According to my Dad, younger generations have never experienced a housing environment where your home value goes sideways for a decade. With rates this high and going higher. We may experience our first example of buying a house and selling the houses 10 years later for about the same price.
Millennials have never known different until very recently. To them, housing wasn't something that appreciated at all. In fact, it's so common for millennials to say things like, "just waiting on another housing bust." It's like they think 2008 was come cyclical event that you just need to wait another year for.
I held a similar attitude towards housing and rented throughout my 20s because every single homeowner I knew bitched about how buying a house was a loss for them. People didn't make money on houses outside of rich coastal cities. Heck, I'm trying to unload a parent's home and they are disappointed that the house they lived in for 16 years has only appreciated by maybe $10k.
Covid was the when young people outside of NYC and Cali learned that it is smart to get into the housing market earlier, rather than later.
This depends on your local market. Where I used to live I saw a sideways on my home price for nearly a decade. I watched other larger markets going up YoY. Your market conditions will probably be different than others.
My parents bought a house in the early 70s. They paid about 12,000 for it. That same house now is being appraised at about 210k. However, if they sold they could take that money and buy a comparable house for about 210k. Housing is a good hedge for inflation. It is a mediocre investment vehicle, unless you happen to win the live somewhere where supply is not where it needs to be lottery.
I bought my house and paid for it as quick as I could. The saving on the rent alone was worth it to me in my area vs the cost of the house.
It is an insane investment vehicle if you keep using the leverage and prices are going up faster than inflation (which is part of the problem).
Arguably they might not be going up much more than inflation once you calculate all the various new requirements for new buildings, but it's still a problem. In absolute long terms, housing can't become completely unaffordable.
Long term it is wildly affordable. 0$ rent is way better than some of the rents I have been seeing lately. Owning property and renting it out is a nice 'gig' if you are into that sort of thing. But if you have 5 properties and one bad tenet they can wipe out 2 years of ROI very quickly (had family members this happened to).
Holding value is also not necessarily a bad thing. You want a pyramid of investments. With your base being solid boring things. Then once you have those nicely going. Risk is not really that risky. It is not 'i am not going to eat today' it is 'darn lost that investment life goes on'.
It depends on the risk model you are making. My current one involves keeping a house and then using the money I would use for rent as investments. Think of whatever you are renting or your payment per month is. Now think of what could you do with that extra amount of money per month. I have had hundreds of people tell me the same thing. That there are these great investments out there where I could turn the value of a house into 1500-2000 a month with low work. Yet no one points them out. They 'are out there'.
My risk model is zero debt and no rent. Giving money to other people for borrowing is a risk model I used when I was younger. I no longer do that. It is like getting a 50% raise on the same income.
Or as a old saying says "a bird in the hand is worth two in the bush". I am well into 7 figures on wealth instead of low to mid six figures in debt. You can play debt in that way. But it is risky and has lead many to ruin. However I traded debt for a reliable income at a fixed pace that was well above my spend level. I curb stomped all of my debt own a nice house, nice car and paid for with no debt. Debt is thief of your future potential. Debt can be used for that sort of thing but you have to use it extremely carefully. Most people dont. I was not among the gifted of picking the right things to invest in. I also know to almost the penny the potential I lost. Because hindsight is 20/20. It is nearly identical to what I have. Because I basically became the lender instead of the borrower. Debt is now a tool for me instead of a worry.
Can't speak for the US, but here, the mentality was always "trending up with highs and lows" which caused people to believe waiting was better after several years of increases, not the idea that housing didn't appreciate in the long term. Along with record appreciation, people didn't just think it would crash eventually, but it was downright necessary for most to buy.
I don't understand. Housing has been going up steadily for the past decade. 2007-2010ish was the only time it decline, and 2018-2019 had a flat region for some places (not where I live though).
The disconnect is because there are very large regions of the US where land price had stagnated or even went down in price for the past few decades, but there are also very large regions of the US where land price increased or skyrocketed.
Many people experienced different things. Of course, the regions where most people were moving to and where most house sales occurred experienced higher land prices, but the regions where land price was stagnating or declining would have fewer sales in the first place and hence not reflect in the data, but the people there would still be experiencing it.
So you just have large numbers of people experiencing different price movements depending on where they live.
Because you're looking at the USA market as a whole. The regional view tells a much better story because then you don't have movement in one region offset that of other ones.
You can pretty clearly see that most regions there were long periods of housing stagnation and decline, followed by quick price jumps, then back to stagnation.
And look at how wildly the NE region fluctuates. It regularly moves 10% up or down in any given year. And sometimes much more, prices moved from $403k to 566k in one year (2016->2017).
Whether you did well or not in your housing purchase comes down to luck. Yeah, in aggregate, over long enough time periods, housing does well. But your individual situation will vary dramatically.
