Renting Until Retirement

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Topic Author
splat789
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Renting Until Retirement

Post by splat789 »

Hello All,

I wasn't able to purchase a house prior to the huge runup in prices a few years ago, and now I am nearly priced out of the HCOL area where I work. Average single family homes here are now 600k+, and require PITI of $3680+/month with a 20% downpayment. Purchasing one of these houses now with a 20% downpayment puts the PITI at 48% of my $7700 base take home pay, and would require a downpayment of 53% to get to a reasonable PITI of 30% of my base take home pay. I do have enough in investments to make the 53% downpayment, but it would take over half of my taxable account value.

Would it be unwise to continue working in this area and renting while investing for the next 15 years with the goal of retiring, and then moving to a LCOL area to buy a house cash? I used to think this was a pretty solid plan, but seeing houses in LCOL areas all across the country explode in price over the last few years at appreciation rates previously reserved only for HCOL and VHCOL areas has me worried about what house prices will look like anywhere in this country in 15 years. It seems that the majority of the market forecasts say that the US stock market will provide low returns 3-5% over the next decade due to high valuations, while real estate will continue to go up higher than inflation 8-10% because there is a supply shortage. There is also the potential that the stock market could crash within the next 15 years and not recover around the time I would like to retire and buy the house.

If stocks are not expected to keep pace with real estate over the next 10-15 years, then is there another asset class that would maintain my purchasing power in real estate? I could potentially move to a LCOL area to buy a house now, but there aren't too many of these areas where I would want to live that I could also easily find another job in my profession. I feel like I am stuck between a rock and hard place, and would like some outside input on what the best course of action might be for my situation.
Last edited by splat789 on Mon Jul 08, 2024 8:33 am, edited 8 times in total.
BirdFood
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Re: Renting Until Retirement

Post by BirdFood »

I have no idea if this makes sense—very likely not—but you haven’t mentioned the possibility of buying a home in a LCOL area to rent out as a landlord.
Topic Author
splat789
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Re: Renting Until Retirement

Post by splat789 »

I do not want to be a landlord let alone an out of state landlord, so I was not seriously considering that as a possibility for myself. I did look at the option of trying to buy a house cash in a LCOL area that I leave unoccupied while I continue working and renting where I live now, but there seems to be a number of pitfalls that make me hesitant to go this route either.

Most of the reasonably priced houses left are in the Midwest or Southeast where there is also a high risk of natural disasters like flooding, hurricanes, hail, high winds, and tornadoes causing damage that I would have to be able to detect and address from out of state, and there is also the possibility of squatters entering and living in the house. This option would require hiring someone to check on the house weekly or monthly, but it doesn't seem like this is a common service for homeowners because I couldn't find much information on it.
Last edited by splat789 on Mon Jul 08, 2024 8:23 am, edited 2 times in total.
chassis
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Re: Renting Until Retirement

Post by chassis »

Renting is a legitimate option.

Principal dwelling real estate delivers inferior total returns compared with the same principal invested in equities. Real estate has the added disadvantage of illiquidity. On a financial basis you will be better off renting and investing.
bombcar
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Re: Renting Until Retirement

Post by bombcar »

The real question isn’t financial.

Can you steel yourself to retire and leave your area? Some people say they will, but family and friends means they just keep renting smaller and smaller apartments until they buy that final plot of land. If you’re pretty certain that isn’t what you’ll do for whatever reason, then renting until buying makes sense is the way to go.

Note that you should check about once a year what your “buy here” picture looks like - because maybe in 5 years you can buy where you are because of any number of factors.
z3r0c00l
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Re: Renting Until Retirement

Post by z3r0c00l »

Owning a home isn't all its cracked up to be. It is very expensive on multiple fronts, not only do you tie up large amounts of money that can't be invested, but you also have new expenses that renters (like me) don't have to worry about. A new roof, insurance, property taxes, water taxes, etc. Then in addition to all that, if the market has a downturn and you need the money or want to move, selling can take months or years, or you could sell at a major loss.

I live in a VHCOL and my apartment ($1900 a month) would cost perhaps $500-600,000 to buy. Then on top of that purchase price would be mortgage interest and maintenance costs of a minimum of $600 a month, over $1200 a month for a fancy building.

Buying makes more sense when the leverage situation is cheaper. If mortgage rates are cut in half, I would think it more interesting. 7.4%? I don't think so. And by the way, this very conversation we are having is what the FED wants us to do.
70% Global Stocks / 30% Bonds
Topic Author
splat789
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Re: Renting Until Retirement

Post by splat789 »

The US median home price in 2024 is $361K according to Zillow, and I calculate that it could be as high as $1.5 million if houses continue appreciating by 10%/year for the next 15 years due to the shortage. I calculate that my $580K taxable account would only grow to 1.49 million in 15 years assuming I get the predicted 3% stock returns while also investing every extra dollar I make into the account beyond my pretax 401K contributions and basic living expenses.

