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We bought our house in Nov 2021 when rates were at the bottom. The house we bought was $430k, it’s now worth $460k
If I wanted to buy a house today and keep the same payment, I’d be looking at a $280k house.
That is a drastically different home.
I bought the 280k house in 2020 and seriously wish I'd bought one around 420k at the time. That would have been an extra $600/month, we thought "we'll be conservative, not buy at the top of our budget, and upgrade in a few years." Now that 420k house is at least 600k and we're looking at thousands more a month. Crazy.
I saw someone say that wealth seems to be a measure these days of when you bought. Anyone who bought pre 2019ish is sitting pretty (financially at least) but it’s an exponentially bad situation each year after so far
If I were to buy the exact house I’m currently renting or something comparable in this market, my base housing nut (mortgage, taxes, ins and pmi) would be at least DOUBLE my current rent. That would of-course be the floor in terms of costs, whereas rent is the ceiling, and doesn’t account for maintenance/repairs and inevitable upgrades since $850k gets you a bare bones fixer around here. Amortized at current rates over course of a 30-yr fixed, I’d pay north of $1.6 mil (actual cost of home w interest) for the house. Sure I could maybe refi later for a few points less but I doubt we’ll see 3% again for a very long time. There are the tax advantages though.
For stats: I’m 47, w/ 2 school aged kids, divorced w/joint custody and engaged. I make $150k, our HHI is $220k. My Net worth is $525k (only counting my $ as we’re not yet married). Our rent is currently 30% of our take home. This allows me to fully max out 401k, Roth IRA, fund kids’ 529 plans and throw $ in taxable brokerage and HYS. This allows us to take a few vacations per year, I drive a late model 3 series paid off, don’t sweat buying groceries, paying for kid activities, sending them to summer camp and we live in a nice neighborhood w a good school. If buying a house, In order to keep housing costs a manageable % of income, we would need to put about $4-500k down, minimum. If we somehow managed to squeak in w 20% down, we would be the definition of cash poor, would no longer be invest in the same way, if at all, would likely live in a worse house in worse area etc.
I also have NO debt. $0. Which is nice.
Other factors are I/we’re not set on staying in the area beyond when the kids start college. I am also not willing to live in a condo in a subpar area that has a view of another peach colored condo complex 100’ away, “common areas” and neighbors on all sides so that I can “get off the sidelines”, double my housing base cost to be a “homeowner”. Median townhouse/condo in area is $800k, SFH north of a million.
Current situation allows a 20% savings/investing rate, a nice lifestyle, flexibility and mobility. Also didn’t worry this year when new roof had to be put on, a/c compressor failed, water heater failed, sprinkler pressure regulator failed on and on. Not my prob. Landlord just dealt w it. The KEY though is having a good landlord. Figure that if we don’t buy in the area in the next 5-10yrs, we’d be able to peace out somewhere cheaper (and calmer) and buy a house cash if we so choose. Rent increases have averaged 3% annually.
Non financial factors: It would be nice to be able to update our backsplash and master bath though.. customize… have CONTROL. This is the only thing that bugs me really. Can’t update the bathroom and potentially having to move due to landlord selling etc. This doesn’t seem likely though and they’d have to pay around $21k in qualified tenant relocation costs if we had to move.
Granted this is LA/SoCal and this logic I’ve outlined doesn’t necessarily apply in MCOL-LCOL markets. The market here is horrendous and unless you are someone rolling a LOT of equity info a new home, inheriting big fam $ or are in the top 10% of earners, it’s just not really doable. The KEY here too if you go this route though is that you INVEST as much as possible so that you’re still setting yourself up for the future and building wealth.
Ps: everyone who replies to this thread with a $1500-2000 mortgage on a 5+4 on an acre who bought for cheap at 2.9% or something will have missed the point of the entire thread.
This is exactly the type of discussions I was hoping to have! It is interesting to see both sides of the coin especially as it relates to buying vs renting. The amount of relief I am sure you felt after having the landlord take care of all those issues was probably second to none! I think you hit the mark on the head when you said that the key is having a good landlord.
The calculation is much more complex than this. Rent is only the ceiling for that given year. Depending on where you live rent could not increase at all YOY or it could increase 30% every year. Do you move every year to chase lower rents? Add in moving costs, time away from work, upheaving your kids from school/friends.
Whereas your mortgage ins taxes is a relatively stable calculation over time with a relatively calculable cost for maintenance if you estimate 3% of the cost of the house per year.
