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Actually, for most folks it's probably better to buy a house. It's a forced savings plan. Plus there are non-monetary advantages such as living in a "community", the psychic satisfaction of owning, etc.
Strictly using a monetary comparison, though, it would seldom pay to buy rather than rent the same house or condo or whatever if the difference is invested over the long run. House ownership comes with many expenses also and also the possible inflexibiity of moving at the drop of a hat. And if you buy at a high and have to move within several years, that can be a big negative also.
Owning a home free and clear also may prohibit someone from accumulating a pile of cash/investment money that can be used for a variety of things. Having a house paid off, but not having other monies, isn't necessarily a good thing.
I'm just trying to provide some balance here. Owning a house is not the perfect solution necessarily and is overrated in my opinion for many folks.
Like a lot of things, it all depends, in this case on the market in your area. Divided over 30 years, the house I bought is much less than an equivalent rental because I live in an area that was hit hard by the housing boom and bust. It was a catastrophic hit to our housing market, really, for about 6 years. If we were a bigger town like Las Vegas it would have been covered by the media, but we're a medium sized town that didn't hit the radar. We were hit by the recession but the only real jobs hit was in the construction jobs. Other than that, the jobs situation remained more or less the same.
The result is that now, there is a sizable population of people who have income but no credit because their houses got foreclosed on. Once the economy began to recover in 2012, rents skyrocketed, by close to 25-50% in 3 years. We will probably be another 5-6% increase at least by the end of 2015. Ie: the slumlord 2br apt I originally had when I moved here in 2011 was $585. They rented that apartment out when I left for $800 to the new tenant. That's a 39% increase over 4 years, most of it accruing in the last 2.
Prices to purchase have also increased, but not as drastically as rents. Combine that with living in an area where a lot of owners run vacation rentals, a regulatory climate that discourages cheap build-outs, and you have a serious rental crisis where people are starting to rent others living rooms, let along bedrooms.
In that climate, buying makes sense. Even taking into account the repairs I've had to do, if you spread that payment over 30 years and add it to my mortgage, it's still less than I was paying for a low-end 2br apartment.
In other locales were rents and prices/mortgages for equivalent properties are more or less even, yes, in that case renting makes more sense. YMMV.
How do you define millionaire? >$1M in assets? >$1M income per year? Neither is close to being the exclusive club it once was, and the first is downright common. Which is probably why the most popular vehicle owned by the general population is the same one that is popular with millionaires.
I grew up in a farming area where any and every farmer past middle age has >$1M in assets. This is normal for anyone who earns their living via a business of some kind rather than a job. Some are more capital intensive than others, but usually you end up with a lot of assets eventually if you stay afloat. This does *not* mean they have ever had high income or living standards.
Yeah, they need a better metric for rich people. A million bucks in net assets is pretty middle class any more. It's certainly not enough to let you go hog wild on a spending spree.
New House - $100,400 (The construction sizes have increased from about 1200 sq ft. to 2400 sq ft. in this time, [2] which is a full doubling.
Good exercise! Thanks for that.
But, I can't find any stats on new house size that go earlier than 1973 when the average was 1700 sq ft. New houses are ~2400 sq ft as you stated. I don't believe that new houses were 1200 sq ft in 1962. I also don't think that linear scaling by sq ft is sensible. A bigger house will certainly have more material, but a lot of costs like land, utilities, and fixtures in the house will not scale. Is buying a new 1200 sq ft for 50% of the price of the 2400 sq ft house ever possible? Nope. Look at a development of new houses sometime and see how well the price scales with size.
A big reason why new houses have gotten bigger is that only wealthier people can afford them, relative to 1962. At any rate the average new 2400 sq ft house in 2014 sold for $350k. That's a 3.5x real increase.
Yeah, they need a better metric for rich people. A million bucks in net assets is pretty middle class any more. It's certainly not enough to let you go hog wild on a spending spree.
It's quite a bit more than the average person has, but there are many people with high incomes who don't accumulate assets. Rather they spend what the make and live it up. No reason why they can't. Meanwhile people who *live* at a below median level can accumulate >$1M in assets before they retire without even trying.
