The more fiscally conservative option is to only borrow money if you have capital which is earning income at a higher rate than the mortgage. This probably necessitates having more capital than the house costs.
House prices are unaffordable because people take on loans they can’t afford. This reinforces the unaffordable prices. If milk was $40.00 a gallon you’d just stop putting it on cereal and eventually farmers get the message. Houses are the same thing.
If you can’t comfortably afford a house then don’t buy it. You’re stuck renting or buying something more modest. This isn’t complicated.
The idea that house prices can only go up is delusional. Nothing about a house is uniquely inflation proof or even inflation resistant. This isn’t the only investment vehicle available to you.
This idea that houses are an important part of financial security is putting the cart in front of the horse. It leads to the NIMBYism that prevents additional supply from being built because prices must always go up.
We all exist in the same economy and no action happens in a vacuum. When you buy something you have reduced supply and applied upward pressure on price. Individually this effect is so small it is immeasurable. In aggregate it isn’t.
Which should have been a lesson, but five years later, housing prices recovered and ballooned. I don't know why besides increased demand and reduced availability, clearly people can still get mortgages despite the lessons learned from the crisis.
Even in Seattle, $800k would get you a decent starter home.
(I chose $2.5k, bc 15 years ago out of college, that’s how much I saved living in GA on a $70k salary). I saved even more when I move to California in my mid 20s.
Also I think it's pretty rare for people to have the mental fortitude to save 2.5k a month for a house on top of living expenses, rent, and trying to build your retirement / savings / emergency fund.
It's definitely possible but I think it's out of reach for the average person.
No, it isn’t. You can invest your savings. If you had put $2,500.00 a month into SPY500 since October 2009 (15 years ago) you’d have $1,388,302.13 today.
https://dqydj.com/sp-500-periodic-reinvestment-calculator-di...
> Also I think it's pretty rare for people to have the mental fortitude to save 2.5k a month for a house on top of living expenses, rent, and trying to build your retirement / savings / emergency fund.
How is saving for a house “on top of” literally “saving”? If you can save for retirement, savings, and emergencies then you have the mental fortitude to save for a house. People are bad with money, we know that. One of the best examples is buying a house they can’t afford.
> It's definitely possible but I think it's out of reach for the average person.
Yes, agree.
> So how does one buy a house without being dependent on cash flow?
The answer to which is “you don’t”.
Most people can’t afford to buy a house and never will. Even many homeowners.
I will spell it out if it isn’t already clear.
Live within your means and save as much as you can, investing that savings in a diversified portfolio. Buy a home only when your savings allow for it.
Most homes in America are owned by the person who lives there.
That rate is higher now than in the 50s, 60s, 70s, 80s or 90s. It rofl stomps the pre-war era.
The census also collects data on the subject https://www.census.gov/data/tables/time-series/dec/coh-owner....
If that's even in the ballpark we're going to see a lot of assets aquired by insurance and hospitals to pay off the final years and this residential ownershio will torpeo.
In general terms the oldest cohort has steadily advanced in home ownership (I’d guess due to our welfare for the aged that isn’t needs based and better old age health, not land gifts but who knows). So there is definitely a trend of the oldest age cohort increasing its homeownership % while the other cohorts decrease.
But for the under 35 crowd today, they own their own home at a higher percentage than boomers or gen x did when they were in that cohort.
There is also the consideration that the US is just older than it’s ever been. I’m not a demographer do I have no idea how that plays out.
The post-war era has seen only minor changes in homeownership rates. And those tend to be around macro economic events like 2008 and Covid (and the Reagan era mortgage rates woof).
Importantly the quality of the housing was in many cases horrendous.
If you can’t retire or pay medical expenses or maintain your physical and emotional wellbeing because you spent money on a house then you couldn’t afford it. Owning a house doesn’t mean you can pay the property taxes or maintenance costs.
My point is that people are making financially unsound home buying purchases.
Another way to say this is that Bugatti doesn’t sell Veyrons to people with $1,000,000.00. Bugatti sells Veyrons to people with an extra $1,000,000.00.
It's expensive being poor and the job market isn't getting better to compensate this economy. If you rent forever you spend more than someone paying off a mortgage (only amortized by needing to upkeep the house youself). If you're wokrking your back out everyday you're more likely to pay more insurance and medical bills than the cushy white collar job with proggresion options.
Most people don't even have the $1000 rainy day fund. They are 3 steps removed from the thought of a "diversified portfolio".
I have a “cushy white collar job” and I can’t afford a house. Prices are absurd. I can make mortgage payments but it would destroy any other savings. Buying a house when poor isn’t a smart financial move.