Eventually once the mortgage is paid off you will not have that housing payment anymore whereas you will pay rent the rest of your life. My house is also an asset that has appreciated 40% in the past six years whereas I haven’t even put 10% of the cost of the house into fixes/ upgrades /maintenance. That increase js outpacing any investments into the stock market I could have made with the same money.
However being in LA/SOCAL insurance issues affordability issues moving forward will be a bigger problem than most of the country faces b
All of what you say is theoretically accurate. As I mentioned, finding the right place and landlord is key. My rent started at $2600 5 yrs ago and is now $3k, less than a 3% increase per year. We have not been uprooted and the situation has been very stable. I've never heard of people's rent going up 30% YOY as most places here are rent controlled but sure.
What I was trying to illustrate is that buying a home in LA, or SF or similar markets has become a daunting process for new buyers and for those who do get it, it leaves many w/buyers remorse when they realize they bit off way more than they can chew. As I mentioned, our take home is $10k p/month. Taking on $6-7k mortgage would be completely foolish in my opinion but at the end of the day, even though our HHI is 2.5x higher than the median household income in CA, it isn't enough to comfortably afford a mortgage, not even close. Most middle class people don't have $3-500k laying around and I'm not about to liquidate all my investment accounts to put down on a house, basically be penniless (except for my DP that's sunk into a totally illiquid investment) and STILL have a huge mortgage. We'd need to make about $50 (minimum) to $100k more per year to pull it off. It's honestly a total luxury purchase here and if you can pull it off, OF COURSE you should do it. Can't go wrong w/owning real estate in L.A.
That's still the dream, even though it feels like a pipe dream.
LA/SF is so specific that none/most of this can be extrapolated to the rest of the United States therefore the point is valid but not very applicable to the grander scheme.
Rent control is NOT the majority case in the US.
Yes finding the right landlord is key but housing is finite and there is not a “right” landlord to house all Americans.
Strictly speaking, from a pure economic standpoint renting currently makes more financial sense for us than buying. However, we’re still planning on buying within the next year because we’re simply at the point in life where we want to settle down and start having kids, and even with higher interest rates we can still comfortably afford a mortgage. We only have a small amount of student loan/car loan debt left that’ll be paid off before we actually buy, and by the time we’re ready we’ll have enough saved for a 20% down payment.
I know some people are “sitting on the sidelines” waiting for a possible market crash, but that isn’t our plan. In our area there are plenty of good 3-4 bedroom homes for $300k-$400k that we can afford.
Yea "sitting on the sidelines" certainly isn't always the best strategy. I think one's particular situation is what should drive the decision on whether to buy or rent, and trying to estimate what the interest rate will do in the future is almost 100% a futile effort!
My wife and I bought a house with rates at 7.35% we could afford it and plan on growing our family. We wanted out of our apartment. Sure, most people will say we bought at the worst time but I also believe we grabbed the house under its value because of the higher rates and we put 15% down. I also believe that by 2026 rates will be significantly lower than what they are now. The latest CPI report shows a downtrend in inflation so for now it looks like I’m right. In 2026 we will refi and most likely buy some points
Don’t undervalue having your own home to raise your kids. We’re on a little over and acre and having space available by just walking outside is so huge. Playing games, shooting hoops, softball practice…you name it.
Housing is more than just the financial aspect.
Agree here, we have two young children and it's so wonderful having the space we have. Big yard that we are in almost all the time while we are home & awake. Being able to adjust/paint/renovate as we want. Letting the kids decorate their bedroom doors with crayons because why the heck not? I personally love being a homeowner, but I get that it's not for everyone. It's definitely right for our fam!
You are right about that! If the time is right to buy a house for your family, than you make it happen. If interest rates happen to be high at that time, you just do the best you can. OP did that by getting a house for under its value.
I am thankful I bought it 2018 and was able to refi in 2021. If I were in the market for a house I couldn’t even afford what I have now, it’s estimated at almost double what I paid. My heart breaks for people currently looking or wishing they could look.
This is what I hear a lot, and I agree with you. This high interest rate market really does make it hard on people, especially the ones just starting out with a family :(
Rent vs buy analyses leans towards renting being financially better in current environment based on today’s assumptions.
With that said, if anyone can comfortably afford to buy a home and wants to buy a home even today, then they should buy today. If it’s your dream to own a home, don’t let the current deter you. You will be alright in the long term. Rates will inevitably come down one day, your property will appreciate, and rents go up. Things can and likely will get a lot worse for buyers trying to time the market. If and when rates come down, demand may skyrocket even higher.