Average wealth in the US is $300k per adult. Median is only $45k. Yikes! I'm way above median in wealth, but I've had below poverty level income for 25 years.
No, only healthcare and higher education are like that. The others on your list are quite in line with the CPI.
The CPI has increased approximately 8-fold since 1962, for example. Let's look at costs from [1] in 1962.
If we multiply everything on the list by 8, in accordance with CPI, we get:
New House - $100,400 (The construction sizes have increased from about 1200 sq ft. to 2400 sq ft. in this time, [2] which is a full doubling. Adjusting for this, we come to $200,800) Average Income - $44,448
New Car - $23,392
Average Rent - $880/month Harvard Tuition - $12,160 per year
Movie Ticket - $8.00 Gasoline - $2.16 per gallon Postage Stamp - $0.32 per stamp
Commentary:
House - After adjusting to square feet, we see that we are similar to modern values
Income - Similar to modern values
New Car - Similar to modern "base" models, without bells and whistles
Rent - Similar to modern values, outside of big cities. Keep in mind that there has been a shift of population to cities, so the fair comparison is to non-urban regions here. In light of that, an apartment going for $880/month should be considered as similar to modern values
Harvard Tuition - Yes, this has increased much faster than CPI. For the current academic year it is $43,938.
Movie Ticket - Similar to modern values. The last two tickets I bought were $9.00 each
Gasoline - Similar to modern values, for now at least(!). Obviously there is a lot of fluctuation on this.
Postage Stamp - we are right now at 46 cents. This has gone up faster than the CPI, which may be partially due to fiscal difficulties with the USPS resulting from reduction in mail usage and its replacement by electronic modes of communication...
What's wrong with your commentary Income - household income used to be primarily 1 earner, although some wives did something so let's say 1.5 earners. Now we're at $53,000 median income with two earner households. House - Please tell me where I can find a 1200 sq. ft. house for $100K!!!! Please oh pretty please! I did a zillow search and in my entire state of Oregon there are precisely 35 listings that match the criteria 1150-1250 sq.ft. and 90-110K. For the entire state! In the Portland area where your best hope of getting a job is - one! And it's a crappy townhome in the absolute worst, most crime ridden area you can possibly live in. Most of the others are in places where no jobs exist. Even in the cheaper neighboring state of Idaho, they are hard to find. The best concentrations of those properties that I can see the closest to me are Las Vegas, NV and Phoenix, AZ. Sorry, but moving 1200 miles is not exactly cheap! Tuition - It isn't just Harvard. My very own alma mater has increased by 100% since I went there. I went to an Average State Unversity in Texas. I'm only 32! I attended there less than 8 years ago and now the same school costs double. That's means it had to go up about 10% per year since I graduated in 2007. Gasoline - Prices were at that appropriate level for about a month and will soon go back to $4.00 which is double the CPI.
People today have much higher expectations in my opinion. People "deserve" a BMW or $800 smart phone. When I started out, I had only a used motorcycle for several years, then bought an old Chevy Nova. I lived with room mates until I saved enough to buy a house then they paid me rent. I maxed out my 401k once I was starting to get financially comfortable. I had a very strict budget and stuck to it. If you are willing to make sacrifices and plan long term, you can get ahead. You don't have to be the smartest guy in the room, just smarter than most of the guys in the room. If you aren't motivated to change your position in life and have to own the latest car, technology etc. well then......................
What's wrong with your commentary Income - household income used to be primarily 1 earner, although some wives did something so let's say 1.5 earners. Now we're at $53,000 median income with two earner households.
Two income households have higher work-related costs (commuting, fast food, child care) than single-earner households. It's probably roughly a wash and comes to not to far from $44,000 once you subtract the additional costs.
Quote:
Originally Posted by redguard57
House - Please tell me where I can find a 1200 sq. ft. house for $100K!!!! Please oh pretty please! I did a zillow search and in my entire state of Oregon there are precisely 35 listings that match the criteria 1150-1250 sq.ft. and 90-110K. For the entire state! In the Portland area where your best hope of getting a job is - one! And it's a crappy townhome in the absolute worst, most crime ridden area you can possibly live in. Most of the others are in places where no jobs exist. Even in the cheaper neighboring state of Idaho, they are hard to find. The best concentrations of those properties that I can see the closest to me are Las Vegas, NV and Phoenix, AZ. Sorry, but moving 1200 miles is not exactly cheap!
