How are people affording these crazy home prices?

[big44a4]

Just from a numbers perspective, I think you can make a really solid case for renting vs. buying. We bought our house about five years ago and refinanced when rates were near the bottom. Ultimately, we bought our house and land so that we and our kids could grow up raising animals, gardening, and hunting and fishing right out the back door. It was a dream that we were extremely lucky to realize, but I seriously doubt it will gain *useable value at the pace of a decent stock portfolio. We knew going into the deal that we would have to sacrifice vacations and luxuries for several years in order to make it all work, but we were happy to make that trade.

*Keep in mind that in order to capitalize on market growth you have to sell. Most people will buy another home in the same market. That means you need to buy a cheaper/less desirable house when you sell the one that gained value. That isn't appealing to most people.

That’s what’s funny about everyone who “moved up” during Covid. Yes rates low but prices were so high it was a wash at best in most cases. I have 250k+ “equity” in my current home. Even if I sold and bought during the low rates only thing moving up would be the balance I owe and my property taxes. Didn’t make sense then and certainly doesn’t make sense now. I’ll pay it off in 8 years by 40 and determine what I want to do then pending where the market is.

My house was built in 2013 and sold for $104/sqft then, I bought in 2018 at $170/sqft, and now county appraises me at $267/sqft for property taxes. Even though I won’t realize any of those gains unless I ever sell. Still glad I bought in 2018 even when I thought I over paid then.

 

[TheGDog]

The older I get, the more I think a house is a way to enslave you. It's the main expense that you constantly have to repair and invest money in. If you think you own it, stop paying the property tax and see what happens. It's a false dream of freedom that drives the economy. The other big thing is medical insurance. Medical insurance keeps people working until they can get Medicare. Otherwise, I know a lot of people who would have retired already. Be a good ant and go to work.

I've also had those same exact thoughts.

 

[Andrew12gauge]

I feel like you're missing my point.

The point is your net worth has increased and continues to increase with every mortgage payment along the way, your net worth never increases when making a rent payment, and I would venture to guess your kids rent payments are more than your mortgage payment.

Every month when you make that mortgage payment look at the tax and interest, that is your rent payment, the rest of it is a forced savings that you can tap into with either a HELOC or hopefully when you sell one day.


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[Michael Rankin]

Just from a numbers perspective, I think you can make a really solid case for renting vs. buying. We bought our house about five years ago and refinanced when rates were near the bottom. Ultimately, we bought our house and land so that we and our kids could grow up raising animals, gardening, and hunting and fishing right out the back door. It was a dream that we were extremely lucky to realize, but I seriously doubt it will gain *useable value at the pace of a decent stock portfolio. We knew going into the deal that we would have to sacrifice vacations and luxuries for several years in order to make it all work, but we were happy to make that trade.

*Keep in mind that in order to capitalize on market growth you have to sell. Most people will buy another home in the same market. That means you need to buy a cheaper/less desirable house when you sell the one that gained value. That isn't appealing to most people.

I’m 43, bought my first home when I was 20 years old.

Strictly from a numbers standpoint, buying has been WAY better financially for me.

My first house was a 4 bedroom. I didn’t need 4 bedrooms so I rented out 1-3 of the other rooms throughout the years. If you subtract the rent I collected from the roommates for the space I didn’t need during those years, it was cheaper than an apartment for just me. I also had a two car garage and way more space then if I had my own apartment, even with roommates in the house.

The value of the home also increased by about $110,000 when I sold it at the end of 2012.

I took $70k of the money from the sale, and used it for a down payment on a house for a rental property. I also used the remaining money, plus some more I saved up for a down payment on a new personal house. The rent recieved has always been more than my mortgage on the rental, So I am only out $70k. The value of the house has doubled since 2013($300k increase). 2 years ago I switched to a 15 year mortgage on the rental and my personal home. Rents keep going up. My mortgage is $600 per month LESS than the rent I collect on the rental currently. In 12 more years I’ll own both homes free and clear. The rental will more than pay the property taxes and home owner’s insurance on both homes plus lots of the utilities for my personal house.