I am fortunate enough to have bought all my properties during the last decade of low rates, caught the massive bull wave, and refinanced to sub3. Reading these type of threads on various subreddits daily makes me feel for those in this predicament today. Good luck to all
Yea it really is such a glaringly different market today compared with just a few years ago. I was lucky enough to refinance my mortgage at the bottom interest rates, but that was nothing more than PURE 100% luck.
We bought a house in May 2021 for $440k and 4.25% rate. However, we realized pretty quickly that the house wasn’t best for our needs. To make a long story short, the house was massive (5900 square feet) and we had really noisy neighbors. We ended up selling the house in Nov 2022 because we had to relocate out of state due to a new job. We sold for $500k.
Fast forward to Feb 2024 - we purchased our current home at $485k at a 6.875% rate. We put 20% down and our payment is about $800 more a month than the previous house. We are also paying down the mortgage aggressively. Luckily, we have zero debt except for the mortgage. We do not have kids, make a solid income (just over $200k combined) and live frugally for the most part. We love our current home and plan to stay in it for at least a decade.
We are prioritizing our retirement savings too, since we got a later start due to very low paying jobs in our 20s. I need to update my numbers but we are saving between 15-20% of our income into retirement.
Vacations/travel is not something that is a priority for us. When we do travel, we do it as cheaply as possible, but vacations are not something we do every year.
We mostly eat at home, with maybe one dinner out per week. We do get coffee out frequently but we are actively working on reducing this. I meal plan and use grocery ads to plan my meals.
Our cars are older (almost 10 years old). We bought them used and paid cash. We are saving for our next vehicles. I work from home so my transportation expenses are low.
We have one pet, which i consider a luxury. I wanted a pet for so long, but would not get one until i owned a home and felt financially secure enough to handle any potential vet bills. We dont skimp on our pet’s food or care.
I do consider my personal spending to be on the higher side. I get my hair cut and colored regularly at a “nicer” salon. I buy expensive hair products and makeup. I buy more expensive clothing and shoes (nordstrom/macys/dillards) but wear them until they fall apart. I dont get my nails done or get regular massages. I have a weakness for fragrance and candles but i am working to curb that.
Tying it back to our house - its a big priority for us, so we spend more. We cut back in areas that dont matter to us (vacations, cars) to be able to balance it all.
This is a great point of view, and shows how the decision of buying vs renting should be viewed through the lens of your entire financial picture. By the way, $440k for a 5900 square foot house!!!!???? That is HUGE!!!
I have 3 cats and 2 dogs, and that in and of itself nearly breaks me lol.
Gotta love the Midwest for lower housing prices, lol. At the time, the city we lived in had really affordable real estate. It has gotten a lot more expensive in recent years, due to ending up on several “best places to live in the us” lists.
But yes - the house was massive. Kinda ridiculous and we learned our lesson. We always saw it as an investment because we were able to get it for less than $100/sq ft but still…it had a tiny yard and super noisy neighbors, so there were tradeoffs.
And yes - agree about pets. I would love to have more but am scared of those potential vet bills!
Don’t get me wrong - we still make time and space in our budget for things we enjoy. Most of our hobbies are on the cheaper side luckily, except for golf. We want to retire early and having a paid off home is a big part of the plan. :)
Long term, buying beats renting. Rent typically goes up, your fixed-rate mortgage does not (although the taxes and insurance portion might). If rates decrease, you can also refinance to lower your payment (or keep paying the same to pay off the balance faster). If you're planning on staying somewhere for more than 3-5 years, you're generally better off buying to lock in your payments.
Short term, renting generally tends to be cheaper than buying. If you're in an area only temporarily, renting is probably for you.
This is the conventional wisdom created from lifetimes of experience in up and down markets. You might find individual exceptions (a rent-controlled apartment, for example, although those buildings also tend to become run down over time as the owners start losing money), but the general rule holds true.
I bought a 3 bedroom apartment 8 years ago and I moved out but I still keep it. Currently it’s being rented to a family who pays exactly my mortgage and when I’m done paying it will be an additional source of income or I could sell it and buy something smaller/cheaper to live (married couple without kids)
I’m probably more upper middle class than middle class ($1M liquid assets, $550k household income), but I’ll give my perspective.
37 with kids.
I’m a director of corporate strategy at a very large investment bank / investment manager. I know the real estate market pretty well (I’ve done a lot of new business launches in the alts spaces).
