It will become easier to buy a house(economist.com)
economist.com
It will become easier to buy a house
https://www.economist.com/britain/2019/01/05/cheer-up-millennials-it-will-become-easier-to-buy-a-house
185 comments
As always with real estate, the effects of this will be highly localized. I would expect a much bigger price drop in Florida than San Francisco.
Alt view: as the nation ages, a lot of retirees from cold states will move to Florida driving up prices there. (Before the drop).
San Fran I cant comment on because I can only discuss rational markets.
San Fran I cant comment on because I can only discuss rational markets.
>San Fran I cant comment on because I can only discuss rational markets.
Doesn't this imply a bad future? Also since San Fran is cold, I can see it losing its geographic appeal.
Doesn't this imply a bad future? Also since San Fran is cold, I can see it losing its geographic appeal.
> since San Fran is cold,
Cold compared to where? (Maybe your reference is Honolulu and Miami?) What part of SF are you talking about?
The lowest low temperatures of the year where I live in SF are among the highest anywhere in the country. We use a heater around this time of year, but it would be reasonably comfortable to go without.
It is sunny most of the time, I would say at least 250 days/year. The typical day throughout most of the year is “warm”: the kind of weather for wearing jeans and a long sleeved shirt (so the sleeves can be rolled up or down), but no sweater.
It is seldom “hot” (occasionally temperatures in the 90°F range), and average high temperatures in the summer are cooler than most of the continental US. We don’t use AC at all.
Cold compared to where? (Maybe your reference is Honolulu and Miami?) What part of SF are you talking about?
The lowest low temperatures of the year where I live in SF are among the highest anywhere in the country. We use a heater around this time of year, but it would be reasonably comfortable to go without.
It is sunny most of the time, I would say at least 250 days/year. The typical day throughout most of the year is “warm”: the kind of weather for wearing jeans and a long sleeved shirt (so the sleeves can be rolled up or down), but no sweater.
It is seldom “hot” (occasionally temperatures in the 90°F range), and average high temperatures in the summer are cooler than most of the continental US. We don’t use AC at all.
It's the humidity that kills you in San Fran. I'd take 20F in Colorado over 50F in San Fran anyday.
Are you saying it’s too dry, or too wet? I find the humidity in SF to be quite moderate throughout the year. I grew up in Southern CA, which is drier, and I have relatively oily skin.
Again, which part of SF are you talking about?
Again, which part of SF are you talking about?
Just wait long enough, it'll warm up. Or slide into the ocean. 50-50.
All the people dying in Florida must be moving in from elsewhere though.
San Francisco is getting the benefit earlier, at Florida's expense.
I have lived in FL my whole life and believe me when I say that the tech jobs were the ONLY thing I have ever felt like I was missing. And after having built a career over the last decade or so on this coast and having learned a bit more about who I am and what I really want, I don’t miss the FAANG jobs either. It’s fantastic here, and I’d recommend it to anyone.
What are the good and fun areas of Florida? I’ve never been, but always had an impression of it being a large retirement place. Except Miami, ofc, which also didn’t appeal to me. Would love to visit some day, but want to go to the right places. Thank you.
The entire east coast is pretty interesting. I’ve lived in Jacksonville or near it my whole life. We have moderate weather while still having some semblance of seasons, we have beautiful and uncrowded beaches, people are relaxed for the most part... and it’s a Navy town so you have a lot of diversity in the area. If you work in tech here you end up making more for the CoL than you would in almost any other place on the planet. I’ve been making mid-100s or better for the last 3-4 years (have 12 years of experience now). Housing prices have been rising, but if you’re patient you can still find places in the $100-115/sq ft range. My wife and I are raising our 4 kids here and would never dream of leaving.
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The population has been growing at a much faster rate in Florida than the average for the United States, so prices probably won't go down very much in attractive places there, either.
It's actually not hard to buy one now*
* assuming you don't want to live in CA, Seattle, Portland, or other similarly expensive areas.
* assuming you don't want to live in CA, Seattle, Portland, or other similarly expensive areas.
Yes have fun working your FAANG job, paying a giant chunk of your gross earnings to the state, and then sitting in traffic driving past homeless people IN THE SMOG for hours on the way to your tiny house each evening. Is it worth it? To me, unless my family was from the area I would never entertain going to such a place.
Not sure why you got downvoted (tone, perhaps) but I absolutely agree with you. I work for a large company, from home, in a medium-ish town in the midwest. I have no commute, but even when I worked for a different company in an actual office here in town, I only had a 15 minute commute one way. There’s no way I’d be willing to have a long commute by train or car just so I could live in a large city.
Yeah I figured my sarcasm might penalize me, but it’s how I really feel haha
You're right. Here in the exurbs where there's 6 lane highways and one way is completely clogged, I can see miles and miles of empty space where housing could've been built, had the zoning commission any common sense at all. It's just, employee's choices are very limited and you don't get to choose which companies are highering. Employees can say they want to leave the bay area/high COL areas all they want, doesn't mean employers have to do it.
To an extent I can see the reasoning here. I think more prohibitive though is that even though you're asking people to move to a lower CoL area, there is still some sticker shock when they see the lower salary. I can pretty confidently say there is a shortage of great talent where I live. It's nearly impossible to find any expert in native mobile development, Ruby, Go, or even Javascript. There are a lot of .NET guys here but having interviewed several hundred I can tell you quantity does not equal quality. I've been working in the same market for the last 12 years (since graduating college) and I can count on one hand the engineers from this city that I would want to hire if I started a development shop.
I absolutely agree with you. Imho there is no reason to live in a non-large city.
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A full 76% of housing wealth owned by those aged 50+. I knew there was a generational economic conflict of sorts, but I never imagined it was this bad.
These are our landlords. Making the older generation a class of rentiers who maintain their standard of living off the backs of the young. Want to buy? Too bad. How about you pay rent at the equivalent rate of a mortgage instead?
These are our landlords. Making the older generation a class of rentiers who maintain their standard of living off the backs of the young. Want to buy? Too bad. How about you pay rent at the equivalent rate of a mortgage instead?
Rent should be higher than the equivalent rate of the mortgage, for a lot of obvious reasons.
Not really. For a long time rent was universally cheaper because the landlords obviously keep the asset.
All the worse.
If you want to pay less, I’m sure you could negotiate handling all repairs and maintenance on the property in exchange for the difference.
Assuming that landlords even bother to handle those things properly or safely.
My experience is they don't. They want the money, but not the responsibility.
My experience is they don't. They want the money, but not the responsibility.
Seems perfectly reasonable to me.
Below that, you have 20-50 year olds. Above that, you have 50-80 year olds. Let's pretend 80+ doesn't exist for the sake of argument.
Perfect random distribution would be 50%.
But it's not random. A 50 year old obviously has more wealth than a 20 year old (unless the 20 year old's parents die early and they inherit a wad; which is unlikely given that most don't inherit much, and their parents don't die when they're young).
Below that, you have 20-50 year olds. Above that, you have 50-80 year olds. Let's pretend 80+ doesn't exist for the sake of argument.
Perfect random distribution would be 50%.
But it's not random. A 50 year old obviously has more wealth than a 20 year old (unless the 20 year old's parents die early and they inherit a wad; which is unlikely given that most don't inherit much, and their parents don't die when they're young).
Reasonable is not the term I would use. I've read elsewhere that the rate of home ownership in the UK for 30-somethings is half that of 15 years ago, which is half that again of 30 years ago. Extrapolate that to this distribution and it must have been vastly different for previous generations. Housing has become increasingly unaffordable and those that got in early reap the rewards.
I actually looked for figures like those given by the economist on a whim previously, but couldn't find any readily available data. It's nice to see them now. Too bad there's no comparison to what that distribution would have looked like in the past.
I can't find exactly the article I'm thinking of above, but these two have a similar gist:
https://www.theguardian.com/society/2016/dec/27/home-ownersh...
https://www.theguardian.com/money/2015/nov/17/generation-ren...
I actually looked for figures like those given by the economist on a whim previously, but couldn't find any readily available data. It's nice to see them now. Too bad there's no comparison to what that distribution would have looked like in the past.
I can't find exactly the article I'm thinking of above, but these two have a similar gist:
https://www.theguardian.com/society/2016/dec/27/home-ownersh...
https://www.theguardian.com/money/2015/nov/17/generation-ren...
