Rents are up 40 percent in some cities
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A basic 1800 sqft 3BR 20 year old SFH with a 2 car garage is like $365K in the same area with 8+ rated schools. Its even lower if you don't care about schools. This brings your monthly PITI+HOA ex-utilities to like $1600 a month at 20% down (slightly higher now with interest rates going above 3.5%). Nice 2500 sqft ones at $450K.
This is all in the past year. It wasn't this expensive to rent compared to buying pre-pandemic. My apartment rent went up like 15% when I renewed.
edit: Wow, I'm probably pretty wrong about this. 3% loans are really quite affordable. Why aren't more people buying homes? Being a renter is total hell
No.
The bigger factor sellers look at is how much money you offer them. At 20% on a conventional, you may be able to get your lender to wave the appraisal requirement, which would be a help if you try offering much over the list price (unless you also have the cash to make up the difference, which if you need the 3% down payment, you probably dont).
Let me give an example to explain why they see it and why it's important. let's say that the agreed contract says that the buyer and seller agree to pay $600,000 for the house. Let's pretend that you have 10% down or $60,000 down. You need a loan for $540,000
The loan requires an appraisal to make sure that the bank (the loan) is a safe investment. The bank/loan only agrees to lend you the amount the house appraises at.
Back to the example and the appraiser comes out and says that the house is worth $500,000. In this case, again the signed offer says $600,000 with a $60,000 deposit.
The buyer either has to bring $100,000 to the table or the seller has to agree to make less money than the original offer (or some combination of the two) , but the bank will only give $500,000.
So if a buyer had a $100,000 downpayment and offered $600,000 and a second buyer offered $600,000 as well but only had $60,000, the seller would most likely choose the offer with more money down. it would be more likely to close.
Hope that helps
And in warm markets (for get about hot markets like NY and SF), even an offer with 20% down is not pleasing to the seller. 20% or less down means that if the bank under appriases for whatever reason would cause a massive delay and/or cause the deal to fail.
For the buyer, many costs at this point or unrecoverable. Inspecting, lawyers, etc. This is a huge hit to a low income person.
In a warm/hot market, anyone with a mortgage is going to lose to someone with cash, so not really an issue.
Anecdotally from friends buying their first homes, very few to zero of them put down anywhere near 20%.
FHA loans can be 3.5% down ($14k on a $400k loan) and closing costs can often be financed (most of them, but usually not all).
There are also first-time buyer programs and other specialized lending options like VA (if you served/active), etc.
It’s also not always a good idea to start with an SFD where you are responsible for everything (roof, plumbing, etc). It’s easier to do a condo first and get the hang of it/build some equity. If you can do SFD in a given area for $400k, condos are likely half that or cheaper. Beats renting unless you need the ability to move quickly as selling can take a bit of waiting (unless market turns, and then you could be waiting a few years or have to sell at a loss).
There are other ways to help craft an offer that could be stronger, including offering better other terms (usually not just the offering price).
Aside from having to move if the owner sells, it’s pretty nice not have to think about maintaining the house.
Here in the sf bay (Marin sfh with two kids) our landlords just decided to sell. It’s been stressful, but we found a place that we like better for about the same rent.
The owners offered the place to us at a reasonable price, but our monthly payments would have been about double what we pay now, and we would have had to put 20% down. Prices have gone up 40% since we last moved three years ago but rents haven’t budged.
Maintenance even if you assume $150 a month average still skews towards buying.
And general rule of thumb for maintenance (which includes budgeting for only occasional but large expenses like roofs, furnances, water heathers...) are between 1% of 4% of the purchase price per year. At the very low end, that's at least $300 bucks a month, at the high end that's $1200 or more per month.
So you'd be looking at $1600 + (somewhere between $500 and $1300).
I'm buying a similarly priced home via FHA in Texas, and my monthly payment on an FHA loan will be closer to $2800 (PITI + HOA + PMI) (only 3.5% down, the FHA minimum)
The notion that private equity is some how manipulating home prices independent of true supply and demand dynamics is largely a lie being told by people who’s politics fit well with that narrative.
