I've sorta turned my back on the standard american dream. Racing to new areas of growth, working to build someone else's dream, getting paid well immediately for performance, paying high rent, etc to afford the image of success, and making friends that participate in this same high ambition culture. Instead of making markets, markets start making you. All the rules, and "norms" we've collected around ourselves to participate are just foolish.
I ended up just buying and crashing in a van, exiting that mode of being, and am much happier because of it. Now I get to save money, research and build what I want when I want, and generally am very much less stressed. I'm no longer beholden to a landlord, or feel like I must participate in activities that just serve to entertain but not enlighten. I can spend the day at the beach just reading if I wish.
You start to look at time as something that you can control again, and you start seeing how much life truly is a gift, and that life itself should be nurtured and cherished. There is also a sense of independence and DIY that comes along with the lifestyle that feels like I'm leveling up in good ways.
Will this mode change for me? Sure. Change is inevitable. But for now I've found more peace and focus than I have in a long time. I'm now able to concentrate on longer stretches of time that hold bigger ideas, and then asking myself how I might use that time to start refocusing my energy making new markets.
Australia has cloned the great American dream as well. When I lived in Sydney, real estate was all anybody ever talked about. Are you renting? Oh, too bad. Got to get on the property ladder, y'know. Yeah, my commute's about an hour and a half, if there's no trouble on the M5. I toughed it out on an oppressive mortage for thirty years out in the sticks, why can't you? Kids these days want it all. etc, etc.
Coming to Tokyo was great. Sure, people still ask where you live, but the proximity to the train station is more important than how many bedrooms/entertainment centers are in your McMansion. The only time I've been asked if I own or rent is when relatives came to stay. I don't know if it's the after effect of the property bubble bursting, because the cheap construction materials means housing stock is not built to last, because good inner city locations are still too expensive to buy (despite said bubble bursting) so everyone rents, or just a culture that does not place much social cachet on property ownership. But it suits me.
This is a big generational thing. My brother and I have been there as our parents moved us out to the country to buy a big house, my dad work his life away for a bigco only to be laid off 3 years before his retirement, and now they sit in their house with a lot of stuff and very few hobbies and not much of a social group. We've seen how far striving can take you, and the real cost of the sacrifices you make for possessions. Both of us orient ourselves towards experiences over possessions. He and his wife are joining the peace corps and I am working on my skillset to become a remote contractor so I can travel (while saving up as much as I can living with roommates).
Well, they earned the financial stability to raise you and your brother and put you through school, which I'm they wouldn't consider a waste.
It's a competitive world we live in, and I often feel like I'm wasting every minute that I'm not actively working towards learning something new/planning my next cool experience/my next job opportunity. I wonder when I'll have the time to settle down and raise a family. Hopefully we can let some of the hot air out of housing market to make starting a stable, nuclear family somewhat tenable again in the near future.
They put my brother through a bit of school - I left home at 18 on unamicable terms over my sexual orientation. Its a competitive world but spending every waking minute of your time on things that will give you resources will not give you the skillset needed to enjoy the resources you get. If you're trying to climb the socioeconomic ladder make sure you ask yourself whether its really worth it.
Absolutely true. I don't disparage my parents their decisions - their lives conditioned them to react and act the way they did and do. I'm glad to have the perspective relatively early on - things do not buy happiness.
"they earned the financial stability to raise you and your brother and put you through school"
That is something separate from the cost of paying a mortgage or renting, and his anecdote highlighted an involved cost of opportunity. One can earn even a higher financial condition (to raise kids or whatnot) by not being tied to a long term immobile project. You need the freedom to change (your place) if you have to. Change is important.
>> We've seen how far striving can take you, and the real cost of the sacrifices you make for possessions.
It can make you financially stable, cover for your health expenses, give you decent retirement, put your kids through school and give them a decent shot at life.
From when was all this a bad thing?
>> Both of us orient ourselves towards experiences over possessions.
God forbid only a health interruption, a major market crash or any other unforeseen financial difficulty can leave you far worse off compared to your peers.
Not to mention, compared to your very own parents you don't want to be homeless when you are old.
I'm not sure it's the "American Dream" you're arguing with. To my understanding that phrase specifically refers to owning a home in a suburb. It is formulated explicitly against having a landlord, living paycheck-to-paycheck, and living in an urban center.
Absolutely, I've been planning for years, and I'm in contact with multiple people doing my same route right now. They're having the time of their lives.
I park it wherever, but mostly try to stick to cities where it's legal to sleep in your van. While I have parked in San Francisco, Redwood City, and San Jose, right now I'm crashing in and around Palo Alto, CA.
I shower every morning at my local 24 hour super sport gym. I'm a sucker for hygiene.
I don't really worry about my van being broken into because I think I tend to stay in low crime neighborhoods. I'm also not really attached to any material possessions contained within. Things come and go, no need to worry about them while they're here.
I'm writing a tongue-in-cheek book about the van life experience tentatively called "Tech Bubble Burst: A survival guide to living in and out of your van." It's been a blast of experience so far. :)
I think you should write a book, but don't go through the vanity press ripoff. Publish it yourself.
I have known people who live out of a van/truck camper until cops realize what's going on. They will harass you to no end. The tickets are expensive. The days of " Just move on." are over.
That said, in most counties, there is nowhere to park a vechicle overnight. We need to desiginate areas, in commercial areas, where people can legally sleep.
They have pretty much made it illegial to sleep Anywhere, without paying. Even Parks have time restrictions. I'm ashamed of what America has become.
If Jesus Christ reappeared, he would be hit with multiple municipal fines within a few days. It's just not right.
(If I seem mad-- I am. I had a friend who tried to live in the back of his truck, and take showers at a local gym. Cops harassed him nightly. Once the gym found out he was just using the showers--they made his life difficult. The one slime ball manager would time his workouts in order to use the facilities. Wonderful world we've got? Oh--yea, he was doing non-union construction. The last thing he wanted to do was workout at 6:30 a.m. in order to take a shower.)
I get why cops gave him trouble, but why the hell would the gym care? It sounds like the best customer: hardly uses the amenities (thus contributing far less to wear/tear) while paying the same rate as anyone else.
So, I found about the last meteor shower one day before its peak. So my idea was to find a place – any place – that wasn't near any buildings. Forget about light pollution, I just wanted a sky devoid of direct lights. So, parks would be a nice option.
But try as I might, I couldn't find any parks that would allow me to stay after 6PM. There's one in Palo Alto that allows that for 'stargazing', but you have to request a permit in advance.
A permit? Really? For stargazing in a notorious light-polluted area? And that has to be filed in advance in business days? Come on.
At this rate I expect that you won't be allowed to park in the middle of nowhere in Nevada after the sun goes down.
My safe strat for the scenario is to go to the plentiful Rest Areas along the freeways: http://restareas.appspot.com/ Maybe inconvenient sometimes to go to and from, but then again, if I'm living out of a vehicle, I'm not all that concerned about convenience.
Apparently there are some Walmarts where it's allowed to stay overnight, and some where is not. There's a list of where it's allowed. Then there's the whole culture aground it, for example is considered courteous to ah permission, and one shouldn't stay for more than few days... It so I read.
Parking and camping restrictions are very common. If you are fortunate to be near National Forest or BLM land it is much less restrictive. But it seems like most county owned open space in Colorado is full of restrictions at night.
Your lifestyle reveals an incredible amount of privileged; it's really hard to think about how this could work for non-white, non-male, non-highly educated white collar workers.
Why non-male? I'd think a highly educated white collar white female would be able to pull it off just as well if not better. (To be honest I have trouble imagining one would want to though...sexist of me I suppose.)
The English crime statistics have violent crime happening to men at almost twice the rate of women.
What I found interesting was a recent study that found rape has a much higher rate of PTSD occurrence than other crimes - maybe it's so uniquely traumatic (and the threat of it so terrifying) that it forces women to be more careful than men even when men are statistically much more likely to be assaulted by strangers.
> much higher rate of PTSD occurrence than other crimes
Well, you don't get PTSD after murder, and I would say that rape is the next worst thing that can happen to you, so I don't think it's that surprising...
A quick Google search brings up Canadian statistics [0]. In total, it's about equal (F: 50.15% M: 49.85%). Removing "criminal harrassment" and "uttering threats" (which are not really violent crimes) makes little difference (F: 48.62% M: 51.38%).
For rape ("sexual assault"), women "win" by far (F: 91.89% M: 8.11%), but it's much less frequent than "aggravated assault" and "robbery". Also, I'm assuming that "sexual assault" doesn't include prison rape (which makes sense, since that's not something you should fear in public), but it probably includes rape by friend/acquaintance (which isn't something that you should fear in public, and wouldn't rise if living in a RV compared to a house). Allegedly, rape by stranger (in public) is a rather rare form of rape (although it still makes sense to fear it and not put yourself in situations where it's likely to happen).
Men are the majority of victims of serious crime (after removing "simple assault") (F: 40.22% M: 59.78%).
I wonder how much these numbers are a result of a kind selection bias, i.e. women don't put themselves in situations because of natural disposition/perceived higher risk (this is certainly the case in my experience).
How does it work with having a companion. It might be easier to find someone with the same outlook. But if you're already in a relationship it's going to be an uphill battle.
My wife and I are early 30s. I spent my 20s in the rat race, working 60-80 hour weeks for material possesions (nice vehicle, luxury townhouse, etc). At some point, I got tired of it and said, "Can we try something different?"
I switched to a fully remote job. We disposed of the townhouse (no equity in it). We downsized our lives (1 car! I ride a bicycle everywhere! You would not imaging how much better shape I'm in) and began to live more frugally with a short-term plan of moving onto a sailboat and living on the ocean for a few years. We save 50%+ of my income (we live in a low cost of living area), we should be able to retire comfortably around age 45. We'll be moving onto our sailboat in the next few months, learning to sail together, and then starting a long circumnavigation around the world (~5 years).
My wife didn't require any convincing. More quality time together for getting rid of things we shouldn't have cared about in the first place? It was an easy sell. If anything, she sold me.
Yeah, but where do you find the right partner? Lemme guess, you found yours in college, or around that age.
I have to go the opposite way: I'm recently divorced (I violated your Rule 1), and currently living just a bit too far from a major metro area for women there to want to date me, and there's absolutely zero women around here I have any interest in. So my next move is to move into the metro area, as close to downtown as affordable (considering both rents/CoL and job availability/location), because if I want to have a social life at all, that's where I have to go to find available women in my age range who I would consider dateable.
The other problem I see with your plan is that it sounds like you might not have any other friends or family (kinda hard to bring your friends with you on a 5-year sailing trip). I did that with my last wife: I didn't have any friends besides her, and moved around several times with her because of her career, and I think I got tired of her (it didn't help that we had some compatibility issues). Most common advice about marriage seems to include something about having friends outside the marriage. Living in a city gives you better access to that; living on a sailboat virtually guarantees you won't.
It's good to see you have a teammate going forward. I may try something similar if my spouse is in agreement. Sailing definitely requires a solid partner. It's hard work. My spouse and I (in our 40s) live in a fairly old and small single family home well below our means. Our neighbors are retired and spend a lot of time on their boat sailing up and down the coast. They have definitely been through some stormy weather through the years (pun intended), but that's what it takes. You won't know the shipmate ya have 'til ya "capsize" arrghhh :)
Sometimes they are gone for months at a time. One of them picks up work related to sailing when not sailing and is quite handy in fixing anything from sails to refurbishing old boats. When they are not sailing they come back to their home which has been paid off for many years. I suppose paying real estate tax is always there, but the benefit is that they have a good community to come home to. Plus it gives me a chance to partake in conversation and share a pint or three in front of a warm fire ;)
Well you got a remote job, so you did a little locational arbitrage. Most people leave the small towns because of lack of opportunity. The cost of living is low because incomes are low.
Can someone come up with a model that's sustainable and applicable to the majority of people?