> Making the older generation a class of rentiers who maintain their standard of living off the backs of the young.
Isn't this the natural way of things? People work and raise children ("living off their backs"), become too old for modern jobs and start living off the backs of the young. Hasn't it always worked this way?
Isn't this the natural way of things? People work and raise children ("living off their backs"), become too old for modern jobs and start living off the backs of the young. Hasn't it always worked this way?
No. That's a voluntary arrangement where families support their elderly relatives, or where society consents to support the elderly via taxation and redistribution. This is a situation where the older generation have an economic near-monopoly on housing and use that to extract rent where the renters have little alternative. I don't see these as being the same.
When homeowners decide they can receive more today than next year for their house. A chain reaction of selling will take place as homeowners all rush to the exits at once.
Prices will dip based on more supply which will start a price supressing feedback loop for a bunch of people hitting retirement age.
Simple as that.
Prices will dip based on more supply which will start a price supressing feedback loop for a bunch of people hitting retirement age.
Simple as that.
And in the meantime, it's pretty easy to buy a van.
I would like to see a version of that table for 20 years prior.
I would expect the old to have greater property wealth than the young, they've had longer to accumulate it. So without a comparator it seems pretty meaningless to me.
And regarding the closing conclusion. I really don't understand why many people are so against inheritance tax. Assuming it needs to be paid at some point, what better time than when you're dead?
And regarding the closing conclusion. I really don't understand why many people are so against inheritance tax. Assuming it needs to be paid at some point, what better time than when you're dead?
The graph in the article isn't great, but on the other hand it's well-established fact that the number of 18-34 year olds owning their own homes (or more specifically, having a mortgage instead of renting and counting head of households only) has dramatically fallen in the past couple of decades. We're talking from ~60% of 25-34 year olds in 2001 to 35% of the same age group in 2014...
https://www.ons.gov.uk/peoplepopulationandcommunity/housing/...
https://www.ons.gov.uk/peoplepopulationandcommunity/housing/...
Other major life milestones like marriage and procreation are happening later, too. It's data ripe to be stapled into any number of narratives.
I'm German (which has inheritance tax) living in Austria (which doesn't due to the country's biggest publisher wanting to avoid inheritance tax after the unavoidable). Let me tell you, if inheritance tax is a topic for you family you are either stinking rich or bad a planning (i.e. gifts within the family) long term.
Well some people are against inheritance tax because they stand to inherit or they want their children to inherit them. It's basically self interest at work.
Now they are against the tax for even the very rich because they desire fairness or they are afraid of a slippery slope decision.
Now they are against the tax for even the very rich because they desire fairness or they are afraid of a slippery slope decision.
Or because it was already taxed identically to other assets but for some reason people are mad that it wasn't spent fast enough.
100 shares of BRK-A in 1980 would have been about $30,000 for your parents to buy. They paid tax on the $30k. You inherit those today and they are worth about $30 million. If you make the argument that one should not pay tax on this inheritance, fine. But don't pretend tax was already paid on the $30 million. How about at least a capital gains tax before a tax fee transfer?
That's how Canada does inheritance tax: "deemed disposition". There is no inheritance tax per se, but when you die you're assets are assumed to be sold at current market value and trigger the appropriate taxes.
What's the situation re inheritance tax for property wealth v other wealth in your country?
From what I'm aware property is generally treated the same as, or more leniently than other assets. Your comment seems to be saying the opposite? Or am I misinterpreting?
From what I'm aware property is generally treated the same as, or more leniently than other assets. Your comment seems to be saying the opposite? Or am I misinterpreting?
Should be noted that this is about UK housing, but I assume the US is similar.
They sort of weaken their own premise, first saying that:
"In the past two decades house prices have doubled in real terms"
Then saying: "Most empirical work shows that a 1% rise in the housing stock leads to a 2% fall in prices and rents, all else being equal. On that basis, a mass-downsizing would imply a cut in prices of about 5%."
When things have doubled in price, getting 5% off isn't really much help, especially when, as they noted, purchase taxes have gone up considerably.
"In the past two decades house prices have doubled in real terms"
Then saying: "Most empirical work shows that a 1% rise in the housing stock leads to a 2% fall in prices and rents, all else being equal. On that basis, a mass-downsizing would imply a cut in prices of about 5%."
When things have doubled in price, getting 5% off isn't really much help, especially when, as they noted, purchase taxes have gone up considerably.
They've doubled in price, but cost per square foot is broadly stable [1], rates are substantially lower than they were 2 decades ago, and sub-20% down loans are much more common than they once were.
A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment!
[1] This is a smallish dataset, but the trend holds outside of the pre-2008 runup. I don't have that data immediately on hand, though. https://www.clevelandfed.org/newsroom-and-events/publication...
A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment!
[1] This is a smallish dataset, but the trend holds outside of the pre-2008 runup. I don't have that data immediately on hand, though. https://www.clevelandfed.org/newsroom-and-events/publication...
Your calculations ignore property taxes and any other tax based upon the value of your house.
Your rates also seem off. http://www.freddiemac.com/pmms/pmms30.html claims the average rate in 1999 was 7.44% and in 2018 it was 4.54%. The fed also just raised their rates in December and plan to do more raising in 2019 so expect these numbers to rise.
Beyond that, it doesn't matter if the price per square foot is the same if they aren't building smaller houses. Points like this is like tricks we pull to keep inflation down. All that matters is how expensive is a house that can put a roof over the head of the number of people I need to. We have 3 kids and we were looking for 4 bedrooms. Newer ones in our area are massive 3,000+ square foot structures we can't afford. So we're stuck in a 50 year old 1900 square foot house that we can afford. With a 50 year old house comes all sorts of annoyances such as asbestos, lead paint, and orangeburg pipes.
Your rates also seem off. http://www.freddiemac.com/pmms/pmms30.html claims the average rate in 1999 was 7.44% and in 2018 it was 4.54%. The fed also just raised their rates in December and plan to do more raising in 2019 so expect these numbers to rise.
Beyond that, it doesn't matter if the price per square foot is the same if they aren't building smaller houses. Points like this is like tricks we pull to keep inflation down. All that matters is how expensive is a house that can put a roof over the head of the number of people I need to. We have 3 kids and we were looking for 4 bedrooms. Newer ones in our area are massive 3,000+ square foot structures we can't afford. So we're stuck in a 50 year old 1900 square foot house that we can afford. With a 50 year old house comes all sorts of annoyances such as asbestos, lead paint, and orangeburg pipes.
Sure, there are lots of factors in play. Property taxes vary by county and are difficult to make broad statements about (in my county, annual increases are capped so my property taxes are not assessed based on the retail value of the property, for example). Rates examples were literally just my first Google results to illustrate via some napkin math that the loan rate has a substantial effect on monthly payment that isn't necessarily captured in the list price.
The temptation when we read stats like "the real price has doubled in 20 years" is to interpret it as "the real payment per comparable unit has doubled", when no such thing is true.
I don't know what your market is like, but mine has had a lot of new townhome development in the 1-2k sq ft range. The idea that we're only building 4k sq ft behemoths just isn't true in my part of the country, at least.
The temptation when we read stats like "the real price has doubled in 20 years" is to interpret it as "the real payment per comparable unit has doubled", when no such thing is true.
I don't know what your market is like, but mine has had a lot of new townhome development in the 1-2k sq ft range. The idea that we're only building 4k sq ft behemoths just isn't true in my part of the country, at least.
50 years is old? Britain here, in my 130yo house.
I'm not sure I'd trust a house that hadn't survived at least one World War and all the weather since.
I'm not sure I'd trust a house that hadn't survived at least one World War and all the weather since.
There are a lot of efficiency, insulative, and electrical system improvements that have been made since then, assuming the developer didn’t cut all the corners.
Yeah, it's swings and roundabouts. We recently modernised my grandmother's terraced house. Positive points:
- high ceilings and windows. Predated Parker-Morris: if you can find one those are absolutely the best. Modern houses are horribly shrunken by comparison, especially when we sell by bedroom count rather than area
- good sound insulation
- solid brick construction (although no cavity wall insulation)
Minus points:
- very leaky of heat
- lead piping embedded in concrete floors
- ancient electrical system (already reworked a few times)
- perilously steep staircase
- bathroom had been retrofitted in the 50s. Yes, the house was built without an inside bathroom, I think it only just had an inside toilet.
