Thinking of buying a starter home? Be careful!
The above image from John Burns Research.
Burns Criteria
- Home payment, entry-level home mortgage
- 5 percent down, 30-year fixed mortgage
- Principal, Interest, Tax Payments, and Insurance (PITI) payment plus mortgage insurance payment
- Annual maintenance costs ranging from 0.85 percent to 1.25 percent of home price
One might put down 10 percent to avoid mortgage insurance.
Looking ahead Burns see homeownership costs stubbornly high, 95 percent premium all the way through 2028.
That means home prices remain stubbornly high, mortgage rates remain stubbornly high, or the cost to rent drops.
20-City Comparison
The above image from John Burns Research via Realtor.Com article Top 20 Markets Where It’s Cheaper to Rent than Own a Single-Family Starter Home
Austin is the worst place to buy a starter home by percent and dollars.
In dollar terms, Denver is second. In percentage terms, Las Vegas is second. Phoenix and Riverside are high up the unaffordable list.
Better to Rent or Buy Calculator
The New York Times has a Better to Rent or Buy Calculator (free link, updated July 2025).
The NYT says the “winning choice is the one that makes more financial sense over the long run, not necessarily what you can afford today.”
The NYT philosophy assumes you can survive the short-term and you know where home prices are headed.
I know first hand of people who miscalculated what they can afford and now need tenants to manage.
A recession or job loss will complicate things greatly for millions.
The Housing Top Is Likely In, Case-Shiller Home Prices Drop Again
On July 29, 2025, I commented The Housing Top Is Likely In, Case-Shiller Home Prices Drop Again
Prices are now down the third consecutive month. [But it does not even register on a chart.]
Demographically, the upcoming boomer die-off will add tremendous supply to the housing market. Shutting down the border will slow the rate of current demand.
As a counter-balance, The Number of Housing Units Under Construction Continues to Crash
The impact on rent will be whether or not builders overbuilt.
The Fed Is Incompetent by Design
Blame the Fed for wild swings in housing affordability.
I discussed this in Fedthink! The Fed Is Incompetent by Design and Can’t Be Fixed
Today’s Pertinent Conclusion
We are trapped in “Fedthink”, especially the nonsensical proposition that two percent inflation is a good thing despite the fact that the Fed is clueless on how to measure inflation in the first place.
The Greenspan Fed, Bernanke Fed, Yellen Fed, and the Powell Fed all ignored housing prices as a measure of inflation.
Yellen even wanted to make up for lack of not enough inflation.
Powell Admits Prior Monetary Framework Was Hugely Flawed
At the annual Jackson Hole meeting this year Powell Admits Prior Monetary Framework Was Hugely Flawed
The Fed just announced a new monetary framework. Is it any better?
The short answer is the new framework is nearly as flawed as before, and the Fed still holds many disproved economic theories. See above for details.
In a job rich city, in the long run, you are better off buying.
In an area without a robust job market, in the long run, you are better off renting.
It has always been this way, especially since we will have elevated inflation for a long time.
People that bought homes in pandemic locations learned this lesson the hard way.
Clearly I don’t understand. If it was cheaper to rent than buy, wouldn’t the landlords be rushing to sell the rentals to cash in on the arbitrage?
Is this really saying that millions of landlords are collectively stupid?
where are the buyers?
At what price
In metro ATL, a starter home is a townhome. Land is WAY too expensive to put a house on a lot with grass. Somehow, someway, prices have to come down by a lot per these John Burns graphs. How this happens is anyone’s guess.
The US housing market’s historic slump could send inflation plummeting in the coming year
https://finance.yahoo.com/news/us-housing-markets-historic-slump-160252260.html
Clearly, for young people this is the time to be working hard at their job, paying off debt and saving for a downpayment. Credit ratings are critical! Get to 780 ASAP if you are priced out of the market at this time.
Real estate always cycles up and down in affordability and the up front prices will fall again relative to wages. Mortgages?
Wages lag inflation and those with the last access to capital are hurt the most. Therefore young aspiring to be homeowners need great credit and solid savings so they can put 20% down when prices fall. Buy opportunistically!