I wish everyone could afford a house but that’s not the world we live in. Nothing will change until people wake up and stop killing themselves to inflate home prices.
Median home price in the US peaked at $479,500.00 in 2022. By Q3 2023 it was down to $431,000.00. In Q3 2024 we reached $420,000.00.
But even using the index numbers it isn’t hard to see that housing prices do in fact go both up and down.
If we are considering kids, presumably there is another partner (and income) to be added to the equation. While you may have half the amount saved due to the cost of raising children, your partner would have the other half.
8% was chosen to discount 3% inflation (cost of living) from SnP 500’s average 11% growth.
Using [3] October 2009 to present gives an annualized return of 13.763% and going back 20 years to include the great recession returns 12.06%.
Post-tax current-day value scenarios:
Starting in 2004 (20Y):
$500.00/mo: $418,349.29
$2,500.00/mo: $2,091,746.42
$500.00/mo: $252,413.58
$2,500.00/mo: $1,262,067.88
[2]: https://dqydj.com/sp-500-return-calculator/
[3]: https://dqydj.com/sp-500-periodic-reinvestment-calculator-di...
I don't know of any lower-risk and higher-interest alternative to the 30-years-fixed that is currently offered to US consumers, and based of the above answer, neither do you.
What savings account do you have? Even the best HYSA's I've seen in the '10's is 4%
I suppose if you're really confident in your monopoly money you can do it.
OK, and how does that work when houses appreciate at 9%?
How are housing prices in the neighbouring countries?
When you said 600K, did you mean NZ dollars or US dollars? If the former that would be about 360K USD.
On a median NZ income of NZ60K per year, that’s indeed rough.
Top 3 worst affordable according to claude.ai, behind Hong Kong and South Korea. The most affordable housing countries are USA, Germany and Ireland
Maybe Edmonton, and in not great parts. The parts that give it the reputation as "Stabmonton".
Rural is a different story -- seen some damn nice places for $300-400k CAD -- but rural Canada has its own challenges.
Sadly it seems it's unlikely they'll hire you even though they might need the help that bad because they're afraid of paying to train you and then you leaving once something better, and in your line of work, comes along.
And no, 1k a month is under minimum wage in my state. It's not even covering my mortgage, which is much cheaper than rent.
The job market is doing just fine, unless you’re in very specific areas such as the automotive industry or certain types of manufacturing.
[0] https://www.npr.org/2024/10/04/nx-s1-5140039/labor-market-jo...
I believe they also count gigs. So I could run Doordash for under minimum and be "employed" technically.
The other dangerous thing is "averages". This is one of the special cases where you need to look at the lower quartiles. The average/median can look great, but if we have an entire quartile unable to pay rent we'd be in trouble as a whole.
You can click through to the BLS survey to read more about their methodology, but the job growth number of +254k jobs in September only includes payroll employees. And reading the report would tell you that they do, in fact, track underemployment (people who worked part time but would have preferred full time employment). And neither job growth nor the unemployment rate has anything to do with “averages.”
Can you provide any data to refute the numbers I shared? Because again, the job market is looking pretty good to me.
This is why everyone hates economists. They have zero insight into how lives are for ordinary people. I applied for a job at grocery stores and fast food restaurants. I did not get ONE call back from any of these places.
Also another thing -- they keep saying rate of inflation is now under control. Well guess what, the prices went up and have not come down. Wages did not keep pace with the high rate of inflation so unless you can have negative inflation somehow, there is still constant pain every day, every month. I mean it is so obvious and yet economists chase spherical cows...
I understand your frustration with your personal situation, but at least regarding unemployment, how else would you propose we measure it? Unless there's some flaw with the methodology or the data that was collected, your situation is very clearly not the norm. Until we identify any possible problems with the measuring process, the number that's released is the best view we have of the employment situation nationwide. Are you saying that "ordinary people" are somehow excluded from the data? Or what?
> Also another thing -- they keep saying rate of inflation is now under control. Well guess what, the prices went up and have not come down. Wages did not keep pace with the high rate of inflation so unless you can have negative inflation somehow, there is still constant pain every day, every month. I mean it is so obvious and yet economists chase spherical cows...
The rate of inflation is under control, and I realize you might know better and are just speaking for "the average person," but comments like this reflect a gross misunderstanding of the concept of inflation. This is a perfect reason why education is so important to an informed and effective electorate.
BTW, you can, in fact, have negative inflation, and it is widely considered to be bad, for a multitude of reasons. [0]
> The rate of inflation is under control
Stop saying that because that message is clearly not resonating with people. They don't understand and they don't want to understand. Don't shoot the messenger here but this is a spherical cow. It doesn't matter that a car that has you pinned against a wall is no longer accelerating but it is merely attempting to crush you at a steady, cruising speed.
