This article is funny. It looks like they pre-wrote and expected the JOLTS report today to be weak. But, it ended up being hot and they still published. Quits increased by 250k [1]. Quits haven't been that high since December 2022.
The graphs in the article don't support the text of the article or the headline.
Peak job quitting rate was briefly 4.5M (it was above 4.1M for 12 of 26 months), but has been closer to 4.0M during the "great resignation". It is currently 4.0M, so within rounding error of median. It was at about 3.5M for the second half of 2020, where the graphs start.
Open jobs are at 10M off a peak of 12M vs. 6.8M at the beginning of their graph.
They don't report pre-pandemic numbers, but the graphs suggest the market is significantly hotter than it was in 2020, with no clear trend in recent months.
While quits are still above pre-pandemic levels, to me they look below where'd they be if you charted out the pre-pandemic trend of increasing quits: https://fred.stlouisfed.org/series/JTSQUL
Not sure if they are talking about my buddy who still makes 80k/yr in his 30s as an engineer because his company keeps dangling 'you could go to Japan for a few weeks' for the last 7 years. Or they are talking about the current economic conditions.
Not to comment on your friend's situation, I just feel it's worth noting for passersby and posterity that there is nothing necessarily irrational about choosing less lucrative employment if it aligns better with one's value system.
At the same time, don't let a company string you along
I think your statement isn't strong enough. Choosing lower compensation in exchange for work that aligns with your value system is an entirely rational thing to do.
Or, they don’t know what they value yet and money is a way to measure value without understanding. It opens opportunities to discover your values and affords housing, education for children, retirement, and optionality later in life. Some folks, like myself, found what I value aligns with pretty good pay and I appreciate it while not particularly valuing it.
I suspect (hope) that by the time a person is old enough to have a job, they have developed some sort of value system and are at least roughly aware of what that value system is.
I mentor a ton of people and have for decades at various stages of their life and career. People
A) rarely have a clear view of their values insofar as it aligns to what they do for a career or job. Maybe about X social issue, but rarely about themselves.
B) careers and corporate brainwashing greatly distorts peoples internal view of themselves and their relationship to their work
C) values change continuously throughout life. The people who seem to hold most tightly to a narrow range over a long time tend to be the least introspected.
I think it's all too common to absorb a value system from social context with little examination. Validation is more comfortable than doubt, peer pressure is real and habit/convention carry inertia. It took me 2 years in a job I knew I couldn't justify to finally work up the courage and conviction to leave. Moreover the cycle can take place multiple times in life as beliefs are updated and values refined.
Yes, and if you come from a place of true scarcity (country with 30% unemployment, and zero opportunities in your field) it's easy to ditch all your values for that one job that opens the door for you. Only when you're somehow established you can start thinking about values.
I was making a touch under 80k/yr as a (physical, non software) engineer in my 30s not so long ago. People around me were making 40-50k. Professors in town made 60k. It was in a LCOL city in the northeast and it was comfortable.
It really depends on your lifestyle and location. Tech salaries are not the norm for most people.
I don't think people here have a good sense of what a low cost of living really means. I was still an Army officer in my early 30s and still fairly junior. Made more than 80k, but not a ton more, and it isn't totally comparable, especially with completely free healthcare, but we lived like kings. My first house was on nearly a quarter acre, four beds, three baths, three-car garage, historic trees, in a very quiet neighborhood, no crime, and the purchase price was $120,000. Not only could I easily raise kids, but much lower paid enlisted personnel still raised kids, too. That was only 2010. Housing costs have certainly gone up since then, but nowhere near the ridiculous costs on the coasts. My wife's sister just bought a townhouse in Queens that is finally big enough for their kids, and it's not any bigger than my first house, and they paid $2.5 million. You just can't compare what counts as a livable salary when some places cost 10 times as much for similar housing. And the fact that they're even in Queens at all is because they can't afford Manhattan. I'm not even sure it truly is comparable since the places there don't have garages. Her last place they had to buy a parking spot separately, for only one car, for an additional $60,000. That's half the price of my first house to park one car.