The thought of spending 15 more years renting while diligently investing all of my extra money into stocks to potentially end up being much worse off than I am now where the value of my taxable account is only 1X the value of the median US house when it is currently at 1.6X frankly scares the heck out of me. I know that expert predictions have often been wrong, but this scenario seems plausible with CAPE valuations for the US stock market at 34 and a real supply shortage in housing that most experts are saying could take 15-20 years to reverse. I think I need to find another investment vehicle for my taxable account that can keep pace with or beat real estate over the next 15 years if stocks are not likely to do the job.
Wrench
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Re: Renting Until Retirement

Post by Wrench »

Home ownership: real case. Purchased home with ~20% down 37 years ago. Current home value is just slightly over the inflation adjusted price I paid 37 years ago, not including taxes, maintenance, etc. If I sold today, the after expense inflation adjusted profit would be zero or maybe even negative. Of course, it all depends on where you buy, what you pay when you buy, costs to renovate/maintain, etc. Certainly it is possible to make a killing in real estate, but it is not a given. So sure, keep renting and saving as long as you are satisfied with where you live and its cost. You can reassess periodically - maybe in future years mortgage rates and home prices will drop and it will make more sense to buy in your current location then.

Wrench
bombcar
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Re: Renting Until Retirement

Post by bombcar »

Remember to temper your assumptions. If the average house appreciates that much builders will appear out of nowhere to create more supply. Over long enough periods of time the average house has to be affordable by the average worker.

The pandemic caused house prices to “realign” where the VLCOL and VHCOL got closer together but that’s mainly due to remote work options now available.

We can’t predict the future but I’m pretty confident that if the average house in 15 years costs 1.2m the average salary will have to be something like $260k.

Or to put it another way I’d gladly sign a contract today to sell you my house for only $1m in 15 years. :o
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BrooklynInvest
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Re: Renting Until Retirement

Post by BrooklynInvest »

splat789 wrote: Mon Jul 08, 2024 1:40 am It seems that the majority of the market forecasts say that the US stock market will provide low returns 3-5% over the next decade due to high valuations, while real estate will continue to go up higher than inflation 8-10% because there is a supply shortage.
First, I'd question your core assumption. "Real estate" is 100 million houses across 50 states, plus commercial properties from strip malls to skyscrapers plus stuff yet to be built. Some neighborhoods will grow exponentially, others will stagnate... at best.

Second, as others have said, definitely nothing wrong with renting. To me the key determinant of rent versus buy is lifestyle. Are you planning on staying put for a good five-plus years? Is the place you might buy going to align with your (and your family's) lifestyle as it changes?

Third, I'm a small scale landlord - 2-family home. It's worked out very well for me. There's no way I'd do it remotely. We inherited a house in another state. The costs and annoyances of getting stuff done from a distance wouldn't make it a worthwhile investment in our case.

Good luck OP!
Topic Author
splat789
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Re: Renting Until Retirement

Post by splat789 »

If it's the case that many new builders will appear and build at a much higher pace to flatten or bring down prices, then why are we even in the shortage situation we are in now? The story I keep hearing is that we have still have fewer homebuilders that we did 16 years ago pre-GFC resulting in the number of new houses being built not keeping pace with demand, existing builders only interested in building large luxury homes and not affordable starter homes, local regulations that are designed to keep home values up to the benefit of existing homeowners preventing more building from occurring, most existing homeowners locked into cheap 2.5% pandemic mortgages that significantly reduce existing supply, builders having difficulty finding skilled labor. It seems there would have to be a major event occur to break the current trajectory of housing inflation.
chassis
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Re: Renting Until Retirement

Post by chassis »

splat789 wrote: Mon Jul 08, 2024 6:39 am The US median home price in 2024 is $361K according to Zillow, and I calculate that it could be as high as $1.5 million if houses continue appreciating by 10%/year for the next 15 years due to the shortage. I calculate that my $580K taxable account would only grow to 1.49 million in 15 years assuming I get the predicted 3% stock returns while also investing every extra dollar I make into the account beyond my pretax 401K contributions and basic living expenses.

The thought of spending 15 more years renting while diligently investing all of my extra money into stocks to potentially end up being much worse off than I am now where the value of my taxable account is only 1X the value of the median US house when it is currently at 1.6X frankly scares the heck out of me. I know that expert predictions have often been wrong, but this scenario seems plausible with CAPE valuations for the US stock market at 34 and a real supply shortage in housing that most experts are saying could take 15-20 years to reverse. I think I need to find another investment vehicle for my taxable account that can keep pace with or beat real estate over the next 15 years if stocks are not likely to do the job.
Warning: you are looking at price appreciation, not total return.