Yes, this was a big achievement and clearly we failed to communicate this message because the next question is ok great but how do I stretch my paycheck to meet my expenses.
And that goes back to the original problem -- there are fewer jobs than there were before. I have ZERO data to back this up but just my own personal anecdotes but it feels like at least for web developers that companies are laying off people AND hiring people back at lower wages. If they are not actively laying off, they are taking any excuse they can get to end a contract or "return to office" to force people to quit and come back at a lower salary.
I’m not a politician running for office, so fortunately I don’t have to make it resonate with people. I will continue to say it because it’s true.
> And that goes back to the original problem -- there are fewer jobs than there were before. I have ZERO data to back this up but just my own personal anecdotes but it feels like at least for web developers that companies are laying off people AND hiring people back at lower wages.
I prefer to believe things that are based on data and evidence rather than feelings, even if it goes against whatever preconceived notions I may have.
Here’s an anecdote for you: I’m a developer and found a new job about 2 years ago, after the big tech layoffs started happening, and went from starting my search to offer signed in about 5 weeks, give or take. I still work for this same company and since the whole company is fully remote, there are going to be no RTO mandates, ever. I make more money than I have at any previous job in my prior 20 years in the profession. I have several close friends in similar positions as me. The job market is doing great!
What do we do now?
I am happy for you. I know people use this kind of as a backhanded way like "bless your soul" in Texas but I really mean it. I am happy for you.
I hope I can get there as well. T_T
I find it hard to believe you can flip enough burgers to pay that mortgage and still survive. Not many fast food places will pay over 30 hours a week to burger flippers. Managers yes. You would barely survive.
To keep a $1,400 within the 28/36 rule [1] you need to make $60,000 a year. That's around the median wage for a fast-food manager [2].
[1] https://www.investopedia.com/terms/t/twenty-eight-thirty-six...
[2] https://www.glassdoor.com/Salaries/fast-food-manager-salary-...
like it's not an amazingly complex job, but you can't just hire some rube off the street because he had a CS degree and knows a bunch of node.
I'm guessing remote work, or a high position in the midwest or some other place?
In SF/Seattle/NYC, 250K is not enough for a studio apartment.
The term itself sounds absurd and oxymoronic to me, but also I know NYC housing is absurd and I can imagine that there are places that do nice interior finishes on studio apartments and call them luxury so maybe it's real?
But most of history relied on a labor market focusing on retention and training. We're far past that. We're a gig econnomy in all but name with these kinds of evonomic swings.
You can't eat cash either. If "can I eat it" is your metric, buy army rations.
My financial teachings were always emergency fund -> 3-6 months of savings immediately accessible -> consider stocks (hire a financial planner if you don't know stocks) -> consider asset management. your first foray into saving if you're barely spacing by isn't to rely on the S&P 500.
You can't eat cash either. If "can I eat it" is your asset metric, buy long-lasting preserved foods.
That's why a budget is necessary, and you plan for emergency (of which a layoff is one). Saving up for an emergency fund means you don't spend on luxury until it is saved, which means no broadway or restaurants (unless you're super highly paid, in which case it'd be quite fast).
The restaurants and broadway shows are gone.
I’m all for spending on experiences btw. But you have it backwards financially.
And selling your house is a last resort. rent is still more than mortgageso you're losing both asset and liquid wealth with that move just to buy some time. You're better off taking out a second mortgage if needed than selling off entirely.
...not to mention that if you're losing your job and can't find a new one readily, chances are you're in an economic calamity and you'll be selling near the bottom.
One main fault in the analogy is that in an economic crisis, there is a vicious cycle of income loss which leads to lower demand leading to more lost jobs. This coordination failure can be handled by fiscal/monetary policy. Whereas server failure, even when widespread due to a virus doesn't happen recursively like that.
That said, I think it is a pretty bad idea. Use of public funds dont increase with property value, it just means you have deeper pockets. I would be more in favor of flat taxes on homes independent of value, so people pay their fair share for community resources consumed.
Or tiny homes like the luxury single occupant container buildings on a bit of land?
Tiny homes are not the solution, they are hipster semi-cottage-core fashion homes. You're probably thinking of regular apartments, but for some reason they aren't built at the rate needed. Build ten million apartments (for starters) and the cost of living will go down. Satisfy / saturate the market first, then think of gentrifying with fashion homes.
crabs in a bucket. Those who got in and got theirs don't want their property value falling. Americans treating housing as a stock instead of a necessary resource for living really ruined a lot of the dynamic of city planning.
Getting fired/laid off is about the only thing that can save you.
Maybe disappear into the woods, or change countries. Or self delete.