Even in a LCOL area, with a family, I would not feel comfortable on $80k per year as I would not be able to save enough to afford out of pocket healthcare expenses for family, plus premiums, plus retirement savings, plus education savings for kids.
Plus it is LCOL area, implying that there probably will not be many alternative $80k jobs if the one I had went away.
Many people in the town I lived in have accomplished all that you’ve listed. Also 80k is a single income — with dual income it’s low six figures. In a LCOL location it’s not bad.
Now their job market may not be hot but layoffs also rarely happen because these are industries that value stability (diversified multinationals but based in a LCOL location). Many folks in my former company have worked there for 30 years. Plus today, there’s the remote market. I think the scenarios your are imagining don’t apply as universally as one might think.
Our perspectives are often shaped by our immediate experiences. I have a data point that deviates from the experiences of most people on this site (that I suspect much of non-tech America shares)
Yes, dual income households in $120k to $180k range would work in a LCOL area.
Although, I would never be able to sleep at night if I was counting on depending on an employer for 30 years, not only to keep me employed, but to keep paying me competitive wages when they know I have no other options.
My biggest concern is price of quality goods and services like repairmen and elder care workers and whatnot greatly increasing by the time I am old (2050s) due to demographic changes. I foresee more and more old people bidding for the labor of fewer and fewer young people. And the government chipping away at the purchasing power of the dollar to address this (since that is the easiest and maybe only thing they can do).
Perhaps keep in mind that per capita income in this country is on the order of $25K and has been for decades. We can argue over the reasons or whether that number is artificially low, but once you get away from the coasts, a lot of this country is poor and that $80K would be life changing.
You can do all of that on less than $80k in a LCOL area. You might not be able to do all that and live a luxurious life, but that's a different thing entirely.
Out of pocket maximum for silver level HSA eligible health insurance is probably at least $5k if not $7k+. Premiums for a family of 4 are $30k, and if employer pays for 70%, then you are left with $10k.
$20k for federal/local takes. $80k-$20k-$10k is $50k. Max out HSA and 401k is ~$25k or more. $25k left, or roughly $2k/month left for mortgage/rent, food, utilities, car(s), vacations, etc.
Of course, you can not max 401k and HSA, but my opinion would be that is insufficient savings.
Joint tax rate for 80k is 12% federal, so half what you’ve listed for federal. Lcol is likely Tennessee or zero/low state taxes so less than 8k for sure.
Even if huge overestimates on taxes are correct, 2k/mo is achievable. <1k/mo for mortgage and $600 for food if you’re stringent, $400/mo for other expenses. All extremely dependent on being in a very low cost of living area, but 80k is ridiculously higher than a lot of people who live at $14k or 28k/ year if one or two people work at minimum wage.
It’s extremely unlikely they’re maxing 401k as well, most people I know who making 100+ don’t do that. So more realistically 80k, minus 12k for taxes, maybe 5k for health, maybe 5k for 401k, leaves you with 58k.
$30k annual premium is from my W-2 showing how much my gold HSA plan for a family of 4 costs with a $3,400 deductible and $7,250 oop max.
NJ has a nice pdf showing premiums and age rating factors, we can roughly estimate from there (lets use Horizon BCBSNJ Omnia Silver HSA as an example since BCBS is nationwide).
$325 per month per child, ~$500 per month per parent - $20k in premiums for a silver HSA plan in NJ, but this is has a $7k deductible and $14k out of pocket maximum. If an employer wanted to bring those deductible and oop max down, the premium would have to go up quite a bit.
So even in a lower cost of living state, I would estimate at least $25k/year in premiums for a half decent plan for 2 adults and 2 kids.
You are right that $20k in taxes might be high, but I was figuring income tax and 1% to 2% property taxes and maybe even tolls/vehicle registration/etc to be safe.
>It’s extremely unlikely they’re maxing 401k as well, most people I know who making 100+ don’t do that. So more realistically 80k, minus 12k for taxes, maybe 5k for health, maybe 5k for 401k, leaves you with 58k.
Yes, I assume 90% of Americans are not saving per my comfort levels.