Do you know what total return is?
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splat789
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Re: Renting Until Retirement

Post by splat789 »

I was looking at the compound return over 15 years using 3%/year for US stocks while adding 30K/year starting at 580K, and 10%/year for real estate starting at 361K. The 3% forecasted US stock return over the next decade predicted by Vanguard and others is total return including dividends and capital appreciation.

https://www.calculator.net/future-value ... #calresult

https://www.calculator.net/future-value ... #calresult

https://advisors.vanguard.com/insights/ ... ng-markets
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Watty
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Re: Renting Until Retirement

Post by Watty »

splat789 wrote: Mon Jul 08, 2024 1:40 am Would it be unwise to continue working in this area and renting while investing for the next 15 years with the goal of retiring, and then moving to a LCOL area to buy a house cash? I used to think this was a pretty solid plan,....
A big problem with that plan is that there is a good chance that you will not actually want to move when you retire. By then you could have more ties with your current area and may not want to move then.

I did a cross country job relocation when I was somewhere around your age. The plan was that I would work their until I retired then we would move to some retirement destination. By the time I retired my son had graduated from college and was married to a woman with strong family times to this area. They bought a house which is about ten minutes from us and now have two kids(our grandkids). Once they settled in the area the idea of moving away from them went out the window so we are staying here. It has actually worked out well but it is not what we were planning on.

Even if you do not have kids or a spouse you might be in a relationship with someone by the time you retire with someone who does have strong times to your current area.

I would suggest that you take hard look at finding some affordable area that you would want to retire in and moving there now.
splat789 wrote: Mon Jul 08, 2024 1:40 am Average single family homes here are now 600k+.....
....
I do have enough in investments to make the 53% downpayment, but it would take over half of my taxable account value.
Keep in mind that you may not need an "average" house especially if you do not have kids and don't need good schools.

I did not follow your numbers but it sounds like you could reasonably pay cash for a house, townhouse, or condo in the $400K to $500K price range. The current interest rates don't really matter much if you have a very small or no mortgage.
Last edited by Watty on Mon Jul 08, 2024 10:12 am, edited 1 time in total.
muffins14
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Re: Renting Until Retirement

Post by muffins14 »

splat789 wrote: Mon Jul 08, 2024 6:39 am The US median home price in 2024 is $361K according to Zillow, and I calculate that it could be as high as $1.5 million if houses continue appreciating by 10%/year for the next 15 years due to the shortage. I calculate that my $580K taxable account would only grow to 1.49 million in 15 years assuming I get the predicted 3% stock returns while also investing every extra dollar I make into the account beyond my pretax 401K contributions and basic living expenses.

The thought of spending 15 more years renting while diligently investing all of my extra money into stocks to potentially end up being much worse off than I am now where the value of my taxable account is only 1X the value of the median US house when it is currently at 1.6X frankly scares the heck out of me. I know that expert predictions have often been wrong, but this scenario seems plausible with CAPE valuations for the US stock market at 34 and a real supply shortage in housing that most experts are saying could take 15-20 years to reverse. I think I need to find another investment vehicle for my taxable account that can keep pace with or beat real estate over the next 15 years if stocks are not likely to do the job.
The average home will not appreciate 10% annually for 15 years. If it does, I will buy you an ice cream cone of your choice.
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rockstar
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Re: Renting Until Retirement

Post by rockstar »

You have no idea what you’re going to end up with when you buy a home. Stuff breaks. I wouldn’t want to deal with housing issues at the beginning of my retirement. It’s hard to budget home maintenance if you haven’t lived in the home for a couple of years.
Topic Author
splat789
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Re: Renting Until Retirement

Post by splat789 »

There are relevant sources projecting that the average US home price will be over 1 million by 2040.

https://www.noradarealestate.com/blog/w ... e-in-2040/
Topic Author
splat789
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Re: Renting Until Retirement

Post by splat789 »

It is possible because home prices are not limited by median household incomes. As house prices continue to increase at a high rate of return, they will mostly be purchased by investors and high net worth individuals/groups primarily as an investment vehicle. We will see the middle class continue to shrink and largely become a permanent class of renters.
Last edited by splat789 on Mon Jul 08, 2024 10:34 am, edited 4 times in total.
dorster
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Re: Renting Until Retirement

Post by dorster »

splat789 wrote: Mon Jul 08, 2024 1:40 am Would it be unwise to continue working in this area and renting while investing for the next 15 years with the goal of retiring, and then moving to a LCOL area to buy a house cash?
Without more details, just conceptually, this is the way to maximize your NW. Renting (a smaller, but still nice, place than you would buy as a forever home) while working a (presumably highish paying) job is cheaper than owning in a HCOL area.

America is filled with fun, cheapish, beautiful places to live when you no longer need to live near a good job.