Happened to us and our neighbors - bought end of 2005. 2015... house estimated for... about the same as we paid for it. It wasn't "steady sideways"... it was 'crash and recover'. But it's certainly happened to many folks - buy then sell years later at roughly same price.
Yeah, bought my first house in 1988 and a decade later was still looking at a steep loss, but by luck sold for a profit at the market peak in 2003. In 2011 it resold for less than in 2003.
Every millennial lived trough 2008, plus also 9/11, also a global pandemy and now +10% inflation. Everything with real wages being stagnated since the 70's
I think we could give those "young latte-sipping kids" a break..
By definition no. In reality not either as you have to live somewhere - it might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either so is actually good for the average person. Of course if you have a large mortgage the investment is small anyway.
> might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either
Unless inflation is zero, this won’t be true. Commodities will have gone up. Labor will have gone up. That fundamentally raises construction costs for new homes. For existing home prices to remain flat that requires land values to fall.
Add in real-estate transaction costs and maintenance (which are also fundamentally exposed to inflation), and yes, one will lose purchasing power in a flat housing market. Intrinsically. And relative to someone owning productive assets. (I say this as a homeowner.)
You should also factor in "imputed rent," which is what you would have spent on housing had you not owned a home. Subtract your property taxes, mortgage interest (+ PMI if you had it), and upkeep costs from how much it would have cost in monthly rent to live in your home.
Generally, even if you lose money from inflation, property taxes, transaction costs, and maintenance, imputed rent will put you ahead in the end.
It can be quite instructive to "excel pretend" that you're buying your house and renting it to yourself.
Buy a few landlording books and read through them, and then vigorously track everything that would be a "rental expense" if it were a rental property in your spreadsheet, then at anytime you can "back out" what you would have had to pay in rent assuming some % profit. Add that to rental comparables from your area and you can get quite a good idea as to the true cost of home ownership (and renting).
Or you can do a simple version of it by calculating what the IRS would allow you to deduct as depreciation and assume that's roughly the maintenance cost.
Are you forgetting about the 10% of sale price haircut that accompanies real estate transactions? Agent fees, taxes, title insurance, blah blah. If you sell your house for what you bought it for in the US, you end up with ~90% of what you started with.
Yeah, and what the above is forgetting that most of the payment is interest. So it may have been no different than paying a landlord. My experience renting houses in the 2000’s was that my rent was about the same as my mortgage payment + taxes would have been for the same house. Add in maintenance and it was several hundred per month cheaper to rent. Even the house I live in now I rented prior to buying and my rent was 12% less than my monthly mortgage payment. It really only made sense for me to buy because my city was seeing 10% yoy rent increases that I expected for several more years, which meant locking in a price with a 30 fixed gave me and expected monthly savings.
The "old rule of thumb" was it took 5-7 years for the break-even on buying - if you were going to stay in the house less than 7 years renting would probably win, if you were staying more than buying would win. Of course appreciation and other factors change this; if houses are appreciating quickly buying will be better, if they're stagnate or dropping rental may be better (but then you can get rental inversions where the cost of renting goes way below or way above the cost of buying).
At some point buying is basically arbitrage between the mortgage rate and the inflation rate.
> buying is basically arbitrage between the mortgage rate and the inflation rate
It's a play on rental yield, i.e. rent versus price. Inflation is relevant, but more precisely considered as the cost of capital (opportunity cost of your down payment plus lost/gained yield on the difference between ownership costs and rent). Everything else is adjustments. Whether it's financed with a mortgage or cash is important, but the fundamental analysis still holds.
Yes I did forget but I'd suggest the transaction costs aren't significant when you hold 10+ years and are just another cost of living. If you rent you have to pay fewer transaction costs but you have rent rising so that has its own problems.
Yes, assuming the rental market has sufficient competition and can take advantage of existing homes. Local rental property monopolies or regulation (either governmental or from private organizations like HOAs) that prevents the excess homes from being rented can cause a rise in rents that is not related to underlying housing prices.
Depends on your situation. For example, I bought a house and my mortgage+insurance+repair amortization is less than I'd pay for renting a similar sized apartment or home. I had to lock up 30k in my down payment, but I'm saving $500+ (probably closer to 1000) a month vs renting. That's equivalent to 6k a year, or >20% return on my investment.
Be sure to save that extra money, houses have a way of turning you into a cash machine for Home Depot holy shit there's always something to fix or spend money on
Owning a house is essentially like having a bottomless pit to throw all your excess money into. I didn't really appreciate the advantages of renting until the dishwasher and the oven broke in the same month.
Don't get me wrong, you spend that money on stuff you use, but the TCO is much higher than the mortgage payment.
Only if you're a robot that sleeps in a closet. Otherwise you have to live somewhere during that time. And every penny spent on rent is literally just vaporized into nothing.
