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The article above got me thinking, "Why do so many people want to own a house even though they know they can't afford it? I mean, why do they not try to go for an apartment/flat instead?"
Are most people not capable of controlling their urge to spend?
There are many reasons to want to own a house. As people start families, they often need more indoor space and want access to an outdoor space (yard) that is secure for kids, as well as a place to garden, hang out with friends and family, etc. Others may have hobbies - playing music, woodworking, boating - and want a little space. So, when you look at the monthly cost of renting a house (as opposed to, say, a 2BR apartment), it starts to make more sense to buy - even from the beginning of your mortgage, about half of your payment is equity rather than interest and it goes up from there. Having a mortgage can to an extent lock in your payment, whereas rent goes up with the market and inflation. (This is more true in the U.S. where 30 year fixed rate mortgages are the norm, vs. 5 years here).
By building up that equity, you also keep your options open. Say you own for 5-10 years, then need or want to move. You can sell your home and after paying realtor fees, walk away with both the equity you've accumulated over those years, plus market appreciation. If the market's gone up, that means you may have a sizeable down payment that enables you to buy in your new location.
I think there is also a question of long term security. Thinking about what I might get from CPP and pensions, I know retirement would be a lot easier if had a mortgage free home to live in or sell. Otherwise rent may take a big chunk of that income.
Of course there are risks. The market could go down. If you overextend (or have plain bad luck) and lose a job, you may end up in foreclosure. So no guarantees ...
I know there is a lot of intellectualizing now about how we should all be renters, all live in apartments. But I think there are many people who want a home. It's done in much more densely populated places - Japan, for instance, or even the land-efficient row homes of eastern cities. Read Vancouverite Charles Montgomery's book the Happy City on the benefits he felt in moving from condo tower to a townhome for example.
There are many reasons to want to own a house. As people start families, they often need more indoor space and want access to an outdoor space (yard) that is secure for kids, as well as a place to garden, hang out with friends and family, etc. Others may have hobbies - playing music, woodworking, boating - and want a little space.
well, I guess every family outside suburban US/Canada/Australia has no life, because you know, most of them don't have a yard, or a room just to play the violin, or a guest room just to friends who visit 5 day a year. How often do you see a family with a huge and expensive kitchen primarily for the show, since most of what they cook is just making burgers, mixing some salads and roasting some beef or chicken in the oven? And for the 12th time, may I ask the child can play in the yard until what age? maybe 2 to 6? You can't expect a 11 year old to play in the small yard without feeling bored, can you?
It is often not about need. It is about "since everyone seems to have this and that, and that's the traditional way of life, so I should to". Admittedly all those are nice things to have, I would want all these if I could afford it too (a beautiful house in Rosedale or Yorkville would be nice), but stretching your budget too much to buy a house often doesn't improve your quality of life, it decreases it significantly (long commute, more boring and outlaying neighbourhoods, less money on other things and entertainment etc.).
This applies to immigrants who are not used to house living too. I have seen enough Asian immigrants who insist on buying a large house so far from work and everything else as that is the only thing they can afford, primarily because it would be embarrassing to show any visiting friends/family an apartment in North America. I have nothing against housing living, but only when you can really afford it and when it really suits your own lifestyle, not someone else's expectation.
But this thread is about more than houses, and I have seen enough people spending way too much as well, not because they can afford it, but because they think they are entitled to it. The other day I was talking with a friend who is furniture shopping. He set his eyes on some couch but is waiting for the regular 15% discount. I asked how do you know there will be a sale, and he said yes, the always do every x months. Unfortunately most people are not smart of patient enough to save hundreds of dollars. They want the stuff NOW. Additionally people spend way too much on frivolous things, not caring about the price or whether it even makes sense at all under the name "enjoy life while you can".
Honestly I can't understand people who live paycheck to paycheck (some even consider it a cool way of living) unless they are really making minimum wages. If it is only their own problem, that's fine, but in 30 years, the same people become those poor seniors who pretend to be the vulnerable and demand higher pension and stuff from the government on the back of the working young because they didn't care to save when they were younger.
Last edited by botticelli; 08-12-2015 at 08:45 AM..