Homeownership is mainly useful as a way to increase quality of life (for some people) and as a means of forced saving on those who aren't inclined to save.
miket29
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Re: Renting Until Retirement

Post by miket29 »

splat789 wrote: Mon Jul 08, 2024 1:40 am I wasn't able to purchase a house prior to the huge runup in prices a few years ago, and now I am nearly priced out of the HCOL area where I work.
Would it be unwise to continue working in this area and renting while investing for the next 15 years with the goal of retiring, and then moving to a LCOL area to buy a house cash? I feel like I am stuck between a rock and hard place, and would like some outside input on what the best course of action might be for my situation.
I read this over a few times and something struck me as missing. I finally realized what. Without you presenting any alternative actions you'd consider doing today, there is no decision to be made. You'll rent. All that's left is speculation on what you may or may not decide to do 15 years in the future.
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splat789
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Re: Renting Until Retirement

Post by splat789 »

I presented some options, but I am asking for input on alternatives I may have missed as well as what would be the best course of action for me to own a paid off house in 15 years when I would like to retire. The options I see are:

1. Do nothing and continue renting and investing in stocks for 15 years until I retire with the hope that stocks keep pace with or beat real estate.
2. Continue renting and investing for 15 years, but shift taxable assets out of stocks to another asset that will be more likely to keep pace with real estate.
3. Buy a house where I currently live now with a 52%+ downpayment.
4. Buy undeveloped land where I currently live and build a more affordable house than what I can buy. I don't know much about homebuilding, so I have reservations about how much this could actually cost and how difficult it might be.
5. Find a job in a LCOL area and move there now so I can buy a house comfortably with a 20% downpayment. There are a limited number of LCOL areas where I could get another job in my profession, and I am not overly confident I could find another job that wouldn't result in a reduction in pay and quality of work environment.
6. Buy a house cash in a LCOL area now and leave it unoccupied for 15 years until I retire. This would most likely require me to hire someone to check on the house weekly or monthly.
7. Buy undeveloped land in a LCOL area now and build a new house cash in 15 years when I retire. This presents the same problem as me trying to build a new house now, but perhaps I would have more time to devote to this after I retire.
Last edited by splat789 on Mon Jul 08, 2024 11:17 am, edited 3 times in total.
KlangFool
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Re: Renting Until Retirement

Post by KlangFool »

splat789 wrote: Mon Jul 08, 2024 11:02 am I presented some options, but I am asking for input on alternatives I may have missed as well as what would be the best course of action for me to own a paid off house in 15 years. The options I see are:

1. Do nothing and continue renting and investing in stocks for 15 years until I retire with the hope that stocks keep pace with or beat real estate.
splat789,

Option 1. Given that the US median household income is not keeping up with the housing inflation, there is no demand to keep this going for 15 years.

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Topic Author
splat789
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Re: Renting Until Retirement

Post by splat789 »

Why do you believe that house prices are limited by median household income? I'm not sure there has ever been a medium to long term period where house prices have not increased at a pace higher than incomes. Historical housing inflation is 4-5%, but incomes at best increase 2%. The difference now is that we are in a real housing shortage that will take 15-20 years to reverse, so what is going to reduce the demand?

Every median income earner that gets priced out of the market will just be replaced by a corporate investor, individual investor, high net worth individual, or the new trend of friends buying houses together. Polls show that the average American believes that real estate is the best investment, and now expect stock market level 8-10% returns after experiencing the last few years.

https://finance.yahoo.com/news/american ... 17951.html

https://time.com/6987131/buying-homes-with-friends/
Last edited by splat789 on Mon Jul 08, 2024 11:43 am, edited 2 times in total.
THY4373
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Re: Renting Until Retirement

Post by THY4373 »

OP I rented post divorce until close to my retirement by choice as I wasn't sure where I wanted to end up. It (mostly worked out for me). A couple of thoughts and reflections:

1). You honestly have no idea where your life will be in 15 years so I personally would not be trying to lock in a place now unless you were going to live in it. 15 years prior to my planned retirement (2026) I was happily married and had things all planned out. But then the marriage started to crumble and life and plans were reset. Honestly my divorce was one of the best things to happen to me (I am loving my life now) but my predictions from 15 years ago about where I would want to live, how I would want to live, etc., would have been almost entirely wrong.

2). I think projecting the last few years of real estate appreciation out 15 years is unlikely. Nobody can predict the future but I cannot see 10% a year gains for the next 10 years as anything other than highly unlikely.

3). Three it is very likely your choices will change but that is hard to predict. Some places you like might get more expensive some may get cheaper. In the end you will only know the optimum path in retrospect. I clearly would have been better off to buy in 2019 or early 2020 vs late 2022 but I don't beat myself up over it.
Marq1
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Re: Renting Until Retirement

Post by Marq1 »

Location, location, location!

There is no way anybody can answer that question because nobody knows how that market will trend with time. Some will far exceed the general upward trend of the stock market, some will lag.