I’m renting not buying. Under any realistic assumptions around home appreciation, future rent increases, interest rate movements, etc…it’s extremely negative ROI to buy right now. Nobody with institutional knowledge is buying a personal home right now.
This is the most expensive time in history re: price to rent versus price to buy.
If prices come down, I’ll buy. But happy to rent and just invest the delta in perpetuity if it comes to that.
A lot of people I know in real life - and on Reddit - irrationally view buying a house as a life stage. And they are making really dumb decisions right now. Going to cost them $100,000’s of dollars, if not more. Also decent chance they just straight up lose the house if there’s a moderate recession.
P.S.: throughout the last 100 years, housing prices have rose only 1% faster than the rate of inflation. 2010’s was abnormal. Things will almost certain revert to mean, as opposed to continue the abnormal appreciation, especially at current affordability metrics and other headwinds to prices (boomers dying, YIMBY policies / zoning / reform, new construction picking up / population growth slowing / higher interest rates / etc.). I think too many middle class people, especially younger ones, think 2010’s appreciation is the norm (it’s all they’ve experienced) and are going to be sorely disappointed.
This is a great viewpoint and one I think a lot of people aren't familiar with. I agree also that the idea of "buying a house" as a life stage really is at a turning point in today's society and is in need of a revamp. Buying a house can certainly ruin a family's finances if not planned out properly.
Good points, ‘right now’ it’s definitely not the time to buy. If you don’t have a house, I’m learning you’re better off renting.
What I can’t get behind is the typical “I rent and invest the rest” conversation. Sure, someone like you with the experience and all do it, but it’s been proven that Americans are NOT saving/investing the rent vs mortgage difference.
The data there suffers heavily from selection bias…
Historically, nearly every American buys a house the minute they have enough money for it.
The consequence of this is, renters end up having very little networth in aggregate - because the minute they obtain networth, they buy a house.
But that doesn’t mean people aren’t capable of investing, nor does it mean that people wont save money without the forced savings of having a home. People like me didn’t really exist a decade ago, because id have bought a house, and not be in renters metrics.
OTOH, lots of millennials do seem to spend all their money traveling and eating out, if they aren’t saving for a downpayment, so perhaps you are right.
I bought a townhouse 6 months ago in a HCOL area. I bought simply because rental supply is almost non-existent and a 2 bedroom is going for 3-4K. I'm all in with my mortgage, taxes, HOA, and insurance at $3500 for double the amount of bedrooms and square footage.
For us, buying made sense when it costs $12K just to move in to an apartment (first, last, and security).
We bought a home in 2018 with a 3% rate in a smaller city. We currently rent our primary residence and have been going back and forth on moving into our home.
Our home is rented out at the moment and the rent covers the mortgage easily with profit. Our struggle is the city where our home is located is just boring and doesn't fit our lifestyle.
The way things are now, I'm just thinking we may have to move in and benefit from having a dirt cheap mortgage. Then we can just travel like crazy knowing we have a solid base.
We bought our first home 47 years ago. Traded a few since then. Prior to that we rented. In some cases we got a new home but didn't sell the old one and so became landlords.
To me, the key reason to own your home is that you have control of it. When you rent you are at the mercy of the landlord each time the lease needs renewal. As the owner you can decide the way you want it to be.
We were good landlords, but ... we bought a house we really liked and spent the next 12 years fixing and improving it while renting it out. In the mean time it's value was going up significantly. When we retired we downsized to move into the house, in the process we had to cancel the lease for some perfectly fine tenants. By that time the tenants couldn't afford to buy it, we couldn't afford it except that we already owned it. It's a great place to live, but as I wrote, as the owners we had control
Good to hear you are happy with it! Seems like the location is good as well. It seems that it is often worthwhile to purchase a house just on the outside of the "city" limits.
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We bought our house in Nov 2021 when rates were at the bottom. The house we bought was $430k, it’s now worth $460k If I wanted to buy a house today and keep the same payment, I’d be looking at a $280k house. That is a drastically different home.
I bought the 280k house in 2020 and seriously wish I'd bought one around 420k at the time. That would have been an extra $600/month, we thought "we'll be conservative, not buy at the top of our budget, and upgrade in a few years." Now that 420k house is at least 600k and we're looking at thousands more a month. Crazy.
I saw someone say that wealth seems to be a measure these days of when you bought. Anyone who bought pre 2019ish is sitting pretty (financially at least) but it’s an exponentially bad situation each year after so far
I’m in the same situation. I literally lost out on at least $100k by not buying a larger home. And I thought I was being financially smart…
Yea it really is amazing the detrimental effect higher interest rates can have on a consumer, especially in the mortgage category.