My remote job pays the same I'd make locally in my tech niche. The benefit comes from no longer having to own a car for myself to commute, gas, insurance on that car, etc. It freed up the $20K in equity I had in the vehicle, and saves me $5-8K/year in commute costs.
If I lived in SF, I would pay at least $2-3K/month for rent alone (that's $24K-$36K/year after tax money you're just burning up). Yet, you can spend under $1K in almost any non-major metro in the US.
> Can someone come up with a model that's sustainable and applicable to the majority of people?
Make more than you spend and save combined, live frugally, spend judiciously. This is not rocket science.
"Is that all too fluffy and philosophical? OK, fine. Here’s how to cut your life costs in half. Start by getting rid of your Debt Emergency if you have one. Live close to work. Move to another city if you enjoy adventure. Don’t borrow money for cars, and don’t buy stupid ones. Ride a bike wherever you can. Cancel your TV service. Stop wasting money on groceries. Give your kids the opportunity to achieve greatness without being pampered. Lose the overpriced cell phones. Learn to appreciate the life-boosting joy of using your own body to get things done. Learn to mock convenience. Practice optimism."
"A family of four in the US can live comfortably on about 24k per year plus having a paid-off house. With an nice conservative 4% annual withdrawal/return rate on your investments, you need $600k invested to generate this cashflow, inflation-adjusted, forever, plus your $200k house. $800k total. Or, if you want to get off your butt and work very occasionally to earn $12k per year, you can slice the $600k number down to $300k! Or you can save the $600k AND work, and keep saving more and more over the years – ending up a multimillionaire all while doing very little paid work."
You will never get ahead if you live in SF, period (maybe if you strike a startup lottery ticket; with those odds, might as well buy a traditional lottery ticket and save the nights and weekends). I'm sorry to be the bearer of bad news. You can view it as an adventure, but you'll eventually need to dig out financially (overcompensate retirement savings) when you decide to move somewhere else.
This works once you have a (supportive) partner. It requires living in nice rural communities where you will never, ever meet a new person, though, so if you start it single you'll stay that way forever.
So I'm in a major metropolitan center, burning cash at a way higher rate, so I can hopefully find a wife. If I'm very, very lucky, that wife will want to move with me to rural Colorado.
Sadly, this insane plan is about the best I can imagine.
Have you tried online dating? I know that sounds silly, but it might help optimize your search for a partner who shares your interests.
> It requires living in nice rural communities where you will never, ever meet a new person, though, so if you start it single you'll stay that way forever.
I live 15 minutes from the beach in the Tampa area. Low cost of living area.
Online dating still requires you to be in a location with an extremely large population of single women. It doesn't matter if you visit the one bar or OKCupid if you've already asked out and been rejected by the only three eligible people in your zip code. You need a large enough population to successfully find a match, and the only place to find large populations of single women are major cities. (And a tiny fraction of cities at that--I chose poorly here and very much regret it.)
Basically, when it comes to dating it doesn't matter if you live in Issaquah (15 miles from Seattle) or Othello (180 miles from Seattle.) In neither case would anyone who lives in Seattle be bothered to go out on a date with you.
With respect, I'm struggling a bit with your last paragraph.
I live in Kirkland and I'm dating a woman who lives in West Seattle. We're older, but it's not like we're people who couldn't easily date other people who lived closer if we wished to do so.
Yeah, I know that now. Too late to move at this point, I have two dogs , own a home in the city, have an established career...moving would be incredibly expensive and risky. Going back to any previous move I made in the past, I'd never consider anything other than DC, New York, or Austin (perhaps a few others in the South, but I don't know the area too well.) Anywhere on the West Coast is a cripplingly bad decision.
As someone who lives in DC and always wanted to live in a west coast city, if only for a little while, I wonder if this is "grass is greener" syndrome or maybe DC really is as good as it gets?
I did not enjoy NYC. Too dirty, too busy, too crowded.
You missed the point: the city is necessary for finding a partner, not a job. Remote working, at a bare minimum, lets you be employed anywhere. You need a critical mass to have any chance of dating (unless you're extraordinarily desirable, or already have one when making the choice of where to live, like the comment I responded to.)
I live in Denver, in a house I paid $135k for earlier this decade (now completely paid off), on about the budget the GP post mentioned. It's not even remotely hard to meet people here, and I don't need to burn cash like crazy.
"You will never get ahead if you live in SF, period"
I like the way you think, but this isn't absolutely true. I live in a high cost of living area (NYC) and I manage to invest a large portion of my take home.
I find it's easier to control one's spending than it is to control one's income based on location.
Out of curiosity (I live in London but am interested in NY long-term), where approximately do you live, and how moch do you spend for (1) housing, and (2) life (food, groceries, ...)?
I live in Queens and commute to manhattan like everyone else (very short commute by NYC standards too). I spend roughly $1000 per month on rent and utilities (I have a roommate).
The thing about NYC is, the variance in spending is astronomical. If you try to keep up with the Joneses here you are literally competing at the global level of wealth. Luxuries here, like eating out, generally cost more.
On the flip side, the median _household_ income in NYC is around $50,000. So it's certainly possible to survive at a much lower cost of living than a traditional "Manhattan" lifestyle assumes. That said, life in NYC is objectively "harder" than anywhere else in the US so far as I've experienced (I imagine it isn't too different from London though tbh). If you want to live in comfort relative to say the midwest, you're gonna pay out the nose for it. Alternatively, you can save tens of thousands of dollars per year by opting for some relatively basic lifestyle changes such as having a roommate, eating at home, and not owning a car. Those 3 tradeoffs alone will max your 401k every year.
The consideration for accepting the "harder" lifestyle of NYC, is there are opportunities here that simply don't exist in cozier places to live in the US. That and you live longer due to all the extra walking ;-)
NOTE: All of this assumes you are child-free. Having children in NYC is a complete game changer cost wise from what I hear.
I believe you are correct with it being possible on a median wage (with a great deal of scrimping and saving at that level for a decent period of time) but half of people make much less than that. So it isn't really possible for 150 million Americans or so.
It'd be a lot more feasible if they didn't have to pay enormous and unpredictable health insurance premiums, deductibles, coinsurance, uncovered costs, etc.
I'd like to share my experience here in hopes that it inspires others.
I'm 37 years old, single, never married, no children. A programmer recently turned sales guy. Through my 20s, I experienced an ever escalating salary as I moved up through the programming ranks. By the age of 29, I had accumulated about 25k of credit card debt and still have 35k of student loan debt yet to be repaid. At that time I was making around 90k a year.
Through poor financial decisions and instant gratification coupled with no cash cushion for emergencies, I amassed the credit card debt.
The financial crisis of 2008 hit. I found myself vulnerable to unemployment without savings to fall back on. I was laid off during this time but quickly found another job. The experience scared me deeply. I watched the news as people lost their homes, their savings and their way of life.
I wanted to live a way of life that wasn't so financially precarious.
I started by creating a realistic budget of all expenses. I ruthlessly cut any expense that were "optional" (this is a matter of personal circumstances). The first goal I achieved was a 3k cash cushion for emergencies (unforeseen car repairs, illness resulting in a large bill, etc).
The next step was paying on my debt before any discretionary spending. I created a habit and pride in paying a fixed amount out of every paycheck no matter what the circumstances that month. The progress was slow at first. I paid off the smallest credit card balance first to achieve a sense of accomplishment early on. It was a small victory but it helped motivate me to continue.
The largest credit card balance was about 24k. It took a couple of years to pay that thing off. During that time I was still able to go on cheap vacations and enjoy a meal out occasionally. The key to success for me was tracking my progress each payday and remaining steadfast in my commitment to pay the debt down.
The final piece of the puzzle was the student loan debt. Using the new habits of frugality and commitment along with the additional monthly budget that wasn't being used to pay on credit card debt, I was able to pay down about 35k in student loan debt in about 2 years.
I remember making that last payment. That moment wasn't cathartic. No fireworks. No congratulations.
I was utterly shocked by the inevitability of the passage of time. If I had made no plan, taken no action, those four years would have passed and I would likely be in the same position today that I was in when I started the debt reduction journey. It was truly frightening to think I could have done nothing and achieved nothing for those four years.
Today, I've nearly doubled my income since that time by moving into sales with the same employer. The work-from-home lifestyle suits me well. No commute, no expenses related to commuting. Healthy lunches cooked in my own kitchen. The benefits are many. Without this debt reduction experience, I would likely be wasting all the income I'm making now. I've learned how to save, invest and take a more critical eye to spending.
A little about how I live day-to-day (the original impetus for writing this comment).
I live in an old apartment building in a trendy part of Dallas, TX. The studio unit I occupy is less than 400 square feet. I found an existing tiny house in the middle of a city! Over the years, I've gotten rid of many personal possession that I simply no longer need or use. That experience has been freeing and results in less stress. My rent is 500 dollars a month. The single family homes around me on the same block are 400k+ for an original 2 bedroom, 1 bath bungalow. The new, larger homes are 800k+ for 4 bedrooms, 5 baths. My neighbors pay more in property taxes than I pay yearly in rent. That doesn't include home owners insurance, lawn maintenance, home repairs, and all the other hidden expenses in owning a home.
IKEA has been instrumental in getting the most out of such a small space. Decorating and innovating around this has been a fun experience. I have pictures if you're interested in seeing how it all comes together.
I've not sacrificed the wonderful, walkable neighborhood in which I live to make this change. I did have to look hard to find a rental this small, cheap, clean and safe.
I drive a 2003 Honda with 160k miles on it. It's long since paid off. Luckily, I'm getting past the age where I have the urge to buy a stupid, expensive car to boost my ego and my status. Working from home has reduced the miles I'm putting on the car which will hopefully extend it's useful life and value.
Mr. Money Mustache was a huge influence on me during this time. I grew to believe it was possible for me to extract myself from the debt trap I'd built.
My cash cushion has been extended to 24 months of expenses. This doesn't include any unemployment benefits for which I might be eligible. I max out my 401k contribution at 18.5k a year. I max out my IRA contribution, too. The rest of the free cashflow either goes into my brokerage accounts or to replenish my cash cushion if it's utilized at all.
I sleep more soundly at night. The perception of risk moving from programming to sales was lowered because I no longer live paycheck-to-paycheck. I have a clear path to a nice retirement nest egg and adventures abroad in the future.
If you want help in making a plan or even someone to simply listen, I'm game.
Thanks for sharing! I'm interested in learning a bit more about your lifestyle at home; I'd love to see the pictures you mentioned about creative use of IKEA.
I'm currently downsizing possessions to a point where my 1100 sq.ft apt is starting to feel too big.
It's alarming how similar my story is to yours. I also moved from a much bigger city to Dallas a year ago. A new job paid me to come here and I gotta say it was a great decision. My email is in my profile. Let's chat.
Horseshit. A family of 4 will spend about 2/3rds of that amount on healthcare (meaning insurance + deductibles and copays) alone. Then there's real estate tax as well, utilities, food, necessities. I'd say $50K is bare minimum, and $75k could actually be quite comfortable after some belt tightening.
24K is a magic number. You qualify for an enhanced silver ACA policy with very low premiums, deductibles and copays.
I do own a home and rental property, and pay property taxes annually.
I did my first year at a 24K annual income with a slight assist from after-tax savings after being employed for 30+ years. Being 55 in San Diego, and getting an electronics engineering position ain't happening right now.
The term is not meaningful. It is much more complicated to save money when you are making poverty levels than it is working at decent wages. There are more costs associated with being poor.
What does that mean? Where does the extra money go? Under normal definitions, income = spend + save. That's not an equation to be optimized; it's a tautology.
Re: sailing around the world. I'm sure a lot of things have changed since this was written, but you might be interested in this ebook - http://arachnoid.com/lutusp/sailbook.html
The "secret" (there isn't one!) is really to simply find someone who wants to live the same life you do. Easier said than done, it's true, but you need compatibility whether you want to live a $1M/ year or a $20k/year lifestyle together.
I love technology. I love the work I do. But I will only live so long. Work to live, don't live to work. Make enough to live well enough to spend time living well.
