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%?