You and your research are the only answer!
THY4373
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Re: Renting Until Retirement

Post by THY4373 »

splat789 wrote: Mon Jul 08, 2024 11:31 am Why do you believe that house prices are limited by median household income?
The house I live in of which I am the second owner has literally just kept up with inflation over its 32 year life in fact it was below inflation until the last couple of years kicked it up a fair amount. This is a high quality home in a desirable location in my second tier East Coast city. In fact most houses I looked at here were largely below or at inflation over their lifetimes. Now the last few years have been an outlier and maybe that will stick and maybe it won't. I'd say most of the uptick here has been due to folks moving from NYC and DMV whether that sticks or not who knows.
smitcat
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Re: Renting Until Retirement

Post by smitcat »

splat789 wrote: Mon Jul 08, 2024 11:02 am I presented some options, but I am asking for input on alternatives I may have missed as well as what would be the best course of action for me to own a paid off house in 15 years when I would like to retire. The options I see are:

1. Do nothing and continue renting and investing in stocks for 15 years until I retire with the hope that stocks keep pace with or beat real estate.
2. Continue renting and investing for 15 years, but shift taxable assets out of stocks to another asset that will be more likely to keep pace with real estate.
3. Buy a house where I currently live now with a 52%+ downpayment.
4. Buy undeveloped land where I currently live and build a more affordable house than what I can buy. I don't know much about homebuilding, so I have reservations about how much this could actually cost and how difficult it might be.
5. Find a job in a LCOL area and move there now so I can buy a house comfortably with a 20% downpayment. There are a limited number of LCOL areas where I could get another job in my profession, and I am not overly confident I could find another job that wouldn't result in a reduction in pay and quality of work environment.
6. Buy a house cash in a LCOL area now and leave it unoccupied for 15 years until I retire. This would most likely require me to hire someone to check on the house weekly or monthly.
7. Buy undeveloped land in a LCOL area now and build a new house cash in 15 years when I retire. This presents the same problem as me trying to build a new house now, but perhaps I would have more time to devote to this after I retire.
Buy a multifamily or "mother daughter' home now where you currently live and rent out the part(s) you do not need.
Similar approaches work if the potential home has legal options for inside storage, outside storage, horses, etc.
smitcat
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Re: Renting Until Retirement

Post by smitcat »

Marq1 wrote: Mon Jul 08, 2024 11:40 am Location, location, location!

There is no way anybody can answer that question because nobody knows how that market will trend with time. Some will far exceed the general upward trend of the stock market, some will lag.

You and your research are the only answer!
Exactly - well stated.
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splat789
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Re: Renting Until Retirement

Post by splat789 »

I do not want to be a landlord, so purchasing a multifamily that I live in or buying a house and renting out rooms is not something I would consider as an option for myself.
bombcar
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Re: Renting Until Retirement

Post by bombcar »

If you don't see the issue with the median household income not being able to buy the median house, there's not much more that can be said.

If you really REALLY must be absolutely sure you own a house in 15 years, you need to execute on a plan to do that.

Maybe it means going below the average, maybe moving, maybe commuting further.

Builders aren't building starter homes because ... wait, they are. They're just called townhomes these days, and they're not being built in downtown San Francisco.

Here, I found you a house: https://www.zillow.com/homedetails/712- ... 7576_zpid/

But if you're sure prices will go up 10% a year for 15 years, why haven't you already bought? That's the best investment anyone could ask for.

You're afraid they will do that, and that you "missed the boat" but I have missed many boats, and some of them have sunk quite dramatically.

This isn't really a financial question, it's a fear question.
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splat789
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Re: Renting Until Retirement

Post by splat789 »

Yes I am afraid that house prices will continue to increase at a much higher pace than inflation over the next 15 years, which I believe is a rational response to the current shortage conditions, medium term pace of increase, and expert forecasts. I haven't already bought because of insecurity in my employment throughout the pandemic, the inertia of not really wanting to make a major change my living situation if I don't have to, and the mistaken belief that the housing market was set to experience deflation.

I was hoping I could just ride it out at my current job for 15 more years while renting and investing in the stock market to keep up with real estate, and then retire to a LCOL area where I could easily purchase a house cash. I am only seriously considering changing course from this plan because I MUST own a paid off house at retirement, and the conditions in both the real estate market and stock market are making me consider the possibility that I may never be able to comfortably own a house anywhere if the worst case projections play out.
rockstar
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Re: Renting Until Retirement

Post by rockstar »

splat789 wrote: Mon Jul 08, 2024 12:35 pm Yes I am afraid that house prices will continue to increase at a much higher pace than inflation over the next 15 years, which I believe is a rational response to the current shortage conditions, medium term pace of increase, and expert forecasts. I haven't already bought because of insecurity in my employment throughout the pandemic, the inertia of not really wanting to make a major change my living situation if I don't have to, and the mistaken belief that the housing market was set to experience deflation.

I was hoping I could just ride it out at my current job for 15 more years while renting and investing in the stock market to keep up with real estate, and then retire to a LCOL area where I could easily purchase a house cash. I am only seriously considering changing course from this plan because I MUST own a paid off house at retirement, and the conditions in both the real estate market and stock market are making me consider the possibility that I may never be able to comfortably own a house anywhere if the worst case projections play out.
Rents by me have more than doubled over the past 15 years. And homes have grown a bit more than 2% above inflation.

