Why do people use this phrase?
You are paying for a service (somewhere to live). Unless you can afford to buy outright then you’re either “throwing money away” renting or on interest payments.
You are paying for a service (somewhere to live). Unless you can afford to buy outright then you’re either “throwing money away” renting or on interest payments.
Of course, the situation is more complicated in areas like the SF Bay and Seattle. Housing prices vs rent basically assume 5% year over year growth forever, so if you think housing prices will be flat, it's economically advantageous to rent
There's a good calculator without a ton of BS here on this old page: https://michaelbluejay.com/house/rentvsbuy.html
sure you'll be paying less, but you'll also be buying a lot of risk. You don't own anything until it's fully paid, and if the interest rates skyrocket good luck with bankruptcy
What kind of lunatic doesn't get a fixed-rate mortgage?
Kinda true kinda not.
To put things in perspective, my parents had a mortgage of $600/month in 1978. It wasn’t too much of stretch for them then. But it did sting. They were a teacher and a factory worker. By the time they paid the house off in 2008, $700 by then was laughably small.
I wouldn’t go that far. I don’t know what my parents made in 1968 or for that matter 2008. But from the time period I mentioned 1978 - 2008, if their income just kept up with inflation, it would have gone up by 650% according to the official CPI calculator (https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=1968...).
Well actually, they retired in 2002 at 55 and 57 respectively - from teaching and factory work - and have been retired since then.
They’ve taken two 5 month long cross country trips and have only slowed down their shorter road trips in the last couple of years because they were worried about Covid
If your parents started working in '78 they have likely had a nearly miraculous wealth transfer from owning a home in a world with declining real interest rates. As you noted, their income rose 650% due to inflation - and their housing cost was likely fixed.
About the same.
If one of those moves happens and the markets down, things get interesting. Especially when someone is upside down.
Either way, transaction costs tend to eat up any potential gains unless one is really lucky or you stay a long time, which is hard to do during high change times.
If, in the future, I can find a place in a good location/part of town, with plenty of room, and is convenient to earning income, etc. and that doesn’t require me to get loan payments at some crazy multiple of my income, then yeah I’ll probably buy.
But that hasn’t been a thing in the Bay Area since about ‘15 or so. And with everyone running for the rural areas for a multitude of reasons and remote work becoming the norm, the rental markets are crashing hard here.
Even before COVID however, housing prices had started to flatline or decrease as even with historic low interest rates, payments were very high, and even with increasingly risky financing, very few people could afford them.
Even if you go by historical norms of prices housing rising with inflation and you consider selling costs of 10% (a bit high of estimate), you only have to be in a house 5 years to come out ahead.
> If, in the future, I can find a place in a good location/part of town, with plenty of room, and is convenient to earning income, etc. and that doesn’t require me to get loan payments at some crazy multiple of my income, then yeah I’ll probably buy.
I’ve been in the same metro area since 1996. My last job was 30 minutes away. My current job’s headquarters is on the opposite coast and the official location of my division is on the same coast but about 15 hours away by car. I doubt I will ever work in an office again.
> But that hasn’t been a thing in the Bay Area since about ‘15 or so
There is a whole big old United States outside of the Bay Area.
I wish you luck, I hope that is true!
I ran the math when I rented in SF. I was paying about half of what my place would cost to own.
Even with housing doubling in price, the returns from the market were 3x (though not leveraged).
Assuming 20% down and the cumulative monthly difference, maintenance, transaction costs, and what equity I would have gotten back, I pretty much broke even to owning.