Of course you need to widen your search criteria. Also, yes, some areas are more expensive than others. This does not detract from the main point though. There are plenty of cheap places and moving costs are not part of the equation - you can't compare house price in 1962 to house price plus moving cost now. You either have to include the moving costs for both, or for neither.
Quote:
Originally Posted by redguard57
Tuition - It isn't just Harvard. My very own alma mater has increased by 100% since I went there. I went to an Average State Unversity in Texas. I'm only 32! I attended there less than 8 years ago and now the same school costs double. That's means it had to go up about 10% per year since I graduated in 2007.
I already admitted tuition has gone up a lot, no need to argue this point.
Quote:
Originally Posted by redguard57
Gasoline - Prices were at that appropriate level for about a month and will soon go back to $4.00 which is double the CPI.
We will see. They were at that level adjusted for the CPI also in much of the 1970's. As I said it fluctuates quite a bit.
I was talking specifically of the poor. They mostly don't work and if they do, not hard enough. Their lack is one of character. All their food, medical, transportation, cell phone (in NY), education, housing is paid for. They fail to take advantage of it. They don't try to better themselves.
I don't agree that the poor mostly don't work.
I would agree that for those that don't work, you have a point.
But, I can't find any stats on new house size that go earlier than 1973 when the average was 1700 sq ft. New houses are ~2400 sq ft as you stated. I don't believe that new houses were 1200 sq ft in 1962. I also don't think that linear scaling by sq ft is sensible. A bigger house will certainly have more material, but a lot of costs like land, utilities, and fixtures in the house will not scale. Is buying a new 1200 sq ft for 50% of the price of the 2400 sq ft house ever possible? Nope. Look at a development of new houses sometime and see how well the price scales with size.
A big reason why new houses have gotten bigger is that only wealthier people can afford them, relative to 1962. At any rate the average new 2400 sq ft house in 2014 sold for $350k. That's a 3.5x real increase.
Look at reference #2 in my earlier post. The house sizes were indeed just around 1200 sq ft. so once adjusted it is at most a 1.75-fold increase, not a 3.5-fold one.
Two income households have higher work-related costs (commuting, fast food, child care) than single-earner households. It's probably roughly a wash and comes to not to far from $44,000 once you subtract the additional costs.
Of course you need to widen your search criteria. Also, yes, some areas are more expensive than others. This does not detract from the main point though. There are plenty of cheap places and moving costs are not part of the equation - you can't compare house price in 1962 to house price plus moving cost now. You either have to include the moving costs for both, or for neither.
I already admitted tuition has gone up a lot, no need to argue this point.
We will see. They were at that level adjusted for the CPI also in much of the 1970's. As I said it fluctuates quite a bit.
You can find housing that's cheap, but is it where jobs are? Typically not. I did a national job search 4 years ago and while there were wide variance in the offers, they were all in the same ballpark when you priced out the housing. Places where the cheaper housing is also don't have many well paying jobs. Places that have well paying jobs don't have cheaper housing unless you make a big sacrifice like driving an hour.
Ie: I had a job offer in Huntington Beach, CA and they were going to pay me about $70K to start. Beautiful, awesome place and it was a good 25K more than I was making. But after taxes, the housing I could have afforded to buy in that area would have been about an hour away from the workplace on a light traffic day. I had multiple offers from other states, ie: Billings, Montana, where you can get a starter house for less than $100K but they were only going to pay me about $35K and that was after I argued that their initial offer was too low.
The income:house ratio has gone WAY up. You need to be about twice as well off as in the 1960s/70s to buy a house. I followed my mom's path quite closely; actually did a little better than her in college and in the 1970s when she was at my current place in her career, she easily afforded a modest house in a reasonable neighborhood, whereas I had to take a major fixer.
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