You won't lay on your death bed wishing you crammed a few more hours in at the computer. You will regret the extra hours you could've spent with those you care about.
Your last statement really hit a note with me. I've been spending my life chasing money and recently realized that I was just filling a hole. I have found someone that is willing to go adventuring with me. Screw the boring office worker life, it's time to start living. Good luck and have an incredible life!
We sold the big expensive house and moved into a 25' Airstream almost 4 years ago. I felt like I wasn't getting ahead. A bit stuck. I know she did as well. A bit different from the grandparent we still work a normal 40 hour week with normal (remote) jobs but have kind of checked out of the normal american dream.
http://i.imgur.com/FQfQIlu.jpg
That little dot in the middle is where we are spending this week. Middle of the Mojave Desert about 10 miles from any human.
Where you already working the job and then talked management into letting you work remotely? Also, do you use some form of satellite comm service in order to get internet connectivity in remote areas? I'm interested in knowing how people go about getting these (apparently) high paying remote jobs...
My job is mid web developer salary range. Currently on my second job since we went nomadic. This job was remote from the start though I am the only remote person at this company.
Internet is all cellular connections. Verizon unlimited plan with AT&T on our phones as backup. We use a powered booster with an antenna on the roof. Interstate 40 is ~12 miles away from our current location, so the tower we are on was built to serve the highway.
Yeah, it's all about them. If they're into it, awesome, but in my personal experience the people I dated were very much used to a standard of living, and had some expectations of my contributions to uphold an image. But this journey is ultimately up to you. You start out by asking yourself what do you truly find valuable? Are all of these things you've collected simply working together because in combination they've found some local maxima to sustain your current life?
One thing I've found is that even if the people you knew before aren't available to make the transition, there are plenty people on the other side that will know you for who and what you are to them. Taking a stand and fighting for your change and growth takes some guts, and people find that admirable. Dating has also never been better because you both immediately enter into these relationships without pretense.
I was in a relationship and after my companion decided to end it, I found out it was to join someone living in a van. Don't be too quick to discount relationships with that lifestyle
There was a guy on Reddit living in a van who answered this. He said the vast majority of women he met responded extremely negatively to his living situation.
If that is what makes you happy, then more power to you.
The real question is was the American dream really open to you? Was this life choice made easier because what was the american dream has been so diluted as to make it unpalatable?
Is the current craze in tiny homes because people really like tiny home or because it is the only realistic option for a lot of the enthusiasts. For some people the former is true. Other are at least in part rationalizing their belief ex post facto.
I can't help but wonder: what proportion of the population has a place that they can truly, and with love, call home? Somewhere they feel alive in, and grow in, and feel confident raising a family in. Somewhere that persists. How about 30 years ago? 2000 years ago? 20,000 years ago? I think the visualization of this data would be very interesting indeed, albeit impossible to create.
It's my impression that it gets harder and harder to create a place called home for the average person, as wages go down, available jobs are more competitively sought after (especially the ones where you feel like a human doing humane things from day to day), and real estate & rent around urban centers goes up.
Count your blessings if your field of work is amenable to being done remotely, and start building out the skills, habits, and resources needed that go along with it asap.
About 5 months ago my mother sold a house that was built by my Grandmother in the 50's. That had been my home for 12 years or so and I'd been going to for as long as I'd been alive. I love that house, the garden, the sense of belonging. But it was expensive to run and mum could not afford to keep it (and I am not successful enough to make that go away alas).
That place was home in a deep and meaningful sense. Do you know what I realised when I drove home on a weekend to a new house with no history, no lore, no memories? Home is where mum is.
Of course I also have a home in London which is rented and changes all the time and that, too, is home. I don't need to own a place for it to be home. I don't have to be there or have been there for years. I just have to go home and feel good about the space which is mine and filled with my people (and my things).
I guess I just disagree with the premise that there is a need for what you describe. It's something people are taught they need in some cultures.
No doubt some of it is just making the best of an economic reality.
But short of living in a true "tiny home" (< 400 sq ft), many people today (myself included) are "right-sizing": choosing to live in smaller than average spaces and using smarter space utilization, usually in order to reap some other benefit, whether that is proximity to amenities, work, and transit systems, lowering utility costs, etc.
It probably helps that having a huge house is weakening (though clearly not gone) as a symbol of social status, especially in crowded coastal urban areas.
Cheerleading for higher house prices used to be widespread, and was a big part of the problem. It's inflation, people. It's still the same house, for more money.
The median house historically costs about 2.2x the median income. That number hit 4x nationally in 2007, and 10x in California. It's not that high this time, but it's still very high by historical standards.[1]
San Francisco hit 10.5x in 2007, and now it's around 9x.
In the 1950s, rent in NYC was typically 10% of income.
It may be time to look at applying antitrust laws to rental real estate. Where there are a small number of large landlords, that's likely to push rents up. This is more of a small-city problem than a big-city one; the biggest commercial landlord in NYC has 5% of the rentable commercial space.[2] There are medium-sized cities with one or two big landlords.
It's also worth noting... the normal multiple used to be around 3x a single income. Now that many/most women work, the measure has changed quietly to "household income".
well yeah, once more households have more income, it just means everyone can pay more and prices go up. Sellers of homes mostly have to buy again anyway. A notable portion of all the second-income in each household literally just pays for developers and financiers to get rich and otherwise accomplishes nothing.
Zoning laws are actually by and large a relatively modern idea, with the oldest zoning regulations in America in place for only 100 years, with the aggressive zoning codes we have in place today generally only stretching back to the 70's and 80's.
Aggressive zoning, by my estimation, is a bad influence on housing costs. It's restrictive (by it's nature) and generally serves one and only one purpose : keeping neighborhoods from becoming more dense. As our population continues to grow people have to live somewhere, and we have to recognize that the only way to organize our cities for that growth involves density levels that are in many cases double or even triple what they are today.
>Zoning laws are actually by and large a relatively modern idea, with the oldest zoning regulations in America in place for only 100 years, with the aggressive zoning codes we have in place today generally only stretching back to the 70's and 80's.
Not even close. In most of the developed world, you can't turn a home in a residential neighborhood into a slaughterhouse.
I think you mean "density restrictions", a subset of zoning, not zoning per se. (Though even there I'm suspicious: I can go to a low-density part of Nuremberg and buy 100 contiguous houses and replace them with a skyscraper? I'm thinking "no", regardless of whether they formalize the rejection as "because zoning".)
I know. Something under the name "zoning" is recent. My point was that the general concept (municipal governments not just letting you build whatever you feel like because of the surrounding area) is much older and more universal.
"Before zoning, cities mostly regulated what could be built through nuisance laws. If someone didn't like how their neighbor was using their property, they could haul them to trial and let a judge decide what to do about it."
That's not zoning by any modern definition. It was piecemeal lawsuits with varying levels of effectiveness. There was no comprehensive "you can build this thing here, but not here" plan in place. If you read further into the article you'll see that in Manhattan it was the inability to control what was being built that directly led to the adoption of an actual zoning plan.
So there was a (long) period in American cities in which people were generally building whatever they wanted wherever they liked. This is further outlined in a book I really like "Dead End: Suburban Sprawl and the Rebirth of American Urbanism" which talks about how zoning codes and covenants conspired together to produce the modern American suburb.
I have similar frustration at the miscommunication. You're making a very subtle distinction that was not conveyed by your original overbroad claim "zoning is a recent American thing", and which you should have clarified the first time around rather than only after someone pointed out clear counterexamples to the literal meaning of your claim.
Zoning in modern parlance is understood to mean "stuff in this zone can't be built or operated like this". That is the only "zoning" concept relevant to the discussion, and it is universal in the developed world, and has been for ages.
It is functionally zoning in that same parlance, regardless if it's an explicit code, or simply a common-law-like system of precedents of "well, everyone knows the planning board or the complaint system will reject your skyscraper or slaughterhouse in the residential zone".
To the extent that you're making an interesting, relevant distinction, it now seems to be about one particular kind of zoning, that of master plans for future construction that broke sharply from tradition and introduced unusually sharp barriers between residences and commerce. Sure, that's a recent American thing. But it's not at all conveyed by the understanding of "zoning" that existed in the discussion that you attached the remark to.
Have you been to China lately? Many Chinese cities are what happens when you allow supply to meet demand. Prices don't necessarily come down with increased supply because it also increases speculation (and contrary to economists believes we are not rational actors). Demand also follows supply, if you increase supply there is often an increase in demand because now people can move to $desirable_location.
> Many Chinese cities are what happens when you allow supply to meet demand.
Um, no. Chinese cities are a direct result of government policies to boost GDP through construction and are the supply of housing has little to do with market forces.
IMO it's more because of Chinese capital controls: buying an apartment that sits empty for fifteen years is literally the best option they have for turning money today into something valuable when they're old and cannot work.
Speculation affects rent because many buyers have debt. If an owner can raise rents that cover the interest and costs, they will; that is their baseline for how low they will go. Large amounts of speculation will increase rents even with increases supply because owners need to service their debts (up until the point where renters won't pay and owners default).
That's not been my experience as landlord or as a tenant. Rents are negotiated within a narrow band (+/- 10%) based on the market rent for a comparable property at the time.
The landlord's decision (forced or not) about whether to dispose of the property is independent of the rent-setting process.
Residential rents in Beijing don't cover landlords' mortgage interest unless the debt-to-value ratio is low.
> It may be time to look at applying antitrust laws to rental real estate.
My town sorely needs this. Virtually all of the non-college rentals there are owned by a single large company, so they can basically set whatever rent they want.
You are dead right about small cities. There are like 3 landlords aside of the (big) colleges where I live, and rent is a nightmare. It doesn't help that one very infamous landlord prefers to leave storefronts in vital communities vacant instead of lower the rates, just because he still makes money by leveraging his properties for his investments in China.
Sounds like Vancouver, or maybe Victoria. I wish they would tax the everliving fuck out of vacant storefronts. Whatever price the owner intends to rent for, they have to pay that amount to the city every single month the place is vacant, with strict enforcement and publishing the rent prices so that they can't jack it up once someone moves in. And let the tax money go to homeless shelters for all the people who are out in the cold because of vampires jacking up rental prices til they're too high for anyone to afford.
I wish my local government would do this. Businesses and industrial sites should be taxed at significantly higher rates if they are vacant to encourage businesses or repurposing. This would encourage owners to lease sites or sell them up for redevelopment instead of just holding onto them and allowing them to flourish as ruins in the middle of otherwise vibrant areas.
That's a good idea. My proposal is a "mega-landlord tax," which has a progressive property tax levied on all properties owned for rent after the first 5-10.
The American Dream is looking more like a middle level marketing organization with false advertising for most.
The problem is we just keep stripping away the middle class and lower class consumer power[1][2] and the solution is getting wages up to fix these issues.
People wonder what happens in a consumer driven economy after stagnant wages since 2001, well this. It leads to Great Recessions, a sideways investment market and a few generations worse off with the US heading in the wrong direction. The country has been Enron'd and drained of cash.
Those articles (and the data behind them) suggest the opposite of your point: the middle class is shrinking, yes, but it's shrinking because incomes are increasing and people who were previously in the middle class are moving into the upper class.
Yes and that is welcome, but take another look. They go further to say that since 2000 that trend is no longer a big reason. Even stated in the first paragraph that incomes are falling as the new big reason.
The middle class, if defined as households making between $35,000 and $100,000 a year, shrank in the final decades of the 20th century. For a welcome reason, though: More Americans moved up into what might be considered the upper middle class or the affluent. Since 2000, the middle class has been shrinking for a decidedly more alarming reason: Incomes have fallen.
'67-'99 there weren't stagnant wages as much as post 2000, where we have seen a sideways market, massive recession, 15+ years in horrible economic conditions worsen for lower and middle. Costs rising way faster than wage increases eventually crushes the lower/middle.