In summary, buying a home at age 20 has cost me the same or less out of pocket than if I would have just rented. If I had to guess in 12 years when both homes have no mortgage, They will probably be worth $1.6-$2 million(very conservative estimate). At that time I will have zero monthly expense for housing since the rental income will cover the costs of both homes.

If I had just rented, I would have rent to pay the rest of my life, plus be missing out on owning $1.6- $2 million in assets between the two homes.

At least in my neck of the woods, buying a home has worked out WAY better than renting from a numbers perspective, and quality of life is significantly better as well.

 

[Newtosavage]

The point is your net worth has increased and continues to increase with every mortgage payment along the way, your net worth never increases when making a rent payment, and I would venture to guess your kids rent payments are more than your mortgage payment.

Every month when you make that mortgage payment look at the tax and interest, that is your rent payment, the rest of it is a forced savings that you can tap into with either a HELOC or hopefully when you sell one day.


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Sure doesn't feel that way.

 

[TheGDog]

That’s what’s funny about everyone who “moved up” during Covid. Yes rates low but prices were so high it was a wash at best in most cases. I have 250k+ “equity” in my current home. Even if I sold and bought during the low rates only thing moving up would be the balance I owe and my property taxes. Didn’t make sense then and certainly doesn’t make sense now. I’ll pay it off in 8 years by 40 and determine what I want to do then pending where the market is.

My house was built in 2013 and sold for $104/sqft then, I bought in 2018 at $170/sqft, and now county appraises me at $267/sqft for property taxes. Even though I won’t realize any of those gains unless I ever sell. Still glad I bought in 2018 even when I thought I over paid then.

In CA we fought for and won protections against having the govt price you out of your home tax-wise in the form of Proposition 13. Cause ya had all these seniors... ya know.. have a home.. but then they'd get appraised/assessed the taxes.. based on current year values... and that doesn't fly with someone who bought way back then on wages of back then. And now on fixed income.

It puts in a protection that they can't increase your tax rate more than I think it's 1 percent of the original purchase amount price. And they're only allowed to use a certain formula for increasing the realized property value which they apply all this rule to.

Well, ever since then they've been trying to trick the voters to pass bills that would give them a backdoor way to get around Prop 13 protections. They try to say it's just them wanting to make sure businesses pay more of a share of property taxes.... but it tries to lay the groundwork where down the line could do the same "death of a thousands cuts" tactics like they do here re: gun rights.

I say all that to ask you what kinds of protective regulations do you guys have to prevent your local governances from effectively "pricing you out of the market" if they wanted to? Such as if they wanted to get the land back in order to use it for some grandiose project they had in mind or something. And didn't wanna pay fair market value.

 

[big44a4]

In CA we fought for and won protections against having the govt price you out of your home tax-wise in the form of Proposition 13. Cause ya had all these seniors... ya know.. have a home.. but then they'd get appraised/assessed the taxes.. based on current year values... and that doesn't fly with someone who bought way back then on wages of back then. And now on fixed income.

It puts in a protection that they can't increase your tax rate more than I think it's 1 percent of the original purchase amount price. And they're only allowed to use a certain formula for increasing the realized property value which they apply all this rule to.

Well, ever since then they've been trying to trick the voters to pass bills that would give them a backdoor way to get around Prop 13 protections. They try to say it's just them wanting to make sure businesses pay more of a share of property taxes.... but it tries to lay the groundwork where down the line could do the same "death of a thousands cuts" tactics like they do here re: gun rights.

I say all that to ask you what kinds of protective regulations do you guys have to prevent your local governances from effectively "pricing you out of the market" if they wanted to? Such as if they wanted to get the land back in order to use it for some grandiose project they had in mind or something. And didn't wanna pay fair market value.

Yes I’m familiar with prop 13. My wife is from California and her parents are setup well with their house in retirement because of it. I have to protest every year and take it to the review board. They can only make you pay on 10% max increase each year with homestead exemption. However, they can still hold appraised value of the house above that at whatever they can get the independent review board to approve. For example if the review board agrees to 20% total increase the county already has its 10% increase built in for next year. It’s a losing battle every year. Texas does not have income tax so they give it to you on property taxes.