- high ceilings and windows. Predated Parker-Morris: if you can find one those are absolutely the best. Modern houses are horribly shrunken by comparison, especially when we sell by bedroom count rather than area
- good sound insulation
- solid brick construction (although no cavity wall insulation)
Minus points:
- very leaky of heat
- lead piping embedded in concrete floors
- ancient electrical system (already reworked a few times)
- perilously steep staircase
- bathroom had been retrofitted in the 50s. Yes, the house was built without an inside bathroom, I think it only just had an inside toilet.
I have the opposite problem in the US. All the houses are too big, with high ceilings and giant 2 story foyers. Other than advertising that you can afford higher heating and cooling costs, I don’t understand the purpose of these high ceilings. And the 2 story foyer means the second floor is constantly too warm and 1st floor is too cold as the heat has no reason to stay at the bottom.
> And the 2 story foyer means the second floor is constantly too warm and 1st floor is too cold as the heat has no reason to stay at the bottom.
I understand your nitpicking. It was almost a deal breaker for me when we bought our new home. But we have a zoned system regulating the single unit we would have had regardless. There's no temperature difference now between floors. And with the ability to shut off the upstairs until bedtime, we use about 1/3 more energy to heat/cool 3.5x the space.
I understand your nitpicking. It was almost a deal breaker for me when we bought our new home. But we have a zoned system regulating the single unit we would have had regardless. There's no temperature difference now between floors. And with the ability to shut off the upstairs until bedtime, we use about 1/3 more energy to heat/cool 3.5x the space.
Though much older homes do exist, in the US (they're using a "$" in their comment) 50 years +/- 10 years is pretty commonly the average age for a "mature" house where most of the cities the homes are in weren't established until the mid-to-late 1800's. Especially for the suburbs, which are about the age of these homes.
I grew up in a home built in 1954. It didn't survive a World War, but it's had its fair share of powerful tornadoes, blizzards, and the like and has been relatively unscathed since its inception (minus a new sewer line). With timber framing!
I grew up in a home built in 1954. It didn't survive a World War, but it's had its fair share of powerful tornadoes, blizzards, and the like and has been relatively unscathed since its inception (minus a new sewer line). With timber framing!
+1 in my 100yo house, I’m suspicious of hastily made new developments and prefer a house built when homes were made to last. Of course I live somewhere that gets neither too cold or too hot so...
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> We have 3 kids and we were looking for 4 bedrooms
My family was short on bedrooms growing up, so we doubled up. Nothing wrong with that.
My family was short on bedrooms growing up, so we doubled up. Nothing wrong with that.
Me too, but it’s definitely a compromise, especially as the kids get older.
I’d rather have a slightly lower-quality property than shared bedrooms unless the situation makes that infeasible.
I’d rather have a slightly lower-quality property than shared bedrooms unless the situation makes that infeasible.
It's certainly preferable to not have to double up bedrooms, but we have to remember that our parents did it just fine. I grew up in a family of 6 in a 1600 sq ft house. It worked just fine, but we'd look at that today and consider it unacceptably cramped.
Demand for space per occupant has risen. It doesn't make sense to expect our parents' price tags when we're demanding larger properties.
Demand for space per occupant has risen. It doesn't make sense to expect our parents' price tags when we're demanding larger properties.
There's some evidence that kids who share bedrooms have better social skills.
Historically, the concept of separate bedrooms is very, very recent.
The expected size of bedrooms has also risen dramatically in the last few years. Some are even bigger than the living rooms of houses built in the 1970s.
Historically, the concept of separate bedrooms is very, very recent.
The expected size of bedrooms has also risen dramatically in the last few years. Some are even bigger than the living rooms of houses built in the 1970s.
It's a slippery slope; always needing to be more successful than our previous generations (At a younger age to boot!).
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Zoning / development incentives in many places is such that houses of the size typical decades ago can no longer be built.
Having twice a big a house doesn’t help if you can’t afford the 35% price increase.
Having twice a big a house doesn’t help if you can’t afford the 35% price increase.
Clearly someone is buying these houses, otherwise the market would readjust for the oversupply and the prices would drop.
So if we have people that can't buy houses, but all houses that do get built get bought, the problem has to be that we are not building enough houses.
So if we have people that can't buy houses, but all houses that do get built get bought, the problem has to be that we are not building enough houses.
houses of the size typical decades ago can no longer be built
Most places have some combination of minimum dwelling sizes, minimum lot sizes, minimum parking requirements, height limits, limits on number of units per lot, etc.
When you add over-wide roads laid out in pedestrian-hostile patterns, additional zoning restrictions on commercial buildings, etc., the end result in many places developed in the past few decades (including almost every recently developed neighborhood in the USA) is to depress density, increase per-unit housing prices, force most residents to travel by car, etc.
* * *
Edit: your other comments indicate you live in San Jose. It seems that minimum home size is not regulated there, but there are many other exclusionary features of San Jose zoning. https://www.spur.org/sites/default/files/publications_pdfs/S...
When you add over-wide roads laid out in pedestrian-hostile patterns, additional zoning restrictions on commercial buildings, etc., the end result in many places developed in the past few decades (including almost every recently developed neighborhood in the USA) is to depress density, increase per-unit housing prices, force most residents to travel by car, etc.
* * *
Edit: your other comments indicate you live in San Jose. It seems that minimum home size is not regulated there, but there are many other exclusionary features of San Jose zoning. https://www.spur.org/sites/default/files/publications_pdfs/S...
Repeating the question: Where is it illegal to build houses below a given minimum size? Can't you name any off the top of your head without throwing up other criteria as chaff?
I’m tempted to tell you to take your hostile insulting response and shove it. WTF?
Most municipalities in the US has some kind of minimum dwelling size, sometimes varying by zone. They can be anywhere from a few hundred square feet to about a thousand square feet (or occasionally bigger). Like other local laws, they vary widely in the details.
You can check local municipal zoning codes for whatever specific community you are interested in. San Jose is one of the rare places which apparently does not have such a rule. Though sometimes building codes enforce minimum sizes when zoning laws per se do not – I don’t care enough to go read through the San Jose building codes.
For more general discussion, if you do a web search for “minimum house size” you will get millions of results.
Most municipalities in the US has some kind of minimum dwelling size, sometimes varying by zone. They can be anywhere from a few hundred square feet to about a thousand square feet (or occasionally bigger). Like other local laws, they vary widely in the details.
You can check local municipal zoning codes for whatever specific community you are interested in. San Jose is one of the rare places which apparently does not have such a rule. Though sometimes building codes enforce minimum sizes when zoning laws per se do not – I don’t care enough to go read through the San Jose building codes.
For more general discussion, if you do a web search for “minimum house size” you will get millions of results.
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There is a vast amount of regulation at play now. On techcrunch I read an article that said developers now have to use super computers to analyze all the regulations, in order to plan constructions now, all due to over-regulation.
I don't know about the house itself, but I grew up in a town with a minimum lot size of 1 acre.
I see. The poster above says value has gone up, but that says nothing of the floor in prices, which is also rising even if at a different rate. The end result can still mean more people priced out of the area and harder times for those in it.
It's a massive problem. New construction is bigger, so you get to pay extra for heating, cooling and cleaning, and you also have the extra commute because it's located out of town, across the highway, to keep the rabble out. You can't have reasonable size and a short way to work because the urban school district is too run down.
> but cost per square foot is broadly stable
I've looked at this data before and you are correct, but something sits uneasily for me. I think the thing everyone feels as "everything is more expensive" is that cost per square foot anywhere near an economic nexus has exploded since the 80s. The aggregate numbers that make the cost appear stable include tons of expansion in commuter zones.
My parents were successful professionals, as is my family now. But I know what my parents paid for a 2000 sqft house 10 minutes near an economic hub and a top 20 university in 1985 and that was easily affordable on just one of their incomes. My family now faces a situation where to buy something equivalent in terms of size+centrality both incomes are required.
I've looked at this data before and you are correct, but something sits uneasily for me. I think the thing everyone feels as "everything is more expensive" is that cost per square foot anywhere near an economic nexus has exploded since the 80s. The aggregate numbers that make the cost appear stable include tons of expansion in commuter zones.