Do not think your first home will be fantastic. Search for a home that is cosmetically challenged in a good neighborhood. Raise the curb appeal and in five years (goes quickly) you will have built some solid equity. From there it is all about finding opportunities and stepping up.
save and buy without any note is my recommendation. worked for us and our parents and grandparents. patience is a virtue and debt is a burden and can become an anchor on life. there are always deals for cash buyers.
wrong: acquiring 6 small houses in 2011/12, in a good area, while piling debt is better than buying one large house with cash. Acquiring a house at the top, with cash, is worse.
why not 6 or ten houses with cash in 2011 and 2012? like we did.
why not 12/15 small houses with debt in 2011 when mortgage rates were low, instead of buying a nice 5BRs house in Great Neck NY. Now they have to pay Great Neck RE taxes, insurance LIRR…When millennial inherit boomers assets, within 10Y/15Y, when transfer payments of expired boomers assets peak, they should buy a few houses in real deflated prices.
Correct. There are always opportunities to take advantage of. But most people whine and complain rather than looking for how to take advantage of the opportunity.
Great advice, but it appears the savings part and planning for the future part are missing, at least according to most reports. It seems buying stuff, and going out is far more important.
A down payment is way out of reach, for most going to college. Unless they earned scholarships or Parents or Grandparents paid for them. The money they spend for their education (Downpayment) and living expenses, has them in debt for the foreseeable future (10 Years on average perhaps?).
Now they need a whole lot that they didn’t require in college. Transportation, Food, Rent, and more, but they have only debt now, and no money. It’s why Harris / Biden tried so hard to have the Taxpayers pay for there education.
College. Another bubble bursting.
Absolutely!
Just wait until the colleges see how many loans fall behind. Are they really going to put liens on homes and penalties on families, after they set up the pitfall?
That’s the big question coming up…
Colleges don’t lend money. They just receive the proceeds as payment.
Loan enforcement is done by the lenders.
and healthcare employees.
In the next ten years the gov will benefit from payroll taxes on highly skilled workers, tariffs which protect them and their industries, lower % rates, at least for a while, half size gov and $3T (now $1.7T) student loans. Within ten years boomer ex date will peak. Mish-27 hate Trump. The zoomers will benefit from the expiring hater.
But when. When there is no end to landlords suffering. When rent and prices deflate for years. When there is no more hope. When contractors work for free to keep their muscle memory.
An odd comment from you. Considering how you repeatedly say that the job market it about to boom and people will be getting much higher wages because of Trump.
Highly skilled workers wages will rise. RE prices will deflate. Zoomers don’t care about boomers RE assets. It’s a systemic change. Zoomers will stay out of the RE market until they get what they want, not what u want.
Everything you say is a contradiction. As a result, none of it makes sense. Have you always been like this?
I repeat what I say for years. U contradict yourself, I don’t .
Papa bs. A few months ago u liked Andrew Mellon policy, now u think it’s odd !
Zoomers and boomers using Base44, asking and guiding ChatGPT, can acquire
new knowledge and skilled at home, on the beach, or while bathing in the park. WFH isn’t dead. SF and Seattle coders and programmers will go back to India. After Trump imposed 50% tariffs on India, Indian diamond dealers, who invaded 47st diamond ctr, will go out of business.
900sq ft house on 10 acres mile from me, middle of nowhere. On gravel. $465k
Well that’s certainly one way to drive the cost of housing. Down…
I don’t get the underling theme of many of the comments here regarding medical costs. After the last 6 years we’ve seen, no matter who is paying why trust those rats?
This is the general observation. .
60s the man worked supported wife and family of three kids
70s. Man work wife maybe part time job support family of three kids
80s man wife full time job supports family with 2 kids.
90s both work smaller family more debt.
And so on for 2000s.
2010 both parents work debt. Kids stay living at home after school.
Now the same for 2020s. Except parents (with money)are setting up their kids with houses etc. and or setting their own later years with mother in law units. So kids can take care of them.
Lots of reasons i guess
How does your analysis (aka you super simplified, perfectly linear reconstruction of events) reconcile with the periods like 95/96/97 and 2010/2011/2012 when home ownership was very attainable and prices completely fair relative to rents? The answer is that you’re leaving out the boom/bust cycle. Were exiting the latest boom part and entering the bust part right now.
I simply took it as a general explanation, and spot on for the most part!
– 60s the man worked supported wife and family of three kids > Free Love!
– 70s. Man work wife maybe part time job support family of three kids > A Parent Raised the Kids.