The CNN article also mentions money locked up in the upper class and so does an associated video [1]. The lower/middle spend in downturns, the rich do not. Eventually demand is depressed and noone can buy anything. It is bad for lower/middle and upper when noone is gaining in income and has no consumer power gains to grow on. People buy less, people sell less when consumer power is locked up.
For decades, the middle class had been the core of the country. A healthy middle class kept America strong, experts and politicians said.
But more recently, these residents have struggled under stagnating wages and soaring costs.
It's been more correctly Bained. See what happened to Guitar Center for details.
Enron was a real company doing real work. Bain, not so much. Sure, the traders at Enron were completely out of control and the management team was out to lunch, but please remember that MCI was even part of Enron.
But YEP! drained of cash and loaded up with debt. The small details don't really matter than much.
> In fact, metros with greater shares of renters have higher wages, higher productivity (measured as economic output per capita), and greater concentrations of high-tech firms, according to Mellander’s basic correlation analysis.
People are attracted to where the jobs are, and so everything gets bought up and inflated, and the late comers have to rent.
In related news, you never see rental apartment buildings among rural grain elevators. Gee, why is that?
Correlation analysis? Yeah, we wouldn't want to jump to any premature conclusions like that the jobs and presence of industry leads to renting; there is a glimmer of hope that we might be able to prove that renting actually causes higher wages, higher productivity and the presence of high-tech. It could be that people come to the city just for the privilege of participating in expensive rent. Then when their bank accounts drain dangerously low, they realize they need high wages, and so they create companies and give themselves salaries.
Fact is that renting is not some way of the future or a shift. Even if 99% of the people rent, it will be because they have to, and all will continue to foster the dream of owning a home, and continue to envy the squirrels in the park that de facto own their own space in the hollow tree, or the birds that have their own nest, and don't pay a fucking thing to anyone.
Property taxes are what keeps housing affordable. Look at California for an example of what happens when they go away.
To be precise, property tax increases the liability of holding a house as an investment relative to other investments, so higher property taxes make capital that was invested in real estate move to other sectors. That means that fewer properties are owned by speculators, so more are owner-occupied. This is why California has one of the lowest homeownership rates in the country (alongside New York and Nevada, which are much more urbanized than Cali):
(Homeowners don't like to believe this, because the economic reality is basically that investors can buy whatever they want and the middle class picks up the scraps; that's sort of undignified, but true, so people should get used to it)
Well, in some areas, but it really depends on the market - the property taxes on my home in a University city of 200,000 are 1/3 of what I was paying in rent - with the interest on my mortgage the amount of "lost" money comes out to roughly the same amount for now.
As long as property taxes do not outstrip my interest rate, that ratio should stay in my favor going forward.
Absurdly high taxes (my parents pay half my tax on a non-rural property twice as big about 120 miles north of me), but still, owning a home is hardly a fiscally ruinous proposition around here.
My property taxes this year were ~$4200 on an average sized lot and home, or roughly $350/month.
My last apartment cost $1050/month for a small two bedroom condo rental.
This is similar to my situation. Renting a crappy 2BR apartment was $1700/month thanks to the tight rental market. Mortgage and taxes on a townhouse in a nicer part of town? $1200/month. And theoretically after 30 years I would have an asset I could sell, unlike the renters. Renting just didn't make sense unless you're highly itinerant and don't stick around any one area for more than a year or two.
"Renting a crappy 2BR apartment was $1700/month thanks to the tight rental market. Mortgage and taxes on a townhouse in a nicer part of town? $1200/month."
So you take a mortgage and you're happy and there is a chance that you'll stay happy because your present reckoning may remain as good in the future as it is now. But it also may not. By mortgaging you become a sitting duck against the change, and that rental business of $1700/month seems attractive enough to invite further involvement and development thus driving the prices much lower not only compared to its current figure but also with the praised rental figure. What would you do then if this happens? Refinance in order to stretch that mortgage for more than 30 years?
"paying in rent - with the interest on my mortgage the amount of «lost» money comes out to roughly the same amount for now"
But there is also the opportunity cost. Having a mortgage may be equivalent financially, but it's a liability when considering your freedom to change or to invest in something profitable that may pop up along the way.
Homeowners also get a lot of deductions too. In general you end up paying more owning vs renting, but you want to make a good investment when purchasing a home. So, in the end you typically end up ahead when owning, unless you didn't make a wise investment.
I'm a little surprised that there hasn't been a populist rebellion over interest rates. Low rates have inflated pretty much every asset class. This is especially so in housing: The Fed needed to reinflate housing prices in order to make many systemically important players (banks, AIG) solvent again.
I have to wonder though: In re-inflating house prices, have we just off-loaded the bad investment to non-systemic institutions? ie, avg people?
Bernie Sanders, a proud socialist and outspoken advocate of wealth redistribution, just pulled even with Hillary Clinton for the Democratic nomination for President. In the Iowa and New Hampshire primaries, voters under the age of 30 broke for Sanders by 70% (compared to 57% for Obama in 2008). Meanwhile Donald Trump, who has the most liberal social record of all the GOP candidates, and who continually insults the GOP establishment, is 20 points ahead of the rest of the field. For us fans of politics, this is like witnessing two black swans simultaneously emerge within one pond and begin loudly mating. Your populist rebellion may be here.
Did...you reaed what he wrote at all? Bernie sanders supports inflating assets with QE (and affectively robbing the middle class due to asset inflation).
They said the same of a certain junior senator from Illinois. Why do people think Sanders can't win when all evidence points to the contrary.
Sanders is sticking to the core liberals. That solid 25-35% that will actually vote. Hillary is trying to pursue centre, swing voters and losing the liberal core. Trump is doing the same on the right.
Hillary and Jeb assumed they had the left and right core voters, respectively, locked up and both have been proven completely wrong.
Sanders can't seem to connect with Black and Latino voters, and if you can't do that you aren't going to win a Democratic primary. Minorities love Hillary, for reasons that are not entirely clear to me.
Also, Bernie supporters skew very young, and young people are relatively bad at making to their polling places, especially in primary races.
He has basically no chance of taking Nevada for example, and will probably be down by tens of points. If the election is close at all there it will be a major win for him.
Also, the establishment Democrats see him as George McGovern 2.0 and are terrified of giving Donald Trump a 49 state sweep.
> I'm a little surprised that there hasn't been a populist rebellion over interest rates.
Low interest rates are in immediate terms good for net debtors and bad for net creditors. In broad strokes, this makes them good for the poor and bad for the rich (they are usually responses to conditions for which the reverse is true -- or, at least, which are more bad for the poor than the rich, but I'm just considering the interest rates themselves.)
So, a populist rebellion over (low) interest rates makes little sense. (A populist rebellion over the conditions that provoke low interest rates makes sense, and is, in fact, visible on both sides of the partisan political divide, split by what people see as the source of and solution to those conditions.)
Populist anger is justified… low rates are a key driver of wealth inequality.
1. As interest rates approach zero, asset prices approach infinity (via "Discounted Cash Flow" valuation). The wealthy own most assets.
2. The wealthy tend to have a lot of debt (by choice). Low rates make this cheaper to deal with, and cheaper to obtain for speculation, lifestyle upgrades, etc. Point 1 above provides lots of equity to borrow against.
This is the "wealth effect” which the Federal Reserve and other central banks have been deliberately pursuing. They thought reflating assets would make people feel better and spend more. Unfortunately the wealthy don't need ten haircuts a month or twenty meals a day.
It also turns out that when normal people see houses becoming more expensive, they decide to save more. So the net effect has been negative.
All very predictable but central banking is pre-scientific.
Low interest rates are great for the rich. Wealthy people in general know how to effectively utilize capital to make more money and if that capital is cheaper then all the better for them. I mean cost of capital is one of the chief components of calculating the net present value of a prospective project so the lower the interest rate the more profitable various projects are.
And other rich people are the one's loaning their money out for practically nothing. It's good for active investors (which is why it's done), but it's bad for less risky investments (bonds and other loans).
And those investments carry greater risk, which is a big downside. If, for example, the unicorn bubble is real, all that cheap capital was a curse, not a benefit.
For the last 8 years, it's been impossible to save money without big risk. Interest rates have been below inflation.
The flip side though is low rates make it easier to afford the home payments too.
Your mortgage payments on a 30yr loan at 4% on a 300K house are approximately the same as 8% on a 200K house. (Not strictly proportional due to principal payments)
One other thing to consider - it's real rates than matter, not nominal rates. 4% interest rate in a no-inflation environment is the same as 8% with 4% inflation.
>> The flip side though is low rates make it easier to afford the home payments too.
Nope. When first time buyers go to the bank to get approved for a loan it goes like this:
1) Look at your income and expenses
2) Figure out what monthly payment you can afford
3) Work backward from #2 and the interest rate to determine how much you can borrow.
From there every player (agents, sellers, bank) all want you to spend the full amount from #3 on your house. Since there is real crap at the bottom of the market, every $10k gets you a notable improvement. 2nd time buyers also fall for this, and it doesn't matter if you're smarter (like I was) and don't spend the full amount. Enough people let their loan approval amount influence them that the following holds:
Your monthly payment is mostly based on your income. It's the price of housing that varies (inversely) with interest rates.
By lowering rates over 30 years, they stimulated the economy until 2006-7. Then they jacked up the rates which initially lowered housing prices, which put people in trouble while also slowing the economy a bit and it all fell apart. They subsequently lowered rates and did QE1-3 to get things moving while also reinflating the housing bubble. They now have to raise rates ever so slowly to avoid part II, but they must raise them in order to restore the ability to regulate inflation with them.
Yes. It’s opposite of what one would do to make housing affordable. Unaffordable housing, especially in cities, is a huge and regressive drag on the economy.
> If we want cheaper housing, all we have to do is legalizing the building of it.
I wish it was that simple. But experience disproves this theory. It's like saying "if you want cheaper cars, build more Lamborghini's".
For instance, the article you link to complains about Seattle being unaffordable. Which is ironic because Seattle is building apartments like crazy. Something like 8,000 new apartments opened last year, and another 11,000 new apartments are scheduled for this year.
If "housing gets cheaper when you legalize building it", then why are the cities that are building new housing never becoming any cheaper?
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Even in my tiny midwest town, they're building tons of new urban-ish apartments. And the rent in those units is always $1,000 over the average for the area. It's sending the entire towns rents up (even for ancient, crummy buildings).
Most people prefer urban areas. For every one new apartment built downtown, three new households decide they want to live there. You can't outbuild demand, because the act of building increases the demand.
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I'm not suggesting we stop building -- we need the housing, we should be building up. But it's clear to me that building new housing alone is not enough to help with affordability in any way.
8,000 new apartments for Seattle is a drop in the pond, no wonder the rents are going up. It's building crazy little amount of housing! With a population of 650,000, even if Seattle were growing only at the rate of the US population of 0.7%, then they would need 4,500 new apartments. But they're growing much faster, like 2-3% per year, for quite some time. No wonder housing is getting pricy. They need to build 30,000 to 40,000 apartments per year for a while to relieve the shortage. Most of these new apartments will be more pricy, because they're new construction, but with time it will even out.
>Even in my tiny midwest town, they're building tons of new urban-ish apartments. And the rent in those units is always $1,000 over the average for the area. It's sending the entire towns rents up (even for ancient, crummy buildings).
I'm not sure the market works that way... These new apartments are more pricy presumably because they are more desirable; new construction usually is. In 30 years, they will be back with the rest of the rates. How do these new apartments increase the rent of the other apartments? Why can the land lords of the crummy apartments charge higher rents? Is it because there's not enough apartments or is it because they are behaving in anti-competitive ways?
There may be some macroeconomic ways to get back to more affordable housing without building, but they all involve devaluing current housing in some way.
Sorry, my eyes are tired so I didn't read your post, but there's a 3,000+ house development happening in my town — a HUGE development for the area — and the starting prices are $600,000, in a country where the average salary is $39,750 (the region's average is $43,000).
There are similar developments of 100s of houses, which equally ridiculous prices. I only see the existing house prices going up, not down.