 

[AK_Skeeter]

High prices are hear to stay because the supply of single family homes on the market
is approximately half of the pre-pandemic level in many areas.
The supply is unlikely to increase substantially in the next decade.

 

[NRA4LIFE]

In WA here it's a joke. There's a law on the books that says property tax increases are "supposed" to not be more than 1%. Mine have gone up 66% in the last 5 years. When the legislature here got the law passed it was very popular for their party. However, what was not advertised was a part of the bill that allows state/counties/cities to put levies (most of them being word salad jibberish) on the ballot that nearly all are paid for by guess what? Property tax increases of course. And the people vote for nearly all of them.

 

[Elite7]

I read that the average new construction house was around 2400 square feet. We have a family of four and our house is 1800 square feet and it’s plenty big.

If affordability is an issue, builders will start to go back to the 1000 to 1500 square foot houses. So far I am not seeing many builders offering small models.

 

[dlee56]

I’m 43, bought my first home when I was 20 years old.

Strictly from a numbers standpoint, buying has been WAY better financially for me.

My first house was a 4 bedroom. I didn’t need 4 bedrooms so I rented out 1-3 of the other rooms throughout the years. If you subtract the rent I collected from the roommates for the space I didn’t need during those years, it was cheaper than an apartment for just me. I also had a two car garage and way more space then if I had my own apartment, even with roommates in the house.

The value of the home also increased by about $110,000 when I sold it at the end of 2012.

I took $70k of the money from the sale, and used it for a down payment on a house for a rental property. I also used the remaining money, plus some more I saved up for a down payment on a new personal house. The rent recieved has always been more than my mortgage on the rental, So I am only out $70k. The value of the house has doubled since 2013($300k increase). 2 years ago I switched to a 15 year mortgage on the rental and my personal home. Rents keep going up. My mortgage is $600 per month LESS than the rent I collect on the rental currently. In 12 more years I’ll own both homes free and clear. The rental will more than pay the property taxes and home owner’s insurance on both homes plus lots of the utilities for my personal house.

In summary, buying a home at age 20 has cost me the same or less out of pocket than if I would have just rented. If I had to guess in 12 years when both homes have no mortgage, They will probably be worth $1.6-$2 million(very conservative estimate). At that time I will have zero monthly expense for housing since the rental income will cover the costs of both homes.

If I had just rented, I would have rent to pay the rest of my life, plus be missing out on owning $1.6- $2 million in assets between the two homes.

At least in my neck of the woods, buying a home has worked out WAY better than renting from a numbers perspective, and quality of life is significantly better as well.

It’s been way better financially for you because you’ve been a home owner for the last 23 years in which the housing market has exploded 15x. Getting into the game now is just different.

You’re basically saying investing in tech is good because you bought Apple when they first went public.

 

[Traveler]

Median Sales Price of Houses Sold for the United States

Graph and download economic data for Median Sales Price of Houses Sold for the United States (MSPUS) from Q1 1963 to Q2 2023 about sales, median, housing, and USA.

fred.stlouisfed.org

 

[SD_hunter]

The price of everything is crazy right now. I have land to build on, but can't stomach the high material prices and high interest rates. One would be bad enough, but both at the same time is killer.

 

[R_burg]

In CA we fought for and won protections against having the govt price you out of your home tax-wise in the form of Proposition 13. Cause ya had all these seniors... ya know.. have a home.. but then they'd get appraised/assessed the taxes.. based on current year values... and that doesn't fly with someone who bought way back then on wages of back then. And now on fixed income.

It puts in a protection that they can't increase your tax rate more than I think it's 1 percent of the original purchase amount price. And they're only allowed to use a certain formula for increasing the realized property value which they apply all this rule to.

Well, ever since then they've been trying to trick the voters to pass bills that would give them a backdoor way to get around Prop 13 protections. They try to say it's just them wanting to make sure businesses pay more of a share of property taxes.... but it tries to lay the groundwork where down the line could do the same "death of a thousands cuts" tactics like they do here re: gun rights.

I say all that to ask you what kinds of protective regulations do you guys have to prevent your local governances from effectively "pricing you out of the market" if they wanted to? Such as if they wanted to get the land back in order to use it for some grandiose project they had in mind or something. And didn't wanna pay fair market value.

