I see a lot of expensive houses being built in my area. A LOT. And the weird thing is that they’re being bought pretty quickly. Are these people just making more money than me? If so, what are they doing for a living? Or are they just living house poor? How exactly are they affording these places?
Edit: For reference, my neighborhood is starting to become popular (because the other popular neighborhoods have priced most people out of affording places there). The normal price of newer homes here is $700k. My home, built in 1965, which is 2500sq ft on a quarter acre of land, is $500k.
This is funny, because I consider OP’s house to be obnoxiously expensive, let alone all the newer homes they mention.
There are MANY calculators out there as to how much house one can afford, and personally I think most of them over-estimate the amount. But based on very rough numbers, you could spend about 3x to 4x your yearly salary on a house. So to afford a $500k house, one “should” be in the $150k/year range. To afford a $700k house, one should be in the $200k/year salary range.
Personally I think both those numbers are bonkers and rather live well below my means than be house-poor.
The reason there are just so many expensive homes is that people are terrible at personal finances. They don’t mind being in debt and then there is the awful FOMO mentality that is helping drive home prices up for no good reason. Add in the fact that for years now new home construction has simply not kept up. There were homes being built, of course, but many of them were on the top end of the market because local town governments rather get the taxes for ten $10M homes, rather than force developers to build 50 $250k homes. So there is so much blame to pass around.
It’s not FOMO, it’s financial sanity. If I pay rent for another thirty years, I have nothing to show for it except a period of non-homelessness and years more of rent to come. If I pay a mortgage for the same amount for thirty years, I’m rewarded with a house for the rest of my life and no more mortgage - and I can resell the house when it no longer suits my needs, or give it to a younger family member
It’s not that simple. It is mortgage+insurance+maintenance
Rent is just rent.
You MAY be able to resell the house if the location is somewhere people want to live in several decades. All it takes is a major economic source to dry up. A military base closing, a factory shutting down, etc can wreck your property value.
The vast majority of people live in or around major cities. Those aren’t going to evaporate. The kinds of towns that exist only to support a single resource like you mentioned are so few and have so small a population that you could close and relocate half of them to other towns and cities across the country without them even noticing the increase.
Tell that to the home owners whose equity is wiped out when the factories were offshored or the base closed.
The point is, there are no guarantees. Buy vs rent depends on a person’s circumstances. Buying has risks. People have lost lots of money by buying at the wrong time (like 2008) or the wrong place.
Markets don’t always go up. Market prices can be very disconnected from reality as we have seen with many bubbles throughout the years.
My point is that we can’t say “but what about the 1%!?” and end a discussion about the value of investing in buying the place you live based on that 1 counter argument. That’s how you get republicans and rampant unregulated capitalism destroying the lives of the many to benefit the few.
It was a lot more than 1% in 2008. In the US, 1% is 3 million people.
This discussion about renting vs owning and the overall real estate market are related but not the same thing.
My point is, owning isn’t always the best option, it has risks that vary depending on location, it isn’t always the best financial moving.
Always and never are rarely true. As I said in another comment, the ideal situation is a variety of housing options available for buying or renting.
Back in 2007, I was working on a contract that could have had me moving on short notice, in a housing bubble. Buying would have been insane in that market and I would have lost a few hundred k. Even if it wasn’t a bubble, buying would have put me in a worse situation than renting due to transaction costs, interest, insurance, taxes, and opportunity costs. I own now.
Ramit Sethi does a good job of breaking this all down WRT to home ownership vs renting. He basically says the same thing as you.
It was worth it for us to buy, so we did. We’ve already replaced the roof and the hot water heater, though, and the furnace is next. It adds up.
Edit: Also, I just thought I should mention what happened to me with my first house. I bought it when I was 27. Right after that, my property went down in value due to a bubble, and I was forced to take on a permanent position at my job and lost $20k a year. That was rough. I was eventually for to get out from under it, but it took time and a lot of money. Buying a home isn’t always a sure thing.
THANK YOU! I get so tired of: buy good. Rent bad. The answer is it depends. 2008 was only 15 years ago. Many people lost boat loads of money from it. People HAVE lost lots of money from factory closures, base closures, market bubbles, a highway being built, etc
The ideal situation is a variety of housing options, for sale and rent.
Yeah, I was waiting for this disingenuous pap. It can still be easily cheaper to buy. If it weren’t, why would anyone buy houses to rent out?
And you still have the equity.
If location is an issue, don’t be where people don’t want to be. Are you not people? Why are you there? Is it because property values are so low? In that case, it would still not not necessarily make financial sense.
Disingenuous…wow. Sometimes people just disagree and for good reason.
Buying a house is not a guaranteed way to build wealth. Ask those thought bought around 2008 and lost their shirts.
It doesn’t ALWAYS make sense to buy or rent. The honest answer is it depends. A location might be great…NOW. Case in point, Detroit. Lot’s of factories closed down. Or military towns during the many base closures in the 90s.
People buying houses to rent can and do lose money on it.
And nobody ever built equity from renting.
Nobody ever went underwater on a house they can’t sell renting.
Things aren’t always black and white and individual circumstances matter. Sometimes people work on short term contracts and aren’t going to live somewhere for very long. Sometimes people need to move in a hurry and don’t have time to do due diligence buying a property.
As much as some of you may hate it, renting fills a need and isn’t always a bad thing.
The problem with the housing market is part euclidean zoning, part NIMBYism, part capitalism on too long of a leash. It really has nothing to do with rent vs buy.
I think it’s awful that people are willing to be house poor in order to live in an expensive home, likely with no way to deal with it if something goes sideways.
FWIW, we bought the house when it was $330k with a sizeable down payment. We wanted to make sure that only one of us can pay for it, in case the other loses their job, or good forbid something worse happens.
You sound like me! Your situation and everything is similar. I also refuse to follow the herd when it comes to 30 year loans. No way, no how am I being enslaved by debt for that long.