The real interest rate is positive. If interest was low and the prices of commodities and their processed product increased there would be a motive for a rebellion.
A $100 bill, with interest, buys alot of stuff these days compared with 10 years ago.
My wife and I bought a 2-family (we live in the other unit) a couple of years ago and so many people told us how it was a bad idea. People said we would have horrible tenets and that finding renters would be hard and that selling rental property is a nightmare.
Eight years later and I can tell you it was one of the smarter investments I have made. Had wonderful tenets. And after some refi magic the house is not far from being paid off.
I don't think I'd have any interest in every buying a house if it weren't for the insane tax deductions for mortgage interest. Why be stuck in one house when your living situation changes over time (new kids, kids get bigger, kids move away, job changes).
That tax deduction does get smaller every year (as the interest/principal balance changes).
The biggest issue I found with owning is that the equity doesn't build up fast enough at the beginning (with a 30-year mortgage), so if you sell after 10 years the costs pile up to the point that you have almost no net proceeds (5% commission, survey/title/transfer tax/inspections, plus prorated property taxes). A 200K property could easily cost you 20K or more to sell.
The best thing you could do is to put as much down as you can, on as cheap of a property as you can (condo, townhouse), then send in additional principal payments so that you could pay it off in 6 - 10 years. Then you can either put away extra savings after that, or move into a slightly more expensive place (about 60K more than your current house), and start the 6 year cycle over again.
Actually the best thing to do is just to have a lot of money. Problem solved!
Your scenario assumes a location (or person) with:
- Desirable housing in the $60-100K+ range
- Employment sufficient to generate high paying positions
- The will to sock away a large part of your income for close to a decade, just to have a paid-off home (which is not a big enough benefits to be a means unto its own)
20% down at a minimum and a 15-year mortgage (or a 30-year paid off in 15 which is close to the same price) is a pretty bullet-proof way to secure a livable property, be able to save beyond just paying your mortgage, and have the freedom that you can get out of dodge in under a decade if you absolutely had to.
>> This makes me wonder if 30 year mortgages even end up making housing more affordable.
Everything the government does to subsidize home-ownership ends up getting capitalized into home prices and so acts as a naked giveaway to incumbent homeowners and either does nothing for or actively hurts non-incumbents. Interventions breed more interventions as the prior ones no longer provide the above general inflation price growth that homeowners demand from their politicians. The 30 year low fixed rate mortgage with no prepayment penalty is just one among many such interventions.
How is a 30 year loan on what is usually the largest purchase of one's life a government intervention? Plenty of banks offer these loans with no backing, support, or encouragement from the government.
And what do prepayment penalties have to do with anything? As a consumer I will absolutely not sign any loan that comes with a prepayment penalty. It would be idiotic to.
Low interest rates, in particular, caused prices to rise dramatically, putting a lot of people in a lot of debt and making house ownership out of reach for many others.
30 year mortgages make the monthly payment smaller, which reduces the monthly cost of housing, BUT you end up paying more interest since you aren't paying principal off as fast which means the total long term cost of the asset is more due to compound interest. A 15yr mortgage takes more out per month, but it's cheaper overall since you're paying off principal faster and interesting isn't accruing or compounding as quickly.
I think it's possible to "game" the system by getting a 30yr mortgage but set it up so any extra payments above and beyond the minimum amount get applied against principal - in effect reducing the amount of money they can leverage interest against. Then you make as many extra payments as possible over the life of the mortgage and pay it off ASAP.
People scale the principle of the mortgage to the monthly payment they can manage though. So I'm wondering if the bigger effect is upward pressure on home prices. Which probably doesn't make housing more affordable.
Anybody staying in a home would be insulated from the price effect, but anybody buying a first home or moving would feel it.
Paying a 30 year note off in 15 years is only marginally more expensive than having the 15 year note to begin with, with the added benefit that if something should happen to your cash flow you have a much lower minimum payment you can fall back to.
Using bankrate.com's advertised rates and mortgage calculators for my zip code and $300k mortgage (which is very nice with some land in my area since with 20% down that is about a $375k house):
- 30 year fixed rate (lowest): 3.500%
- 30 year fixed payment: $1,347/mo
- 30 year fixed total interest paid: $184,968.26
- 15 year fixed rate (lowest): 2.750%
- 15 year fixed payment: $2,036/mo
- 15 year fixed total interest paid: $ 66,455.68
If you make the 15 year payment on the 30 year note you will pay the loan of 14 years early and save $92,302.71 in interest. If you make double payments based on the 30 year note you will pay the loan off in just over 11 years and pay less interest than on the 15 year note with minimum payments.
Pedantically true, but in practice with interest rates what they are there's only a few thousand difference between in the long term a 4% 30-year that is paid off in 15 years, and an actual 15-year at 3%. (Source; I'm doing this with mine, and ran the numbers)
Yeah, I'm doing this. The nice thing about the 30 year but pay extra every month plan is that if you get slammed by some major unexpected expense you can dial down your mortgage payments until your bank account catches back up. It gives you a buffer so you don't make yourself inadvertently house poor.
Perhaps, I haven't fully explored that option and it would make sense since the investor's money will be tied up longer. However, paying down principal quickly reduces total cost of the asset since there's less $$ for the interest to grow/compound against.
I would argue in the current situation of 3.5% mortgage rate, the best scenario is to invest the cash in the stock market. If your returns are anything above 3.5% over the 30 year load amount, you're good.
I read this counter-point a lot. Its never clear to me how you invest the mortgage payment and also pay rent to live somewhere. Am I missing something? Sincere question.
I'm not sure I understand why you would pay rent to live somewhere else. I'm talking about living in the house that you bought and have a mortgage on.
Say your mortgage loan amount is $300K at 3.5%, locked in for 30 years. Instead of paying it off in 6-10 years with extra payments, I say invest those extra payments in the stock market, and keep paying the mortgage for 30 years at a locked rate of 3.5%. If that money that you invested makes anything above 3.5% over 30 years, then that's free returns to you.
On top of that, it also depends where you think the interests rates will be in 10-20 years from now. If you believe that they will be higher than they are currently, then that's even more reason to keep that loan locked in for 30 years instead of paying it off sooner. Hope that helps.
> On top of that, it also depends where you think the interests rates will be in 10-20 years from now. If you believe that they will be higher than they are currently, then that's even more reason to keep that loan locked in for 30 years instead of paying it off sooner.
That makes no sense. You'll be better off paying a lower interest rate than you would be not having a loan in a high rate environment?
Remember, the loan is locked in. Everything around you may be a high rate environment, but your loan is still 3.5% when regular bank savings account would be paying, say 7%.
So, if you bought shares of an Emerging Markets ETF [1] with the money that you would have otherwise paid for accelerated mortgage payments. Today these shares are paying you around 3.5% in dividends alone.
Fast forward ten years to a high rate environment, and ten years of buying ETF shares and reinvesting dividends, I'm assuming that the dollar amount of your shares would be higher than the amount of debt you would have otherwise paid off already.
That's why no other country on Earth that I know of has 30-year fixed mortgages. They are essentially a government subsidy to homeowners via Fannie/Freddie.
Point taken about the high rate environment -- I'm not sure where I thought that other money would go. But it's still not obvious that you would be better off under your plan.
You're financing two assets, you home and your portfolio with some mixture of debt and equity. Without making assumptions about the expected return of the housing market, the return on your portfolio, the variance of those returns and the horizon, its not clear that you'd still be better off.
You say take advantage of the cheap (tax-favored too) leverage -- I'd be concerned medium term variance in returns. That ETF you pointed to is down over the past 10 years and underperformed the market -- and it looks like it missed a few dividend payments during the crisis.
> That's why no other country on Earth that I know of has 30-year fixed mortgages. They are essentially a government subsidy to homeowners via Fannie/Freddie.
Correct, that's why I said that it was an assumption. I picked that ETF because I think the underlying assets would do well over the next 30 years, and also because it's relatively cheap to other ETFs because of the under-performance you mentioned. You can substitute any other asset there really that you think would perform better than 3.5%.
A bit offtopic, but is it normal to have interest rates locked for the whole duration of the loan? Around here the interest rates usually follow 1, 6, or 12 month Euribor[0] with a small bank margin on top.
So yes, technically some people now could have loans with negative interest rates, but there is usually an extra clause for a minimum or 0% or 1% or somesuch.
The basic premise behind that idea is rents are (historically were) cheaper than a mortgage so you could take the mortgage-rent delta, invest that, and generate a return greater than the interest rate on the mortgage and end up ahead. A lot of the mortgage calculators have a 3-5yr inflection point where renting, traditionally, was always cheaper if you planned on staying somewhere for 3-5yrs and moving.
The problem is, the equation has flipped. Mortgage payments are now, in many cases, cheaper than rent and there's such a high demand for rental units in some metro areas that landlords have no problems keeping tenants increasing rent 3-10% year over year. Ideally, you could do the same arbitrage buying a house (ideally an asset that nets 0 when you sell it worst case and you get your money back) and invest the rent-mortgage delta into other assets. The problem is "unlocking" the house option. If you don't have exemplary credit, and a certain pile of cash available, banks are leery to touch you and make financing available. Ergo, you get forced into the rental market and there's a huge incentive to turn properties into rentals.
Tack on the millennial generation's hesitancy to settle down in one location and you get a set of economic conditions that encourage renting and regular rent increases.
>Tack on the millennial generation's hesitancy to settle down in one location and you get a set of economic conditions that encourage renting and regular rent increases.
Are we hesitant to "settle down" or are we trapped in a death spiral of student debt, rising rents and underemployment?
As always, it depends. Speaking anecdotally, most of the millennials I know speak rather forcefully about their desire to not settle down, marry, or begin a family prior to 30. I can count the number (amongst my friends) on one hand who discuss factors like underemployment and debt as being significant in their decision to delay settling down. Most seem to enjoy the party/city lifestyle and spend their time focusing on their career/traveling instead.
Yes, it's possible all of those things are factors but I'm going to argue for most it's subconscious rather than explicit factors in a settle/not settle equation. I think a lot of millennials are buying into the "extended adolescence"/party phase/single life/no responsibility/free spirit/high mobility (pick your moniker) lifestyle choices and acting accordingly - based on my anecdotal experience.
> landlords have no problems keeping tenants increasing rent 3-10% year over year.
Where are the accompanying income increases coming from? Clearly not W-2 income. What can't continue forever does tend to stop. Or at least what happens on an extremely small scale can't be the case over an extremely large scale. Can't squeeze blood from a stone...
Also never forget the cost of home ownership isn't the mortgage, at least when compared to renting. That's only about half, once the numerous additional expenses are considered. My bachelor pad rent included everything but the electrical bill. Mortgages do not pay the gas bill or for a roof or a new HVAC system or water bill or (generally) property taxes or ...
They're growing rent until they hit the breaking point that no one will pay. Many of the families in my metro area are 2-parent working families and many of the big corp positions here tend towards mid to senior level or executive positions with the requisite salary and landlords keep pushing the rent up so long as people are willing to continue paying it. For single people, it's common to be cramming 4+ into a single family home (which pushes rent down to <$1k/person depending, not including utilities). For married folks, I hope you're both working and bringing in bank. Apartments tend to be more reasonable than single family homes, depending on location, but they're still quite high (1br apartments are between 1.6k-3k+/mo depending on the building. Closer you are to a metro or major roadway, substantially higher price).
In essence, we're a victim of our own success. Back in the day, life revolved around the city center and much of what is the 'burbs now was farm land. Overtime, as more people moved to the area, the cheap real estate was always al little bit further out from the city so people would saddle up and buy a house (with a 20-30 commute as the penalty) for a reasonable price. Over time, companies started building offices in the 'burbs, more people kept moving to the area, and the creep has pushed "affordable" out almost 20-30miles from the city center (commute time >1hr). Factor in the road networks are terrible, and mass transit stations are rare enough that real estate near them commands a premium and you find people willing to fork over a chunk of change in rent to not have a terrible commute either to city center or their 'burb job. Houses for sale, in the neighborhoods closer to the city, with good schools, not terrible commute etc, are generally priced for 2-income families. (>$500k).
