This generation: "I can't afford a down payment on a house because I'm tied up paying student loans and car payments and my rent." "I don't want a house right now because of how fluid the job market is and the possibility of moving multiple times in 1-5 years so I'm going to rent an apartment instead." "I can barely afford an apartment without roommates because the rent keeps going up because demand keeps going up because of items 1 and 2 above." "I can't afford to pay more towards my debt because I'm paying so much towards my rent / vice versa." "Well why don't you move somewhere else? Because jobs might not be available or I don't want to live in some shit area that will make me miserable or it results in a crazy commute." Are we fucked? Because it feels like we're fucked.
Every time I say this I'm shouted down as an exception. Of Course, I have been forced to live the entirety of my average life so I'm inclined to disagree, but maybe I'm wrong. I just wanted to get that out there. I own where I live. After graduating college I also had to pay my debts, my rent, and my other monthly fees. I did this for five years. After five years, I realized that the money I put towards rent was disappearing into a black hole. I also realized that the people who owned where I lived were just using my payments to pay a mortgage. I could do that myself. When I told my friends I was shopping for a house they imagined the homes of their childhoods - four bedroom suburban plots. I was thinking something a bit more lateral. I went from one 1,400 foot townhouse to another. Because I made a lateral move, I had proof that I could make the payments. I also convinced my roommate to make the move with me, assuring him he'd have a much cooler landlord. Since it was a townhouse, I wouldn't have to worry about fixing up the exterior of the house. I did a little math to make sure my roommate's rent price took repairs into account and now instead of all of my money going into a black hole, most of it goes into a property. Because I paid my bills for 5 years and the cost of the townhouse was only ~$110,000, I wasn't required to put any down payment. I acted as my own agent, which was terrifying, but ended up saving me money up front. If you are paying rent and especially if you are living alone it is very possible to own your own house."I can't afford a down payment on a house because I'm tied up paying student loans and car payments and my rent."
I completely agree with you about rent disappearing down a black hole, you're not really acquiring anything out of it. In my case, yes, I have a lot of loans, but there's no point in me buying a house right now because of item 2 on my list of "general things young adults encounter in today's world", however, in the next few years (kleinbl00) it is very much a possibility. A mortgage on a place in some places would be cheaper than what I'm paying for a 1BR apartment right now. However, I have no idea where you can find a 1,400 sq ft. townhouse for $110,000. That seems low, but I'm no real estate mogul.
Raleigh, NC. Larger in population than Miami. I thought the same thing too, at first. And the places that were in my budget were a far cry from what I was dreaming of, but once I got over that there were actually a lot of options. As to your second bullet point - there's a college in my town. I got a townhouse in an area that's accessible by students, but more appealing to grad students (quieter, less access to party areas). The theory was that if I landed a good job out of state I could rent the place out for a bit to try and cover my costs. I hadn't tried anything like this (buying or renting) before and it scared the shit out of me, but it was by far the coolest thing I've ever bought.I have no idea where you can find a 1,400 sq ft. townhouse for $110,000.
It's an unsustainable situation. However, it's likely to get worse before it gets better. Not shown in this analysis - the REIT ownership of most of the real estate given up in the last property bubble. Trick here is that these are properties not managed for long-term gains and stability but for short-term market performance... this is one reason the rents are stupid. There's a large actor called "the market" attempting to squeeze blood from a stone. This will work until the market dumps, at which point the REITs will be left holding the bag exactly like all those ARM owners were in 2008. The end result will be the same - massive pricing depression, a foreclosure glut, recrimination in congress, beating of chests, rending of shirts, appeals for reform and a reshuffling of the deck once more. For serious - the people who saw the last housing crash coming saw it about a year out, and they saw the market crash that followed. I think we're 9-12 months from another housing crash. If'n you were to put together liquid assets towards a down payment it might do you more good in 24 months than now. Just sayin'. the fact that unlike the last property bubble was driven by individual speculators taking advantage of predatory loans so that banks could sell derivatives to each other
I'm genuinely curious what rising interest rates will do to home prices. People always max out their monthly expenditures, and seem to care very little about the actual price of the house. I have a decent equity cushion, so I'm not really worried about it, but look at the difference just a point makes. As an example, borrowing $300k at 4.5% gets you a very similar payment to borrowing $270k at 5.5%. That's a ten percent difference in borrowing power to a perspective buyer. That is doubtlessly going to affect sale prices, even if the brewing bubble doesn't pop as dramatically as in '08. I'm wondering if that will play into the rate at which the Fed increases their benchmarks (even though they're not directly related to mortgage rates).