My parents were successful professionals, as is my family now. But I know what my parents paid for a 2000 sqft house 10 minutes near an economic hub and a top 20 university in 1985 and that was easily affordable on just one of their incomes. My family now faces a situation where to buy something equivalent in terms of size+centrality both incomes are required.
Absolutely. I think there are a number of factors here, but the most trivial is population growth - we're +90m people in the US since 1985 and we've seen a percentage shift of the total population to the major urban centers - and the simple fact that competition for prime locations increases as a result.
Everyone wants to live in a prime central location with plenty of space and good schools. Who wouldn't? It's a naive reading, but that phenomenon feels very much like a simple econ 101 supply constraint.
I'd be very interested in some further reading on it if you're aware of any though.
Everyone wants to live in a prime central location with plenty of space and good schools. Who wouldn't? It's a naive reading, but that phenomenon feels very much like a simple econ 101 supply constraint.
I'd be very interested in some further reading on it if you're aware of any though.
I agree with your analysis that it's increased competition for prime locations, but that seems to me purely descriptive. It's not a surprise, but it's still a problem :) And it's a problem that is masked by aggregate measures showing stable cost per square foot because those numbers are not "prime-locale" adjusted.
To be somewhat more precise, what we commonly describe as "buy a house" is actually much more than that. I can buy an amazing house-shaped structure in rural Wyoming for $200k. What I can't buy for that price is a stake in an environment where I want to base my career and family life for decades. The latter is what is crushing millennials.
To be somewhat more precise, what we commonly describe as "buy a house" is actually much more than that. I can buy an amazing house-shaped structure in rural Wyoming for $200k. What I can't buy for that price is a stake in an environment where I want to base my career and family life for decades. The latter is what is crushing millennials.
Surely there are options besides the most prime locations, though. The problem we're describing isn't fundamentally an issue with price inflation, it's an issue with supply constraint. Price is how we decide who doesn't get a scarce good - more people want to live in those prime locations than we have supply for. You could cap prices at $1 and there would still be people who couldn't live there, simply due to lack of supply - we'd have to have some way of deciding who doesn't get to live there, and regardless of the mechanism, there will be people who desire to live there who are unable to.
We can either build more housing - which is a solution in some cases, but has constraints because of the realities of physics, and/or some people choose to live in a less prime location. That doesn't necessarily mean rural Wyoming - it maybe means a less accessible, attractive, or high-fashion suburb, or a midrange city.
IMO, it's helpful to view first houses as a stepping stone to another house - that $300k house in a nice part of town close to transit is a lot easier to get into when you have $100k of equity in your smaller house in a less nice part of town. My perception is that a lot of first-time buyers tend to have this idea that they must either buy in the perfect location or nowhere at all, then find that they can't meet the prices needed for that location, then just decide that owning is impossible. I don't know how true that is, but that's how this continuing discussion on my generation's home ownership seems to come across to me.
We can either build more housing - which is a solution in some cases, but has constraints because of the realities of physics, and/or some people choose to live in a less prime location. That doesn't necessarily mean rural Wyoming - it maybe means a less accessible, attractive, or high-fashion suburb, or a midrange city.
IMO, it's helpful to view first houses as a stepping stone to another house - that $300k house in a nice part of town close to transit is a lot easier to get into when you have $100k of equity in your smaller house in a less nice part of town. My perception is that a lot of first-time buyers tend to have this idea that they must either buy in the perfect location or nowhere at all, then find that they can't meet the prices needed for that location, then just decide that owning is impossible. I don't know how true that is, but that's how this continuing discussion on my generation's home ownership seems to come across to me.
What's the point of buying just to own a house? It's not diversified and correlated with your job.
Historically it's been one of the most stable stores of wealth and predictably dependable forms of investment. You're going to live somewhere, so if you can capture your cost of housing as equity rather than paying it to someone else, you have an opportunity to build wealth reserves.
As you've alluded to, location is a factor. Specifically: the cost of land. Regardless of the price of building each square foot of housing, rising land values inflates the total cost of buying land to put that housing on. This is partially due to population growth. But it's almost entirely a self-inflicted problem. That problem is zoning.
If a slice of land can only be used to build a home for one family, and that slice of land is near things people want, it drives up the price of housing. If you were able to build a multiplex or condo tower on that land, the land would probably cost even more, but spread over more dense housing the price of land per square foot of housing would be much lower than for the single family home.
A second problem that's harder to address than waving a city planner's wand is infrastructure. Density requires transit (roads or otherwise), electricity, schools, sewers, water, etc. If municipalities don't plan for that it makes growing hard.
If a slice of land can only be used to build a home for one family, and that slice of land is near things people want, it drives up the price of housing. If you were able to build a multiplex or condo tower on that land, the land would probably cost even more, but spread over more dense housing the price of land per square foot of housing would be much lower than for the single family home.
A second problem that's harder to address than waving a city planner's wand is infrastructure. Density requires transit (roads or otherwise), electricity, schools, sewers, water, etc. If municipalities don't plan for that it makes growing hard.
>A $150k loan in 1999 at 7.6% would cost you $1,059/mo in mortgage payment. A $300k loan at 4% today will cost you $1,432/mo - a 35% increase over the original price, not the 100% you'd expect. Meanwhile, you aren't paying 2x per square foot - you're getting roughly twice as much house as you did before for that price, for only a 35% increase in payment!
But I don't want twice the floor space in an exurb. I want a modest apartment or condo near transit.
But I don't want twice the floor space in an exurb. I want a modest apartment or condo near transit.
So does everyone else. Supply, meet demand. If you don’t want to pay a premium, buy something with lower demand.
That's not quite true. Most people don't want to live directly in the urban core (though I do), and the supply of housing in both the urban core and inner-ring suburbs is artificially restricted. Hence all the talk of "missing middle" housing (ie: https://www.vox.com/policy-and-politics/2018/9/24/17896482/b...).
The trend is that many professional people want to live in the urban core, because they are delaying having kids mostly.
Missing middle housing is all about the disruption of the boom/bust cycle of housing and long time erosion of middle class earnings, plus a decreased supply of tradespeople that has ballooned up skilled and semi-skilled labor. We have a glut of mediocre college educated people and a shortage of people who do things -- my brother in law is an electrician, his billing rate is up to $150/hr, and he has a 6 week backlog of work.
It's not economical to build a house anymore like it was in the mid-90s -- even if you own the land. We're being flooded with medium density, carve-out rental housing developments because you need that scale to make money, mostly through trading of tax expenses.
Those developments suck because they don't integrate with the street grid, waste space and are universally low quality buildings. When you pass the 15-year mark and interest/tax write downs go away, they will naturally turn into low-income as the landlords profitability melts away. Around that point, these developments flip over to a succession of shittier operators.
Missing middle housing is all about the disruption of the boom/bust cycle of housing and long time erosion of middle class earnings, plus a decreased supply of tradespeople that has ballooned up skilled and semi-skilled labor. We have a glut of mediocre college educated people and a shortage of people who do things -- my brother in law is an electrician, his billing rate is up to $150/hr, and he has a 6 week backlog of work.
It's not economical to build a house anymore like it was in the mid-90s -- even if you own the land. We're being flooded with medium density, carve-out rental housing developments because you need that scale to make money, mostly through trading of tax expenses.
Those developments suck because they don't integrate with the street grid, waste space and are universally low quality buildings. When you pass the 15-year mark and interest/tax write downs go away, they will naturally turn into low-income as the landlords profitability melts away. Around that point, these developments flip over to a succession of shittier operators.
I make $70k a year, I have a credit score of 814 the bank won't give me a loan for more than $175k. The cheapest housing in my metro area is about $300k. It doesn't matter that a the cost per ft^2 is stable or that a $300k loan is @ 4% when I can't get a $300k loan.
If you can't get a 300k loan with 70k income there's something else going on.
Either you have no down payment, you have a large pre-existing debt, or you have some other monthly cash drain.
at 70k annually you make ~5.8k a month.
36% debt to income ratio is normally acceptable, so you can afford 5.8 * .36 = 2.08k a month in payments.
That's a 400k loan at 4.5% interest with a 30 year term.