They’re not manipulating prices but they’re in the market now watching the mls (listing services) and can make an all cash offer quite quickly.
https://www.washingtonpost.com/business/interactive/2021/inv...
It may seem vaguely unfair that they have a possible advantage being an all cash buyer but that isn’t what is driving up prices. If they were buying places and not renting them that would be a different story but that isn’t what is going on here.
There's no way governments can repay their debts (and not just in the US: EU, Japan... about anywhere!)
So it make sense to act after having seen the writing on the wall: first, they said inflation wasn't going to happen because... reasons, then they said it was totally going to be temporary, now I'm sure they'll find other plausible excuses, but it looks to me they are trying to delay the inevitable and let the mortgage market adjust by stalling those who still think inflation is uncertain.
So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!
Meanwhile housing is an amazing handout to the middle and upper classes through the 30-year fixed rate mortgage plus the mortgage interest tax deduction. Inflation increases rents, but the fixed-rate mortgage never increases. One of my property's mortgage is now only 40% of the rental rate after 8 years of inflation. It's like an annuity with an automatic inflation adjustment - I'm going to get rent until I die, which always goes up as the cost of living increases.
Of course there are compelling financial products which incentivize home-ownership. It's massively important for homeownership to be possible for as many people as possible.
Homes are extremely expensive, but the down payment really isn't a problem, relative to the time and expense of keeping the damn thing running. The down payment continues to be reasonably proportional to home much money needs to be in place for someone to control the equity at stake.
What you're actually asking for, I think, is for home building to be subsidized, in order to drive down the construction and sale price. Because it's not like home builders are earning 50% margin on these structures, the reason house prices rise is because prices rise.
The reason home interest prices are low are also because prices rise, meaning risk at long timeframes is negligible. The only crucial point is to make a squeeze impossible and you can ride out anything - hence why it's so important for government to back-stop it, because if you can squeeze the US dollar we have bigger problems.
There is a long list of things that the government messes with. As an investor you should keep an eye on the political winds and what is favored for reasons outside of market forces. 1 to 5% boost per year compounds significantly.
Being a landlord can suck even in a good market. If it were easy and risk free, everyone would do it.
I think you're stating the sentiment wrong, as someone who did and still does to some extent sympathize with it. The default view in American personal financial discourse has been that you need to buy a house. The heterodox view to which you're referring was that renting and investing is not obviously worse than buying a house. I don't recall any widespread view that you would come out way ahead by renting.
And, to be fair to that viewpoint, compared to buying a house outright, you would have been better off keeping your money in the market and renting over the last five years! S&P is up 91% over that period, and that's not even the total return index! Housing is up quite a bit, but in most places it is not up 91%. I sold a house in the Bay Area around five years ago for around $2.4M, and Zillow is telling me that it's now worth a little over $3M. Zillow could be off by a few hundred thousand in any direction, but I doubt it's off by $1.5M.
What the viewpoint fails to consider is the availability of extremely cheap leverage for houses. If housing does go up, and you have a 4:1 debt to equity ratio, then your appreciation is 4x the asset appreciation if you're at the beginning of your mortgage. If you're the person who bought my house, your $700k of appreciation on a downpayment of $500k is a 140% return (before transaction costs). Of course, if housing ever goes down . . . well, we all remember that well enough.
All in all, I'm not sure the case is closed on the rent and invest vs buy issue. Things look very favorable for buy over the last five to ten years! There is no question about that. However, I personally am not sure how to adjust for the risk associated with the increased leverage you use when you buy. I don't think it's an apples to apples comparison.
The bottom line is, in a truly free market I think housing would be a way less-good mechanism for investment. In our subsidized, zoning-restricted, NIMBY world housing can be a very good investment.
This is still something people should look into, but it depends on your real estate market and taxation. It's not black magic after all, there are calculators for that: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Sometimes it is indeed better to rent.
Population growth, persistent production....there are several factors that could help governments dig themselves out of debt.
