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Chat Thread: biff brings board balance

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Killing home ownership just like we killed chain restaurants
 
A big part of the home buying trend also seems to be millennials foregoing the “starter home” as a first purchase. Many of my friends rented for a decade instead of buying some $250-300k house that they would only want to be in for the short term. Then when they do buy it’s a $500-750k place that they plan to be in for a decade or longer. So they are waiting longer but it’s not because they “can’t” buy a house.
 
I want to go to the bowl game and do a weekend in the city but we are hosting family for Christmas and would probably need to leave Friday morning which would be tough. If there are any travel delays or weather issues we would be totally screwed.
 
WRS said:
A big part of the home buying trend also seems to be millennials foregoing the “starter home” as a first purchase. Many of my friends rented for a decade instead of buying some $250-300k house that they would only want to be in for the short term. Then when they do buy it’s a $500-750k place that they plan to be in for a decade or longer. So they are waiting longer but it’s not because they “can’t” buy a house.
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The problem with that plan is that they are wasting money on rent for those years when they could have been paying down a mortgage (a form of forced savings) and then taken advantage of the increase in price of that starter home to increase the amount they would have to put down on that bigger house... I guess it is a reasonable alternative plan if you are not confident that housing prices will continue to rise.
 
WRS said:
A big part of the home buying trend also seems to be millennials foregoing the “starter home” as a first purchase. Many of my friends rented for a decade instead of buying some $250-300k house that they would only want to be in for the short term. Then when they do buy it’s a $500-750k place that they plan to be in for a decade or longer. So they are waiting longer but it’s not because they “can’t” buy a house.
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This is another factor.
 
scooter84 said:
The problem with that plan is that they are wasting money on rent for those years when they could have been paying down a mortgage (a form of forced savings) and then taken advantage of the increase in price of that starter home to increase the amount they would have to put down on that bigger house... I guess it is a reasonable alternative plan if you are not confident that housing prices will continue to rise.
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well, this assumes a ton of things that are not true in every market or for every situation, including 1) how long they're gonna be there, 2) that the home value will go up much, 3) how much maintenance they have to put into the house, 4) closing costs and taxes, etc.

All that, plus you lose some flexibility on your bigger purchase when you have to sell first, which, again, depends on the market. And in the early years, so much of your payment goes toward interest that you aren't building a ton of equity. And most of the available homes that older people are vacating are not in places where a lot of first-time homebuyers want to live.

anyways, 300k is pretty ridiculous for a starter home for most people
 
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This from the author:

From Torsten Sløk:

The rise since the financial crisis is particularly noteworthy. This is driven by an aging population, affordability, higher student debt levels, and tighter mortgage lending standards for young people and individuals with lower credit scores. All these forces have also contributed to lower levels of residential mobility, see also our chart from last week.
 
JuiceCrewAllStar said:
well, this assumes a ton of things that are not true in every market or for every situation, including 1) how long they're gonna be there, 2) that the home value will go up much, 3) how much maintenance they have to put into the house, 4) closing costs and taxes, etc.

All that, plus you lose some flexibility on your bigger purchase when you have to sell first, which, again, depends on the market. And in the early years, so much of your payment goes toward interest that you aren't building a ton of equity.

anyways, 300k is pretty ridiculous for a starter home for most people
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Most of what Juice said plus if you’re paying 6% transaction costs to sell your house you need it to appreciate by at least 6% during your ownership period to even get to breakeven. So you’re likely just taking out the money you put in over the short term without taking into account the extra expenses Juice mentioned.
 
Maybe $200k is a more realistic price point for entry level for most people. I really don’t know. But I still think more people are passing on those cookie cutter subdivision boxes in favor of nicer, newer apartments in better locations with better amenities during their 20s.
 
the real benefit in homeownership comes from 5-7+ years of staying in the same spot in a fairly normal market

I'm sure in some crazy urban markets you can get a big value increase in 2-3 years, or if you're interested/willing to put in some work to make big upgrades
 
JuiceCrewAllStar said:
well, this assumes a ton of things that are not true in every market or for every situation, including 1) how long they're gonna be there, 2) that the home value will go up much, 3) how much maintenance they have to put into the house, 4) closing costs and taxes, etc.

All that, plus you lose some flexibility on your bigger purchase when you have to sell first, which, again, depends on the market. And in the early years, so much of your payment goes toward interest that you aren't building a ton of equity. And most of the available homes that older people are vacating are not in places where a lot of first-time homebuyers want to live.

anyways, 300k is pretty ridiculous for a starter home for most people
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Lower priced homes have rarely been in the most desirable places to live. There's nothing new or odd about that.
 
WRS said:
Maybe $200k is a more realistic price point for entry level for most people. I really don’t know. But I still think more people are passing on those cookie cutter subdivision boxes in favor of nicer, newer apartments in better locations with better amenities during their 20s.
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I agree, except I think it's more of a taste thing than money thing for a good number of people

it's not that they can't afford the 200k home in a bedroom suburb, it's that they don't want to live there
 
JuiceCrewAllStar said:
I agree, except I think it's more of a taste thing than money thing for a good number of people

it's not that they can't afford the 200k home in a bedroom suburb, it's that they don't want to live there
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Totally agreed.
 
I just Learned the other day that when they quote 60% home ownership rates nationwide it’s not that 60% of people own their homes, it’s what % of homes are occupied by their owner.
 
WRS said:
Most of what Juice said plus if you’re paying 6% transaction costs to sell your house you need it to appreciate by at least 6% during your ownership period to even get to breakeven. So you’re likely just taking out the money you put in over the short term without taking into account the extra expenses Juice mentioned.
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Well, the post I was responding to mentioned people renting for a decade before buying a big house. In my experience, a decade is plenty long enough to pay down a good but of principal AND experience plenty of appreciation to cover the transaction costs. Obviously all the factors mentioned have to be considered...
 
scooter84 said:
Well, the post I was responding to mentioned people renting for a decade before buying a big house. In my experience, a decade is plenty long enough to pay down a good but of principal AND experience plenty of appreciation to cover the transaction costs. Obviously all the factors mentioned have to be considered...
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Well I think you have to assume that it’s not an option for almost anyone to buy a house right out of college. So you could start realistically looking maybe 4-5 years after graduation which puts you in your late 20s. Then the folks I know opted to delay maybe another 5 years until their early 30s. Maybe leaving a little opportunity to build equity on the table but probably not too much.
 
scooter84 said:
Well, the post I was responding to mentioned people renting for a decade before buying a big house. In my experience, a decade is plenty long enough to pay down a good but of principal AND experience plenty of appreciation to cover the transaction costs. Obviously all the factors mentioned have to be considered...
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We also just lived through an unprecedented asset appreciation of the past 30 years that is very unlikely to repeat itself without some corresponding hyper inflation. There's something called a price to rent ratio, which I think is normalized at 15:1. If your market is under that, it's a decent market to buy in, if it's over, you shouldn't as a rule of thumb. Many cities right now are way over. LA right now is at like 39:1.
 
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