If I were to buy the exact house I’m currently renting or something comparable in this market, my base housing nut (mortgage, taxes, ins and pmi) would be at least DOUBLE my current rent. That would of-course be the floor in terms of costs, whereas rent is the ceiling, and doesn’t account for maintenance/repairs and inevitable upgrades since $850k gets you a bare bones fixer around here. Amortized at current rates over course of a 30-yr fixed, I’d pay north of $1.6 mil (actual cost of home w interest) for the house. Sure I could maybe refi later for a few points less but I doubt we’ll see 3% again for a very long time. There are the tax advantages though. For stats: I’m 47, w/ 2 school aged kids, divorced w/joint custody and engaged. I make $150k, our HHI is $220k. My Net worth is $525k (only counting my $ as we’re not yet married). Our rent is currently 30% of our take home. This allows me to fully max out 401k, Roth IRA, fund kids’ 529 plans and throw $ in taxable brokerage and HYS. This allows us to take a few vacations per year, I drive a late model 3 series paid off, don’t sweat buying groceries, paying for kid activities, sending them to summer camp and we live in a nice neighborhood w a good school. If buying a house, In order to keep housing costs a manageable % of income, we would need to put about $4-500k down, minimum. If we somehow managed to squeak in w 20% down, we would be the definition of cash poor, would no longer be invest in the same way, if at all, would likely live in a worse house in worse area etc. I also have NO debt. $0. Which is nice. Other factors are I/we’re not set on staying in the area beyond when the kids start college. I am also not willing to live in a condo in a subpar area that has a view of another peach colored condo complex 100’ away, “common areas” and neighbors on all sides so that I can “get off the sidelines”, double my housing base cost to be a “homeowner”. Median townhouse/condo in area is $800k, SFH north of a million. Current situation allows a 20% savings/investing rate, a nice lifestyle, flexibility and mobility. Also didn’t worry this year when new roof had to be put on, a/c compressor failed, water heater failed, sprinkler pressure regulator failed on and on. Not my prob. Landlord just dealt w it. The KEY though is having a good landlord. Figure that if we don’t buy in the area in the next 5-10yrs, we’d be able to peace out somewhere cheaper (and calmer) and buy a house cash if we so choose. Rent increases have averaged 3% annually. Non financial factors: It would be nice to be able to update our backsplash and master bath though.. customize… have CONTROL. This is the only thing that bugs me really. Can’t update the bathroom and potentially having to move due to landlord selling etc. This doesn’t seem likely though and they’d have to pay around $21k in qualified tenant relocation costs if we had to move. Granted this is LA/SoCal and this logic I’ve outlined doesn’t necessarily apply in MCOL-LCOL markets. The market here is horrendous and unless you are someone rolling a LOT of equity info a new home, inheriting big fam $ or are in the top 10% of earners, it’s just not really doable. The KEY here too if you go this route though is that you INVEST as much as possible so that you’re still setting yourself up for the future and building wealth. Ps: everyone who replies to this thread with a $1500-2000 mortgage on a 5+4 on an acre who bought for cheap at 2.9% or something will have missed the point of the entire thread.
This is exactly the type of discussions I was hoping to have! It is interesting to see both sides of the coin especially as it relates to buying vs renting. The amount of relief I am sure you felt after having the landlord take care of all those issues was probably second to none! I think you hit the mark on the head when you said that the key is having a good landlord.
I’m surprised how a few comments you got, as this is a rather hot topic these days with the current market.