There are several reasons people are overspending:
Easy credit and "digital" money means people spend without grasping the physical concept of money. They never see it or touch it. If every time they spent a hundred bucks they had to count it out of their pile, people would choose more carefully what to spend it on. They only care about minimum monthly payments and not the long-term accumulation of interest.
As for housing, the past few decades have seen incredible gains in real estate wealth. Home ownership was pretty much a no-brainer for long-term planning. But times are different now. People move more frequently, they change jobs and careers, and families are not as stable as they used to be. Staying rooted for 20-30 years was once the norm, but is no longer the case. Plus, incomes are stagnant and debt continues to rise. Something has to give.
But still, people are obsessed with "owning" houses. They are even willing to forgo home inspections, overlook major structural issues, and pay way more than a home is worth just to claim their "prize" and get into the market. This is sheer lunacy. I've seen some of the dumps and piles of rotting asbestos-laden garbage that people are buying for crazy amounts. Why???? It is the herd mentality at work.
We live in a condo that would easily cost us over $1000 more per month than we're paying in rent to carry in ownership costs. That is money we save and invest. We also get the bonus of being able to move easily and to not be responsible for any of the potential maintenance issues or special assessments or condo board drama.
Yes, we trade off being able to stay as long as we like or paint the walls neon green. But life can change direction for anyone, and there are no guarantees even if you bought a place. We might have to leave when our lease is up, or we could be happy here for 10 years or more. In the meantime, we pay MUCH less to rent the unit, enjoy all the amenities and benefits without the headaches, and have access to all the things that make living in the city great. All while continuing to save and invest for the future.
People say renting is throwing money away. It's not. We get a nice place to live in exchange for our rent. People with mortgages always conveniently forget the money they throw away on land transfer double-dips, real estate fees, property taxes, mortgage interest, and if they bought the typical Toronto dumper, the tens of thousands on repairs and making the place livable. Everyone pays to live, whatever lifestyle choice they make.
But in general, the culture has equated debt=wealth, and will gladly continue to pile it on. The country is turning into a nation of debt slaves.
There are several reasons people are overspending:
Easy credit and "digital" money means people spend without grasping the physical concept of money. They never see it or touch it. If every time they spent a hundred bucks they had to count it out of their pile, people would choose more carefully what to spend it on. They only care about minimum monthly payments and not the long-term accumulation of interest.
As for housing, the past few decades have seen incredible gains in real estate wealth. Home ownership was pretty much a no-brainer for long-term planning. But times are different now. People move more frequently, they change jobs and careers, and families are not as stable as they used to be. Staying rooted for 20-30 years was once the norm, but is no longer the case. Plus, incomes are stagnant and debt continues to rise. Something has to give.
But still, people are obsessed with "owning" houses. They are even willing to forgo home inspections, overlook major structural issues, and pay way more than a home is worth just to claim their "prize" and get into the market. This is sheer lunacy. I've seen some of the dumps and piles of rotting asbestos-laden garbage that people are buying for crazy amounts. Why???? It is the herd mentality at work.
We live in a condo that would easily cost us over $1000 more per month than we're paying in rent to carry in ownership costs. That is money we save and invest. We also get the bonus of being able to move easily and to not be responsible for any of the potential maintenance issues or special assessments or condo board drama.
Yes, we trade off being able to stay as long as we like or paint the walls neon green. But life can change direction for anyone, and there are no guarantees even if you bought a place. We might have to leave when our lease is up, or we could be happy here for 10 years or more. In the meantime, we pay MUCH less to rent the unit, enjoy all the amenities and benefits without the headaches, and have access to all the things that make living in the city great. All while continuing to save and invest for the future.
People say renting is throwing money away. It's not. We get a nice place to live in exchange for our rent. People with mortgages always conveniently forget the money they throw away on land transfer double-dips, real estate fees, property taxes, mortgage interest, and if they bought the typical Toronto dumper, the tens of thousands on repairs and making the place livable. Everyone pays to live, whatever lifestyle choice they make.
But in general, the culture has equated debt=wealth, and will gladly continue to pile it on. The country is turning into a nation of debt slaves.
Also a happy renter here I have the income to outright buy the condo I live in, but I just don't see the need. Recently, I was shocked to find that my condo monthly maintenance fee (excluding mortgage) is pretty much the equivalent of what I pay in rent.