Question is what happens during the inevitable impending credit default crisis as you outline. Would the housing market just floor to zero? Or your hypothesis is they would let the inflation go run away? Either way (default or inflating debt away strategy) I am not sure how the housing market will adjust just because I am not sure what the outcome of downfall would be to all the middle class families who stretched to max and bought SFH post 2015.
A friend told me about a friend in Las Vegas who bought a big house prior to 2008, then HELOC’d it to the max to buy new vehicles, boats, etc. Took advantage of every opportunity to leverage himself to the hilt.
Housing went tits up, so he stopped paying the mortgage for two years, then mailed the keys back and walked away keeping the cars and boats.
Sure he had to declare bankruptcy, but after a couple years was able to repair his credit and buy another home. (The seven year mark remained but hey there were willing lenders).
Bastard made out like a bandit despite going bankrupt.
Banks were losing paperwork, mortgages had passed through multiple hands, they couldn’t deal with the foreclosure volume. Hell, banks were going under. It was a complete mess. That’s why if you stopped paying your mortgage it was often 1-2 years before anyone even came knocking.
In many cases, if you simply sent the keys back and were in a non-recourse state, nothing more happened. The bank added the home to the foreclosure backlog and deemed the debt “uncollectable”.
If they balked, you go through a bankruptcy process, but who had time for that? Plus the government had programs to help relieve underwater homeowners.
There was a bit of a financial “reset” in a sense. Many people were allowed to wipe the slate clean and start over.
The governments around the world are experts in printing money and kicking the can down the road. In the US, medicare is going to not be able to repay its bills in less than 4 years. They will combat all of that just by printing more money and letting inflation run at 6-7%.
There's increases in wages right now as well and employees are demanding higher salaries.
They don't care about asset price inflation, they care deeply about wage-price spirals.
Where people could get into trouble is if they take out a variable rate mortgage because rates will probably rise as inflation heats up. The other risk is I f the economy hits a bump and you can’t get or keep a job that pays the mortgage payment. These can be mostly mitigated by not trying to over extend yourself financially.
I’m reasonably sure the people who are leaving because the rent is too high aren’t just neglecting to buy a home. Not everyone can just get a half million dollar loan.
You are still optimist, in some part of the world, it is way other one million.
And this is the core of the problem: We are making the poorest even more poor by excluding them of the housing market and making them renters for life.
It can only finish tragically on the long term: constant growing social instability or 2008-style housing crisis. Choose your weapon.
Every time I check, I see that buying an apartment (or a house) would make me pay significantly more per month for the best 30-year loan than I pay to rent a comparable place. This is even before the property tax.
I suppose that the future appreciation is priced into the cist of a dwelling. Realty is universally seen as an investment vehicle.
If we for a brief moment imagine that it won't be such a great investment, and maybe would go down when adjusted to inflation, the idea to break your back to own it loses its luster.
What you are missing is: - They are not creating new land in New York. New York has reached a critical mass and will continue to grow - Part of your mortgage payment goes towards principle. That's your money.. you are paying yourself back. - A mortgage is the cheapest interest rate you will ever get
If you can pull it off a house in New York I would say go for it. Apartments can have better locations and can be cheaper but it's riskier. A house with land will not go down if at all for long.
There are cheaper margin loans.
The problem is getting access to the credit in the first place and being able to afford the legal fees.
To buy my flat. I had to put down a payment of £15,000. I bought the property about £30,000 cheaper than it probably should have been. So I would have had to put £20+k as a deposit. Not many people can afford it. Then on top of that I paid about £2-3k in legal work.
I earn decent money in the UK and it wasn't straight forward to me. I can only imagine the trouble people who are less well off.
> So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!
Which will lead you to ruin but has almost no repercussions at all for them. The game is fixed.
/s
The real solution is to build more housing.
Many people don’t advocate for rent control because rent control placates the masses and doesn’t increase housing affordability in the long run. What we need is reasonable housing policies that increases the amount of higher density housing with good public transit availability.
But no one wants to do it because they are gatekeeping.
> as without it the rising rents are just crushing your working class who are essential in your local economy and also don't see wage increases along with cost of living like the high income earners do.