Yes, the tradeoff between renting and buying is you assume the risk and costs of maintenance in buying. Most of the rentals i know of (single family homes or townhouse) push the cost of utilities onto the renter so really, all we aren't paying for is standard house maintenance and taxes. I'd rather assume the costs and risks of maintenance and taxes (and budget for them accordingly) and live with a fixed housing cost rather than continue fighting variable costs and potentially cranky landlords. Nothing makes a good housing situation sour faster than a bad land lord.
The New York Times buy vs rent calculator[0] can help determine which side of the rent vs buy is better (from a financial standpoint only, not including factors like 'freedom') depending upon various factors.
For example, here in Oregon based on all of the factors I adjusted, the result was "If you can rent a similar home for less than $1,422 per month then renting is better.". I could probably break even by moving to a different location, but then (for me) the freedom factor pushes it back towards home ownership.
So you put your own assumptions in, and that can give you a good idea of where your own situation results.
Its never clear to me how you invest the mortgage payment and also pay rent to live somewhere.
As a direct response to this, the calculator will actually show what the expected costs are assuming you invest any difference between the rent vs mortgage in a vehicle with the specified returns (and over the time period you specify)
people who say this are talking about markets where the spread between renting and the finance cost of a similar bought property are huge. San Francisco, New York, LA...
Let's say you're a couple years out of school and you work at Snapchat. Somehow you have a lot of money saved up and you can buy a little house near your office in Venice. A small house in Venice runs about $2m. So let's say you borrow 1.8m to pay for it, your monthly payment is about $8,500 on a 30 year fixed and thats before maintenance and insurance.
That same house in Venice probably rents for somewhere between $3k and $4k/mo net of everything.
So what those people are saying is to live in a rental and invest _the saved money_ in the market.
Remember, in both cases you are renting: in one, you are renting real estate. In the other, you are renting money. But they have different tax treatments, and renting money allows you to lever yourself into eventually owning an asset who's value you might expect to rise.
Renting is cheaper than buying? That really doesn't make sense, and I don't think that's the case in most markets. In California, it might because of the funny way they do property taxes there, where new buyers get stuck with huge property tax bills but long-time owners are grandfathered at far lower rates, so the landlords are likely people who've owned the house for ages. Other states just aren't like this.
Renting can be cheaper or about the same as buying. And I mean a comparable property. You have to add it all up.
My landlord has probably shelled out $10k in repairs ( the house is at that magic 20 year point where everything fails ) in five years.
I've done the "buy cheap and spend the rest at Home Depot" thing. It's not bad, but it's not ideal. Unless I'm categorically certain of living in the house at least five years, I'll continue to rent.
I've done the math - I'd have less equity in a house of the same value than I have in raw cash freed up just from renting. And that's really not counting fees and closing costs.
Renting is vastly cheaper than buying in many of the most expensive markets in the USA, if your only assumptions are like "borrows 30 year fixed at good credit rating current rates at 80% of the value of the property".
Vastly. Fancy parts of LA. SF. All of New York. Pretty much anywhere in the train-serviced urban/suburban Northeast.
It might not "make sense" but it is true. I'm also sure it's not the case in most markets in the USA, but in the large metropolitan markets, it is true, and that's the point people are making when they say "you know, it might make more sense to invest your investment money in a different asset class and rent rather than pay the ownership premium here in Santa Monica/Pacific Heights/Williamsburg"
It's an argument that's highly dependent on how high rents and purchase prices are correlated. In many markets the two are somewhat aligned, but on occasion the two diverge significantly. For example, if the cost to rent is $3k and the monthly mortgage on a comparable place (including insurance, RE tax) is $4k, then in the longer term it may make more sense to purchase. Over time the $1k difference will grow smaller and equity will be built up. But what if there's a "frothy" market where investors are bidding up the price of an apartment and after taking ownership they're renting them out rather than living in them. So it's $3k to rent, but $1.2M to purchase, meaning the monthly mortgage is closer to $6k. Well now it makes sense to rent and invest the difference outside of your local real estate market. This obviously looks like an extreme example, but during the housing boom and happened in Miami, Vegas, and many other cities, and it's arguably occurring in many localized markets today.
I've worked through the same logic myself. I don't deny that it generates better financial returns. However, the devil is in the details.
Let's say after 30 years you have a big bag of money. Well, now you have to invest it for the passive income to continue paying rent. But, per my recent comment[1], inflation-protected passive income will pay something like 2.1%. Oh, and you're taxed on the interest income. So, more like 1.7-8% (in addition to whatever hit it because you couldn't put it all in tax-deferred retirement accounts). I hope interest rates return to something sane, but we can't assume that.
In contrast, if that extra money paid off a house, it's implicitly "paying your rent" ... except that it's not an actual income flow, so it's not taxed at all! You just pay property tax, whose increases are capped because you're just an elderly person whose estate shot up in value.
Plus, factor in rentals being generally targeted a lower-income people (or high-income yuppie singles) and therefore less desirable neighborhoods and less optimal for your lifestyle and it's looking steadily worse -- definitely need more than 3.5% for the break-even point (which would have to be the real, not nominal return anyway).
If you live in a home you own I think your rent can be thought of as the amount you could have made had you rented it out to someone else. It's not completely equal because there are burdens to being a landlord but from that perspective you're always a renter.
Right, but the point is, that effective imputed income is probably going to be much higher than your investments will throw off, especially after considering taxes.
One strategy that's been around for years to save a substantial amount of money on a 30-year mortgage is to make 13 payments a year (vs the traditional 12), or the equivalent...
Conveniently, when you're ultra wealthy and pay interest-only, real estate is essentially a tax-shelter to transfer your wealth from income (taxed at 45%) to capital gains (taxed at 15%). Am I missing something?
I'm about to get basically kicked out of a house I've been renting for 5 years.
My lease expires in April, and I haven't been able to get a response back from the owners about renewing it.
I understand, though... My neighborhood basically grew up around me, and my house is by far the cheapest rent in the neighborhood. The owners want to kick me out, remodel/demolish/rebuild the place where I live, and rent it for twice as much.
I wish I owned it. So while I used to think the same thing, this current situation is definitely causing me to reconsider it.
If you're in Ontario, after your lease ends, it becomes a month-to-month agreement by default. You don't have to do anything. Landlords cannot evict a tenant after a lease is finished without a valid reason.
It is same where I stay in NoVa. The catch is rent goes up by 50% when on month to month. Considering it is already competitively priced apartment it would not make sense to continue.
It's a bummer they won't even respond. Do you have legal grounds to get an answer on renewing a lease within a reasonable amount of time before you get kicked out (1-2 months)?
If it's like where I live, after your lease runs out you go to month to month. The owner could deliver 30 days notice to leave at any point from 30 days before the lease ends and then you must leave.
Not having your rent increase or being told to move, as are being able to make your home exactly what you need. My home has a 15x15' home gym with all kinds of upgrades I like.. finding a ready made house with my exact ideal gym? Low odds....
We bought a house in a 'tech hub' (Cambridge) during the crash--it was a little scary at the time, but worked out well for us. Our current costs are about half the going rents in the area. Prices have gone up so much in the last few years we probably couldn't afford our neighborhood now. But deciding to buy or rent (assuming you have a reasonable choice) often involves a lot of personal factors beyond the purely financial--you have to weigh your own priorities and likely needs over time.
You also have to factor in a possible divorce, as in you have to ask yourself "what happens with the house/mortgage payments if we split up in 10 years?". Truth be told there are a lot of variables that we decide to just gloss over when taking decisions which will affect us financially for the next 2+ decades. Not sure why this happens, we're otherwise pretty rational creatures.
Or you could hope your marriage lasts. The reason we gloss over the variables is that if we tried to account for every possible variable in life, we would never get around to doing anything, and there would still be uncertainty. At some point you have to make an actual decision and move on.
That's the way my recent home buying friends look at it. They know they'll be in this metro area for X years and given most landlords raise rents by 3-5%+ in this area depending on demand, getting a 30 year fixed mortgage lets them lock in housing, in a location they want, for a fixed rate per month that never goes up. In fact, if they do it right, they can refinance and get the rate lower. Net result, housing becomes a fixed, rather than variable, cost they control with the bonus of being able to do with the space as they want. No questions asked.
If you are renting you are prioritizing the location rather than the house. You can't find a house with your ideal gym, but you can't change your city to New York city.
The way I see it: If you don't plan to live in that place for the next 15-20 years, then you shouldn't buy. You can always invest your money in more liquid assets.
If staying in a city 1 year, you almost certainly should rent.
If staying in a city for a guaranteed 30 years, you almost certainly should buy.
The exact place where those two switch over? It can vary on a lot of things. Single and gonna get married soon? Buying a studio condo may not be that smart. Married with 3 kids and stable schools and family? May tip towards the buy sooner range..
For example where I live (not major city), I cannot rent a house like the one I buy. The best house I can rent would cost 50% more than my mortgage payment, and only be about 75% as nice.
I don't know how it works most places, but when I bought my first house my payment was almost double what I was paying to rent the apartment I vacated.
Houses tend to cost more than apartments, you upgraded, of course it cost more. It's generally cheaper to buy a place than to rent the same place; your rent is paying the landlords mortgage on that property + a little extra for him and buffer for time between tenants. People don't rent out places for less than it cost them unless they're desperate.
Yes, of course. I moved from a single bedroom unit in a building with dozens of apartments to a house with three bedrooms and two bathrooms, a yard, an attic, better appliances, better carpet, and a much better kitchen.
That's sort of normal, I think. You get a better standard of living for that extra money.
My point was, originally, that if you're in an apartment you'll most likely be able to save for a downpayment on the sort of house on which you'll be able to afford the monthly payment. If you can't, either you're not the kind of person who saves money or there's something wrong with your math.
We don't have mortgage deductions here in Canada, but the home ownership percentage is nearly the same as in the US.
There's many fine reasons, including customizing and fixing a place to your liking, which you can't do with rentals. Personally, what I'd really love to do is build my own house.
Even with that, homeowners get favourable treatment vs renters (if in the rent alternative the landlord pays capital income tax). Some economists propose that this should be fixed by taxing homeowners for the rent that they are virtually paying themselves. It kind of makes sense but would probably not be very popular.
Talk to some landlords about their experiences, if you're judgment proof, nothing you do in a rental ever costs more than the security deposit.
At the bigger multi units, if your room is up for replacing carpet or repainting, they simply don't care what you do, they're replacing it all on schedule. When I left my bachelor pad it was up for its decade remodel, they didn't care as long as I didn't bother the neighbors or create a superfund site.
This article estimates that eliminating the mortgage interest deduction would reduce home prices by ~12%. But if you're in the highest tax bracket, the tax benefit from deducting mortgage interest is around a 28% reduction in your effective payment. So at least at first, you'd lose more to the elimination of the deduction than you would gain in reduced payments.
> This article estimates that eliminating the mortgage interest deduction would reduce home prices by ~12%. But if you're in the highest tax bracket, the tax benefit from deducting mortgage interest is around a 28% reduction in your effective payment.
You're assuming that the average impact on home prices is the same as the impact on prices of homes bought by people irrespective of income. People of different incomes tend to buy different kinds of homes (or the same kinds of homes in different locations), so one would expect that removing (or adding) a subsidy that is income sensitive would have differential impacts on the homes typically bought by different income levels, not consistent impacts across all homes.
The price is usually dependent upon your income. McMansions are usually marketed to different types of couples than older duplexes and ranch houses, or new townhomes and condos. The tax deduction (based on your tax bracket) is baked into the market prices for each of these market segments.
There are some really interesting dynamics to that. Especially owner occupied deductions that effectively make it more expensive for pure investors and landlords.