I'm expecting my rent to increase ~50% this January and I feel completely cannibalized. Cannibalized by some meager fuck of a landlord who just collects, collects, collects because I'm their investment. It is my work and toil that they have purchased and apartments are money farms for those who own them. Mark my words, absentee land ownership is downright usury since the landlords have started talking. Just think about the feudal origins of the word, combined with unscrupulous optimism for profit being broadcast on internet. Collectively they can say "It's just the market".
Speaking as a landlord: The larger the organization controlling your rent, the more poorly they will treat you. This is one reason many municipalities have rent control, which would prohibit your 50% rent increase (which is absolutely insane - I have no idea how something that terrible hasn't been struck down yet). Depersonalization is the root cause of much evil. Depersonalization also leads to a lack of boots-on-ground understanding of one's holdings. Ridiculous amounts of the rental market are controlled by REITs right now, and the conditions are approaching those when the real estate bloggers started posting Slayer videos. You're right - it's getting downright predatory out there. I'm super-excited to not have a landlord in about 60 days. But our current landlord is just some nice lady from Burbank whom I've never met and our tenants talk to a nice lady named Joanne who manages about 20 homes (of which ours is only one). When we knew we would be moving back into our place, we let them know that their lease wouldn't be renewed... five months in advance. We aren't all evil.
You guys are welcome to come to St. Louis. I bought a house last year. 3 bed, 1.5 bath with basement waiting to be finished to add another full bath, and rec space. My mortgage is 915 a month including property taxes and homeowner's insurance.
Seriously. Set an egg timer. So long as you're cool with Lynnwood/Renton/Bothell/Everett or the like, you'll probably have lots of opportunities by mid-late 2016 by my read, and I got a buddy out of his condo in Ferndale 3 months before it dropped 60% in value. He ended up losing $4k rather than $140k.
Speaking as a 23 year old living in a one-bedroom apartment in the northern-NJ suburbs: There's no way I'd be able to afford it were it not for my girlfriend who lives with and splits the rent with me. In my area (which I can't leave due to work and her school obligations), there aren't any one-bedroom spaces available for less than $1.1k per month. The apartment hunting experience has really soured us on home-ownership in the future. I can't even imagine what it must be like a few miles southeast in NYC is like for someone my age, and living in San Francisco is a downright horrifying concept.
But that's the catch. If you had the funds for a down payment (which would be big, yet the interest low), then you'd be paying far less per month. Of course, at 23 it would be rare if you had the funds. Between the increased rent and education costs, we are doing everything we can to stifle your economic participation. :/The apartment hunting experience has really soured us on home-ownership in the future.
I think that's simply not the case. The typical intergenerational assistance these days is 'boomer parents giving millenials their down payment and it's still a killer. We've got friends that are able to own a 2br condo as teachers for the simple reason they teach in the Pacific Palisades, and a 1-hr commute is manageable. However, they had twins so now they need a 3br condo (at least) and a 3br condo within an hour of their jobs is $600k. Even with a downpayment (and the parents paid the first one) they're looking at $2500/mo in rent.
I live in DC. You don't need to tell me. This is the most expensive housing city in the country. I COULD move an hour into Maryland though and buy a very nice house for 300k. But while I don't own a car, it's split costs. I know probably two people that are able to afford living in their own apartments.
In addition to the multiplier, land taxes are far lower, and there are no management fees. Although rent and depreciation can offset the taxes, management, leasing and repair costs can dampen the gains on housing. I wonder, can you claim depreciation on land?“Land has a lot of convexity to it,” Shapiro said in a telephone interview. “If home prices go up 5 or 10 percent, land prices can go up 20 or 30 percent. You have to be careful because it also works on the way down, which is how people got really hurt.”