Young Homebuyers Are Vanishing from the U.S.
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I understand it's an asset investment, but i fear that it might largely be detrimental to my lifestyle. I live in a high CoL area (Seattle), when I can only think about buying a house in the suburban area. This will increase my 10 min walk commute to at least 45 min bus/car ride. My social life may suffer due to the distances, but at the same time I want a place to call it my own.
Anyone else going through the motions or have a different perspective on how to figure out my dilemma?!
Planting a stake in the ground will make it harder to move to chase after better opportunities elsewhere, and that opportunity cost probably outweighs any asset appreciation you would see.
Buying a primary residence should be treated as an opportunity cost for the invested money, as well as a necessity for the shelter. If you are coupled it's harder to coordinate big moves so that makes owning more attractive, and if you have children you also want a stable environment for them to grow up in. But all told there are far better investments than a primary residence.
Seattle also has a high price-to-rent ratio: https://www.mashvisor.com/blog/best-real-estate-markets-pric... You may actually lose money on a cash flow basis if you buy.
That's nonsense. You shouldn't feel you have to buy one for financial reasons. But even if you're unattached, as I was when I bought, many of us like having a place of our own with more room than an apartment that you can change as you see fit.
Yes, it limits mobility to a degree. But I've changed jobs several times since I bought my house.
Sure, circumstances could have changed but I pretty much bought when I did in part because I decided that mobility wasn't that big a deal for me any longer.
I don't know where they got their numbers, but they're saying that home price of a $1000 rental is $421,080 which is absolutely insane for Seattle. 3 Years ago when I was shopping around shitty apartments were $1500+, with decent apartments and houses renting for $2000+ easily. One of my family members rent out their $400,000ish house for something like $2200-2400 a month. You won't be able to find a $400,000 property to rent for anywhere close to $1000. My house was listed in the 200s, sold for 12% over asking, and has appreciated nearly 50%. If I ever move my house will rent for over $2000 a month easily and it's quite old and not even in Seattle proper
1) You don't need to put down 20% anymore. If you have a W2 job and good credit, you can have your loan backed by the government in what is called an FHA loan.
2) Think of home ownership as putting a stake in the ground, but not being tied to that stake. You may only live there for a couple of years. You get a better job, get restless, that's ok. Move! You can rent out that house or sell it and pull some of the equity out of it.
3) Prices keep going up. Buying lets you lock in a fixed monthly rate, removes the fear of rent increases, etc. Heck get a condo and live downtown, live anywhere. Buying means taking control of your living situation and not having to be at the mercy of others.
1. You can get into a house with good credit and 5% with private mortgage insurance. PMI goes away at 20%, fha you pay the mortgage insurance for the full term unless you put down +10% and wait 11 years. But you can always refi out of an fha loan, just compare your options because fha mortgage insurance is very expensive.
2. The break-even with financing costs usually means you’ll want to own for at least 7 years. If you know/heavily think you’ll be in a place for less than that and you don’t wanna rent it out then maybe don’t buy.
3. Sometimes prices go down tremendously. But you do lock in a payment, that you can make go down over time. Whereas rents tend to go up over time, or you incur expenses like moving or security deposit lockups etc.
Personally I’ve found one of the greatest benefits is that I control the destiny of the property. Every place I rented, the owner did not invest in the property, fixes to problems were done at least immediate cost (long term costs be damned!), etc. Now I can maintain the stuff that can break down well, get ahead of problems, and save a lot of my own time and prevent discomfort. Which is hard to put a price tag on.
I do agree with your other points though.
[0] https://www.thebalance.com/past-performance-is-no-guarantee-...
Renting out a home can be very lucrative for some people, but also a lot of work. Boiler breaks on Christmas? You have to fix that and quick. All issues go through you, if you get a management company then there goes your profits.
Nothing in live just goes up forever, that's wishful thinking. While you may lock in a fixed mortgage payment, you have maintenance and house expenses. Houses get expensive fast. Anything that breaks, needs replacing, or you decide to fill because of lifestyle creep can cost a lot of money. Your weekends can quickly go from doing activities for yourself or your career to doing house work consistently.
Owning a home can be a really great idea and even a good investment, but that's no where near guaranteed and each person should look into there own situation.
It's cool I can do what I want in some regards and have built some equity, but apartment living was so much easier. I honestly really miss it.
That being said, my commute is atrocious. It's about 1.5hrs each way into the city. Even so, I feel it's worth it. But obviously may not be for everyone.
Personally, I wouldn't look at it as an investment. It's more a lifestyle thing that you've gotta think you'll be happier with. My mortgage is the same as my rent was at the time, so I thought I was netting out just fine, but houses have a lot of expensive maintenance events that pop up and will put you in the red pretty quick if you're not careful. For example, my heat pump and furnace went out recently which will set me back several thousand to fix. So, while you're building equity in something, there is a hidden cost with that. Worth being aware of.
Hope that helps.