I didn’t make enough to max out my 401k until I hit my 40s but always had a rainy day fund (8 month runway). I guess I lost the compounding for all those years but I still have enough.
As an immigrant I’ve always lived so close to the edge financially that I feel I don’t have the same expectations of most native born folks of what retirement looks like (I don’t plan to retire, but if I’m forced to I’m planning for 70s not 65). To me it just means I have to be hustling all the time. I don’t feel I’m hard done by or financially insecure though. I’ve lived with very little (I was technically below the poverty line in undergrad — I really stretched my dollar) and now I’m relatively comfortable but it’s all the same.
My parents were immigrants, and my expectations are because I saw them work 24/7 to barely scrape together a life for my younger sister and I. I was specifically told to be careful while playing, because a doctor or hospital visit would set the family back.
If I did not have kids, my comfort level would be a lot lower. But I feel like I decided to bring them into the world, and so I owe it to them to bed financially secure enough to provide them healthcare and my time.
Yeah, the 200k+ salaries have only recently became available to much of the country thanks to the proliferation of remote work. Not everyone is willing to make the sacrifice of living in the bay area for those faang salaries. There are more important things in life than money once you earn enough to take care of your needs.
80K is kind of rough for a 30-yr-old software engineer to be making in the US, especially after the recent inflation/prices bump, no matter where you live. I live in one of the lowest COL areas you could ask to live in if you still want easy access to a grocery store, and you couldn't house and feed multiple kids on 80k/yr.
I think it’s expectations. Software engineers have a different relationship to salary than most people and it shapes expectations. People in physical engineering do make around that much and they support their families just fine.
There are trade offs of course—instead of 4 kids you might have 2. Your spouse might have to work part time or full time. Instead of a big house with a backyard you might go for a smaller place or somewhere farther out in the country. Instead of distant vacations, you might road-trip. 80k really is quite workable if your expectations and budgeting is solid.
> Software engineers have a different relationship to salary than most people and it shapes expectations
It also shapes expectations over what we think we will be expected to pay for personally, and what those costs are likely to escalate to be by the time we must pay for them.
Give me $80k/yr and my quality of life locked in on that (healthcare/retirement included of course!) and I'd sign the paperwork tomorrow.
The issue is that there is no way the costs are going to be reasonable enough if I get "unlucky" to say that is anywhere near enough money. The difference gets put into savings, not spent.
My family who have never seen what things cost (e.g. subsidized medical insurance, etc.) are perfectly content and happy making far less, and state that it's simply lifestyle inflation for others. I think it's more ignorance is bliss, and they always know (and utilize) the fact they have family doing much better than them to call if times get truly tough.
When you're the only backstop you have for yourself, and likely many others counting on you, that $80k sounds like pretty much nothing running a few not-ideal life scenarios.
tldr; $80k certainly gives a very reasonable lifestyle, but as soon as the music stops it turns into pain city really fast. It's less needing more money to have a nice lifestyle, and more middle class economic insecurity.
> Your spouse might have to work part time or full time
This isn't "just fine". There is significant overlap in child success and a stay at home parent. There should be no case where a job at the caliber of ENGINEER cannot support a family to provide such an environment.
> Instead of a big house with a backyard you might go for a smaller place or somewhere farther out in the country.
You don't even get this at 80,000 if you want to live within 50 miles of any metro with jobs. Engineering jobs even more so. Going back to your statement before you now have a contradiction:
1. Have a spouse work
2. Have someone to drop your kids off at school because you live in the sticks
I don't think you have actually experienced trying to do exactly what you proposed. Inflation and free money has created an environment hostile to having anyone but the state raise your children. I got a house extremely cheap in a middle-cost-of-living area (~50% markup over price prior to GFC, low 200s). If I was making 80,000 a year I wouldn't be able to afford this modest starter home. That's bullshit. There is no question. Starter homes haven't been cheap enough to afford on a single 80,000 salary in my area for 25 years.
> If I was making 80,000 a year I wouldn't be able to afford this modest starter home.