– 80s man wife full time job supports family with 2 kids. > Living Cost exploded, and 2 Parents working became a necessity, as one income just didn’t allow you to make ends meet.
– 90s both work smaller family more debt. > Cost of raising children became unbearable and therefore the decline in population began to occur, until we started filling the void with illegals. And so on for 2000s.
– 2010 both parents work debt. Kids stay living at home after school. > Insurance on the Parents until 27? Free room and board, meals and cash occasionally. Why would they move out?
– Now the same for 2020s. Except parents (with money)are setting up their kids with houses etc. and or setting their own later years with mother in law units. So kids can take care of them. > Grandparents are doing a lot of the paying as well.
Strange how the rule changes that our Politicians made for us, has hurt the youth, and Families too, by the looks of it… from Politicians playing Banker with our Kids, and shoveling free money (to them) at them with no regard on how it works and what the repercussions are if you didn’t pay.
– Lots of reasons i guess > Yep!
Lots of interesting comments and predictions and I suspect they are all wrong. There are too many variables to account for but the main driver will be demographics. Not just how many boomers die but where people choose to live.
We saw during the pandemic hordes leave cities for rural areas and that’s now reversing because of return to office mandates. AI is decimating a ton of office jobs so will office buildings be needed in the future?
Then you have tax policy in each city, county and state that drive people to or away from a certain region.
Here is an example of St. George Utah voting for Trump and now they lost $88 million in road money. Ouch.
https://www.dailykos.com/stories/2025/8/20/2339373/-Utah-city-voted-for-Trump-now-they-have-lost-an-87-6M-million-federal-grant?pm_campaign=front_page&pm_source=trending&pm_medium=web
Then immigration is a huge wildcard. If immigration is discouraged, that will cause huge problems as the US has been in a demographic death spiral for decades now. To try and predict how things pan out over the next 5 to 10 years is a fools errand especially with policies changing on the dime.
The best thing to do is to be fully hedged with an international property portfolio, bonds, stocks, bitcoin, a little gold, and a partridge in a pear tree.
Throw in some wall street money. Thought trump had some scheme to allow houses and such into retirement portfolio. Declining birth rate fire insurance global warming. Lots of variables.
As they say –The Devil is in the Details. Some Homes in some areas are just to expensive and its a better deal to be a renter. But in other areas homes are lower priced and to gain equity renters would find it practical to buy a home. There are just so many variations in Real Estate and Rental costs across America influencing renting or buying decisions for a simple chart to give a proper overview. But the price of homes could be on the way down anyway if a big recession is coming.
Our best friends have done it: they sold their only home and banked $4,890,000 net net. They are now going to take that money and divide it by $200,000=24 years – – of FULL TIME SHIP CRUISING – – and the will still have $5million to leave their only grandson. They will live aboard until they die. The cost of their full time is not going to increase, they claim.
I dunno!!
In Cruise ships people eat in restaurants and drink every day. Medical bills are high. The cost a freezer and flying back in a coffin are high. No problems: 20Y x 200K are still left.
C’mon, flying back in a coffin must be cheap, you don’t have to pay for a first class seat! Or, what about burial at sea? So economical!!
We always enjoyed the idea that WE PAID the mortgage insurance and the LENDER would get their money back PLUS you home in case something happened. We paid it once in 1984 and that was IT.
Yes, I agree. I have always told all of my friends and family: it is the FED’S GOAL to make SURE that everything will be at LEAST 20% more 10 years from now.
Yes, and it is compounded…
Boomers peak birth between 1958 and 1961. Their homeownership is about 75%. Their expiration date will peak between 2035 and 2040. Five years before cremation they will start liquidation to pay medical bills. Perhaps before, to reduce maintenance cost, taxes, insurance… and bc they cannot hike to the second and the third floor. Affordable elderly communities will rise like mushrooms. New immigrants and poor people will build their own houses and their own communities. Their labor will be their down payments.
Medical bills not a problem – it’s the dental and veterinarian bills that’ll getcha!
Medical bills are a huge problem when you get a letter from insurance saying they are no longer covering a medication you’re on, or when they send you a letter saying that a procedure you just did isn’t covered or was not authorized due to a mistake by the requesting provider when asking for authorization. For sure, they are not a problem while you’re healthy. 🙂
You’d think residential real estate in El Paso, Laredo, Brownsville, San Diego and other border towns would have a massive premium just for being right across the border from non-insane healthcare costs. I’m moving back to Korea after my paperwork gets done but, if I were staying in the USA, it would have to be a town that borders Mexico and I’m a lot healthier than the typical 49-year-old American or American adults in general. This place is nuts.