I'm 24 and became single about 6 months ago. After this happened, I moved out of my family home to rent closer to work, which cut an hour off my commute. It's been a mixed bag financially and I've been borderline paycheck-to-paycheck (I do max my 401k, so it's more of a self-wrought liquidity issue).
My thoughts:
- I'm really getting punched down by the 20% down payment standard. I know PMI is a thing, but it's a fee that I'd like to avoid paying in addition to interest. Assuming 20% is enough to avoid PMI, even if I snag a 600k condo I need 120k down to not have a PMI.
- I don't entirely know that I'd like to commit to this area, but I know I want to buy at some point, and I'd like to believe that snagging a property sooner than later will at least give me some leverage for a future purchase via the equity in the property. One of my friends bought a studio in FiDi for similar reasons- he'll probably break even in the `rent v buy` scenario but will at least have some sort of fund to fuel his next purchase via the equity in the apartment.
- This is also a game of forecasting your income for some period of time. I'm in software development, which seems stable for now (I hope), so I'm pretty confident in my ability to eventually pay off a high mortgage.
In the end, I have no hope of buying a place right now, all I can really do is shove money into a MM savings/mutual fund and wait around until its worth enough to convince a bank I'm worth their time.
Ask lenders about what's informally known as a "piggy-back loan". You can put 10% down, then get a second lien withdrawing that 10% and putting it towards the 20% number. That can avoid PMI, but be aware that the second lien will have worse terms, often with a floating rate, than the first so it's definitely in your interest to pay that off really fast. These were abused during the housing boom but they're not intrinsically bad. It may be preferable to paying PMI depending on how quickly you can pay off the second lien and how disciplined you are with money.
PMI causes this kind of visceral reaction in people, but IMHO it's a little overblown. Using your example, if you put down 5% on a 600K loan and you have outstanding credit, it would cost you like 21K all-in, and at 3.75/30 year you'd be at 1.2M for the 600K loan. So think about your timetable for how long it'd go for 30K for 5% to 120K for 20%, compared to the 21K all-in costs of PMI. In fact you can pre-pay it for additional savings or not carrying the additional monthly payment, but anyways, just something to consider.
Some very simple to use numbers to explain what I'm trying to say:
House price: $300000 Mortgage interest rate: 4% 20% to avoid PMI: $60000 5% of $300000 = $15000 down payment. Monthly PMI payment: $110 Annual PMI payments: $1320 Simple numbers:
I'm "borrowing" $45000 for the first year and it costs me $1320. Which is approximately 3%
Overtime since the principal to pay it down shrinks but the payments don't the "effective rate" goes up and eventually will be more that the mortgage interest rate. Pay it all off then.
You're more leveraged for better or worse. Your mileage may very.you need to talk to lenders and find what your PMI payments would be. They will vary. Lenders will try to get you to roll the insurance payments amount into the loan or some other screwy things where they make more money and get it up front.
Leaving aside the considerable additional expenses of commuting, and the missed health benefits of a 20-minute walk every day, you're now talking about spending 70 extra minutes per day commuting. That means 5 hours and 50 minutes extra commuting per week (total of 7.5 hours), or about 12 extra 24-hour days of your year spent commuting.
You currently live 10 minutes walk from work. Don't move to 45 minutes drive/bus from work. That's a substantial chunk of your life you won't get back.
And as other replies have pointed out, in the area you're in, owning may not be a win for you.
so the decision of whether to rent or buy similar properties in a particular locale comes down to the local market, how long you can commit to staying, and your tolerance for different risks (rent increase, home repairs, suddenly needing to sell early).
you're not really deciding whether to rent or buy though, you're deciding whether to live in the city or move to the suburbs, which is ultimately a personal decision.
for the financial aspect, these articles might be helpful: https://affordanything.com/is-renting-better-than-buying-sho... https://www.getrichslowly.org/rent-or-buy/
Figure out that total and continue living where you live, but save the difference between living in a house and living at the location you want.
All of a sudden a year passes and you have $15k in the bank and you've been walking to work in 10 minutes. As time passes you may find that you have enough saved to make a purchase a bit more luxurious (closer, bigger, whatever you like) than you could before. Or you may find that you like seeing that $15k/year that you now recognize as coming from not moving.
I mostly do this with cars. When I pay one off, I keep that car payment going into our "car savings" account. I'm allowed to pay maintenance from it, but that's it. It's amazing how attractive a used/paid off car is when you see the savings against the alternative.
That's why I'm buying right now. I too expect a dip in values within the next couple years, but we've got cheap money right now, and I don't plan on moving again for long while, if ever.
Granted, you should do what works for you, but there is plenty to be said for purchasing a less expensive house when interest rates are higher.
My guess is that after the election's over, interest rates will start creeping up and eventually cause an overall reduction in housing values as it becomes harder for middle class incomes to afford homes at the current values.
I don't think a crash like 2008 is coming. I just think a relatively minor adjustment is right around the corner.