Prop 13 is anti-competitive. Ends up driving up home prices and decreases home turnover by a huge amount, and costs everyone else more money, by protecting those who came first. It's California's version of rent control in NYC.

I can't see anyone who isn't benefiting by policies such as these being for them. Or people who are against gentrification and have societal/political arguments that are - lets say this nicely and you can read between the lines - anti free market.

 

[Michael Rankin]

It’s been way better financially for you because you’ve been a home owner for the last 23 years in which the housing market has exploded 15x. Getting into the game now is just different.

You’re basically saying investing in tech is good because you bought Apple when they first went public.

As long as I can remember at any given time houses were too much, and the stock market was too high.

Also my post was not just about the last 23 years, it included the next 12 years.

HOUSING VALUES HAVE NOT EXPLODED 15X WHERE I LIVE IN 23 YEARS.


Not sure where you came up with that. My first house was bought for 145000, and sold for $268000 with about $6000 in work done in the deal to get that price. Zillow now says $515000. That is a value that went up by about 3.5X not 15.

You need a roof over your head your entire life.

Do you really think you’ll be money ahead renting your entire life?

My post was about the long term, not short term 1,2,3 years

You MIGHT be able to win short term trying to time the market, bust most win by being in it. It’s pretty much the same for the stock market or real estate.

Below is that first house I sold in 2012
You can see the rental value is $2995.00 right now. Pretty confident that is within a couple hundred dollars of what you could get for rent if not right in the money.

If a person can afford a current mortgage, I’m extremely confident they will be money ahead 25-35 years from now buying versus renting.

 

[Nick Muche]

I wish I had the mortgage payment and 2.15% interest rate I had in 2021, instead of the mortgage payment and 5.35% interest rate I have now on essentially the same size house with less acreage that cost 110K more. I have no idea how most people are affording the home prices in our area these days. In my case, the difference is about 1200$ more a month than we paid a short time ago.

 

[big44a4]

I read that the average new construction house was around 2400 square feet. We have a family of four and our house is 1800 square feet and it’s plenty big.

If affordability is an issue, builders will start to go back to the 1000 to 1500 square foot houses. So far I am not seeing many builders offering small models.

Still too big to be affordable ha. See the article below. You can’t tell me they aren’t making a killing selling tiny homes 350-750 sqft for $132-159k “starting price”…would not be fun to be stuck in one of those mortgages.

I’ve been in commercial construction for 10 years and have a good idea of what things cost. Also know several people who were making good money leave to go build houses on their own. But that is all another topic.

https://www.mysanantonio.com/realestate/article/tiny-homes-schertz-17908894.php

 

[Yoder]

My first house I broke even. Second house, I made $100k. $60k of it I pissed away trying to make my ex happy. Third house I made $20k. We got divorced shortly after buying my POS Fourth house. All the equity I made with the previous house sales was gone after the divorce. My fourth house is finally worth what I paid for it in 2007. This is after $50k in repairs with about another $30k to go. It now needs a new deck and roof. So if I fixed everything and sold tomorrow I would have lost $80k. The $80k doesn't even come close to the time a frustration I've spent. My current house is one of my biggest regrets.

 

[WiscoHoundsman]

I read that the average new construction house was around 2400 square feet. We have a family of four and our house is 1800 square feet and it’s plenty big.

If affordability is an issue, builders will start to go back to the 1000 to 1500 square foot houses. So far I am not seeing many builders offering small models.

While this seems true I know many municipalities have restrictions on the size of new construction. In the town I live near the they are requiring something like 2200 or 2400 sf and a two car garage.

These municipalities/county ordinances are designed to raise the tax base by forcing bigger houses to be built. Not sure how wide spread this is but it’s happening.

 

[Newtosavage]

I read that the average new construction house was around 2400 square feet. We have a family of four and our house is 1800 square feet and it’s plenty big.

If affordability is an issue, builders will start to go back to the 1000 to 1500 square foot houses. So far I am not seeing many builders offering small models.

agreed. Same as pickup trucks. They can make more profit from $50k trucks than they can from $25k trucks, so they make $50k trucks and don't give the consumer the choice.