Can we all take a moment to appreciate the good work of our nation's industrious land speculators. They hold prime land out of productive use, and this makes everyone better off. When a speculator buys oil, this encourages drilling for more oil. When a speculator buys land, it encourages people to create new land.
But the deduction itself raises what people are willing to pay, bidding up the price, so homes are more expensive for the same reason.
If it weren't there when you were first looking, houses would be somewhat cheaper, perhaps enough to still seem like a good deal.
Agree on the point about embrittlement and being stuck -- I'm reading Taleb's Antifragile now, and that's exactly the kind of thing that makes your ability to plan for the future more fragile, especially because it comes with debt. However, it has the offsetting benefit of "locking in" (a bulk of) your costs of living, which has historically been a good deal.
You're not necessarily stuck, you're allowed to enjoy it :)
You mention kids a lot, several studies show that kids grow up happier in a house owned by their parents. Somehow it makes them feel safer or something. They have consistency in terms of going to school, etc.
Once the kids are gone, you are allowed to sell your house to downsize.
The article doesn't really touch on two very key facts.
1 - When I grew up in the 90's all I heard from my rich business owners were to buy real estate. The value always goes up and its a good investment.
This isn't true anymore with the crash and younger people don't see real estate as a worthwhile, long term investment. As such, they're not looking at paying for something for so long and not getting anything out of it.
Same thing for the "equity" part of this argument. Those same business owners pounded into my head the idea that my money when I was paying rent wasn't going towards anything and I would never have any value in a rental like I would a house or town home that I owned.
2 - The transient nature of the younger generations. When I was growing up, your life arc was pretty well established. Go to college, get a nice job in your career field, get married, buy a house, have some kids.
This just isn't the same plan most younger kids have. My nephew is 21 and has been "couch surfing" for years. He has no aspiration to get married, or buy a house. He pretty much lives day-to-day and gets by with help from his friends. His friends are the same way. They change apartments about every 6 months. Different parts of the city, in order to get closer to where the "action" is they say.
With a far more transient, younger population, it makes sense their not going to buy houses and settle down. We've spent decades talking about how we want to have everything available wherever we are, we WANT to be a mobile society and culture. This younger generation has simply taken it to its logical conclusion. No need for a house when I can just crash with my homies. No need for a tv, house, car since we've developed an entire culture to handle that and give it you on your phone, tablet, laptop wherever you are. Car? We have Uber and Lyft. No house? We have AirBNB,
This makes sense on a bunch of different levels tbh.
>1 - When I grew up in the 90's all I heard from my rich business owners were to buy real estate. The value always goes up and its a good investment.
This isn't true anymore with the crash and younger people don't see real estate as a worthwhile, long term investment. As such, they're not looking at paying for something for so long and not getting anything out of it.
If you had listened and done it smartly you would be a rich person. I have multiple friends who followed that advice and are now landlords doing quite well. When the real estate crash happened they were ecstatic and bought more homes to rent either from distressed sellers or tax sales.
Of course doing it smartly means not over extending, buying smartly (buy a duplex or quadplex and live in one while saving for buying the next place), etc...
Closer to 6 months, but yes. They put an ad on craigslist or some of the other smaller publications like the kind you see at bars. They pool their money, get a small ad that talks about taking over a lease near some hip part of town.
My nephew said within a week or so they're flooded with responses, They work out the paperwork with the landlord and they're on to the next place.
Why are mortgage debtors referred to as home owners?
Edit: I was being a bit facetious.
With liar loans, no down payment mortgages, deferred interest, "prices only go up," etc, it's been too easy to sell home "ownership" to people without their requisite understanding of the risks involved and the constantly changing market realities.
I'm all for personal responsibility but the use of language is powerful.
Because in the US we like to sell people on the idea of "ownership", when the reality is that the bank retains all the real value.
Only a fraction of so-called "homeowners" actually own more than 50% of their home. Most homeowners just rent from the bank. Many will rent from the bank for life.
The way homeownership is sold in the US is nothing more than a way to get people to give up hundreds of thousands of dollars to the banks under the illusion that they are building wealth or equity. And when they finally sell their home 20 years after they bought it for twice the price, they don't even consider that after inflation and mortgage interest they basically broke even.
Hm, I've never thought of it this way, but you're entirely right.
This explains why many struggling families can "get" "reverse mortgages" in which they sell their earned equity back to the bank that has always owned the majority share. Until they have sold all their shares, and are evicted, that is.
The problem with your analysis is that you're forgetting that renters have no control over the amount they pay in rent. You can only control your rent price for the first year; after that the landlord is able to jack up your price almost any amount they want (subject to local laws), and you can either pay the jacked-up rent or move out (which is expensive) and find a new place.
When you buy a house (err, rent from a bank), your monthly "rent" is now fixed for the next 30 years, and will never go up (unless your property tax goes up, this is subject to local laws). Your principle and interest are fixed for that whole time, so your mortgage payment is stable.
Your monthly "rent" isn't fixed though. Most people have both HOA and propter taxes, both which increase year over year. Not only do these rates increase over time, but as the value of your home (which you often don't own in any significant way) rises, so too does the assessed value. Do they increase as dramatically as rent? No, but they do still increase.
Then you've got the 10% or so of "homeowners" with variable rate mortgages.
Even if you own a home in a major city you can easily end up paying $1,500/mo in "rents".
Buying a home makes sense for a lot of reasons, but general finances usually aren't among them for most people today. What it DOES do is force people to save who might not save otherwise because they lack the discipline to do so.
Oh please. It's easy to avoid variable-rate mortgages. That's like complaining about how buying a new car will force you to have an ignition-kill device installed so the lender can shut down your car remotely and repossess it. Only people with really horrible credit buy cars from places like that. Variable-rate mortgages are a really bad idea, and only a fool would sign up for one. They only exist because some people are fools.
As for HOAs, those only exist in some places, especially in southern states. Depending on what city you're in, they're easy to avoid. Besides, some of them are pretty cheap, and since as a member of the HOA you have voting rights (and can run for the board) you have some power over those rates, a lot more than you have over your local government.
As for property taxes, those are capped or limited in a lot of places, such as California.
So, for those last two points, as with many things, it varies dramatically based on location; you can't make blanket statements that hold true nationwide.
Most people may have property taxes, but while most new-built homes are saddled with HOAs, I don't think most homes are.
> both which increase year over year. Not only do these rates increase over time, but as the value of your home (which you often don't own in any significant way) rises, so too does the assessed value.
Property tax rates often don't increase year over year (in a number of jurisdictions, including California, the rates are capped, and usually at exactly the cap, so the rates do not rise at all.) Assessed value does increase with value increases (though may jurisdictions, including California, limit this as well -- e.g., in California, this is limited to 2% per year, regardless of how much the actual value increases -- making property taxes far more predictable in worst-case behavior than rents.)
> Then you've got the 10% or so of "homeowners" with variable rate mortgages.
And for those 20 years, their monthly payment never goes up. They can make any change they want to the property without asking permission. You end up, 10+ years down the road, with exactly the home you want, at prices that cannot be matched by renting in the same area. And if you pay a little extra each month, in 15 years, it is paid off, and you can keep it forever at the cost of nothing but property taxes.
Just because many homeowners do not stick around one home long enough to get the benefits does not mean that it is inherently a bad idea.
Because the (home) mortgage debt is a liability assumed against a home that the debtor owns (either to fund purchase of the home or afterwards), and therefore being a home owner is a necessary (but not sufficient, as one can own a home free and clear of mortgage debt) condition to being a (home) mortgage debtor.
Exactly. Mortgages work differently than, say, car loans. Car loans typically have the bank listed on the title until the loan is satisfied, then the title is rewritten to be in the buyer's name. This is why a car can be repossessed without a court order; the bank is quite literally the owner and you only have the right to use the car.
A mortgage, on the other hand, is only secured by the property. The buyer is the owner, period; pulling up my house in the county property records shows my name. This is why banks must go through the courts in a foreclosure process in order to take ownership of the property, and cannot simply repossess it.
if done correctly, the purchase of a house should have zero effect on the buyer's net worth.
What is the hedge here against falling home prices? In other words, if you purchase a home a reasonable price of $500k, but changes outside of your control cause the market for that house to fall such that you could only sell it for $400k, how is your net worth not affected?
Sorry, I should have been clearer: at the time of purchase, there should be a zero-impact on your net worth.
As time passes, a delta opens up between the value of your house and the amount owed. This can be positive (your house went up in value, and you are now richer) or negative (you are underwater on your mortgage).
If you are underwater, you have options. I wouldn't recommend it, but strategic default[1] ("jingle mail") was a huge problem for mortgage lenders during the 2008 crisis, and allows you to cut your losses if you deem your position to be untenable.
Why are people who have to pay property taxes referred to as home owners?
As a homeowner (even with a mortgage), I can do things to my house that as a renter I can't do to a rental unit. Yes, I can lose the place if I don't pay the mortgage (or the property tax). But (apart from eminent domain) I have to not pay in order to lose it. If I rent a place, I can lose it at the end of the lease at the landlord's sole discretion, even if I have paid my rent faithfully.
So, yes, my control is not total, but it's a lot more than a renter's control. The difference matters.
A decade ago, I lived in an area where people lost houses left and right. One neighborhood had a 50% foreclosure rate. Those people all lost whatever equity they had and home prices have gone up significantly since.
Of course more people are renting. If they have managed to save the down payment required, they have to question whether they could really afford that property again. Most haven't because rents are higher than their mortgages used to be. Who can save $100K+ in that situation? And if they could, where is that $500K house that you can buy with 20% down? Probably not in the same area where you have a job that allows you to save $100k.
The government is propping up the banks which are propping up the housing market. We'll see a little pop in the next 24 months, but it will be a quick one because it will release some of the hold backs that are in place today.
As a side effect of historically cheap money, house prices have risen so high that entire younger generations are locked out of home ownership in quite a few areas.
There are a few outliers but in general it's good jobs, affordable housing, pick one.
> As a side effect of historically cheap money, house prices have risen so high that entire younger generations are locked out of home ownership in quite a few areas.
If it is a side effect of cheap money, how is it pricing people out of the market? The rising sticker price of the property should be offset by the lower price of money which is driving it, so that the actual total real cost of the purchase (including the financing cost) is the same.
Only if something other than the general price of money (an increasing spread between the price of money for favored debtors and disfavored ones, presumably including the young people priced out of the market) is driving real estate prices should someone be priced out of the market.
I live in Toronto, 10 years ago a house in the suburbs may have been affordable for someone like me, now they are hugely over priced. I could make a 5% downpayment and have a mortgage till the day I die, but that doesn't seem reasonable to me.
Maybe rational buyers have been priced out of the market?
I'm not saying that people aren't priced out of the market, I'm saying that decreases to the general price of money cannot explain people being priced out of the market.
> I could make a 5% downpayment and have a mortgage till the day I die, but that doesn't seem reasonable to me.
Right, but if the only price increase was attributable to the lower price of money, you'd have a mortgage just as long and with just as much burden now as before the decrease in the price of money -- you'd just pay a higher nominal purchase price on the house, and lower interest and fees associated with the loan.
If, instead, you've been priced out of the market, that means something other than a general decrease in the price of money is involved, because the increase in the prices is out of line with the decrease in the price you would pay for financing. If it is cheaper money driving the price, its money that has gotten cheaper for some other class of potential buyers than it has for you.
I agree that there is something more beyond the cheap money, however it is possible that the cheap money, combined with a few bad actors has driven up the prices.
Say one or two houses sell way over market value, that drives up the price of all the houses in the neighbourhood. If that happens a few times you have massive price increases fueled by easy access to money.
I suspect we will see a reversal of the current urban migration once people have saved up enough money and been in a big city long enough to realize its a losing game trying to get a place not in the burbs.
I think this articular is giving off some bad interpretations. First and foremost this guy's data all starts at 2006. Well, do a quick GIS for a chart on home ownership in America. 2006 was basically the peak for at least the past 40 years, and probably longer than that. Drawing conclusions about how America is changing based on changing home ownership since a huge bubble which peaked when he started calculating his data is downright poor science.