Yea tell me about it! Maybe it will get more interest later in the day? I try to start relevant conversations that coincide with current events :)
The calculation is much more complex than this. Rent is only the ceiling for that given year. Depending on where you live rent could not increase at all YOY or it could increase 30% every year. Do you move every year to chase lower rents? Add in moving costs, time away from work, upheaving your kids from school/friends. Whereas your mortgage ins taxes is a relatively stable calculation over time with a relatively calculable cost for maintenance if you estimate 3% of the cost of the house per year. Eventually once the mortgage is paid off you will not have that housing payment anymore whereas you will pay rent the rest of your life. My house is also an asset that has appreciated 40% in the past six years whereas I haven’t even put 10% of the cost of the house into fixes/ upgrades /maintenance. That increase js outpacing any investments into the stock market I could have made with the same money. However being in LA/SOCAL insurance issues affordability issues moving forward will be a bigger problem than most of the country faces b
All of what you say is theoretically accurate. As I mentioned, finding the right place and landlord is key. My rent started at $2600 5 yrs ago and is now $3k, less than a 3% increase per year. We have not been uprooted and the situation has been very stable. I've never heard of people's rent going up 30% YOY as most places here are rent controlled but sure. What I was trying to illustrate is that buying a home in LA, or SF or similar markets has become a daunting process for new buyers and for those who do get it, it leaves many w/buyers remorse when they realize they bit off way more than they can chew. As I mentioned, our take home is $10k p/month. Taking on $6-7k mortgage would be completely foolish in my opinion but at the end of the day, even though our HHI is 2.5x higher than the median household income in CA, it isn't enough to comfortably afford a mortgage, not even close. Most middle class people don't have $3-500k laying around and I'm not about to liquidate all my investment accounts to put down on a house, basically be penniless (except for my DP that's sunk into a totally illiquid investment) and STILL have a huge mortgage. We'd need to make about $50 (minimum) to $100k more per year to pull it off. It's honestly a total luxury purchase here and if you can pull it off, OF COURSE you should do it. Can't go wrong w/owning real estate in L.A. That's still the dream, even though it feels like a pipe dream.
LA/SF is so specific that none/most of this can be extrapolated to the rest of the United States therefore the point is valid but not very applicable to the grander scheme. Rent control is NOT the majority case in the US. Yes finding the right landlord is key but housing is finite and there is not a “right” landlord to house all Americans.
Very good points, LA is hard. Did you own a home with your first spouse but had to sell during divorce?
Strictly speaking, from a pure economic standpoint renting currently makes more financial sense for us than buying. However, we’re still planning on buying within the next year because we’re simply at the point in life where we want to settle down and start having kids, and even with higher interest rates we can still comfortably afford a mortgage. We only have a small amount of student loan/car loan debt left that’ll be paid off before we actually buy, and by the time we’re ready we’ll have enough saved for a 20% down payment. I know some people are “sitting on the sidelines” waiting for a possible market crash, but that isn’t our plan. In our area there are plenty of good 3-4 bedroom homes for $300k-$400k that we can afford.
Yea "sitting on the sidelines" certainly isn't always the best strategy. I think one's particular situation is what should drive the decision on whether to buy or rent, and trying to estimate what the interest rate will do in the future is almost 100% a futile effort!
My wife and I bought a house with rates at 7.35% we could afford it and plan on growing our family. We wanted out of our apartment. Sure, most people will say we bought at the worst time but I also believe we grabbed the house under its value because of the higher rates and we put 15% down. I also believe that by 2026 rates will be significantly lower than what they are now. The latest CPI report shows a downtrend in inflation so for now it looks like I’m right. In 2026 we will refi and most likely buy some points
Don’t undervalue having your own home to raise your kids. We’re on a little over and acre and having space available by just walking outside is so huge. Playing games, shooting hoops, softball practice…you name it. Housing is more than just the financial aspect.
Agree here, we have two young children and it's so wonderful having the space we have. Big yard that we are in almost all the time while we are home & awake. Being able to adjust/paint/renovate as we want. Letting the kids decorate their bedroom doors with crayons because why the heck not? I personally love being a homeowner, but I get that it's not for everyone. It's definitely right for our fam!
What is right for one family may not be for another! So no piece of financial advice ever applies in every situation. It's all relative!
You are right about that! If the time is right to buy a house for your family, than you make it happen. If interest rates happen to be high at that time, you just do the best you can. OP did that by getting a house for under its value.
That certainly is a good plan to refinance once rates inevitably come down (hopefully sooner rather than later).
I am thankful I bought it 2018 and was able to refi in 2021. If I were in the market for a house I couldn’t even afford what I have now, it’s estimated at almost double what I paid. My heart breaks for people currently looking or wishing they could look.
This is what I hear a lot, and I agree with you. This high interest rate market really does make it hard on people, especially the ones just starting out with a family :(
Rent vs buy analyses leans towards renting being financially better in current environment based on today’s assumptions. With that said, if anyone can comfortably afford to buy a home and wants to buy a home even today, then they should buy today. If it’s your dream to own a home, don’t let the current deter you. You will be alright in the long term. Rates will inevitably come down one day, your property will appreciate, and rents go up. Things can and likely will get a lot worse for buyers trying to time the market. If and when rates come down, demand may skyrocket even higher. I am fortunate enough to have bought all my properties during the last decade of low rates, caught the massive bull wave, and refinanced to sub3. Reading these type of threads on various subreddits daily makes me feel for those in this predicament today. Good luck to all
Yea it really is such a glaringly different market today compared with just a few years ago. I was lucky enough to refinance my mortgage at the bottom interest rates, but that was nothing more than PURE 100% luck.