Any kind of price collapse from here would probably mean contagion. CRE is already on life support with extend-and-pretend. A whole generation will just have to go without housing….or we get a different, “Great Reset” than the WEF has planned…..
Why would a whole generation go without housing? With a closed border and homebuilders still chugging along (despite the reported pullbacks and slowdowns which foretell recession) and with the Boomers erm, disengaging from housing in greater numbers over the next decade, there should be a clear GLUT of homes in 4-5 years, definitely 7-8 years. Millennials may have gotten screwed over hard, but I think the younger/patient zoomers will be allowed on the game board by 2030. After that, the almost guaranteed inflation, the similarly guaranteed wars, and who knows what else might land on our plate so all bets are off.
15M immigrants entered the country the last 4 years. Some bought multiple homes. There will be a reversion to the mean and it wont be pretty. The blowback is just beginning.
For the sake of my grandchildren, I do hope that you are right.
Biden kicked the can so well by literally selling out the nation and screwing over two generations in the process. Millennials got screwed but the younger Zoomers might be ok by 2030…if they can find a steady paycheck.
“Demographically, the upcoming boomer die-off will add tremendous supply to the housing market.”
Boomers have been dying off in large numbers over the last 7-10 years and yet supply hasn’t risen until rates rose to historically normal levels.
In general, this dying off is going to put an enormous amount of wealth into the hands of younger generations, specifically the older GenX’ers & Millennials. IMHO, I think this transfer is going to prop up home prices. A person inherits a home in Atlanta but lives in South Carolina. They take the proceeds & turn around & buy a really nice house in their area. I don’t see how this is going to cause prices to collapse, unless there’s some sort of massive increase in supply, which to date hasn’t happened.
If you sell the inherited house as soon as the last parent dies, then you immediately get the cost basis step up, meaning you don’t pay taxes on sale of the home, unless of course it’s really expensive or is part of an estate that has to pay tax. In 2025, that’s $14M.
Another consequence will be the opportunity for rural home prices to move up faster than suburban or urban areas. I believe a lot of this wealth is going to choose to move & live further out.
Good insight on rural movement. Ongoing CBD collapse backs this up….
The millennials I know, even with good jobs, are cash-poor. If an inherited house fell into their laps, they’d sell it & take the cash.
Sure, but a lot of them are turning around & plowing at least some of this money into homes.
If you get say a $500 inheritance, it’s easy to turn around & keep half of it to spend & invest while putting a very big down payment on a home.
I’m just NOT convinced that the boomer dying off is going to drastically increase home supply. To make that claim suggests that nobody is going to inherit any money that will allow them to afford overpriced homes, which isn’t what’s happening.
Inheritance does NOT change the Boomer math. Assuming steady immigration (admittedly a big if), then, regardless of whether the house is inherited/rented/moved into by the heirs…you will still have FEWER warm bodies in this great nation and the SAME amount of wooden boxes. So each wooden box slowly becomes LESS valuable due to the steadily increasing supply. Further, how many empty-nest Boomers do you know who are living in 4 bedroom 3 bath ranch houses all over suburbia? A lot, right? My own mother lives by herself in a 5/3 house. So, by using their structures so “inefficiently”, boomers are actually artificially propping up the house values at this time. But that means that each passing boomer may have the same effect as if it were two persons passing as far as the housing stock math is concerned. So, without high immigration and with the low family formation that we know we have, a GLUT of wooden boxes will become inevitable.
The drop in warm body count is very gradual. If what you’re saying is right, then all that’s going to happen is fewer new homes will be built.
BUT the point you are making is something that’s going to play out over a period of time way longer than the dying off of the boomers. The oldest boomer is approaching 80, so the vast majority of them are going to be gone within 20 years.
Also, I think you’re overthinking the “efficiency” of use. When the house is inherited, the right family with newly inherited money can come along & purchase the house.
Personally, I’m fine with limiting immigration, and I won’t be concerned about the consequences for the housing market.