What you’re missing is that homes are highly leveraged.
goonie
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Re: Renting Until Retirement

Post by goonie »

Do you see the irony in insisting that you know what's going to happen with both the stock and real estate markets over the next 15 years while at the same time asking for advice on what real estate to buy and where?
KlangFool
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Re: Renting Until Retirement

Post by KlangFool »

splat789 wrote: Mon Jul 08, 2024 12:35 pm
Yes I am afraid that house prices will continue to increase at a much higher pace than inflation over the next 15 years, which I believe is a rational response to the current shortage conditions, medium term pace of increase, and expert forecasts
How is this rational when the income does not keep pace with the inflation? Where is the demand? If there is no demand, where is the supply shortage?

Over the last 10+ years, the median income has not keep pace with the inflation. Why do you think it will change over the next 15 years?

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splat789
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Re: Renting Until Retirement

Post by splat789 »

KlangFool wrote: Mon Jul 08, 2024 1:52 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pm
Yes I am afraid that house prices will continue to increase at a much higher pace than inflation over the next 15 years, which I believe is a rational response to the current shortage conditions, medium term pace of increase, and expert forecasts
How is this rational when the income does not keep pace with the inflation? Where is the demand? If there is no demand, where is the supply shortage?

Over the last 10+ years, the median income has not keep pace with the inflation. Why do you think it will change over the next 15 years?

KlangFool
Housing prices are not limited by median income because there is essentially unlimited demand from institutional investors, foreign investors, individual investors, high net worth individuals, and now people buying houses with friends after they get priced out. There is no magic ceiling that prices cannot rise beyond just because median income people cannot afford to buy houses any longer. In fact pricing out the median income from ownership is beneficial for real estate investors because that drives up demand for rentals.
smitcat
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Re: Renting Until Retirement

Post by smitcat »

splat789 wrote: Mon Jul 08, 2024 12:35 pm Yes I am afraid that house prices will continue to increase at a much higher pace than inflation over the next 15 years, which I believe is a rational response to the current shortage conditions, medium term pace of increase, and expert forecasts. I haven't already bought because of insecurity in my employment throughout the pandemic, the inertia of not really wanting to make a major change my living situation if I don't have to, and the mistaken belief that the housing market was set to experience deflation.

I was hoping I could just ride it out at my current job for 15 more years while renting and investing in the stock market to keep up with real estate, and then retire to a LCOL area where I could easily purchase a house cash. I am only seriously considering changing course from this plan because I MUST own a paid off house at retirement, and the conditions in both the real estate market and stock market are making me consider the possibility that I may never be able to comfortably own a house anywhere if the worst case projections play out.
Based upon all of your posts in this thread I believe you best bet is to continue renting.
BirdFood
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Re: Renting Until Retirement

Post by BirdFood »

splat789 wrote: Mon Jul 08, 2024 12:35 pmbecause I MUST own a paid off house at retirement
I must be missing something--why is this mandatory?
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splat789
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Re: Renting Until Retirement

Post by splat789 »

BirdFood wrote: Mon Jul 08, 2024 2:10 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pmbecause I MUST own a paid off house at retirement
I must be missing something--why is this mandatory?
Because I do not want my housing security to be at the mercy of a landlord in my elder years when I am no longer earning an income.
BirdFood
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Re: Renting Until Retirement

Post by BirdFood »

splat789 wrote: Mon Jul 08, 2024 2:17 pm
BirdFood wrote: Mon Jul 08, 2024 2:10 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pmbecause I MUST own a paid off house at retirement
I must be missing something--why is this mandatory?
Because I do not want my housing security to be at the mercy of a landlord in my elder years when I am no longer earning an income.
But that still makes it a preference--a high priority preference, but nevertheless a preference. The money you're putting into stocks will likely leave you fairly well-off, rather than a penniless renter at the mercy of the landlord.

Also does it need to be a literal 'house'--free-standing, with a yard? Or just housing that you own, such as a modest condo?
KlangFool
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Re: Renting Until Retirement

Post by KlangFool »

splat789 wrote: Mon Jul 08, 2024 1:59 pm
KlangFool wrote: Mon Jul 08, 2024 1:52 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pm
Yes I am afraid that house prices will continue to increase at a much higher pace than inflation over the next 15 years, which I believe is a rational response to the current shortage conditions, medium term pace of increase, and expert forecasts
How is this rational when the income does not keep pace with the inflation? Where is the demand? If there is no demand, where is the supply shortage?

Over the last 10+ years, the median income has not keep pace with the inflation. Why do you think it will change over the next 15 years?

KlangFool
Housing prices are not limited by median income because there is essentially unlimited demand from institutional investors, foreign investors, individual investors, high net worth individuals, and now people buying houses with friends after they get priced out. There is no magic ceiling that prices cannot rise beyond just because median income people cannot afford to buy houses any longer. In fact pricing out the median income from ownership is beneficial for real estate investors because that drives up demand for rentals.
You just provided a definition of a bubble. And, bubble do burst.