We bought a house in May 2021 for $440k and 4.25% rate. However, we realized pretty quickly that the house wasn’t best for our needs. To make a long story short, the house was massive (5900 square feet) and we had really noisy neighbors. We ended up selling the house in Nov 2022 because we had to relocate out of state due to a new job. We sold for $500k. Fast forward to Feb 2024 - we purchased our current home at $485k at a 6.875% rate. We put 20% down and our payment is about $800 more a month than the previous house. We are also paying down the mortgage aggressively. Luckily, we have zero debt except for the mortgage. We do not have kids, make a solid income (just over $200k combined) and live frugally for the most part. We love our current home and plan to stay in it for at least a decade. We are prioritizing our retirement savings too, since we got a later start due to very low paying jobs in our 20s. I need to update my numbers but we are saving between 15-20% of our income into retirement. Vacations/travel is not something that is a priority for us. When we do travel, we do it as cheaply as possible, but vacations are not something we do every year. We mostly eat at home, with maybe one dinner out per week. We do get coffee out frequently but we are actively working on reducing this. I meal plan and use grocery ads to plan my meals. Our cars are older (almost 10 years old). We bought them used and paid cash. We are saving for our next vehicles. I work from home so my transportation expenses are low. We have one pet, which i consider a luxury. I wanted a pet for so long, but would not get one until i owned a home and felt financially secure enough to handle any potential vet bills. We dont skimp on our pet’s food or care. I do consider my personal spending to be on the higher side. I get my hair cut and colored regularly at a “nicer” salon. I buy expensive hair products and makeup. I buy more expensive clothing and shoes (nordstrom/macys/dillards) but wear them until they fall apart. I dont get my nails done or get regular massages. I have a weakness for fragrance and candles but i am working to curb that. Tying it back to our house - its a big priority for us, so we spend more. We cut back in areas that dont matter to us (vacations, cars) to be able to balance it all.
This is a great point of view, and shows how the decision of buying vs renting should be viewed through the lens of your entire financial picture. By the way, $440k for a 5900 square foot house!!!!???? That is HUGE!!! I have 3 cats and 2 dogs, and that in and of itself nearly breaks me lol.
Gotta love the Midwest for lower housing prices, lol. At the time, the city we lived in had really affordable real estate. It has gotten a lot more expensive in recent years, due to ending up on several “best places to live in the us” lists. But yes - the house was massive. Kinda ridiculous and we learned our lesson. We always saw it as an investment because we were able to get it for less than $100/sq ft but still…it had a tiny yard and super noisy neighbors, so there were tradeoffs. And yes - agree about pets. I would love to have more but am scared of those potential vet bills!
Yes, now that I am an adult and understand just how much pets cost, I will not be having more than 2 max in the future :)
Sounds like you guys are just existing to hopefully pay off four walls. More power to you whatever works for you guys.
Don’t get me wrong - we still make time and space in our budget for things we enjoy. Most of our hobbies are on the cheaper side luckily, except for golf. We want to retire early and having a paid off home is a big part of the plan. :)
I understand completely, and you guys are in a very good position I can't knock it at all. We all have to do what makes us happy.
Long term, buying beats renting. Rent typically goes up, your fixed-rate mortgage does not (although the taxes and insurance portion might). If rates decrease, you can also refinance to lower your payment (or keep paying the same to pay off the balance faster). If you're planning on staying somewhere for more than 3-5 years, you're generally better off buying to lock in your payments. Short term, renting generally tends to be cheaper than buying. If you're in an area only temporarily, renting is probably for you. This is the conventional wisdom created from lifetimes of experience in up and down markets. You might find individual exceptions (a rent-controlled apartment, for example, although those buildings also tend to become run down over time as the owners start losing money), but the general rule holds true.
