Of course that might be an oversimplification. Housing has been an investment class as long as it's existed and yet there hasn't been an affordability crisis like this since at least before WWII. What's different now?
The problem is that over that long a period of time, inflation may have halved the purchasing power, meaning your gain is a paper one, you spent a lot of years fixing and maintaining the house, paying taxes and insurance, working on the yard, maybe did some remodeling, etc. If you'd instead invested in the stock market any surplus over renting, you often would have come out ahead.
Most people would find a way for that surplus to turn into lattes, vacations, new cars, and large TVs rather than into shares of VTSAX, so for them, homeownership is a good idea, not because it's a better investment than equities, but because it's a better savings vehicle than nothing.
I'm a homeowner and very happy about that fact for our family (for lifestyle reasons), but even in a steeply rising market (Cambridge, MA), my other investments have performed much, much better (even including the 2007/2008 crisis).
(I didn't write it, but I generally agree with it and I like that it's very concise, fairly approachable, and you can readily act on the advice.)
Huh? There's no limit on how much you can put into a Roth IRA each year, as far as I've ever heard.
Backdoor Roth / direct contribution is capped at $5500 a year.
So in a perfectly optimal world of all the right situations, you could put up to $40,500/yr into a Roth IRA.
Currently, I'm getting about $15k into my Roth IRA annually (got lucky with the properly structured 401(k) plan at work) and I feel pretty fortunate about that.
If you have a low current marginal rate and a lot of money to stash away for retirement (that might be a semi-uncommon combination), it's absolutely something to look into. I have a high marginal rate, so I haven't done it.
This is complicated and weird. I might hold off until I understand it better.
Don't get hung up/paralyzed into doing nothing for fear that something slightly better might be available if you did hundreds of hours of research. The most important thing is to get started, IMO.
The sibling comment's Mr. MM recommendation is better than nothing but not as good as a real book IMHO.
This is often not true.
I know its a popular belief with alot of millennial but anyone who has looked at a rent buy calculator quickly realizes for many areas (not the bay area / inflated housing markets beyond what the fundamentals support) buying still makes more sense than renting.
For instance, I'm considering a $325k purchase in an area where the equivalent rent is $1700/month.
https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Even with correcting the variables, the break even point is ~$1400/month if I sell in 5 years.
That is ~$3600/year in savings over 5 years or about the cost of replacing my car in the next 5 years.
One thing this calculator also cannot take into account is risk: if you lose your job, or get hit by an economic crisis like the one on 2008, you have an added catastrophe. But even discarding that, there are always situations where its better to buy.
Of course. But if you invest your money you take the same risks also. There is a limit to how much risk you can really avoid long term.
2) It includes maintenance in that calculation as well as investment returns and a number of other items.
3) Please stop wasting other people's time because you are lazy. Its quite rude.
Why do you assume there is a surplus over renting? If renting gives you that much if a surplus versus buying the equivalent property either your local market is seriously out-of-whack or you have a really sweet deal from your landlord.
That's before considering the optional upgrades that people tend to do to owned houses that they don't do when they are renting. (A functional kitchen with white appliances and laminate counters in a rental is a functional kitchen. Same kitchen in a house is a drive to install granite countertops, subway tile, pendant lights, and stainless steel appliances. Scratched wood floors and 5-year old beige paint are fine in a rental, etc.)
If that is the case, landlords are leaving money on the table.
> That's before considering the optional upgrades that people tend to do to owned houses that they don't do to rentals. (A functional kitchen in a rental is a functional kitchen. A functional kitchen in a house is a drive to install granite countertops, subway tile, and stainless steel appliances. Scratched wood floors and 5-year old beige paint are fine in a rental, etc.)
That is a separate issue, though I think someone who is not disciplined enough to avoid vanity upgrades to their property is probably not disciplined enough to maintain a significant investment balance either.
Edit:
Just took a quick look at Cambridge on realtor.com, and I would classify that as a textbook out-of-whack market. The rents are stupid low compared to the sale listing prices. In contrast, rents in my part of northern New Jersey are roughly the same, but sale prices are less than half. Hell, even Manhattan isn't that out-of-whack. I don't think you should be taking that as typical.
Maybe they are, but I doubt as a large class they're all similarly stupid. I think it's because their available rent is capped by desirable tenants buying property because of low interest rates. "Desirable" in this case meaning those who consistently pay rent on time and therefore likely have credit scores of 750 or better so can readily get a 4% or lower mortgage, which drives bidding wars for properties, which increases purchase/listing prices, which increases the surplus for just renting.
I agree with your edit that our local market is out of whack. It's what's kept me from buying investment property at all.
I get the complaint that people were being taxed out of their homes and that's not good, but in the end it just shifts the tax burden from the old to the young.
If the main reason somebody pays less taxes is that they bought the house before you were born, that feels like age discrimination.
It's actually theft by corporate (or family chain) long-term property owners from everybody else; it doesn't favor individuals of particular ages (especially since the parent-child residence exception was adopted.)
I'm not elderly, but that's a few reasons why they wouldn't downsize.
Cash compensation for most percentiles has stagnated since the 80s. There's a lot of mooted reasons for that -- increasing fringe benefit costs, demographic changes, Cowen's technological plateau, decline of labor unions, etc., etc., etc. -- but the upshot is that we have a ratio where the numerator has continued its growth pattern but the denominator has not.
Growth covers a multitude of sins.
Or there are just cases where the developer is complaining about having to build parking, but if they had built the building as they wanted the parking would have been a total nightmare, not only for residents but also for everybody else in the neighborhood. In other words they're being forced to consider the actual cost of their actions instead of pushing them off on the community and pocketing the profits like in the good old days.
I don't know the explanation for this, but IMHO it's one of the absolute worst trends of the early 21st century. It's also the opposite of what the Internet was supposed to do. I'm supposed to be able to live in some tiny town in West Virginia and have a broadband Internet line and work alongside people in NYC. Technically it's possible but the culture has shifted radically toward hyper-concentration of all innovation and advancement into a few places.