a second home with 10%, hopefully for the third one I'll be able to put down 20% - but with the prices here you'll be saving up forever to get to that down payment.

Even if you don't plan to do "investment" it makes sense to think twice about one of the most important financial decisions in your life.

Is not that easy, sometimes the house prices are decreasing more than you pay for rent. In this case it's a wise decision to wait until the market is more stable.

Again it's important to understand that this site is comparing like-for-like properties. The rental rate for a property in NJ that would sell for $500k is going to include the taxes the property owner is paying. Landlords aren't going to service those taxes (or maintenance or whatever other costs there are) out of the kindness of their heart. They've built that into the per-month rent they charge.

Gosh man, consider Atlanta. My taxes are $1,200 A YEAR. I put next to nothing down for an FHA loan. I was more interested in getting into a home before prices rose too high, than instant equity, but you make a good point. I specifically avoided HOA communities for the reasons you mentioned. I don't think they keep property values high, on the contrary I think they keep property values artificially high!

I wish they had also included a "how much per year will taxes rise %" column. 'cause in NJ it's over 5% a year. My town, for instance, has averaged 7% a year. That law that caps 2% a year in tax increases has so many exclusions that it might as well have been a suggestion.

I hear you specially if you are fellow Newjersian :). Property taxes are a big pain in this state and wondering where we are going with it. Hope you are in a good school district and you have kids. Otherwise it seems a waste to give so much money to the township.

I don't understand your point about property taxes. If you are renting you are still paying those taxes, it's just included in the rent. If someone buys a house without figuring the property taxes into their monthly payment, then, well they are idiots.

Renting often makes it easier to be uninformed about local property markets and the costs of property ownership. Many renters simply think that they are paying for the right to exist in the property and that the landlord pays for maintenance, taxes, etc. out of the kindness of their heart.