To be safe, and include insurance, taxes, other - you should be able to get a loan for 350k fairly easily.
That you're capped at 175 implies you have some other form of monthly debt in the $1100 range. Child support? College loans? Other?
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I'll edit this to add: I don't personally recommend taking the maximum loan you qualify for. It's a good way hamstring your ability to continue to save and invest, and it makes it more likely that an abrupt job loss or change of financial circumstances puts you in a bad spot.
Either you have no down payment, you have a large pre-existing debt, or you have some other monthly cash drain.
at 70k annually you make ~5.8k a month.
36% debt to income ratio is normally acceptable, so you can afford 5.8 * .36 = 2.08k a month in payments.
That's a 400k loan at 4.5% interest with a 30 year term.
To be safe, and include insurance, taxes, other - you should be able to get a loan for 350k fairly easily.
That you're capped at 175 implies you have some other form of monthly debt in the $1100 range. Child support? College loans? Other?
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I'll edit this to add: I don't personally recommend taking the maximum loan you qualify for. It's a good way hamstring your ability to continue to save and invest, and it makes it more likely that an abrupt job loss or change of financial circumstances puts you in a bad spot.
~5.8k? Maybe pretax, my month to month is more like 3.5k after taxes, insurance, 401k, and other withholdings. I've paid off my CC debt, no student loans, no alimony or child support. I have a car loan of about $500 a month for $20k that I am currently aggressively paying off @ $1000 a month. But what I was approved for was before I got the car. I do not have a down payment though, the rent here takes up half my pay check.
Mortgages are usually based on gross income not net income.
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That suggests to me that your existing debt-to-income ratio is too high. The conventional limit lenders will consider is a 36% pre-tax debt-to-income, including mortgage obligations. If a lender won't consider more than $175k, that suggests you probably have substantial existing debt obligations. If you don't, ask around to find another lender. Realtors generally have brokers they work with and recommend.
I don't know how to make the calculation that you are describing.
Add up all your monthly debt service obligations (credit cards, student loans, car payment, etc - use the minimum payment). This is your current debt obligation.
Your pretax monthly income is $5833. 36% of that is $2100. The maximum a lender will loan you will result in a monthly payment of ($2100 - your current debt obligation).
For example, if you have $1k/mo in debt service, you have $1100 margin left in your debt-to-income ratio for a mortgage. At 4%, that's a maximum mortgage amount of roughly $145k.
If you have all $2100 to allocate to the mortgage, that allows a mortgage in the $300k range, varying with property tax and insurance rates.
https://www.bankrate.com/calculators/mortgages/new-house-cal... is a handy tool for figuring out how much mortgage you can afford. https://usmortgagecalculator.org/ is another good resource.
Your pretax monthly income is $5833. 36% of that is $2100. The maximum a lender will loan you will result in a monthly payment of ($2100 - your current debt obligation).
For example, if you have $1k/mo in debt service, you have $1100 margin left in your debt-to-income ratio for a mortgage. At 4%, that's a maximum mortgage amount of roughly $145k.
If you have all $2100 to allocate to the mortgage, that allows a mortgage in the $300k range, varying with property tax and insurance rates.
https://www.bankrate.com/calculators/mortgages/new-house-cal... is a handy tool for figuring out how much mortgage you can afford. https://usmortgagecalculator.org/ is another good resource.
Don’t go to the bank go to a broker.
You can get a (not so great deal) loan with much higher limits.
You can get a (not so great deal) loan with much higher limits.
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Glad we have a reasonable person here.
Ive done the math for Food as well, the prices arent 'going up' like people claim.
The only thing that has went up, is inflation.
Ive done the math for Food as well, the prices arent 'going up' like people claim.
The only thing that has went up, is inflation.
??? Food is not an appreciating asset. An increase in food prices, as part of the CPI, is by definition, inflation. Home prices, in contrast, have for a long time risen much faster than inflation, at least in many areas.
Housing costs are included in the CPI, as well. In fact, they are about 40% of the total CPI weighting.
When you inflation adjust some of the values in question, it corrects much of the fake gains in real-estate.
For example the UK's GDP per capita has increased by ~120% since 1993. Median incomes in the UK have likely doubled or nearly so since the early 1990s. A lot of that is inflation, just as is the case in the housing price increases.
The US median family income has nearly doubled since the early 1990s - before you account for inflation.
If you take the median new home sale price in the US, and adjust it at 3% annual inflation over the last 15 years, housing prices are not much higher than they were in 2003. There has been maybe at worst a 10-15% real increase in housing prices in 15 years. Factor in the relative scarcity of construction since the great recession, due to fear, and that one issue alone can easily account for 100% of all real housing price gains re the national median.
The primary problem of the last 15-20 years for the average person, both in the US and most of Europe, are that the central bank inflationary (currency & debt debasement) programs are outpacing the rate of income gains. The US saw an epic standard of living debasement with an extraordinary destruction of the dollar from 2001-2008. That's the US Government spending + Fed causing that harm.
Google these: Czech GDP, Poland GDP, Russia GDP, Colombia GDP, Bolivia GDP, Turkey GDP, Indonesia GDP
Now, did Czech GDP really increase by ~300% (lol) in seven years, from Jan 2002 to Jan 2009? From $67b to $235b. No, obviously not. You'll see similar hilarious GDP gains in most every other nation at exactly the same time - when priced in dollars.
That's a representation of the destruction of the US dollar over that time, by the US Government and the Fed. You can also see it represented in eg oil, gold and many other commodities priced in dollars. So you can imagine the destruction of the US standard of living that occurred at the same time, which has now given us Trump as President and an endlessly pissed off electorate. The US isn't unique however, France is partying right now to that exact same situation, decades of real stagnation against horrific government and central bank policies that are wiping out average people.
Good luck seeing wages keep up with the destruction the monsters in DC have been causing via real inflation. Most of the real estate price gains over the last 20 years in the developed world are fake, they're nothing but inflation. The problem is that wages are not keeping up with that inflation.
For example the UK's GDP per capita has increased by ~120% since 1993. Median incomes in the UK have likely doubled or nearly so since the early 1990s. A lot of that is inflation, just as is the case in the housing price increases.
The US median family income has nearly doubled since the early 1990s - before you account for inflation.
If you take the median new home sale price in the US, and adjust it at 3% annual inflation over the last 15 years, housing prices are not much higher than they were in 2003. There has been maybe at worst a 10-15% real increase in housing prices in 15 years. Factor in the relative scarcity of construction since the great recession, due to fear, and that one issue alone can easily account for 100% of all real housing price gains re the national median.
The primary problem of the last 15-20 years for the average person, both in the US and most of Europe, are that the central bank inflationary (currency & debt debasement) programs are outpacing the rate of income gains. The US saw an epic standard of living debasement with an extraordinary destruction of the dollar from 2001-2008. That's the US Government spending + Fed causing that harm.
Google these: Czech GDP, Poland GDP, Russia GDP, Colombia GDP, Bolivia GDP, Turkey GDP, Indonesia GDP
Now, did Czech GDP really increase by ~300% (lol) in seven years, from Jan 2002 to Jan 2009? From $67b to $235b. No, obviously not. You'll see similar hilarious GDP gains in most every other nation at exactly the same time - when priced in dollars.
That's a representation of the destruction of the US dollar over that time, by the US Government and the Fed. You can also see it represented in eg oil, gold and many other commodities priced in dollars. So you can imagine the destruction of the US standard of living that occurred at the same time, which has now given us Trump as President and an endlessly pissed off electorate. The US isn't unique however, France is partying right now to that exact same situation, decades of real stagnation against horrific government and central bank policies that are wiping out average people.
Good luck seeing wages keep up with the destruction the monsters in DC have been causing via real inflation. Most of the real estate price gains over the last 20 years in the developed world are fake, they're nothing but inflation. The problem is that wages are not keeping up with that inflation.
Back in the real world, US inflation was in the 2-3% range for most of 2002-2009, hitting the giddy heights of 3.84% at one point and inflation rates in many of the other countries you've listed were actually higher...
Depends on what you count as inflation. Inflation of the money supply, or resulting "inflation" (rising) of CPI measured items. Real inflation is very different from the CPI reports (as evidenced by stock prices, houses, Bitcoin).