You can afford a modest starter home on 80k a year if you're not carrying any debt, lenders cap DTI around 40%, or $2600/month, although your finances would be tight, and you wouldn't be able to live in a state with excessive taxes like California.
Most people can’t afford to put 20% down on their first home anymore. We only did 3.5% on a ~$230k home.
If we waited to save up 20% we still wouldn’t have bought a house because it would have taken several more years and then the home prices jacked up 40% during the pandemic. Instead our home went up in value by that much instead.
For your example house they’d have to have saved up $70,000 ahead of time. For people that rent and aren’t in tech that’s not too feasible, especially considering they may have that much in student loans also.
I know a couple that managed to do it but they lived (as a married couple) with their parents for several years instead of renting so they could save up for it.
> I live in one of the lowest COL areas you could ask to live in if you still want easy access to a grocery store, and you couldn't house and feed multiple kids on 80k/yr.
Then you don't live in one of the lowest COL areas. In my US state, the median income is $50k/yr and most people manage to house and feed multiple kids.
I don't even make that much as an engineer in my 30's. Poor people can technically get by, but there are a lot of sacrifices involved. It's understandable that a lot of people aren't willing to make them.
As someone who lives in Japan, yeah a company paid trip is cool, but it's really not that expensive to visit. If it's not actioned/planned how is that really a hook?
people are irrational about their jobs and compensation, like those people who decline raises because they think its puts them in a higher tax bracket and they'll lose more money.
To be fair there are definitely cases where an increase an income means you lose particular benefits and end up being worse off. But yes, it's scary how many people don't really understand marginal tax rates.
Your friend is basically useful idiot. Yes you can tell him what I said here. As long as there are NO contractual bindings, his chance can be more of zero than going. If Japan is his intention, quit his job and look for others. Maybe dropping by Taiwan, Singapore, or HK first. My friend of 2 decade landed Japan job (internal transfer) by joining a local Asian bank with a branch in Japan. And never once they dangled to him "you could/will be going to Japan".
It is 'firing on all cylinders', but a lot of people also got a pay cut either from pay cut to avoid being laid-off or being laid-off and hired by smaller companies (smaller pay). Meanwhile, salary/bonus for CEO increased.
No only the paycheck got smaller, but also prices for literally everything went up by at least 20% (milk, bread, eggs, meat, etc.)
The good side is that smaller companies are hiring, because a lot of people are hurting.
True! But the only solution to that is to organize/unionize. Wages must go up (to outpace inflation, which there is strong evidence is not being caused by a wage-price spiral [1] [2]), and profits must go down (which arguably have nowhere to go but down due to go forward interest rate policy, tax policy, structural demographics, etc [3] [4]). This is the only lever available to arrive at that outcome. Shareholders, boards, and executive leadership aren't going to give profits back willingly to the people who do the actual work.
Follow along the current Teamsters/Yellow trucking conflict. Yellow is threatening to close up shop vs pay reasonable wages, and the union is willing to kill the business versus allow them to continue to squeeze labor for their profits [5]. In a macro where labor is in excess demand for the next decade [6] [7], this is a reasonable way to operate.
For a trucking job you do in general need a commercial driver's license (CDL) which has far more stringent requirements than getting a regular driver's license. Many states require an EAD (employment authorization document) to get a CDL.
The license thing is because it's license them or leave them no choice but to drive without a license. Makes far more sense to blame America's driving culture rather than creating complex systems of ulterior motives.
For white collar jobs, maybe (despite evidence of nearshoring/reshoring). Physical jobs? There is no appetite to increase immigration. Florida just enacted strong penalties for employing undocumented folks, for example.
Anyway, support of unions has never been higher in the US (currently 68%) [1] [2]. I get that a cohort of HN has some sort of hyper-capitalistic Stockholm syndrome (I get why of course, YC and all, "I'm just a temporarily embarrassed tech millionaire/billionaire") bent and frowns on the idea in an Ayn Rand-ian way, but HN is a bubble vs the rest of the country. If you are here, odds are you are privileged in some capacity. Most people are not. People are tired of getting ground by the machine, and are realizing there are options to get some purchase on the economic rockface [3] [4].