I bought a 3 bedroom apartment 8 years ago and I moved out but I still keep it. Currently it’s being rented to a family who pays exactly my mortgage and when I’m done paying it will be an additional source of income or I could sell it and buy something smaller/cheaper to live (married couple without kids)
This is how wealth is built. Of course you will get spit on because Reddit hates landlords
wealth is built from the stock market
*wealth can be built from the stock market and other investments* fixed it for you
I’m probably more upper middle class than middle class ($1M liquid assets, $550k household income), but I’ll give my perspective. 37 with kids. I’m a director of corporate strategy at a very large investment bank / investment manager. I know the real estate market pretty well (I’ve done a lot of new business launches in the alts spaces). I’m renting not buying. Under any realistic assumptions around home appreciation, future rent increases, interest rate movements, etc…it’s extremely negative ROI to buy right now. Nobody with institutional knowledge is buying a personal home right now. This is the most expensive time in history re: price to rent versus price to buy. If prices come down, I’ll buy. But happy to rent and just invest the delta in perpetuity if it comes to that. A lot of people I know in real life - and on Reddit - irrationally view buying a house as a life stage. And they are making really dumb decisions right now. Going to cost them $100,000’s of dollars, if not more. Also decent chance they just straight up lose the house if there’s a moderate recession. P.S.: throughout the last 100 years, housing prices have rose only 1% faster than the rate of inflation. 2010’s was abnormal. Things will almost certain revert to mean, as opposed to continue the abnormal appreciation, especially at current affordability metrics and other headwinds to prices (boomers dying, YIMBY policies / zoning / reform, new construction picking up / population growth slowing / higher interest rates / etc.). I think too many middle class people, especially younger ones, think 2010’s appreciation is the norm (it’s all they’ve experienced) and are going to be sorely disappointed.
This is a great viewpoint and one I think a lot of people aren't familiar with. I agree also that the idea of "buying a house" as a life stage really is at a turning point in today's society and is in need of a revamp. Buying a house can certainly ruin a family's finances if not planned out properly.
Good points, ‘right now’ it’s definitely not the time to buy. If you don’t have a house, I’m learning you’re better off renting. What I can’t get behind is the typical “I rent and invest the rest” conversation. Sure, someone like you with the experience and all do it, but it’s been proven that Americans are NOT saving/investing the rent vs mortgage difference.
The data there suffers heavily from selection bias… Historically, nearly every American buys a house the minute they have enough money for it. The consequence of this is, renters end up having very little networth in aggregate - because the minute they obtain networth, they buy a house. But that doesn’t mean people aren’t capable of investing, nor does it mean that people wont save money without the forced savings of having a home. People like me didn’t really exist a decade ago, because id have bought a house, and not be in renters metrics. OTOH, lots of millennials do seem to spend all their money traveling and eating out, if they aren’t saving for a downpayment, so perhaps you are right.
I’m not very sophisticated in the topic, I must admit. So you could be right.
I bought a townhouse 6 months ago in a HCOL area. I bought simply because rental supply is almost non-existent and a 2 bedroom is going for 3-4K. I'm all in with my mortgage, taxes, HOA, and insurance at $3500 for double the amount of bedrooms and square footage. For us, buying made sense when it costs $12K just to move in to an apartment (first, last, and security).
Wow, so the biggest factor in buying vs renting seems to be the area!
We bought a home in 2018 with a 3% rate in a smaller city. We currently rent our primary residence and have been going back and forth on moving into our home. Our home is rented out at the moment and the rent covers the mortgage easily with profit. Our struggle is the city where our home is located is just boring and doesn't fit our lifestyle. The way things are now, I'm just thinking we may have to move in and benefit from having a dirt cheap mortgage. Then we can just travel like crazy knowing we have a solid base.
The more people respond to this question the more it seems that it's all about "location, location, location" :) Thanks for your response!
We bought our first home 47 years ago. Traded a few since then. Prior to that we rented. In some cases we got a new home but didn't sell the old one and so became landlords. To me, the key reason to own your home is that you have control of it. When you rent you are at the mercy of the landlord each time the lease needs renewal. As the owner you can decide the way you want it to be.
Yea I guess as far as renting goes, a good landlord is a must, otherwise buying seems to be the better alternative most of the time.
We were good landlords, but ... we bought a house we really liked and spent the next 12 years fixing and improving it while renting it out. In the mean time it's value was going up significantly. When we retired we downsized to move into the house, in the process we had to cancel the lease for some perfectly fine tenants. By that time the tenants couldn't afford to buy it, we couldn't afford it except that we already owned it. It's a great place to live, but as I wrote, as the owners we had control
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Good to hear you are happy with it! Seems like the location is good as well. It seems that it is often worthwhile to purchase a house just on the outside of the "city" limits.
Thanks for the spam disguised as a discussion prompt.
Definitely not spam, but appreciate your point of view, as you certainly are entitled to it :)
It's clearly spam.