There are several reasons people are overspending:
Easy credit and "digital" money means people spend without grasping the physical concept of money. They never see it or touch it. If every time they spent a hundred bucks they had to count it out of their pile, people would choose more carefully what to spend it on. They only care about minimum monthly payments and not the long-term accumulation of interest.
As for housing, the past few decades have seen incredible gains in real estate wealth. Home ownership was pretty much a no-brainer for long-term planning. But times are different now. People move more frequently, they change jobs and careers, and families are not as stable as they used to be. Staying rooted for 20-30 years was once the norm, but is no longer the case. Plus, incomes are stagnant and debt continues to rise. Something has to give.
But still, people are obsessed with "owning" houses. They are even willing to forgo home inspections, overlook major structural issues, and pay way more than a home is worth just to claim their "prize" and get into the market. This is sheer lunacy. I've seen some of the dumps and piles of rotting asbestos-laden garbage that people are buying for crazy amounts. Why???? It is the herd mentality at work.
We live in a condo that would easily cost us over $1000 more per month than we're paying in rent to carry in ownership costs. That is money we save and invest. We also get the bonus of being able to move easily and to not be responsible for any of the potential maintenance issues or special assessments or condo board drama.
Yes, we trade off being able to stay as long as we like or paint the walls neon green. But life can change direction for anyone, and there are no guarantees even if you bought a place. We might have to leave when our lease is up, or we could be happy here for 10 years or more. In the meantime, we pay MUCH less to rent the unit, enjoy all the amenities and benefits without the headaches, and have access to all the things that make living in the city great. All while continuing to save and invest for the future.
People say renting is throwing money away. It's not. We get a nice place to live in exchange for our rent. People with mortgages always conveniently forget the money they throw away on land transfer double-dips, real estate fees, property taxes, mortgage interest, and if they bought the typical Toronto dumper, the tens of thousands on repairs and making the place livable. Everyone pays to live, whatever lifestyle choice they make.
But in general, the culture has equated debt=wealth, and will gladly continue to pile it on. The country is turning into a nation of debt slaves.
I need you to talk to my sister. I'm a home owner with no mortgage and almost always pay cash. I withdraw cash and use it to pay rather than a credit card or debit card.
The article above got me thinking, "Why do so many people want to own a house even though they know they can't afford it? I mean, why do they not try to go for an apartment/flat instead?"
Are most people not capable of controlling their urge to spend?
Let me get this straight in my head. You are concerned by people either not affording the house or property they are attempting to purchase but doing so regardless?
I'm wondering at the logic used to castigate someone who can afford the monthly carrying fees on a house that would normally be outside their income potential but not castigating those who just have to have as an obvious example, the latest greatest smart-phone with an unlimited data plan used solely to interact with social media sites and friends.
Real-estate equity, whether legitimately or not, is classed as 'gold plated' so that one could reasonably assume more relevantly than most other investments on getting back whatever one puts in with reasonable expectation of interest growth whereas all of these other credit card expenditures don't bother you a bit?
Young people with no write-down abilities leasing cars so they can drive the latest shiny example, I-phone 4's current for exactly one year getting dealt on the new 5's and subsequent 6's while still locked into a contract. Using your data plan to update your facebook, twitter, lynkdin account for no useful purpose other than to remain engaged 24/7 with your fellow buddies is just a passing fancy while actually building equity is to be scorned?
I don't get this at all.
I personally know a young couple who were living in the parents basement who were both attending university and working to put themselves through their program and sat down to discuss the prospect of purchasing a large double red brick house in Toronto that had been chopped into apartments. They convinced both sets of parents to co-sign to attain mortgaging and never looked back. The building easily paid for itself through rental fees and they garnered so much equity in such a short period they purchased a condo on their own.
They factored in such costs of daily commuting into Toronto vs living in one of those apartments in their newly purchase building and buying second hand lap-tops and learning how to upgrade those with higher capacity hardware guts they purchased and installed themselves.
No rational index existed showing these two could afford this property but with the help of mere signatures on mortgage papers and no other help at all they were proven to be able to financially prevail.
People denying themselves luxuries so that they can make a marginal purchase of real- estate are to be lauded, not scorned, in the same manner they would be encouraged to invest in some hi value mutual fund while foregoing the latest greatest shiny toy with a depreciation index greater than a submarine with a screen door.