> For white collar jobs, maybe (despite evidence of nearshoring/reshoring). Physical jobs?
Physical jobs get outsourced. Look at what an Amazon driver makes compared to a UPS driver. Look at all the jobs the big three auto manufacturers have shipped to Mexico over the last 40 years.
Your first example is Amazon using a corporate structure maneuver to evade employee classification. That is not outsourcing, that is attempting to evade the law. Your second example, while accurate [1] (and a contributor to the hollowing out of the middle class), is trending back to the US due to Inflation Reduction Act subsidies [2] (battery factories highlighted as they are the major component of EVs).
Reducing profits reduces investment, which reduces wage growth. [1]
Unions destroy industry. They are simply a rent-seeking mechanism to extract more wealth from the shareholders by restricting their contract rights.
Detroit was the wealthiest city in the US in 1950, with the highest per capita GDP in the country. Over the course of the 1950s, 60s and 70s, the UAW union took over, with membership eventually peaking in 1978.
What followed was industrial collapse, and eventually, Detroit becoming a ghost town.
Unions are not good for labor at large, just the labor that is on the winning side of the zero sum rent extraction scheme.
Beyond repealing labor laws instituted in the 1930s and 50s that put private enterprise at the mercy of unions, the real solution is to cut government spending. Even when the government keeps taxes low, government spending crowds out private sector spending. The mechanism through which it does this is, primarily, by offering investors government bonds, which investors invest their surplus income into, instead of investing it in private enterprise, and secondarily, by reducing the future after-tax income of the private sector, through the future tax obligations it creates, and in doing, reducing the credit worthiness of private economic actors.
Now there are productivity-boosting forms of government spending, like building bike lanes, transit lines, ports, etc, but most government spending is in the form of social welfare programs [2] and a large proportion of that is just graft for public sector unions [3] which totally control the government (87% of cities with a population over 100,000 are run by Democrats).
Social welfare spending - which is directed mostly to public sector unions - needs to decline as a share of GDP.
The free market works. Wages for unskilled labor doubled, in real (inflation-adjusted) terms, between 1870 and 1900, when unions were historically at their weakest. And over the course of this period, industry expanded and saw its financial footing become healthier. This was very much unlike the post-war period, where US industry was running on borrowed time, making increasingly burdensome concessions to unions.
> Detroit was the wealthiest city in the US in 1950, with the highest per capita GDP in the country. Over the course of the 1950s, 60s and 70s, the UAW union took over, with membership eventually peaking in 1978.
> What followed was industrial collapse, and eventually, Detroit becoming a ghost town.
East Michigan was wealthy in the 1950s, and the unionized workers like Larry Page's grandfather sent their children off to college.
Textile mills in the Carolinas had virtually no unionization.
Yes, manufacturing employment is down from Michigan's heyday. What about the textile plants from North Carolina's heyday? They closed down too. They never unionized, so what caused that to happen?
The difference is the Michigan factory worker entered the middle class, and owned a home, two cars and sent his kids off to college. The North Carolina textile worker's children did not get this education, and when the textile mills closed had no such luck.
Firstly, it was not unionization that produced the high wages seen in Detroit circa 1950. Wages had rapidly grown over the preceding the decades, in an era that was mostly non-unionized.
Wages grew rapidly in the Carolinas since the 1960s, unlike in Detroit. The workers flocked to new rapidly growing industries like finance, technology and biotech.
North Carolina's population has grown by 60% since 1990, while Detroit's has shrunk.
So unions are "rent-seeking" from the shareholders who want to profit from extracting surplus value from their labor. Should labor not be able to use their surplus value in the free market?
The collapse of American manufacturing and industry could also be traced to outsourcing abroad, which devastated American labor and unions and resulted in profits for the shareholders from the reduced labor costs.
There is also the financialization of industry as represented by a shift of management techniques away from industry to finance in order to boost share values. Eventually industry runs into reduced returns in growth, but finance provides new schemes to create profit based off of speculation on the future.
>shareholders who want to profit from extracting surplus value from their labor.