Once AI & robotics start destroying lots of jobs in 5-7 years, the last thing we need is more immigration. We don’t need more people competing for fewer jobs, homes, food, etc. Mass immigration is over. Even the Dems are going to be forced to come to terms with this. Today, the GOP is looking at turning back the enormous influx of illegal immigrants based on security which will eventually morph into merit-based removal. The next big frontier will be does Congress have the cohunes to end the H1-B visa scam? There are a million H1-B visas running around in the US taking jobs away from Americans. Think of all the software engineers here on H1-B visas that will need to leave the country as AI continues its assault on coding & all sorts of tech related fields? There will be major tension between Americans & H1-B visas holders competing for jobs as the race to the bottom continues.
Many H1-B employees are doing “project”-type work, which is limited in duration.
I question whether they are competing with Americans for permanent jobs.
In the current hostile environment, they are prob completing their work and moving on – their skills are needed around the world.
Most people will be inheriting houses, not money. There will be almost no transferred money to buy houses, just a stack of houses to sell.
No the Boomer situation is not as gradual as it was with the WW2 generation and those before. Not only is the Boomer generation much larger than the X generation that immediately follows it, but due to how asset-wealthy the Boomers are, each departing boomer will be like TWO depart-ers in terms of the number of assets they’ll flood the market with (or pass along to heirs, which doesn’t change the body/structure ratio at all). That is in addition to the fact that Boomers are currently utilizing their assets VERY inefficiently…4 bedroom/3 bath ranch homes for elderly couples/widows, second and vacation condos….etc. They are going to vomit an incredible amount of “stuff” onto the US marketplace and unless there is wild immigration to offset it, assets will simply go down in value due to the mathematical overabundance.
The vast majority of people are going to inherit houses, not money.
they are not cash poor. millennial have plenty assets and liquid assets,
There are a lot of elderly people that own three or more properties. Young people don’t want the resposibility of being landlords, and are likely to sell inherited properties immediately to take advantage of cost-basis adjustments, and avoid capital gains taxes on the sale. In ten years or less, I expect a flood of properties to start hitting the market.
Yes, I keep coming to the same conclusion. ONLY another crazy Biden immigration policy period can invalidate that math as it stands now. But that would happen at the earliest, in 3.5 years, could be too little too late.
If it happens, I will welcome it. Prices across the board need to fall by at least 30%.
A. That would be really dumb of them, please find smarter friends ;-). B. That would be quite a bearish development for prices (on top of the other bearish trends that are already descending atop prices). I actually do kind of agree, though, I think a good percentage of heirs will instantly sell…but not so much out of desperation, but primarily to not be in business with their siblings.
Husband and wife, each, suffering from chronic disease, that the insurance co refuse to cover, might liquidate most/all their assets, especially if they supported their kid/ grandkids, before both expired. One boomer covering medical bills is bad enough. Two liquidate net worth faster.
You’re making a very big assumption. Lots of people just up & die. And my point isn’t trying to take into every possible scenario. I’m speaking on average / in general.
This will be true in some cases, not in others. For me, when I get an inheritance, it will be used to pay off my remaining mortgage, and I have no desire to buy a new house. Being debt free brings its own peace of mind!
Yes – the millenials I know would do that also.
Their home may not be a palace, but they’d appreciate the cash, to pay off loans, upgrade their 2 cars, set up college fund for kids, maybe pay off some of their mortgage.
Bearish for house prices if all these millennials do what you say in rapid succession.
And that’s awesome. I recently paid off my home, which is going to allow me to build a small home, second near a lake with some of my inheritance.
The point I’m making is in general. I will be the first to admit that some areas will see price declines, especially if they’re in somewhat undesirable areas to live.
Your thesis is flawed in one sense. The median 401k balance for people over 65 (right now) is $$88,488 which is peanuts considering the upcoming costs these folks are going to get hit with especially around medical expenses and care. Insurance costs for auto, health and home will continue to explode, especially if all the cheap labor is booted. With no cheap labor there will also be less healthcare workers and care givers driving up healthcare costs.
https://www.fool.com/retirement/2025/03/15/this-is-the-average-401k-balance-for-retirees-age/
These folks will be forced to sell their homes to pay for daily expenses. This will get worse for those on the edge now that SNAP and medicaid have been cut too.
Just wait till there are cuts to medicare and social security, it will get very real very fast for most.
Yes, but if they pass away before they sell their home, then it will be someone’s inheritance.
Also, they may have children who are helping them out, so that they can stay in their home.
