I would imagine most homeowners couldn’t afford a loan for their current house at its current value. I just ran a borrowing capacity calculator for a local large bank, and it’s well below what my house is worth.
I bought at 21 and had it paid off at 38. I earn triple what I did back then.
That’s part of the reason I bit the bullet when I did and bought a house where I didn’t want to. I started building equity and when housing prices went up I was able to roll that over into a house I wanted in the area I wanted. At some point you have to get in and start building the equity even if it’s somewhere you aren’t as happy in. YMMV.
Yeah, but I honestly feel terrible for younger people just starting out. I’m locked into a 2.35% APR loan on a house that’s valued nearly 3 times what I bought it for less than 10 years ago. I would never be able to afford mortgage payments going in at today’s rates for the full value of the house, let alone come up with 20% to get rid of mortgage insurance.
The starter townhouse my wife and I bought almost 20 years ago has gone up similarly. What kind of person in their early 20s can afford to come up with a 6 figure down payment? Or afford a mortgage payment that’s several thousand dollars a month? Shit’s crazy.
It’s starting to look like that model might be dead too. Mortgages continue to rise, but prices aren’t coming down because everyone with 2% interest mortgages are never going to move, so there’s no inventory. This means that the prices will hold, but not increase. So even if you can get a house you don’t really want now, it’s not going to appreciate much, and might even slowly depreciate as the current owners are forced to sell because of life events.
A 47 year old lawyer should be able to afford $3,600 a month without particular difficulty. I’m a software developer so I make less than most lawyers do, but I can pay about $3,400 a month for my one-bedroom in the center of a big city.
(I don’t rent. $3,400 is my mortgage plus my building fees and the building charges an additional fee to people who rent out their unit, so if I rented mine out for $3,600 then I would probably actually lose money every month. Paying my mortgage does mean that my net worth increases, but it doesn’t help me afford things now. Someone with their mortgage paid off would be in a better position to be a landlord, but they would still be getting less than 4% profit per year even if they have the perfect tenant who never costs them anything. Selling the apartment and putting the money in the stock market would be more profitable than renting it out for $3,600.)
The average yearly return of the S&P 500 over the last 30 years is almost 10% a year, so if instead of investing in the stock market, you choose to be a landlord whose yearly profit is 4%, you’re a humanitarian donating 6% of the cost of your apartment to your tenant every year.
I’m exaggerating because the average rise in real estate values is 6% so such a landlord actually gets about the same return as he would get from the stock market, as long as he never has a bad tenant and doesn’t mind his money being locked up in real estate.
Well that was in the past, but over the last 2-3 years I have lost a few thousand $ in the value of my S&P 500 index fund investments. That money would have been better off in a plain old savings account or invested in real estate (but it wasn’t really enough to buy any real estate).
You must have bought at the worst possible time. But there’s risk associated with any investment - the neighborhood you buy in could go to hell, or if you rent out your property then you could get a tenant who trashes it and takes a year to evict. I think real estate does tend to be less risky than the stock market, but it has significantly worse returns too. (Plus, the stock market lets you diversify - if you only own one property and something happens to it, you have lost everything.)
With that said, you can invest in real estate even if you don’t have enough money to buy property yourself - you can buy shares in a real estate investment trust.
Well, people who own lots of shit had to be properly compensated for owning lots of shit, otherwise - or so we are told - “they wouldn’t invest”.
It’s funny how we’re told to “work hard” and there’s even lots of criticism of the “workshy poor” all the while the entire economic system has been changed to maximize the returns of rent-seeking (which is the single most parasitical economic activity there is) at the cost of the returns from working AND the purchasing power of said returns (because life essentials like housing are way much more expensive).
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