I was totally wrong about home ownership

posted by Jeff | Thursday, August 18, 2022, 11:52 PM | comments: 0

Sometimes I see old blog posts of mine from the time that I lived in Seattle, where I talk about how home ownership is a lifestyle choice more than an investment. And if you consider the time frame and our situation, that makes a lot of sense. We landed there in 2009, as we were emerging from the recession. We moved there still owning my house in Brunswick, Ohio, and Diana's in Cleveland. We did eventually unload Diana's via short sale, but I couldn't get rid of mine without a loss in the $40,000 range, and that's after having made payments on it for almost ten years and paying out half the equity in my divorce at its peak value. If that weren't bad enough, I caught myself saying things like, "$400,000 for a 2,000 square-foot house is insane." Yes, it was a little steep, but that's suburban Seattle for you, even then.

I could not have been more wrong. We were renting for around $1,400, which was easily affordable on a tech salary, but I wasn't building any equity. I could have taken the loss on the house with savings and stock vesting, and then start over and maybe scrape enough together for a down payment for that "small" house in a year or two. You might think I was wrong because those 2,000 square-foot houses are now worth $800,000, but that's not it. I'm going to come back to the rent thing in a minute.

My distaste for home ownership at the time was obviously emotional, and not at all logical. While the drop in home values in the 2008 crash was historic and unusual, it was temporary. In 2011 we moved back to Cleveland, and lasted about a year and a half before we were determined to get out and not mess with winter. Seattle and Orlando were on the table, but Orlando won, and the move was expedited when I almost accidentally found a job there. The house I couldn't sell those previous years was under contract within 48 hours, about "break even" compared to the price I paid, but with only $10k in equity after a dozen years. We rented a fairly nice house in unincorporated Orange County for about $1,800, way more than my Cleveland mortgage, and that felt insane because a mortgage on a new house might be less than that.

That assessment ended up being almost spot on. We ordered new construction only a week after arriving, and it was totally the right decision. We nailed down a rate of 4.375% and our mortgage, taxes and insurance ended up being $1,700 for a new, 2.700 square-foot house, significantly larger than the rental. I wouldn't even call it instinct, to pull that trigger. It was just obvious math, that rents in the area were out of control because of rapid migration into the area. It would stand to reason that the demand would affect house prices too. At first it wasn't crazy. When we decided we desperately wanted more room, given my remote work and Diana's giant quilting machine, again, it was a no-brainer. We sold that house after four years for a 15% profit. Four years after that, today, a house similar to ours on the next street is asking for twice what we paid for ours. Meanwhile, our previous house went up for rent at a staggering $3,100 per month, nearly double the mortgage we had for the same house. That's even more than our mortgage for our current, much larger house!

Which brings me back to the rent problem. The rates around here were already getting out of control, and now they're unreasonable. The demand is so high that people are paying more than they would if they were to buy the house outright. Apartments are just as bad. I read today that it's even worse in Tampa. So if you don't have enough to put down on a house, where from a cash flow perspective you would be better off with a mortgage, you're stuck. And you can't save enough toward that down payment because the rent is too damn high. Meanwhile, the people who are already in houses are at least on paper building equity at rates of 15% per year. Homeowners build wealth while renters struggle to survive.

The reasons for all of this are not complicated, or nefarious. It's basic supply and demand at work. But it's making life really hard for a lot of people, and considering how much service jobs in our tourist industry drive our economy, even paying better wages than three years ago, it's not enough.

But it's a fundamental truth that home ownership is really key to wealth building in America. I don't know that it's moral or immoral, it just is. Renters account for a third of US households, and they're severely disadvantaged in the long and short term. What can we do about that?


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