Or they may sell it. At this point, none of us really knows how all of this is going to play out. As far as I’m concerned, we’ve got WAY MORE to be concerned about with AI & robotics than housing. It’s vastly more likely IMHO that AI & robotics will have a greater influence on what happens in the economy than rising supply of homes due to the boomers dying off. The price of homes is so inflated that I would hope that most everyone would be happy with seeing their home values come down, if you don’t plan on moving. Yes, there will be owners’ who’ve bought in the last 3 years that will take a hit, but that’s a fairly small % of the entire homeowners.
I’m making an assumption just like you are. Neither one of us knows exactly how it’s going to all work out. For some, it will be my scenario. For others, it will be yours.
Wrong, @BenW. There is overwhelming data out there supporting @MPO45v2. In aggregate, an overwhelming majority are as @MPO45v2 describes and less than a decile of the population, hell a quintile being exceedingly generous, will match your narrative — statistically drowned out.
Excellent comment. This is the reality of the “massive wealth transfer” between generations, which contradicts the hype.
“In general, this dying off is going to put an enormous amount of wealth into the hands of younger generations, specifically the older GenX’ers & Millennials.”
Specifically, housing wealth. Boomers have the majority of their wealth tied up in real estate, so a collection of houses is what will mostly be “passed” between generations, with a much smaller fractional amount of cash than people realize. Only a very small portion of people, less than 10% have more money tied up in stocks than real estate.
I think the transfer will cause a glut of unsold housing, not prop prices up. The crop of people dying in the next ten to 20 years are going to be the ones that have massive holdings of real estate, not two or three homes. Many people in that age bracket own more than ten homes. When my wife was selling her mom’s house a few years ago, one of the offers was all cash, no contingencies from a real estate agent who said she was representing a private buyer with over a thousand homes in the area. She said the house was for the guys son to live in.
Ownership is increasingly a tricky proposition. For those that claim if you rent you are at the mercy of the landlord, the same is also true of homeowners: it’s just that you are at the mercy of different players such as HOA associations, municipal, county and state governments, the public schools, pension and health care plans for government workers, teachers, police and fire. At least where I live (Portland, Or) condo ownership downtown only works compared to renting if you have zero mortgage or make way beyond the median income. And you see this in the demographics: it looks more like being on Cunard or Holland America lines: skewing older and retired. Portland in the inner core is one of the markets seeing real market value declines. The only benefits to this dynamic is if you are buying now. In addition, because of Oregon’s contorted property tax system, your property taxes, absent things like school bonds, are capped relative to RMV. So as RMV’s decline, your property tax goes down a bit. Increasingly, in my humble opinion, home ownership is becoming a function of how well managed your local , county and state governments are. In Oregon, places like Bend are doing great in terms of price appreciation. Bad for new buyers and great for current owners and sellers. In the inner core of Portland, both commercial and residential prices are moving in the wrong direction as far as market value. The largest Class A commercial property in the City just sold at an 88% discount from its 2015 price. This has massive implications for prop tax collections. Most municipal governments have no solutions to a declining tax base. All of this factors into the calculus of home ownership. Renters are not immune. But but by definition, renters are mobile and can elect not to renew a lease. So market forces can favor renters. Not everywhere but in some locals.
Thanks!
Excellent comment!
In my county, I’ll get an exemption from paying the school bond in less than four years @ 62, meaning my property taxes are going to go do 75%. It will be a very big raise.
Keeping the border locked tight for five years is likely the only way to bring the housing market back to affordability without changes to regulation and legislation concerning housing. Dismantaling the GSEs or bringing the FHFA conforming loan limit down by 30%+ are “quick fixes” that will never be implemented. Therefore, the government better keep that border hermetically sealed if they actually care about affordability (which is doubtful).
100% agree with all your points.
I certainly hope you’re not advocating for bringing open borders back in 5 years?
NO THANKS!
I think he means allow reasonable immigration again in five years, after a period of literal immigration starvation. We don’t necessarily want a shrinking country either.
Soon they will send the renters to jail.
