I see a lot of expensive houses being built in my area. A LOT. And the weird thing is that they’re being bought pretty quickly. Are these people just making more money than me? If so, what are they doing for a living? Or are they just living house poor? How exactly are they affording these places?
Edit: For reference, my neighborhood is starting to become popular (because the other popular neighborhoods have priced most people out of affording places there). The normal price of newer homes here is $700k. My home, built in 1965, which is 2500sq ft on a quarter acre of land, is $500k.
It was a lot more than 1% in 2008. In the US, 1% is 3 million people.
This discussion about renting vs owning and the overall real estate market are related but not the same thing.
My point is, owning isn’t always the best option, it has risks that vary depending on location, it isn’t always the best financial moving.
Always and never are rarely true. As I said in another comment, the ideal situation is a variety of housing options available for buying or renting.
Back in 2007, I was working on a contract that could have had me moving on short notice, in a housing bubble. Buying would have been insane in that market and I would have lost a few hundred k. Even if it wasn’t a bubble, buying would have put me in a worse situation than renting due to transaction costs, interest, insurance, taxes, and opportunity costs. I own now.
I say 1% as hyperbole as while I can’t say what portion it is, it’s small and shouldn’t be a show stopper.
Other than in very rare circumstances, unless the govt. or your employer is paying your rent, buying should NEVER be worse than renting. The fact that more and more people don’t even have the option, even when a mortgage would actually work out way cheaper than rent, is insane. I don’t know the US market, but where I live a mortgage is cheaper or about the same as paying rent, after insurance & maintenance, basically everywhere.
Taxes on the purchase are a 1-off cost that might add up to a few month’s rent, it stings but it doesn’t change the math. Sure you have to pay interest, but at least a portion of your repayments is going permanently towards your financial future. Paying rent you may as well be handing that money your landlord and watching them burn it for all the return you would ever see from it. There’s no scenario where paying rent very long term should be better for anyone.
ETA: taxes here are annual. So you are paying about 1-2 months rent per year in taxes. Another in insurance. Add in 1k for a real estate lawyer to process the transaction. Mortgages have up front fees that can cost a few months rent. It takes a while to recoup all those costs. Buying an average home will cost upwards of 5-10k for all of the upfront expenses. They also tend to come with an abomination known as an HSA that eat 1-5k per year. I pay around 7k per year in taxes, insurance, and HOA costs. If you don’t have a large enough down payment, add PMI. You can also shell out thousands up front for points that reduce interest rates.
I agree with you here. A healthy housing markets should have a variety of housing available at reasonable costs. For rent and sale. In the US, the causes of that are euclidean zoning, NIMBYism, and under regulated capitalism.
That explains a lot of the disconnect. Buying with minimal risk isn’t feasible in a lot of places in the US.
In the US, it isn’t uncommon for smaller cities to be economically dependent on one particular thing, like a base, university, factory, agriculture, mine, etc. West Virginia is a great example. Their economy is pretty dependent on coal. This is why their democratic senator tends to vote with Republicans on matters that would interfere with coal mining. If the next federal election is a massive slide towards Democrats, the WV economy will be devastated unless they come up with a way to replace coal mining. The real estate market would absolutely tank. Anyone that bought in the previous 5 years would regret it.
A place being devastated economically due to a closure happens. The US is large, so there might not be any other major economic source for 75+km. Even if there are, the distance will in all likelihood cause a large decline in real estate prices.
A house in any particular areas value depends on decisions by the federal government, state government, local government, a school board (school districts effect real estate prices here), and sometimes a corporation. Any one of those entities could (and has) turn a 400k house into a < 300k house in very short order. It happened almost nationwide here in 2008 due to the removal of financial market regulations.
Maybe where you live these kinds of risks aren’t common, in that case buying is going to make more sense in more cases. In the US, buying in an area without economic diversity is a lot more risky than a lot of people realize.
Another issue in the US is housing types. A lot of areas have apartments for rent or 3+ BR SFH to buy. A single person would have a massive opportunity cost and take on unnecessary HVAC costs, etc buying in these areas. Renting a 1BR or studio would be a much lower monthly cost. Renting and investing the difference would be a better move in most cases.
Buying should generally be a better option when someone plans to stay in an area for while. I won’t say always though. Some parts of the US I would never buy real estate.
Am I starting to make more sense?