KlangFool
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splat789
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Re: Renting Until Retirement

Post by splat789 »

BirdFood wrote: Mon Jul 08, 2024 2:23 pm
splat789 wrote: Mon Jul 08, 2024 2:17 pm
BirdFood wrote: Mon Jul 08, 2024 2:10 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pmbecause I MUST own a paid off house at retirement
I must be missing something--why is this mandatory?
Because I do not want my housing security to be at the mercy of a landlord in my elder years when I am no longer earning an income.
But that still makes it a preference--a high priority preference, but nevertheless a preference. The money you're putting into stocks will likely leave you fairly well-off, rather than a penniless renter at the mercy of the landlord.

Also does it need to be a literal 'house'--free-standing, with a yard? Or just housing that you own, such as a modest condo?
Sure it might be a preference...but its non-negotiable. It would be pretty devastating if I make it to retirement in 15 years, and end up having to rent for the rest of my life because I made the wrong choice with my investments and end up priced out of buying a house anywhere because real estate continues to experience unprecedented inflation while stocks crash or have dismal returns over this time period. I would like a small 1000-1200 sq foot 2-3 bedroom single story house with a garage and a yard. I do not want a condo, townhouse, or other multifamily dwelling.
Last edited by splat789 on Mon Jul 08, 2024 3:42 pm, edited 8 times in total.
KlangFool
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Re: Renting Until Retirement

Post by KlangFool »

splat789 wrote: Mon Jul 08, 2024 2:17 pm
BirdFood wrote: Mon Jul 08, 2024 2:10 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pmbecause I MUST own a paid off house at retirement
I must be missing something--why is this mandatory?
Because I do not want my housing security to be at the mercy of a landlord in my elder years when I am no longer earning an income.
In summary, you believe that you have a limited choice as to where you choose to live during retirement. Why should that be true? USA is a very big country.

KlangFool
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splat789
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Re: Renting Until Retirement

Post by splat789 »

KlangFool wrote: Mon Jul 08, 2024 2:35 pm
splat789 wrote: Mon Jul 08, 2024 2:17 pm
BirdFood wrote: Mon Jul 08, 2024 2:10 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pmbecause I MUST own a paid off house at retirement
I must be missing something--why is this mandatory?
Because I do not want my housing security to be at the mercy of a landlord in my elder years when I am no longer earning an income.
In summary, you believe that you have a limited choice as to where you choose to live during retirement. Why should that be true? USA is a very big country.

KlangFool
The only limitations to my choice of where to live in retirement is that it is in the US, and not in a place that is prone to major natural disasters that would severely damage my house like hurricanes, tornadoes, wildfires, floods, hail, and earthquakes. The problem is that houses pretty much everywhere in the country even LCOL areas have been inflating at significantly higher than historical rates since the pandemic due to the shortage we are in, so my concern is being priced out of the entire country.
Last edited by splat789 on Mon Jul 08, 2024 2:49 pm, edited 1 time in total.
KlangFool
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Re: Renting Until Retirement

Post by KlangFool »

splat789 wrote: Mon Jul 08, 2024 2:41 pm
KlangFool wrote: Mon Jul 08, 2024 2:35 pm
splat789 wrote: Mon Jul 08, 2024 2:17 pm
BirdFood wrote: Mon Jul 08, 2024 2:10 pm
splat789 wrote: Mon Jul 08, 2024 12:35 pmbecause I MUST own a paid off house at retirement
I must be missing something--why is this mandatory?
Because I do not want my housing security to be at the mercy of a landlord in my elder years when I am no longer earning an income.
In summary, you believe that you have a limited choice as to where you choose to live during retirement. Why should that be true? USA is a very big country.

KlangFool
The only limitations to my choice of where to live in retirement is that it is in the US, and not in a place that is prone to major natural disasters that would severely damage my house like hurricanes, tornadoes, wildfires, floods, hail, and earthquakes. The problem is that houses pretty much everywhere in the country even LCOL areas have been inflating at significantly higher than historical rates since the pandemic due to the shortage we are in, so my concern is being priced out of the entire country.
Anyhow, there will be at least one recession over the next 15 years. So, your concern will be addressed in the coming recession. Good luck!

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bombcar
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Re: Renting Until Retirement

Post by bombcar »

If you, doing better than most, cannot afford to buy, then who will buy? The greater fool theory can keep prices going up for awhile, but at some point returns need to show up and if everyone is forced into renting and they can’t afford more, the rents will stagnate and the values of houses will drop.

It’s happened with tulips and houses before and can happen again. Or house prices stagnate for 20 years while inflation eats it away.

Maybe a portion of your investments could be in REITs.
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splat789
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Re: Renting Until Retirement

Post by splat789 »

bombcar wrote: Mon Jul 08, 2024 4:04 pm If you, doing better than most, cannot afford to buy, then who will buy? The greater fool theory can keep prices going up for awhile, but at some point returns need to show up and if everyone is forced into renting and they can’t afford more, the rents will stagnate and the values of houses will drop.

It’s happened with tulips and houses before and can happen again. Or house prices stagnate for 20 years while inflation eats it away.