And the implication here is that, if you buy a home for 250K (median starter home in most burbs) … put in $10K to fix it up … put 20% down, and pay your 6.5% 30 year mortgage, your principal and interest will be about $1264/month. Add in taxes and insurance which combine for about 250/month … then allocate $150/month for maintenance (a roof costs you $9K and a new HVAC costs $9K … so if either of those go out in the first 5 years they just ate your entire maintenance budget for that 5 years) … add $120/month for property management and assume 8% vacancy (an optimal number) … you’re spending $1,784/month (and you put in $60K up front). If you can get $1800/month for that, you’re a lucky person … you’re probably looking at more in the $1500 to $1600/month perspective (and remember that $60K you have sunk in). So with rents (which everyone is complaining about) NOT keeping up with house costs … new investment into rentals is likely to slow down.
Woops, my taxes and insurance was based on info from about 4 years ago … probably more like $400+/month now … so add $150/month to all of those costs and you’re at $1934/month. Those expenses are every month and even if you’re occupied 11/12ths of the time … you’re breaking even at $2110/month … and getting 1700/month rent.
New roofs are more like $14-21K
Depends on the size of the house. Most of the homes I rent are smaller and I have a good roofer (former tenant).
It’s even more important to buy now before this ratio gets even higher. If you are a renter, you are at the mercy of the landlord. The landlord will raise rents when they can (even when their cost isn’t going up) and they will kick you out when they need to sell the place.
Nobody stops buying stocks because the P/E is too high. That would be timing the market and would be foolish, right? This whole buying vs renting thing is similar. I hate owning a house because of maintenance and insurance costs but at least there isn’t someone gouging me for money just because house prices went up.
I love this, landlords are taking it on the chin and now have rates less than half the cost of buying … but we’re still the bad guys in your eyes eh comrad? And you’re thinking we will be making even less in the future … but somehow we’re still the bad guys. Economics not your thing?
“landlords are taking it on the chin”
Lol! I haven’t laughed so hard in a while. Thanks.
I get it, insurance has nearly doubled, property taxes up 50%, supplies to maintain the homes are up, property management costs are up, labor costs are up, but landlords are doing fine. Ignore all of those units going into foreclosure, empirical data be damned.
I follow property investors on youtube because it amuses me. I watched a panel of “mom and pop” landlords discuss among themselves what vacancy rates they could handle. They unanmously agreed that 10% vacancy could easily be absorbed with no change whatsoever in their lifestyle. One of the panelists admitted that at 40% vacancy, he would have to “take actions” and start making hard decisions.
The majority of landlords refinanced to sub 3% loans while simultaneouly increasing rents (and their asset values) by 40%+ over a five year period. While their annual insurance costs doubled from $1500 to $3000 (covered entirely by the lower mortgage pzyments for some landlords), their tenants ended up paying $6000/year more in rent over the same period. In summary, the spread between mortgage payment and revenue blew out to an all time high, while asset values simultaneouslt increased by 40% (or about $110,000 for every property owned, on average). Sorry if Im not dragging out the world’s tiniest violin on your behalf.
So you see I used a number LOWER than the low number you just stated. And for folks who have had the homes for 15 years … that 3% mortgage is great … but not every rental home was bought back then. NO insurance rate i based on 15 hears ago. NO preoperty tax rate goes back to that time. NO supplies are around from 15 years ago (when they were markedly less expensive. You are bringing up red herrings when you don’t seem to have a clue on reality. How many houses do you pay insurance and property taxes on? How many houses do you maintain? how many houses do you pay for Property Management on? For how many houses do you pay the mortage (and all of the above) even when there is nobody in them? Thought so.
Still no violin. Sorry.
So you are coming from a point of cluelessness, but you are certain you are more correct than the person who has been doing it for 30+ years. Got it.
Your list of questions to me above left out the most important one, “How many properties do I collect obscene rent spreads on (revenue minus (amortized original cost basis and ongoing costs after depreciation benefits and other tax adjustments))” I find it telling how your questions only focused on the costs, and none on the revenue stream or appreciation in asset value. Nice try.
So you yourself are the evil robber-barron landlord you hate. Hmmm.
All you guys are victims. I know, it must be so hard. And yet you keep on doing it. You’re such a trooper.
That was me finally bringing the violin out, BTW.
So you’re an evil landlord who hates evil landlords. Makes perfect sense. I need no violin, but I also won’t buy any more properties and our rental market could use more homes … but it’s near impossible to make a case for adding them now. Of course, you super-rich evil robber barrens could somehow make it work.
Many landlords who bought/built recently are not doing well at all. Some REALLY miscalculated. Many are going to lose their properties over the next few years as rents dwindle from investors overbuilding “luxury units” into a not-growing, and in some ways shrinking population.