The whole point of assets like stocks is that they increase in value (combination of share price and earnings) faster than inflation so it would be ridiculous to include them in a measure of inflation.
I don't disagree at all on this, just noting that they aren't immune from price distortions caused by devaluing currency. In fact, I would say they are probably more exposed to them especially as wealth gaps increase.
I wouldn't put it past the baby boomers to figure out a way to reach immortality, just so they can prevent this from happening.
They'll just vote to remove estate taxes so that their children and children's children will inherit their homes without the place ever touching anything close to the market.
It's cool and internationally minded, like the seigneurial system in early French Canada but now.
It's cool and internationally minded, like the seigneurial system in early French Canada but now.
I think it's more likely they'll be re-mortgaged while still occupied via 'equity release', or sold outright to pay for elder care. Either way, I'd expect relatively little to end up being passed on via inheritance.
What? That goes against all Boomer logic.
They'd vote to reclassify their house as a crypt to permanently take it off the market, die surrounded by their possessions and ensure their children and children's children inherit nothing.
They'd vote to reclassify their house as a crypt to permanently take it off the market, die surrounded by their possessions and ensure their children and children's children inherit nothing.
It would be useful for the HN title to qualify that this isn't about the U.S.
With the new tax changes + increases in the interest rate, the downsizing phenomenon will not make as much sense in the U.S. given incentives to hold onto the property and the inability to buy a proportionately valuable downsized house.
With the new tax changes + increases in the interest rate, the downsizing phenomenon will not make as much sense in the U.S. given incentives to hold onto the property and the inability to buy a proportionately valuable downsized house.
The decrease in interest premiums (on max 1M -> 750k principle) and state property taxes (10k cap) would seem to be a net negative for people sitting in expensive homes, which seems like it would prod to some sales and downsizing around NYC and SF.
My point on the tax incentives were that current homeowners are grandfathered into their mortgages (assuming they bought before Dec. 2017).
Regarding state property taxes, I think they are treated as a local tax - so it wouldn't affect NY or SF given that their state income tax is likely to be higher. Your point is true in other geos though.
Regarding state property taxes, I think they are treated as a local tax - so it wouldn't affect NY or SF given that their state income tax is likely to be higher. Your point is true in other geos though.
Not to start of a debate. But wouldn’t most millennials have bought a house by now? Going off Wikipedia definition would this article not be for Generation Z?
Most millennials would now be mid 30’s.
Some people I know at that age already have a mortgage.
No, the article is about millennials, who in past generations would have bought a house by now, but in this generation generally have not. As they say, a 27 year old today is half as likely to own a house as they used to be. This page has a chart showing how home ownership has decreased for under 35s. https://www.resolutionfoundation.org/data/housing/
Really depends on your definition of millennial. If we take the [Wikipedia definition](https://en.wikipedia.org/wiki/Millennials#Date_and_age_range...) then the youngest millennials would be anywhere from 22 to 25. The older end of millennials would be mid-30s as you say, but anecdotally at least I know relatively few who own a house.
The youngest millennials are probably still 10 years removed from being able to even afford a house.
By the time I was mid 30's (I'm in my mid-40s now) I had 2 bachelor degrees, a masters degree, was married, had a bunch of kids, was in our second house, was at my second company, was working on saving for retirement, etc. But all of my millennial coworkers in their mid 30s are single with no kids, none own a home (they are all in apartments), usually don't stay at a salaried job for more than a few years, they tend to move around a lot (apartment to apartment, state to state, company to company), etc. They are basically where I was when I was in my early 20s. I'll be interested to see what happens over the next 15 years. Will they be where I am now when they reach their early 50s? Or are they forging an entirely new path that doesn't include a spouse, kids, a house, a salaried job, a 401k/roth account, etc.?
As a single data point, I'm 25, have a bachelors degree, engaged, no kids (we adopted a dog a few months ago, though), on my third job and third apartment. I contribute to my 401k up to the match and tuck away a little extra in a Roth IRA, certainly less than the annual contribution limit.
Rent and utilities are ~40% of my take-home pay, my car + auto loan + student loans are another ~20% (student loans being the largest chunk). I put the rest towards food, extra payments on my >4% student loans, and savings in a HYSA.
At my current rate of savings, it would take around 3 years to save up for a 5% down payment (looking at the median home price for the county I live in). Given that I'll probably want to take some vacations, will have to pay for at least part of my own wedding, might have an unexpected medical emergency, etc, I estimate I won't be able to save enough for a house until my late twenties at the earliest. That's also assuming that I won't drain my emergency fund for the down payment.
I know some people who job hop between FAANG and other large tech companies. Each offer is better than what they would have received as a raise should they have chosen to stay with their company. That's just a product of high demand and low unemployment, and also in some cases, being better at tech interviews than actually writing software.
I can't speak for renting in the bay area, but in my case, people cycle through apartments because either the landlord is attempting to jack up rent, not managing the property correctly, or to move closer to a new job.
I also can't speak for mid-30s, but the general sentiment in my circles around the mid-20s is that almost no one feels financially prepared enough to settle down, buy a house, and have kids. And that's mostly people in tech. The people I do know who have children or own a home (I don't know anyone my age who has both) are all in lower CoL areas.
Rent and utilities are ~40% of my take-home pay, my car + auto loan + student loans are another ~20% (student loans being the largest chunk). I put the rest towards food, extra payments on my >4% student loans, and savings in a HYSA.
At my current rate of savings, it would take around 3 years to save up for a 5% down payment (looking at the median home price for the county I live in). Given that I'll probably want to take some vacations, will have to pay for at least part of my own wedding, might have an unexpected medical emergency, etc, I estimate I won't be able to save enough for a house until my late twenties at the earliest. That's also assuming that I won't drain my emergency fund for the down payment.
I know some people who job hop between FAANG and other large tech companies. Each offer is better than what they would have received as a raise should they have chosen to stay with their company. That's just a product of high demand and low unemployment, and also in some cases, being better at tech interviews than actually writing software.
I can't speak for renting in the bay area, but in my case, people cycle through apartments because either the landlord is attempting to jack up rent, not managing the property correctly, or to move closer to a new job.
I also can't speak for mid-30s, but the general sentiment in my circles around the mid-20s is that almost no one feels financially prepared enough to settle down, buy a house, and have kids. And that's mostly people in tech. The people I do know who have children or own a home (I don't know anyone my age who has both) are all in lower CoL areas.
Just over half of 35-44 year olds have a house or share it with their partner (which includes a lot of the previous generation as well as 'millenials') so it's a stretch to say most.
The figure for 25-34 year old families is 25%. Twenty years ago the figure for the same age group was 45%; it was a clear majority less than 10 years before that. That's what the UK housing debate is about.
The figure for 25-34 year old families is 25%. Twenty years ago the figure for the same age group was 45%; it was a clear majority less than 10 years before that. That's what the UK housing debate is about.
They would if they could, but many can't afford to because of the aforementioned housing prices, so are continuing to rent.
The oldest millennials are in their mid 30s, with the youngest being early/mid 20s depending on your definition. Further, I know plenty of early 30s millenials that continue to rent instead of buy for a variety of reasons.
I'm a Millenial, about to turn 30 this year. My wife and I are house-hunting for the first time and discovering that, if we live with roommates instead of having kids, we might be able to afford a mortgage around here!
We consider this a huge improvement from renting with roommates. The concept of being able to support children is basically a fantasy, fiscally speaking.
And we're among the fortunate professional class.
We consider this a huge improvement from renting with roommates. The concept of being able to support children is basically a fantasy, fiscally speaking.
And we're among the fortunate professional class.
There actually may be a good advantage to this strategy in that your childcare costs may also reduce with your roommates being able to chip in and be part of the family - even if it is just when you go shopping for an hour. I'm fairly open minded to finding some good friends to work together to overcome the economic reality that this generation is faced with.
We are about 5 years older. We went the opposite direction. House is a fantasy and we have a kid in a single bedroom apartment. My wife’s salary pays for daycare and I pay rent. That’s how we afford to live in the Bay Area. When she starts walking we will have to take a look at our options, but the bay is looking less attractive for our late 30s.
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I won't lie, I've been following the recent volatility in the market and economic slowdown with the intent to take full advantage of it with the end result of buying my first house.