Again, rent control simply creating a new class of winners who were in place when the rent control was instituted, at the expensive of everyone else. It doesn't actually solve any problems like say, public housing, would.
It's saddening that our government hasn't treated housing becoming un-affordable as a national risk. Somehow we can spend trillions on bailing out businesses and corporations yet we can't muster the strength to build additional housing?
Is not the rise in housing cost the single largest contributor to many of our problems?
Government "strength" doesn't encourage new buildings, it discourages it. It's extreme regulations which makes building houses expensive and unappealing for investors. So, a big rise in rents and housing prices is required to make it appealing again... which is happening... but it doesn't mean the rent is going to go down in the future.
There's much the federal government could do to alleviate the situation.
Government strength should be used to impose prohibitive taxes/fees/whatever you want to call it on people who buy extra housing as investments.
Personally I see a mass move to lower cost areas as a good thing. People should move to cheaper places and live within their means instead of barely making it in high demand high expense locations, and then complaining when the costs outrun their means. A more distributed workforce means a more distributed economy and that’s great for everyone. We would have a more resilient society and people wouldn’t have to live packed densely like sardines either. And instead of having a handful of cities monopolize the economy, we will see a revival among otherwise downtrodden areas.
But that’s the thing. If they have little tolerance or flexibility to accommodate those costs, then they were living too close to their limits. As for the rest of what you said…
I have lived in an urban environment for most of my life, and still do. But more recently I’ve come to feel that urban spaces are overrated - living in cramped apartments, huddled in wet and slushy subways, shadowed by tall buildings, is a certain kind of hell. You claimed that distributed populations are more socially isolated, but that’s not true. Having more space and slightly more physical isolation doesn’t mean you’re more socially isolated. Cities rarely have the sense of community and neighborly friendliness that rural areas have. Plenty of people are lonely in big cities in a fundamental way, and no, access to a collection of bars and restaurants does not make up for it. As for cost savings at scale - clearly that’s not true given we are talking about ballooning costs in cities. The environmental destruction is debatable - more people occupy cities, enabled by the model of living densely, and they still consume all the same plastics and electronics. Urban areas also have a massive amount of concentrated environmental impact, while less dense populations are more in line with their local environment‘s capacity. As an example, Seattle regularly has to dump millions of gallons of untreated sewage into the local waterways, leading to beach closures and marine life effects that are a result of the big concentrated impact (https://www.q13fox.com/news/heavy-rain-sends-11-million-gall...). As for dependence on motor vehicles - that feels like a positive to me, as cars are fast and convenient and let me get to where I want when I want, instead of being restricted to the timetables and destinations of public transit.
I get that there are other perspectives on all of this. But I wanted to share this perspective because it would be a mistake to take the alleged superiority of urban lifestyles as a foregone conclusion.
Translation: "People should quit their current jobs, which are typically bound to the old location that they've been priced out of."
> and live within their means
"I am confident that somehow they can find new jobs in the boonies that will pay the same, or at least be no-worse versus other expenses, because... reasons."
> A more distributed workforce means a more distributed economy
"The free market will always overcome geographical issues, which is why ghost-towns are, like literal ghosts, fictional problems."
The variability of housing prices is much higher than the variability of wages in most occupations, especially at the low end. So, yes.
Ghost towns? Median house in the USA is ~$410k (St Louis Fed) (and was $320k before the recent government-induced inflation), in WA that makes for a ~$2k mortgage payment including taxes and insurance (via Google calculator with 4+% rate; I think its property tax estimate is too large, actually). Slightly more with 10% down.
I'm pretty sure median house is located nearby a median job. Median household income in the USA is was $69k in 2019, $67k in 2020 (latest that I can find from a good source). By a common affordability metric, that makes $1.85k/mo perfectly affordable - 2k is almost there. I'm pretty sure nominal income increased in 2 years (given past trends), and of course 2019 median house was very affordable on 2019 median income.
Sorry, not everyone can live exactly where they want, mostly because too many people tend to want to live in the same places. That said, I think /another/ way government could get out of the way of progress is by repealing many/most zoning and related laws, so that more housing could be built.