What if you just don't buy a home? - aka. "Housing market is dogshit" general

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NoReturn

CEO Wash & Smash llc.
kiwifarms.net
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Aug 28, 2019
Let's say I have $30k for a down payment. According to traditional home-buying-wisdom that means my home budget would be ~150,000.
If I go to Zillow right now, on the day I'm making this post, and I narrow it down to "homes" and not trailers, apartments, or empty lots, I get pretty shit results now matter which state I look in. There's also all that crap going on with Blackrock buying up properties by outbidding by ridiculous amounts (Sometimes up to $100,000 over asking depending on location).
So if you want an actual stand-alone house, what do?
Do you just save up forever? Is there some kind of equation you can do to figure out if it just makes more sense to rent forever and put money into investments?
:thinking:
 

Ebony Way

kiwifarms.net
Joined
Oct 26, 2021
There is an equation. You add up how much you are likely to be paying in rent per year.

Then you look at how many years of paying rent equals the value of a similar house to the one you are renting.

That's the quick and dirty calculation.

To make it less quick and dirty, adjust for inflation per year and interest rates, add rates and repairs estimates for the mortgaged house, and assume rents go up a bit every 3 years.

Also factor in that once you pay off the mortgage you only have to pay for rates and repairs.
 

Getwhatyou

kiwifarms.net
Joined
Jun 5, 2020
I see these comments more as cope than anything else.

Mainly because the cost of purchasing a house is so far out of reach for most young people.

However I see investment funds tend to do well over a long period of time.

Can't sleep in them though.

I think the neets have the right idea. Never leave home and inherit the family home when your parents die.

Easy
 

NoReturn

CEO Wash & Smash llc.
kiwifarms.net
Joined
Aug 28, 2019
You should also calculate the cost/savings of renting forever, versus the cost/savings of renting or living in a trailer while you build a house.
Still gotta pay lot rent on a trailer and the value of the building itself doesn't tend to go up like it does for actual houses.
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If you're gonna live in a trailer, it's better to buy the land outright and then plop a trailer on it until you can build an actual home, right?

Or it doesn't for next 30 years and you live your life in a hut rest of your life.
Have you seen the price of huts recently?
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I think the neets have the right idea. Never leave home and inherit the family home when your parents die.

Easy
The majority of millennials are the children of boomers. For many of them there is no family home to inherit in the first place.

Thew fewer homes you buy, the more for me.

Hope you enjoy life in a van down by the river.
Stop hoarding all the houses!
 

DamnWolves!

kiwifarms.net
Joined
Jan 30, 2021
Then you look at how many years of paying rent equals the value of a similar house to the one you are renting.
You're missing the part of the equation that builds equity. Your rent needs to be less than your cost of borrowing to make sense, not the cost of your whole house, and I can guarantee you it won't be.

Put another way: you can't compare your rent to your mortgage payment; you need to compare your rent to your mortgage interest payment on average.

You also need to consider that the housing market appreciates at a pace faster than interest and in some cases, faster than the S&P. If you can afford a house that you can stomach to live in, you really should be buying one.
 
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NoReturn

CEO Wash & Smash llc.
kiwifarms.net
Joined
Aug 28, 2019
Put another way: you can't compare your rent to your mortgage payment; you need to compare your rent to your mortgage interest payment on average.
Please go on. Could I have an example?

You also need to consider that the housing market appreciates at a pace faster than interest and in some cases, faster than the S&P. If you can afford a house that you can stomach to live in, you really should be buying one.
Ay. There's the rub. I won't PL, I'll only say that some areas are extra-unpleasant.
 

DamnWolves!

kiwifarms.net
Joined
Jan 30, 2021
Please go on. Could I have an example?


Ay. There's the rub. I won't PL, I'll only say that some areas are extra-unpleasant.
Sure. The key difference is that you get something extra for your money with a mortgage, and that something extra is equity.

Your rent is $2,500 a month all inclusive, meaning you pay $30,000 a year in rent.

Let's say you could apply that $2,500 to a mortgage payment instead. Take $350 off to account for taxes and utilities and/or condo fees, so $2,150.

What does that mortgage look like? Well, let's take a relatively bad interest rate of 4% and 10% down, amortized over a 25 year period--I'll spare you the math, but if you have $45,000 saved, you can get a mortgage on a $450,000 house for that kind of payment.

So, same payments, two different places, except on one you're paying rent and on the other you're paying a mortgage. Not much difference at first--most of your mortgage payment is going to be interest at first, but as you start to pay your mortgage, you start to repay the principal on that mortgage loan. Since you've reduced the principal of the loan with that first payment, the interest is less on the second payment, and so more of your payment goes toward paying down the principal. More and more of your payment goes toward paying down the principal as you make more and more payments, until 25 years later you've paid it all off.

What do we have at the end after paying the same payments for 25 years? Well, the renter has nothing, and the buyer has a house that they can sell, or refinance, or whatever. Chances are also really really good that that house is worth a lot more than he bought it for too. For simplicity's sake, let's say the house hasn't gained any value in the 25 years you've owned it.

When would you be better off not buying a house? Well, since you can cash out your equity in the house at any time, the only way it would make more sense to rent your whole life is if the total interest payments exceed the rent:

25 years of rent @ 2,500/mo = 750,000 payment
vs.
25 years @ $2,500/mo + down payment @ $45,000 - value of house @ 450,000 = $345,000 payment

So, even under these very pessimistic circumstances, it makes much more sense to buy than to rent. Interest rates and house prices would have to be very high and rent would have to be very low for it to make sense to not buy.

For people with extra money, this is why real estate is an attractive investment. Often, the rent payments can cover most of their mortgage payments and they get a free house at the end. See discussions on the "capitalization rate" in your city, a real estate specific term for the yield, for more in depth discussion. Very roughly, the difference between cap rates and interest rates, plus the value of the property, is the profit an investor can make on renting a property over the term of a mortgage.
 
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Ebony Way

kiwifarms.net
Joined
Oct 26, 2021
You're missing the part of the equation that builds equity. Your rent needs to be less than your cost of borrowing to make sense, not the cost of your whole house, and I can guarantee you it won't be.

Put another way: you can't compare your rent to your mortgage payment; you need to compare your rent to your mortgage interest payment on average.

You also need to consider that the housing market appreciates at a pace faster than interest and in some cases, faster than the S&P. If you can afford a house that you can stomach to live in, you really should be buying one.
I literally said add interest in the part of my post you didn't quote.
 
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Caustic Gelatin

Cleans all those hard-to-reach places!
kiwifarms.net
Joined
Sep 1, 2020
Thew fewer homes you buy, the more for me.

Hope you enjoy life in a van down by the river.
What? A van by the river in this economy? Well la-de-da! Why don't you just drive your fancy golden van down to the chocolate river where the money trees grow and the sun shines all day long then Mr. Monopoly!