I graduated in 2013 and have lived in high (Boston) and growing (Portland, OR) CoL areas, my next move will likely be either Seattle or the Bay Area. Despite healthy savings for a down payment in a "normal" CoL area when calculating a 15-20% downpayment for homes that interest me and my partner it seems like we are on a treadmill, hustling harder and going nowhere.
Rising interest rates are a concern when shopping for a mortgage, but we'll be ready to transition our funds from the market to a HYSA when the time is right. I lost ~5% percent last year but don't have any intention of drastically changing my asset allocation unless something big happens in the next 6 months.
I graduated in 2013 and have lived in high (Boston) and growing (Portland, OR) CoL areas, my next move will likely be either Seattle or the Bay Area. Despite healthy savings for a down payment in a "normal" CoL area when calculating a 15-20% downpayment for homes that interest me and my partner it seems like we are on a treadmill, hustling harder and going nowhere.
Rising interest rates are a concern when shopping for a mortgage, but we'll be ready to transition our funds from the market to a HYSA when the time is right. I lost ~5% percent last year but don't have any intention of drastically changing my asset allocation unless something big happens in the next 6 months.
Your position isn't unique.
I own my home, but if the market drops I will purchase another property and rent it out. Also will probably gift my kids a downpayment so they can get in the market too.
My point is, because there are a lot of people ready to jump in, I don't see a significant pullback coming
I own my home, but if the market drops I will purchase another property and rent it out. Also will probably gift my kids a downpayment so they can get in the market too.
My point is, because there are a lot of people ready to jump in, I don't see a significant pullback coming
Ah good point, especially in high CoL areas as well. I know a lot of well paid millennials who are ready to jump in at the sight of first blood.
We're not trying to time the market per se since we're on track to reach our target for a solid downpayment and enough reserve funds to avoid being "house poor". The market has never gone down while I've been invested so this is all new territory, we're just trying to get as much info as we can before pulling the trigger, also there is some uncertainty regarding our long term location so that has a chilling affect as well.
We're not trying to time the market per se since we're on track to reach our target for a solid downpayment and enough reserve funds to avoid being "house poor". The market has never gone down while I've been invested so this is all new territory, we're just trying to get as much info as we can before pulling the trigger, also there is some uncertainty regarding our long term location so that has a chilling affect as well.
pullbacks happen when credit is pulled back by the financial sector (usually its regulators mandate it). credit is everything for housing.
The problem is, this is everyone's plan, for almost every type of investment. I am also throwing cash into a money market account instead of the market, as is everyone else.
I believe that any correction will be stabilized by this kind of behavior.
I believe that any correction will be stabilized by this kind of behavior.
I just opened this CIT bank 2.45% savings account (biggest nationally available one I've seen by far): https://www.doctorofcredit.com/new-leader-cit-bank-2-45-savi...
If you need some amount of money sometime within the next ~5 years, then parking it in a FDIC insured savings account is the most appropriate option commensurate with the amount of risk tolerable (i.e. none), in my opinion.
Why not invest in <5 year US Treasuries?
Approximately same security, higher yield than savings accounts. (Asuming you're not going through the gymnastics / risk to balance across reward savings accounts)
Approximately same security, higher yield than savings accounts. (Asuming you're not going through the gymnastics / risk to balance across reward savings accounts)
You can, just more work. If you're saving for a smaller downpayment, it might not be worth the effort for 50 basis points.
More work? Simply park it in one of (yields as of Dec '18):
* VMRXX - Vanguard Prime Money Market Fund, ~2.4% yield, fully taxable
* VUSXX - Vanguard Treasury Money Market Fund, ~2.2% yield, no state tax
* VMSXX - Vanguard Municipal Money Market Fund, ~1.6% yield, no federal tax
* VCTXX - Vanguard California Municipal Money Market Fund, ~1.5% yield, no federal or California tax
* VMRXX - Vanguard Prime Money Market Fund, ~2.4% yield, fully taxable
* VUSXX - Vanguard Treasury Money Market Fund, ~2.2% yield, no state tax
* VMSXX - Vanguard Municipal Money Market Fund, ~1.6% yield, no federal tax
* VCTXX - Vanguard California Municipal Money Market Fund, ~1.5% yield, no federal or California tax
I know, but I like to keep it simple and stupid for most people who aren't interested in the field. Marcus and others offer 2.25%. On a $100k downpayment, we're only talking about hundreds of dollars.
At Fidelity at least, you can auto-roll direct buys from the Treasury. So it's pretty set and forget.
Nothing you can't do in an afternoon of work if you're holding them until maturity.
This is the big discussion right now, it definitely seems like some sort of downturn/correction is coming within the next 18 months. We'd like to buy within the next 5 years but are willing to stretch it out to a max of 7 (we've decided that no matter where we go we'll end up in a high CoL area). So for now we're keeping a chunk of our savings in the market and will keep an eye on asset allocation and continuing to re-evaluate our risk tolerance and the market.
Unless you have major insider information, the market will usually correct before you can cash out. If you have the cash available, you can jump on a good deal the second it becomes available, especially in a downturn when others are having trouble coming up with the cash. It all depends on how risk-free you want to be of course, good luck!
What about a 401k? On my Fidelity account I can choose where the money is allocated. Should I shift it into something more stable (money market fund)?
If you're young and you still have 10, 20, 30 years before retirement, then I would say be aggressive and go with some total market index funds like FSTVX. But that's because I believe the US government will always keep printing money to keep asset prices high in the long run.
It’s too bad there aren’t any good investment vehicles that track particular residential real estate markets at least reasonably well.
I thought millennials wanted hip lofts in revitalized urban areas? They do, until they have kids, then it’s flee to the suburbs with the decent schools. At least that is the observation with my coworkers.
I’m a cynical gen-x (still with elementary school kids) who bought a suburban house before marriage. Of course it’s now almost paid off.
I’m a cynical gen-x (still with elementary school kids) who bought a suburban house before marriage. Of course it’s now almost paid off.
Is it so hard to start a decent school in whatever an area when there is demand?
"Decent" school means full of kids who come from stable homes with parents who have stable, median+ incomes. Private schools in cities can accomplish this by charging $20k+ per year in tuition, and people who can't afford private schools can opt to live in suburban school districts where there are mostly homes therefore it's auto-selected mostly for kids whose parents are able to own homes.
> Private schools in cities can accomplish this by charging $20k+ per year in tuition
Why? What are the actual expenses that make it cost more than $1000 per month per a child?
Why? What are the actual expenses that make it cost more than $1000 per month per a child?
It’s to keep out the kids whose parents can’t afford the tuition. $20k/year/student is on the cheap end in the richer areas too.
I believe $500/month would be enough. My parents had never been earning more than this for example (but this was not in the US).
*inhert
That's the only dead-sure way our for our generation (in Europe) to get into the same financial situation our parents have been in.
That's the only dead-sure way our for our generation (in Europe) to get into the same financial situation our parents have been in.
Buying a home isn't universally difficult across the entire country. It's more that many millennials choose to start their careers in expensive metros like NY, SF, and LA because that is where the jobs are but where a median salary won't be enough for you to save the ~$200k cash to buy the median home in those areas in a reasonable amount of time. There are a lot of programs that allow you to put less than the traditional 20% down for a home (I believe I read a stat that only 55% or so of homes are bought with 20%+ down payment), but again the issue is that a seller is going to view you as less competitive if you offer < 20% and will have a harder time having your offer accepted if there are multiple offers.
Anyone who is hitting their late 20s/early 30s and living in SF, for example, knows how many "going away" parties you end up going to of friends who've been here a few years, married/thinking of kids, and planned their escape so they have a chance of buying a home in less expensive metro.
Anyone who is hitting their late 20s/early 30s and living in SF, for example, knows how many "going away" parties you end up going to of friends who've been here a few years, married/thinking of kids, and planned their escape so they have a chance of buying a home in less expensive metro.
Buying a home isn't universally difficult across the entire country.
This article wasn't about housing in the US, it was about housing in the UK.
I believe the US is one of the few OECD countries where housing is actually affordable, 3-4 times median income across the whole country IIRC.
This article wasn't about housing in the US, it was about housing in the UK.
I believe the US is one of the few OECD countries where housing is actually affordable, 3-4 times median income across the whole country IIRC.