Although I've been "waiting" for a crash since 2013, and it still hasn't fucking shown up yet.
I will just keeping hoarding money until it happens, I suppose.
It's like saying "Ahhh you see I want a Ferrari, a mansion, and a honeymoon but I can't find a way to finance all three"
As a result, you can only make the rational choices offered to you by the system, despite the system being deeply irrational.
That's why my gf and I rent a small place with the best roommates we can find, we don't have plans for kids, and we paid off student loans as quickly as possible and continue trying to increase our earning potential in tech
I look at a 300K+ apartment and think - buying that for the average person would mean they could pretty much never take a break from the 40-hour a week grind for the next 15 years or more.
In a world in which we've pretty much bent nature to our will, buying a home should not be this colossal struggle in developed countries.
It seems like such an enormous drag on all activity - not just economic - "everyone" is running around pretending that they're in poverty and we can't solve any of the problems because the landlord sucked all of the money away.
But if you take that 1) housing is a necessity, 2) housing supply is restricted by law to a value below demand, and 3) we make it possible to get mortgages that DEPEND on "anchoring ones' self to a lifetime of having to maintain a highly paid career", this means that housing will eventually be priced at the amount of debt available.
If 20 people want 10 houses, all you need is for 10 of them to say "well I don't want a mortgage for 10x my income, but I guess it's what I need to do" in order to drive houses to be that price. If the bank made it 15x, then you'd see that as the price. Hell, there are places (Sweden iirc) with 100+ year mortgages and lo and behold, people take out these "mortgages" (basically renting from the bank at that point).
We could allow building more homes, but that would be unpopular with people who own houses, who are often old voters, so it's a nonstarter politically.
The goal is to keep housing _just barely_ affordable to people who work their asses off their entire productive life. It's an outcome of enforced artificial scarcity.
I don't understand why we are pushed to go into debt on housing. I don't plan to sell, and my apartment was 1/6 the price.
Looking back, I would have saved up money for 6 years and buy the same house with Cash.
The only way I see this as a good investment, is if we experience near hyper inflation in the next 15 years.
Of course, the effect of this depends on the size of the discount rate, https://www.investopedia.com/terms/n/npv.asp
(1: not looked at the calculation as the time period is not stated)
1) The fees surrounding condos/co-ops are _real_. Like I've heard upwards of 1k a month.
2) Have you considered North NJ?
I can't speak to the former, but the latter is definitely true in the Bay Area. I recently doubled the size of my once-modest house and it cost over $400/sqft. I speculate a few reasons:
1. There is a poor pipeline of Americans going into construction and the skilled trades
2. Because of (1), immigrants (illegal and legal) need to fill the gap, but immigration is being tightened at the national level
3. Competition with bigger projects (not really true this year, but was last year)
4. If we are to believe Nobel-winning economist Baumol, since house construction is a low productivity endeavor, it is subject to "cost disease" [1].
I don't think regulation played a big part in my addition's cost because building costs have been going up by 1% per month, roughly, and many of the most onerous regulations are decades old.
It's simply not worth it, but it would be if I had family, friends or better, staff, to handle doing a renovation more cheaply.
I feel terrible about selling but it's the best medium term business and quality of life decision. To respond to your comment, it's a mix of
construction boom (NYC)
min wage increase (good but should be mentioned)
Trump tarrifs on steel and timber
stricter oversight by current administration due to high profile accidents
complicated bureaucracy
Original idea: fix it up and either live in part and rent part, or rent it all. Rents are high here and mortgage is fixed at a low rate.
Reality: living in an up and coming area when you're a professional and gentrifier, and surrounded by 25 year old barristas, artists and rock stars is difficult. Rats are annoying and always find a way in. Construction costs are not 10 or 50 pct more than what was estimated to me by several people when I bought, they are 300 pct what the estimate is. I can't afford it. What else is hard, an insulated brick house from the late 1800s, illegal work done before me, and dealing with contractors and handymen.
It's going for sale next week, unrenovated.
Would I do it again? Probably not.
What I gained: equity (1/4 of the mortgage) plus rental income minus mortgage and taxes means I paid 1K a month for a brownstone while a 1 bedroom apartment costs 3200 here. Thus I saved money.
What I lost: several years of my single life being stressed in a commute and in a lawless/hostile neighborhood.
It's a real toss up. I'll be a renter again soon.
It's a perfect storm for living in a van down by the river--or at least renting for a long, long time.
Also home ownership makes it harder for people to move, which was a core element of mid-century economic growth in the US. So this isn't an inherently bad thing.
throw in all the monthly bills people accrue it is easy to nickle and dime yourself out of home ownership. so many services wanting their ten to thirty dollars a month
however one consideration not mentioned in the article is high property taxes that can raise the per month cost of owning a home beyond what many can afford or safely afford in one half of the income stream is lost. I am in a lower tax area but even that adds over two hundred a month just to own the house not counting all the other assorted costs. Go closer in town and I can see that number double if not more.