Maybe a portion of your investments could be in REITs.
Investors and the wealthy will continue to buy up houses once the median income is priced out of ownership. Rents are not limited by individual affordability because you can simply start packing more people into each rental unit and building smaller size rentals to keep the prices going up. I already see it around me where apartment complexes are advertising services to match up prospective tenants as roommates for single bedroom apartments, people are renting out all of the rooms in their houses, and the square footage of new apartments is getting smaller. There are really no laws that I have seen that put a hard restriction on how many people can occupy a rental unit, so rents have room to go up much higher than what the average individual renter can afford. If you have ever seen the "coffin homes" in Hong Kong China, I believe that is where we are headed in this country unless something major changes.
KlangFool
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Re: Renting Until Retirement

Post by KlangFool »

splat789 wrote: Mon Jul 08, 2024 4:25 pm
bombcar wrote: Mon Jul 08, 2024 4:04 pm If you, doing better than most, cannot afford to buy, then who will buy? The greater fool theory can keep prices going up for awhile, but at some point returns need to show up and if everyone is forced into renting and they can’t afford more, the rents will stagnate and the values of houses will drop.

It’s happened with tulips and houses before and can happen again. Or house prices stagnate for 20 years while inflation eats it away.

Maybe a portion of your investments could be in REITs.
Investors and the wealthy will continue to buy up houses once the median income is priced out of ownership. Rents are not limited by individual affordability because you can simply start packing more people into each rental unit and building smaller size rentals to keep the prices going up. I already see it around me where apartment complexes are advertising services to match up prospective tenants as roommates for single bedroom apartments, and people are renting out all of the rooms in their houses. There are really no laws that I have seen that put a hard restriction on how many people can occupy a rental unit, so rents have room to go up much higher than what the average individual renter can afford. If you have ever seen the "coffin homes" in Hong Kong China, I believe that is where we are headed in this country unless something major changes.
splat789,

Not in your area. But, it exists in other parts of the USA.

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leland
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Re: Renting Until Retirement

Post by leland »

+1 to the "not a financial question" view.

In a similar position. Rent now and missed some chances to buy (#2 bidder on several properties in the last runup). That said like my current rental. It's just unlikely to be forever, esp. with landlords ~30 years older than me.

If I knew where I wanted to be (80/20-ish certainty) I'd buy a house to have that option available for me in the future. I absolutely would be renting it or having family live there in interim -- might cost more in long-run but houses are better lived in, and at least someone can detect a water leak (even if they cause it :D ).

That said I don't know where I want to be and so I'll just keep on investing and hope I have enough for later.

Also if you don't care where geographically you end up that's easier, wait and just buy where it's cheap later on.
av111
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Re: Renting Until Retirement

Post by av111 »

splat789 wrote: Mon Jul 08, 2024 1:40 am Average single family homes here are now 600k+, and require PITI of $3680+/month with a 20% downpayment. Purchasing one of these houses now with a 20% downpayment puts the PITI at 48% of my $7700 base take home pay,
The 48% number is irrelevant in terms of qualifying for a mortgage. For that some more info is needed. What is your gross income before taxes? What are the other debts?

I generally do not recommend renting for long term unless your lifestyle is specifically designed for that. Single with no dependents and no plans to change that, travel all the time, not much family close to where you work, not overly rich etc.

If buying is possible with your income, consider two things
This is the US of A. You are allowed to spend money for your comforts. This means buying a house if that makes you happy and if it is a large part of retirement anxiety. No point in dying without the home with a lot of money in different accounts
Rates could get lower or higher than they are currently at different points in the business cycle. If you have a mortgage, you can refi it at any time
AV111
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splat789
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Re: Renting Until Retirement

Post by splat789 »

av111 wrote: Mon Jul 08, 2024 5:23 pm
splat789 wrote: Mon Jul 08, 2024 1:40 am Average single family homes here are now 600k+, and require PITI of $3680+/month with a 20% downpayment. Purchasing one of these houses now with a 20% downpayment puts the PITI at 48% of my $7700 base take home pay,
The 48% number is irrelevant in terms of qualifying for a mortgage. For that some more info is needed. What is your gross income before taxes? What are the other debts?

I generally do not recommend renting for long term unless your lifestyle is specifically designed for that. Single with no dependents and no plans to change that, travel all the time, not much family close to where you work, not overly rich etc.

If buying is possible with your income, consider two things
This is the US of A. You are allowed to spend money for your comforts. This means buying a house if that makes you happy and if it is a large part of retirement anxiety. No point in dying without the home with a lot of money in different accounts
Rates could get lower or higher than they are currently at different points in the business cycle. If you have a mortgage, you can refi it at any time
Do you think it's prudent to spend nearly 50% of take home pay for housing? Now I don't doubt there might be someone out there willing to give me the mortgage, but no way would I feel comfortable with spending more than 30% of my monthly take home pay. Almost all of my capital would need to be redirected to this house beyond my basic living expenses, and I would not be able to cover that payment if I lost my job and was forced into accepting a job that paid much less.
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