Profit is not surplus value from workers' labor. It is compensation for the value contributed by investment. Without profit, there is no investment, and without investment, there is no wage growth:
In a perfect system, I wouldn't pay a penny more than your total cost. Capitalist extraction can only occur because we pretend it's not an exploitation of unequal knowledge.
No, profit is just and economically rational compensation to the investor. Without it, the opportunity cost and risk of saving and investing, respectively, is not compensated for.
I think you are thinking of competition. Free makrets and competition are not the same, although they are related. In highly competitive markets, there is no profit; this has happened many times in history. Usually the result is that many sellers leave that market. In modern industrial policy, policy makers will seek to prevent "excecive competition" because it inhibits growth. This idea is related to what GP was saying.
The problem with your policy proposals is that you are assuming an economy in a vacuum. Neoclassical economic models represent a frictionless economy where everything is perfect. The are the equivalent of an upper bound for a converging series. When people tell themselves that the real economy is already hitting the upper bound automatically (this is an unfounded assumption, if you go this far then almost all conclusions are in your assumption to begin with), then absolutely nothing can be done to improve it so we should get rid of all that pointless nonsense.
If the real world does not live up to this idealized image, then some policies may have surprisingly positive effects and getting rid of them actually ends up making everything worse.
I'm always amazed at how well the rich are able to co-opt the working class with such propaganda. If you want to see true 'free market' capitalism in action that benefits everyone, look at the nordic nations.
The Nordic countries went from being the fastest growing economies in the world pre-1960s, to laggard economies with stagnant growth rates, post 1960 after they adopted social democracy.
Quality of life is extremely strongly correlated with per capita GDP. They already led the world in standard of living in 1967, at the end of their free-market/high-growth era.
Bud, that was over 50 years ago and they still have the reputation as one of the best places on the planet to live and raise a family. They're clearly doing something right, and if you zoom out and look at the big picture, we're clearly doing something wrong.
It appears there is a reallocation going on in the economy. The link you shared notes that large companies are shedding jobs while companies with less than 50 employees account for most of the growth.
The job growth is largely in the hospitality industry while tech continues to tighten.
I know WSJ has coined the term "richcession" to describe the elimination of high paying jobs and their replacement with more lower paying ones.
Will be interesting to see how the long term trends play out.
I live in Miami, where the hospitality industry dominates the employment landscape. Jobs are being taken left and right....but for very little pay and even poorer working conditions.
There is some tech but comparatively very little when stacked against any other growing major metro area, and those that are here aren't hiring locally, they're just companies relocating here for tax purposes and bringing existing workers with them.
"I know WSJ has coined the term "richcession" to describe the elimination of high paying jobs and their replacement with more lower paying ones."
"Middleclasscession" would be a better term although even harder to pronounce. It seems no matter what's happening, the rich will get richer, middle class and lower will get poorer. I still can't get my head around the fact that during COVID the top x percent doubled their net worth while most of everybody else lost out.
It is hard to wrap ones head around something that did not happen.
Since Q120 net worth of top 1% (or top 0.1%, or top 10%) did not double. In fact the growth was slower than the bottom 50%. [1] There is huge inequity, and absolute numbers are in favor of super rich. But there is no need to invent your own facts.
I’m not sure why you’re being downvoted. This statement is 100 percent accurate. It is tough being middle class right now. Inflation has drastically outstripped our pay raises. The price of housing, gas, and common food items is way up.
The post is probably getting downvotes because people can't tell whether it's complaining that people are being reallocated from middle class to poor; or whether money is being reallocated from middle class people to poor people.
Do you honestly think that people are downvoting the idea the middle class is hurting? They’re downvoting as it lazily and dishonestly uses poor people as a scapegoat. But I think you know that.
I don't think anyone reading this thread thought that poor people were being used as a scapegoat. I think people read it as the middle class being pushed down rather than pulled down.
Feel that we’re at the beginning of a shift in the global order. Every country seems to be scrambling to secure critical raw materials and goods. Should be a good time if you’re a worker as a lot of jobs lost overseas start coming back.