It all comes down to your definition of the word "afford".
Let me get this straight in my head. You are concerned by people either not affording the house or property they are attempting to purchase but doing so regardless?
I'm wondering at the logic used to castigate someone who can afford the monthly carrying fees on a house that would normally be outside their income potential but not castigating those who just have to have as an obvious example, the latest greatest smart-phone with an unlimited data plan used solely to interact with social media sites and friends.
Real-estate equity, whether legitimately or not, is classed as 'gold plated' so that one could reasonably assume more relevantly than most other investments on getting back whatever one puts in with reasonable expectation of interest growth whereas all of these other credit card expenditures don't bother you a bit?
Young people with no write-down abilities leasing cars so they can drive the latest shiny example, I-phone 4's current for exactly one year getting dealt on the new 5's and subsequent 6's while still locked into a contract. Using your data plan to update your facebook, twitter, lynkdin account for no useful purpose other than to remain engaged 24/7 with your fellow buddies is just a passing fancy while actually building equity is to be scorned?
I don't get this at all.
I personally know a young couple who were living in the parents basement who were both attending university and working to put themselves through their program and sat down to discuss the prospect of purchasing a large double red brick house in Toronto that had been chopped into apartments. They convinced both sets of parents to co-sign to attain mortgaging and never looked back. The building easily paid for itself through rental fees and they garnered so much equity in such a short period they purchased a condo on their own.
They factored in such costs of daily commuting into Toronto vs living in one of those apartments in their newly purchase building and buying second hand lap-tops and learning how to upgrade those with higher capacity hardware guts they purchased and installed themselves.
No rational index existed showing these two could afford this property but with the help of mere signatures on mortgage papers and no other help at all they were proven to be able to financially prevail.
People denying themselves luxuries so that they can make a marginal purchase of real- estate are to be lauded, not scorned, in the same manner they would be encouraged to invest in some hi value mutual fund while foregoing the latest greatest shiny toy with a depreciation index greater than a submarine with a screen door.
It all comes down to your definition of the word "afford".
Thanks BruSan for this excellent counter-argument that provides some balance.
I've been a homeowner for more than 20 years now, and by market value evolution if I were to cash out now I'd have made about 300-400 k profit on the houses I've lived in, tax-free. Sure there has been (minimal in my case) maintenance and investments but overall I could argue that I have basically been living rent-free for the past two decades. In some pretty nice digs I might add. And you always have to have a roof over your head.
I am not saying that owning is the best thing for everyone, or even that's it's the best investment there is. Not even close.
But as you say, spending more on fancy cars, nice clothes, trips and restaurants is clearly money thrown out the window, at least compared to money spent on a house.
Money spent on food is not "wasted", it is true. But money spent at a restaurant meal that would cost one third of the money if prepared at home is technically a "waste". Hey, I love going to restaurants, don't get me wrong. But I don't think it's a good investment... or even an optimal use of my money.
"If it makes you happy"... applies to all of this: cars, clothes, hotels, bars, shows, restos, etc.
Not necessarily related to money-wise living though.
well, I guess every family outside suburban US/Canada/Australia has no life, because you know, most of them don't have a yard, or a room just to play the violin, or a guest room just to friends who visit 5 day a year. How often do you see a family with a huge and expensive kitchen primarily for the show, since most of what they cook is just making burgers, mixing some salads and roasting some beef or chicken in the oven? And for the 12th time, may I ask the child can play in the yard until what age? maybe 2 to 6? You can't expect a 11 year old to play in the small yard without feeling bored, can you?
It is often not about need. It is about "since everyone seems to have this and that, and that's the traditional way of life, so I should to". Admittedly all those are nice things to have, I would want all these if I could afford it too (a beautiful house in Rosedale or Yorkville would be nice), but stretching your budget too much to buy a house often doesn't improve your quality of life, it decreases it significantly (long commute, more boring and outlaying neighbourhoods, less money on other things and entertainment etc.).
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I have the income to outright buy the condo I live in, but I just don't see the need. Recently, I was shocked to find that my condo monthly maintenance fee (excluding mortgage) is pretty much the equivalent of what I pay in rent.
