I don't understand how high prices good news for anyone except people who own multiple houses. Your home is not a luxury. If you're selling it in an inflated market you're also buying in an inflated market, unless you want to throw your money away renting.
One tends to have a lot more constraints on where one can or would prefer to live when one has kids and/or is working age.
Once the kids are out of the house and you retire you can dump the expensive house in commuting range of a high-wage city in the excellent school district, buy one half as expensive somewhere with worse schools and farther from jobs, and pocket the rest of the money.
> unless you want to throw your money away renting.
You're not always throwing your money away when you're renting; I'm pretty sure that housing prices are rising faster than rents, due to a culture of housing speculation.
Housing prices may be going up faster than rent. But as a homeowner my housing prices aren’t going up.
When we moved into an apartment in 2012, rent was $1200. By the time we left in 2016, rent was $1700. Our mortgage was $2200 including PMI, taxes and insurance for a house we had a built. By 2020, rent at the same apartment was $2400. Our house is three times the size.
The rent you are paying now is the least you will ever pay where you live. Besides changes in property taxes, our mortgage is the most we will ever pay.
lot of opinions here - counter to that, we're paying less for renting the same location we moved into three years ago. Covid, WFH and location value... lots can happen to change prices.
> Still, rents rose by double-digit percentages in all size categories in July compared to a year ago, with monthly rents for studios up 14.3% to $1,555; one-bedrooms, up 12.2% to $1,745; and two-bedrooms, up 11.7% to $2,103.
> The South and Northeast have seen the largest rent increases. Miami, where rents were up 26.2% from a year ago, saw the biggest increase among the 50 largest US cities for the 10th-straight month. Miami was followed by New York, Boston, Chicago, and Orlando.
If not in the principle building (mortgage payments are commonly less than rent and 20+% goes to principle year 1 - assuming 0 price increase over your term).
But also in the US + state tax code and credits - first with "homestead exemptions" - but especially if you make over $100k (yes, roughly 2x median household income, but applies broadly to hacker news and it's a home worth the "average"city price as you get to deduct the property tax and the mortgage interest (so rough savings of 25% on the remaining 80% year 1). For icing on top, you also get credits on energy efficient upgrades.
My current rent is half (literally) what I’d pay in mortgage and property taxes if I’d bought the same place at the same time. That was when rates were low. It’s even crazier now, with the interest rate spikes.
Even at the maximum rate it’s allowed to go up, it would take 5 years for that to change. But that isn’t happening, because California prices dropped 30% yoy already, and it isn’t stopping there anytime soon.
Conservatively, my landlord has been ‘paying’ me $4500/mo due to the difference. She inherited it, and refinanced with low rates, so she’s fine at least. A lot of folks I know are staring at bankruptcy right now.
Landlords haven’t had positive cash flow on a property in California in at least 5 years (based on ‘purchase now’ numbers).
What you are talking about is the ‘sane market’ behavior, but that hasn’t happened anywhere in the country (near as I can tell, from real estate investor friends) for years.
sure, if you're going to live in a 3BR+ home either way, it doesn't take long to break even on a purchase in most markets.
but I'm living in a 1BR apartment that comes with a garage parking spot, an ideal setup for me personally. a mortgage for an entry level home in the same neighborhood is comparable to my rent, but it would be a strict downgrade to my QOL, as I don't actually benefit from the extra sqft and would have to put in more work to maintain it. obviously a house with a garage would be much more expensive. I've looked at 1BR condos, but the condo fee generally means it takes much longer to break even vs renting a similar property.
In Atlanta, I was renting in a 1br condo for 7 years; when rent went up 15% in one year, it was free (after principal subtraction) for me to buy/move to a 2br in the same building in 2017. (Even more advantageous as a friend moved in). By 2019 comparable rents for a 2br were 2x my total 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.
In a lot of places, mortgage payments are around the same as rent, so if you can "buy" (qualify for a good mortgage) you'll be paying less AND your net worth will be growing
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
> In a lot of places, mortgage payments are around the same as rent, so if you can "buy" (qualify for a good mortgage) you'll be paying less AND your net worth will be growing
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 offers a fixed rate mortgage for 30 years? If people knew anything about banking they would realize that this type of mortgage can only exist in the form of a government subsidy.
You’re assuming that a mortgage is always more expensive than rent. Your rent is going to go up. My mortgage isn’t.
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.
This is a vastly underestimated component of why owning makes more sense than renting for the majority of the population. Practically, you are unlikely to make more than 2x your starting compensation from school. Rental costs are somewhat sticky at around ~25-50% of your income depending on your preferences. You can save money, and live frugally. But a good chunk of your future disposable cash flow is going to come from fixing your housing costs.
> Practically, you are unlikely to make more than 2x your starting compensation from school
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
I should have specified 2x real income e.g. income indexed for inflation.
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.
You said if you buy outright then that means that you won’t have that money to invest. If you assume that you either pay money for mortgage or rent, the only way that would be true is if your mortgage would be more expensive than your rent short term.
What are the chances I’ll want to be living in the same area, or same house, considering the massive churn in demographics, economic shifts, etc. currently ongoing? Or even in 5 years?
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.
> 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.
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 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.
It’s good for people who want to sell and live in something smaller, since the market inflated the delta between differently valued houses on an absolute dollars basis.
And in the age of increased nomadic living, emigration to low CoL countries and multi-generational households, there might not be much of a replacement to buy or begin to expense.
Just explaining, not advocating for selling one’s home to retire.
>> Some states are non recourse or single action. Worth knowing if you’re possibly going to be in a Situation.
Non recourse means they dont pursue you for the difference. It doesnt mean your credit isnt completely ruined for the next 7 years. It would be impossible to get another home (and in many cases to lease another apartment) with a walk-away from debt.
High prices are good news because home building is profitable, you get increased supply and that buffers price shocks. If prices start falling it will put home builders out of business (The same as 2008), and we’ll have another decade of housing shortages. Sure there will be some people who benefit, people with means who can use cash to go scoop up cheap real estate as an investment. The average person is going to be screwed and the bank will not give them a 9% interest loan during a recession.
On a more abstract note, deflation is terrible for an economy. In a healthy economy you want people to be building things. It creates jobs, lifts people out of poverty, and so on. Deflation causes people to hoard cash and stop working and investing.
Nope - they’re talking about turnover between current ‘have’s’ and ‘have nots’, allowing the have’s to move to an area that someone who is poorer cannot afford to live due to lack of jobs or the like.
There are more than enough actual houses in the US. We aren’t short on space. It’s location and current needs based on time in their life and available assets, etc.