If anything that's a good thing because it seems to reduce inequality. There's too much inequality for the investment/consumption balance to be healthy long term.
There never was any "great resignation". It was an artifact of year-over-year pandemic numbers.
Normal job switching was just pent-up and time-delayed to become concentrated into a shorter time window for a while. The media reported that illusion of temporary monthly numbers as if it were real, because of course it's a catchy story.
My "basis" is that reporting on the labor market in it's current form is flawed as the Fed themselves have stated that it's a lagging indicator on numerous occasions.
So is the fed wrong, or is this another sensationalized article in an attempt to garner clicks?
If my employer wants me to work 40 hours a week (5 8 hours a day) but they have analytics that prove I"m working 2 hours a day... why don't they fire me?
If you're delivering more value than they pay you, why would they? They're literally profiting by keeping you, and losing by not. Sure they could marginally employ another person for even more profit, but save for network effects like cost of communication or layers of management there's little reason to remove a net highly productive person.
Companies - managers - very often suffer from the sunk cost fallacy.
They're very concerned they won't necessarily do any better with the next person, than the two hours of work per day they're getting. They've invested into integrating, training the existing employee. Managers almost always consider it a high burden to have to go through the process again with a new person. If they find a considerably superior new candidate first, maybe they'll get rid of the existing person or rotate them into a worse position. The difference between the two persons, in terms of output, has to more than make up for the headache.
> They're literally profiting by keeping you, and losing by not
I find it very hard to believe that at a hypothetical $200k/yr, my company benefits to the tune of $201k/yr+ at me working ~10 hours a week (5 2 hour days).
it's a probability thing, esp. if you interact with anything sensitive. Even if you don't actively work, having the keys to the kingdom and being latently trustworthy enough to not immediately defect is worth a lot compared to trying to find an equivalent (and transferring knowledge to them). also the knowledge is invaluable in the one-off scenario where you're actually needed.
I realize this is hypothetical, but I’d run the numbers before putting that much down… If you do 20%, you can put the rest in an index fund which will probably earn more than the interest rate on the loan. (Though at this point it’s going to be close.)
IMO the real value of a high leverage mortgage is that you can buy sooner.
Saving even 20% ($100k) could take many people 5 years. so saving 60% would take 15. Part of the trade off is life momentum. We can't be spending 15 years with life goals/dreams on hold, renting means a lot of moving, being subject to landlords' whims, and generally being treated as commodity cattle for profit.
> We can't be spending 15 years with life goals/dreams on hold, renting means a lot of moving, being subject to landlords' whims, and generally being treated as commodity cattle for profit.
Renting is also a better deal for a lot of people (no building maintenance, no special assessments, flexibility to move around more, etc). The idea that home ownership is a good investment is a crapshoot at best and a myth at worst. It works out well for some people, but they may have done even better renting and investing in equities. I say this as a homeowner who (perhaps irrationally) likes the idea of owning a home.
The context of my reply was putting life dreams on hold, which for many people means children and family. While renting might have strict financial advantages (although not in any of the popular metros in the last 20 years), having peace of mind of not having to move and your kids being in the same school is worth quite a bit.
And the federal US government does quite a bit of wealth transfer to homeowners, which comes from non homeowners obviously, so renting being better than buying is only true for certain circumstances.
It all comes down to what you value—there are millions of families renting in US cities, who obviously did not feel they needed to put their dreams on hold.
Although property values have gone up quite a bit in desirable neighborhoods, it's not at all uniform. Condos in particular have had a bad ~5 years, even in good neighborhoods in big cities.
The challenge is separating the two oft intertwined thoughts of what's financially optimal, and what is lifestyle desirable.
We often use an argument in one area to justify a poor choice in another. It's fine to make a financially suboptimal choice to rent/buy (as is the case) to acquire a desirable lifestyle. Just as it's financially optimal to walk everywhere, but in reality we want to drive a car (and maybe a fancy one at that). It's when we start to say "This home is an investment, so I'll buy a $EXPENSIVE home"... that simply burdens us with high expenses relative to the lifestyle gains and we've actually done the opposite of good investing, for little lifestyle gained over a moderate home.