I find it interesting that many people look at governments differently than they look at say grocery stores or auto mechanics. If a grocery store or auto mechanic is charging too much or providing poor service, I would go to another one. Why don't people do that with governments? Obviously, because they're kinda "stuck". Moving can be a serious pain in the rear.
So how to make moving easier? If you're renting a home, then it's certainly easier to move than if you're owning. However, it's still a major pain if you own a lot of physical stuff. But as far as I can tell, owning lots of physical stuff is becoming less and less necessary. You no longer need a huge amount of music records, paper books, VHS movies, billiard table, pinball machine etc., since you can fit all those things into a tiny computer. Also, online shopping makes finding/buying any item easy, so keeping things just in case you might need them someday makes less sense now than it used to.
I currently own a home, but I'm tempted to become a renter.
The option to change the rental growth rate is located under the section titled "What Does the Future Hold?" with a title of "rent growth rate" and a default value of 2.5% (with a range of -5% to 15%)
I'd have to save up almost a years pre-tax salary to buy a home. Well, one that I would want.
I could save up half a years pre-tax salary and buy my not-ideal house. Nice/modern home, good location/schools, or large size. It seems like you can only pick 2 without spending a ton of $.
Do you think it used to be different? You buy a starter home, and move your way up. Why do you expect young people to immediately be able to buy their perfect dream home?
Atlanta area. Average Ruby web dev salary for region and experience level. You can buy a McMansion (if that's your thing) for less than the price of a closet in the worst parts of the Bay Area. Poke around on zillow.com.
I don't live in the Bay Area, but I live in L.A.. Cost of living wise it feels like I do. I can't believe how much money goes to rent, and paying for lots of gas for commuting. The urban sprawl with lack of a good efficient means of public transportation, is pretty disgusting.
The statistic that went most against my intuition is that San Francisco has the one of the lowest 'rent burdens' in the US. That is, rent as a percentage of income is on the low end and equivalent with many Midwestern cities. I'm guessing that the typical SF renter paying 25% of income on rent may be dealing with a lot less space (and more roommates) compared to someone in Pittsburgh or Minneapolis.
This is true, but I wonder why. Are SF employees simply that much more productive than elsewhere? (Serious question, it might be that for certain types of work, you really do need the talent base here, but a company is certainly paying a premium for it these days.)
Which means you're able to put a simply massive amount of money away if you so desire.
I notice in many of these kinds of comment threads, people talk about dropping out of the rat race and getting rid of their "luxury townhome" and luxury cars and so on.
Orrrr you could just participate in the rat race in a much more modest and realistic way.
While true, I think the bigger issue is that no landlord would, in their right mind, agree to be represented on a website that is almost certainly going to contain nothing but negative reviews.
If one stops to ponder what would make an individual want to rate their landlord on a "RateMyLandlord" kind of site, then the answer is pretty simple: hatred. The biggest reason for people to write such a review is to complain. Usually, the complaints people write stem from issues related to their inability / lack of desire to pay their rent on time.
Landlords hate not getting paid. Especially in major cities, where regulations basically annihilate their ability to operate in an honest and competitive way without significant impact on their financials. Getting their monthly rent on time is really the only way they can turn any kind of profit on their business.
My income is higher than it has to be for the place I rent here in Brooklyn. But I get charged far below market rents. Why? Because I pay my rent every month on time without hassle. Because I don't wreck my apartment, don't need many repairs, and don't bother my neighbors. So even though I could afford to pay the market rate, I am a 'good' tenant, so I pay the so-called "preferential" rent, which is almost $400 per month cheaper than the rent cap instituted by NYC's horrid rent control laws.
That's right. My landlord could actually charge me more, but he doesn't, because I'm not a shithead. What am I supposed to write in my RateMyLandlord review? That I am a good tenant and get charged lower rent than everyone else? There goes all of my reward for being a decent person.
I don't see any way for such a site to work without damaging reputations or ruining nice arrangements tenants already have with their landlords.
I was a good tenant. I paid on time. I didn't wreck my apartment. I did need repairs once: the hood (required by code) over my stove was never installed. I did ask for an exterminator repeatedly, because mice were coming in through the walls (there was a 2" gap between the floorboards and the sheetrock behind the baseboard radiator cowling; I caught 18 mice in one weekend). I did ask for an exterminator repeatedly, because about 15 months in bedbugs started coming in through my walls. About 16 months in, my landlord informed me they were going to begin eviction proceedings against me for failure to pay rent. I had paid every month, on time. The building had changed owners, and the new owner bungled their rent payment history. Had to hire a lawyer to send them a letter (along with a thick packet of supporting documents) declaring that no, in fact, I did not owe them four months rent.
So yeah, between illegally trying to evict me, never once exterminating that place, etc etc .... I'm glad I don't live in a building owned by a shitty landlord anymore. I'd give my previous landlord a solid F-; I'd give my current landlord an A. I'm also paying 150% what my previous place was for the privilege of having a landlord that doesn't violate the law monthly.
My rental contracts are always standard and calculated from a table based on how long I want to commit to a particular unit. I've never gotten any sort of quid pro quo for paying on time and not being an asshole. From the sound of it, though, New York is a whole different ball game as a renter from basically anywhere I've ever lived.
There are reasons to leave reviews for apartments (for which I'm taking landlords as a proxy, which is an assumption that may diverge from your take). I've lived in quite a few places and most of them had good and bad qualities that I'd love to share with someone who wants more information when apartment hunting.
In NYC, you can look up your building in the DOH complaint database. This ranges from things like damaged flooring (e.g, broken wood floors, pealing linoleum) to rat/roach/bedbug infestations and many other building violations (such as failure to provide heat in the wintertime). It's not usually complaints like 'my rent is too high and my landlord sucks, argh'. It's more complaints like, 'this building is hazardous to live in.'
The ratio of median wage to median rent peaked in 1958 at 22% (or rather, 4.54). That was also the peak of the Baby Boom. Which makes sense, really, because the ratio of wage to rent is one of the fundamental determinants of male sexuality, especially back then, when it was less common for women to work. It was much easier for an 18 year old to afford their own apartment and start their own family.
People often point out that the median male wage in the USA has been declining since 1973, but what is rarely pointed out is that for men under the age of 25, its been falling since 1958. The loss of high paying low skill jobs means the only high paying jobs are high skill jobs. That has forced two adjustments on us: one, people start their adult lives later than they used to, and two, some people never get there, as they never acquire the skills to get there.
Just one more symptom of runaway economic inequality...
The consumer has less and less real ownership/power. In good areas, the landlords have realized that year over year rent increases won't prevent units from being rented... and so, people are drained further unless they want to move away from where the jobs are.
Financing for real estate projects dried up after 2008, and single-family construction is not an industry that can deliver overnight when demand has risen.
Looking at current buy-vs-rent ratios is not very useful, as we don't have much insight into the reasons for renting. Some prefer personal mobility that comes with renting, but some are just waiting on more affordable/accessible/convenient ownership options to pop up, and will be buying in a few years.
To anyone who noticed one of the cities with high rates of homeownership, that can work remote, withstand rough winters, and accept that their football team will never win the Super Bowl, MOVE TO BUFFALO!
Buffalo used to be a very wealthy city. It was the first American city with widespread electricity (thanks, Niagara Falls!), and because it's had some hard times, you can literally buy a mansion at (relatively) bargain prices and rent it out to half a dozen people, and you still get to keep the master bed and bath for yourself.
And there's the added bonus of living in a proud, blue collar city, where people care about who you are, and not what you're paid.
I grew up in Buffalo and I would not recommend this for a lot of reasons. There are plenty of other cities with affordable housing (including lower property taxes) and much more pleasant weather.
Not a big surprise. Whether or not people want to admit it, economists like Piketty, and many others (even Marx) have predicted this. And the trend isn't going to stop.
The future is looking more and more like Elysium than Star Trek...
Poor, because poor people are the only ones to be entirely in debt. Also everyone with a good income that has huge student loans.
I think you've become very disconnected from what the lower middle class is like if you think high interest will help them. The average savings account in the US is well under 10k.
>Ok, I guess we're doing this. I'll explain the basics of money to start.
Don't behave like a child. It doesn't add anything to your argument. Also, you seem to be confused about the difference between interest rates and inflation. The value of money being cut in half is what's referred to as 'inflation' and it's not what is being discussed.
It would seem that they aren't as correlated as people are led to believe. Ask Japan about how much they were able to boost inflation with low interest rates.
> Let me ask you this, out of the poor and the rich, which one is more heavily leveraged into assets (using debt).
The question is irrelevant; the wealthy may be more likely to be "leveraged into assets" (though, depending on the measure "heavy" relative to, I think you'll find that working and middle class homeowners often win this), but the poor are more likely to be net debtors (including, on both sides, in the credit offset against debt credit held indirectly through holding ownership interests stakes in net-credit-holding enterprises.)
Since low interest rates reduce costs for net debtors and decrease returns to net creditors...
idk, I'd give most the benefit of the doubt that they are "good people", but may not necessarily show that side to you the tenant for a variety of reasons, such as fear and greed, especially when they are dealing with an asset that represents a large portion of their net worth.
You also have landlords that hold a large number of units (often times a corporate entity, with management outsourced), then you have individuals who are renting out their old house after they moved (either because they can't sell for what they owe, or other reasons). And often times the people renting behave pretty bad (not intentionally, but there is often more than the "normal" wear and tear).
Where I live, if the landlord doesn't fix the problem within a reasonable amount of time, you can fix it yourself and deduct the repairs from your rent payment. You should educate yourself on your local laws surrounding rentals if you haven't already; there are likely similar terms where you live.
They won't try to evict you assuming you're abiding by your local renting laws, because I'd bet they've read them as well considering it's part of their job. A lot of landlords will take advantage of the fact that tenants often are not aware of these rules to get away with not abiding by them, but if you demonstrate that you know the laws they aren't going to mess around when you can sue them in small claims court and win handily. Not to mention, oftentimes if you do suffer some opportunity cost as a result of their actions, that cost can be included in the damages.
You would resolve it the same as any other contract dispute. If resolution fails, then you go to the courts. If they sue first, you counter-sue and tack on malicious prosecution as well.
Plenty of handymen out there, I suspect you could find one who would be happy to take care of anything. Don't really need an app for it, just call a few and ask around..
I've always thought this was a gap in how property management/maintenance services marketed themselves. In the past as an owner I'd have happily paid a retainer for somebody to be a trusted keyholder and just arrange for stuff to be fixed. Now I'm in a fortunate position of having 2-3 trusted trades people who can cover their specialities and for the other stuff they can't do I know they will tap into their network of people they trust to get me the right person.
I can do that in Finland. If I have a problem I just open the website of the house management company (not sure what the official term is) and create a ticket, and someone comes in an fixes the issue.
In fact, interaction with the "landlord" is rare, and often the apartment is owned by a company, not an individual.
If Finland's rental market is anything like Sweden then you are almost always renting for a larger company that owns hundreds of apartments all around town and have pretty good economies of scale when it comes things like maintenance. It seems that in the US it much more common with individual landlords and tiny rental companies that perhaps only own that one house you happen live in.
I ended up just buying and crashing in a van, exiting that mode of being, and am much happier because of it. Now I get to save money, research and build what I want when I want, and generally am very much less stressed. I'm no longer beholden to a landlord, or feel like I must participate in activities that just serve to entertain but not enlighten. I can spend the day at the beach just reading if I wish.
You start to look at time as something that you can control again, and you start seeing how much life truly is a gift, and that life itself should be nurtured and cherished. There is also a sense of independence and DIY that comes along with the lifestyle that feels like I'm leveling up in good ways.
Will this mode change for me? Sure. Change is inevitable. But for now I've found more peace and focus than I have in a long time. I'm now able to concentrate on longer stretches of time that hold bigger ideas, and then asking myself how I might use that time to start refocusing my energy making new markets.