IMHO every government should put easily affordable housing among its top priorities together with easily affordable professional education - these are the essentials they should care about.
The US government should stop offering subsidized mortgages with Fannie and Ginnie and mortgage interest tax deductions (less of a problem now). All of these contribute to drive up home prices, under the guise of helping people own homes.
Sounds reasonable. But there also are other thing to do like developing infrastructure, adjusting zoning and developing public transport so all the jobs won't tend to concentrate in big city centers and there would be more land suitable for housing.
At what point is genuine mass market remote working likely to happen? In the software world (not a great mass proxy) it is still a rarity, but it's there and growing.
That (and frankly only that) is the real threat to one way house price bets - at least imo - other views gratefully accepted
That (and frankly only that) is the real threat to one way house price bets - at least imo - other views gratefully accepted
probably never, tbh. It isn't even that prevalent in the software industry which arguably is one the industry that it works best for.
but...if you do it means you are managing the real output - surely something that gives you an advantage... unless management is not about getting the best results from each employee
oh ... developer hegemony ...
oh ... developer hegemony ...
Why wouldn't they convert the houses to rental properties and keep the passive income while downsizing?
If you’re going to be a landlord, better to own property well suited to that purpose. At least in my area it’s a lot more efficient to own many low-cost properties than a few middle-cost ones.
What they've been doing around me is remodeling to turn a middle-cost property into several low-cost apartment properties. Take out the inside stairs, add a kitchen to the basement, etc.
They very much do, the UK is becoming a nation of renters where we were previously a nation of home owners.
In many places zoning laws make that illegal.
A lot of those laws have been struck down.
http://www.farrellfritz.com/can-zoning-stop-property-owners-...
http://www.farrellfritz.com/can-zoning-stop-property-owners-...
I think part of an overlooked view is many millennial aren't interested in owning a property and more than happy to rent for life.
I know that in some countries renting is the default mindset and it seems like within the UK priorities are shifting among that age bracket. I'd assume that's partly due to them not seeing property ownership as a realistic goal thanks to the price of them.
As a Guardian opinion piece [0] points out: "Abandoning the hope of home ownership represents freedom for many millennials: it frees up cash that would otherwise go towards buying an asset into living in the present. That can mean renting a more comfortable room (or flat) in a nicer area, it can mean the difference between having enough money to go out or not, and it can even mean hiring a cleaner to make the overpriced rented flat a good deal nicer.
Home ownership is almost universally seen as a life goal, or a milestone of success. It needn’t be – not owning a home can be a real benefit for many younger adults. It gives us the freedom to move with work, and try to build savings for other purposes – insurance against getting laid off, for travel, or even for a 'fuck-off fund'."
[0] https://www.theguardian.com/commentisfree/2018/jun/20/millen...
I know that in some countries renting is the default mindset and it seems like within the UK priorities are shifting among that age bracket. I'd assume that's partly due to them not seeing property ownership as a realistic goal thanks to the price of them.
As a Guardian opinion piece [0] points out: "Abandoning the hope of home ownership represents freedom for many millennials: it frees up cash that would otherwise go towards buying an asset into living in the present. That can mean renting a more comfortable room (or flat) in a nicer area, it can mean the difference between having enough money to go out or not, and it can even mean hiring a cleaner to make the overpriced rented flat a good deal nicer.
Home ownership is almost universally seen as a life goal, or a milestone of success. It needn’t be – not owning a home can be a real benefit for many younger adults. It gives us the freedom to move with work, and try to build savings for other purposes – insurance against getting laid off, for travel, or even for a 'fuck-off fund'."
[0] https://www.theguardian.com/commentisfree/2018/jun/20/millen...
> it frees up cash that would otherwise go towards buying an asset into living in the present.
I'm really skeptical of this claim without good market data, because whenever I've looked at this for my own personal reasons the headline monthly cost of renting is 10-20% higher than mortgage payments.
You have to allow for emergency expense, yes, but if you rent you also have to allow for emergency moving at 1 month's notice (assured shorthold tenancy, yay) and you can't modify the house or have pets.
Not to mention the pension aspects. If you don't own a house when you retire you're going to have to pay a big variable expense from a fixed income, so buying housing is a volatility hedge. Also you have to take pension income, pay income tax on it, and then pay rent.
I'm really skeptical of this claim without good market data, because whenever I've looked at this for my own personal reasons the headline monthly cost of renting is 10-20% higher than mortgage payments.
You have to allow for emergency expense, yes, but if you rent you also have to allow for emergency moving at 1 month's notice (assured shorthold tenancy, yay) and you can't modify the house or have pets.
Not to mention the pension aspects. If you don't own a house when you retire you're going to have to pay a big variable expense from a fixed income, so buying housing is a volatility hedge. Also you have to take pension income, pay income tax on it, and then pay rent.
> I'm really skeptical of this claim without good market data, because whenever I've looked at this for my own personal reasons the headline monthly cost of renting is 10-20% higher than mortgage payments
In sane markets, yes. However, in markets experiencing property bubbles the opposite is often true.
I recently moved to a new city where prices have doubled in the last 10 years as a result of foreign buyers sending prices skyrocketing, and we currently rent a house worth $1.8m (valuations are public here). Assuming 20% down and a 30 year mortgage at 4% interest, we'd be looking at a monthly mortgage repayment of ~$6.9k with ~$4.8k of that being interest if we were to buy the house. Instead we rent it for $3.2k a month and happily save the $1.6k we'd otherwise be paying to the bank.
Friends look at me crazy when I tell them I have no interest in buying, but until the math is flipped and I start losing money by renting I'll happily let the landlord worry about maintenance and continue to enjoy my free time.
In sane markets, yes. However, in markets experiencing property bubbles the opposite is often true.
I recently moved to a new city where prices have doubled in the last 10 years as a result of foreign buyers sending prices skyrocketing, and we currently rent a house worth $1.8m (valuations are public here). Assuming 20% down and a 30 year mortgage at 4% interest, we'd be looking at a monthly mortgage repayment of ~$6.9k with ~$4.8k of that being interest if we were to buy the house. Instead we rent it for $3.2k a month and happily save the $1.6k we'd otherwise be paying to the bank.
Friends look at me crazy when I tell them I have no interest in buying, but until the math is flipped and I start losing money by renting I'll happily let the landlord worry about maintenance and continue to enjoy my free time.
In short, abandoning the most important engine of wealth creation and savings in exchange for consumption that many of them will not be able to sustain in the elder years. Don't get me wrong, surely you can save and rent, but it takes much more discipline and it's not a choice I would say is appropriate for all young people.
I think many people don't want to invest in an asset that gets handed down, if they plan on having no children.
The US median mortgage payment is around $1,000/mo. I can comfortably invest much more than that each month while renting a satisfactory apartment and spending freely. I just can't get anywhere near owning an equivalent condo.
That math is a bit funny. Rent is pure consumption while mortgage is consumption plus equity accumulation. Of course, owners have less left for investment, but they are already investing a significant part of their mortgage payment. With 15 years left on the mortgage at a 4% interest rate, about 60% of your payment goes to principal and only 40% to interest.
And since most people prefer the flexibility of rent to the headaches of ownership, rents tend to be significantly higher than the non-equity part of the mortgage, so ownership is a more efficient way to invest and live at the same time, precisely at the cost of that flexibility of consumption.
And since most people prefer the flexibility of rent to the headaches of ownership, rents tend to be significantly higher than the non-equity part of the mortgage, so ownership is a more efficient way to invest and live at the same time, precisely at the cost of that flexibility of consumption.
Sorry I wasn’t clear: I can invest well more than the home equity people are building in normal markets. Just not enough to own in my local, extremely expensive market.
With how easy it is to get a home equity line of credit and/or refinancing, owning a house is not nearly as good a way to "force" savings as it used to be.
You misspelled stock market.
Gotta be honest, even with a number of articles in our local news discussing prices starting to drop off, I don’t think it will be enough to rescue my generation from near permanent renting. The median prices where I live (Sydney, Aus) are still hovering above a million dollars for a pretty average house over an hours commute from the city and that’s not something I could comfortably take on, especially knowing that unlike my parents I’d essentially be in debt for the rest of my life. If it’s a choice between that and renting while building some modest savings I’ll take that, even if it means the final destination is moving overseas to afford to buy and have some form of post work life.