I'd argue renting is best for those who aren't looking to stay in a place longer than 5 years. If you're sticking to the community for 10+ years, its evident to purchase a home/condo.
I dunno. I bought my house in 2018 for 400k and now it's being appraised at 550k and I'm planning to sell and buy a house elsewhere with my girlfriend.
Pretty lucky for sure, but even if the increase wasn't this dramatic it would have still been better than renting...
Btw this a fallacy/bad accounting that many home owners fall into.
Most say $550K sale price minus $400K purchase price == $150K profit.
But you need to remove: Taxes, maintenance, cost of your time (if you value that at all), realtors fees, HOA, bank fees/insurance, home insurance, depreciation on purchases you only had because of home ownership (tools, lawn mower etc).
Once you remove those it's hard for home ownership to make financial sense relative to investing in the stock market + renting.
However, and this is discussed in another thread, homeownership is a lifestyle choice, and we should be ok with making financially suboptimal choices for the sake of a quality life. We just need to keep clear it's an expense for a purpose, not an investment for financial gain. If we overspend on house liability it's no different than overspending on cars or food or travel.
You're double counting the down payment and equity payment. It doesn't count against the profit of the simple $150k number unless you lower the mortgage balance which would increase the $150k to $214k.
Another way to look at it is that even with your numbers, a 40k investment was turned into 1.25k monthly dividend vs. -2k month or so in rent (rough number based on house price).
It makes a lot of financial sense when it's leveraged. That fictional 150k profit was on 5-20% down of the purchase price, plus the payments made until sale. If you live in it for 2 years you avoid capital gains taxes, and if you go the other route of renting it out you deduct expenses.
You have to look beyond the interest rate. If you have a 2.5% rate, your mortgage will inflate away while you could be earning 8-12% returns.
If your mortgage rate is 6%, your marginal tax rate is 50% and you're earning 4-8% returns after tax, then a risk free, tax free return of 6% by paying off your mortgage is more attractive.
Unless it doesn't, of course. Viewed from this perspective, putting more cash down so as to lower your mortgage is effectively an investment with a guaranteed X% return, where X% is the interest rate on your mortgage.
I realise that on average the index fund is likely to outperform it over the long run, but a lot will depend on your attitude to risk.
Yes, true—the difference is, if the market stagnates you can take money out of the index fund and apply it to your mortgage at any time, whereas if you do a large down payment upfront, you can't change your mind later.
this depends on the rates. with high interest rates, if they have bad credit and get a rate 7% or higher for a mortgage, it may be better to put more down. historical average is 7% over. long period of time (30 years). if OP thinks refinancing into a low rate isn't an option 10 years from now, lower mortgage may be the way to go
Not all debt is bad. I have enough cash to buy a car, but the manufacturer was willing to give me a loan at 0% interest. I pay for as many things as possible on my credit cards and then pay them off every time I get paid while accumulating rewards. There are tax benefits to having a mortgage, and the loan is backed by the house; it is usually a far better situation than renting.
On the other hand, taking out massive loans (several times what you had) for education is questionable in most cases. I've known people who are reasonably intelligent who think it is a good idea to send their children to private universities with high tuition for undergrad degrees in fields that the school isn't known for, which I find baffling.
The bank doesn't "keep" your house, they foreclose on it and sell it. Once they sell your home, any liens and associated costs are satisfied and the remainder of the money is given to the borrower.
No, any value outside of what is owed to the bank.
If you take out a 300k mortgage and pay it down to 150k principle then default, the bank sells it for 250k and gives you 100k (minus associated costs).
10 is like every second of your life is nothing but severe pain and trauma and having a rare disease
and
1 is being Elon Musk level rich/not having stress (I'm sure he has tons of high level stress none of us could relate to but... how much of that is self-induced because his definition of fun is risk/business/trying to amass more wealth?)
where does "have to work a job you don't really want to because you need to be able to afford to live" place? 5? 8? 3?
I don't know much about bonds but my thought is that investors expecting rates to go up will withhold from purchasing currently issued bonds as future bond rates will yield better.