Are you talking “mom and pop” landlords, or syndicated deals? Many of the people who threw together syndicated deals during Covid knew *nothing* about real estate, and will loose every penny of their investors money. Most mom and pop operations stopped buying in late 2020 or 2021Q1, and already owned many properties well before 2020. Every “mom and pop” landlord who fits that profile has (literally) made out like bandits over the last five years — lowering their mortgage payments, while simultaneously gouging their renters. Yes, gouging, despite what @MikeC711 says.
Yup, rent never lower compared to house costs … landlords msut be gouging … it’s amazing you are a successful robber baron. As for now having too high a cost of entry … that smells of collusion … but I’d have to ask the resident robber baron expert.
Yes, that’s exactly what’s going on. Those mom and pops (myself partly included) got really lucky but what can you do about the greed? Nothing. I didn’t want to raise the rent to match the stupid covid market levels but my partner wanted maximum raises, so we (mostly) did. Now we have tenants itching to leave and my greedy partner thinks what happened was “normal” and is going to be shocked and argumentative when I break the news that we can’t hike again this year or even the next, because rents are cooling.
My partners are all family and we keep the rent $100 to $300/month below market (some folks who have been in for a long tiem are $500 below market). 3 turnovers in the last 3 years … 2 for people relocating out of the area and one for someone who needed more space and I had no openings. So I still don’t get how with property tax and insurance skyrocketing … property management, materials cost, labor cost, et al way up … and rents lower than ever compared to house costs … so many people here are complaining about “greedy” landlords. I guess empirical data is not a thing for some.
Because you don’t know how to play. When private equity completely exits the landlord business, then you will have me convinced that landlords are taking it on the chin.
https://youtu.be/g5Fh31Q_AkQ?t=272
So you haven’t seen the major pullback either. You are missing lots of pieces of the puzzle for having such a strong opinion. Look at my post above for a bit of real numbers using today’s interest rates et al. If you still think landlords (who are now making less than ever compared to home value) are somehow the bad guys, then data and logic just do not sway you
You sound like a realtor that time traveled from 2006 and missed the lesson of the years that followed.
“Just buy the peak guys! C’mon, please!”
I can’t tell if OP is a moron or trolling.
Good sir, please explain to me why Berkshire just bought $1B of home builder stock.
Part of it is probably because they are buying the dip.
You don’t buy home builders when you think home prices are headed down.
Unless you think the prices have been over-punished … making P/E something that can take another stock hit
Once we get to “tokenize everything” house prices will be 10x the cost of renting because now we have people just buying them like stocks regardless of price.
So people buy “stocks” not lookig for ROI. You’ve got a lot of interesting financial insights.
Looks like my views are not very popular around here, but I call it like I see it. Don’t just follow the bears. Follow some folks like Tom Lee and Mel Mattison. Then see where the world was the 50 years ago, 30 years ago, 10 years ago. Then try and extrapolate where things are headed. I don’t make the rules and I hate playing the game. Historical valuations are, well, historical. They aren’t coming back. You’re never getting a big mac for a buck and you’re never getting to where you can own a house and feed a family of 4 on the salary of a factory worker. Just so happens Mel posted this now:
https://x.com/MelMattison1/status/1959345481630277867
Your views are not data based, I’ve just shown the data and logic fallacies your hitting. Yes, the economy has changed. Not sure why, but I’ve seen lots of folks doing great and lots of folks struggling. Some got great degrees with good grades and are struggling … many got meaningless degrees all on debt and could not pay $20K for a house much less $300K. Part of it is a tougher economy (and AI could make it a lot tougher) … part of it is kids deciding to follow their dreams instead of getting real.
All the things you mention happen all the time in 3rd world countries. The rich are doing just fine there. The US has the lowest home price to annual income of any country in the world. It can go much much higher.
https://www.numbeo.com/property-investment/rankings_by_country.jsp
If homes get much higher, and the younger generations remain convinced that they should be able to do whatever they want and get lots of money … and if they can’t … it’s the fault of the rich … then we will see a revolution … and as with most, we will see total tyranny and abject poverty.
Always the “Haves” vs the “Have Not’s”
I was a “Have Not” for longer than I wanted, but then I figured out how the game was played and learned that “Sweat Equity” was the secret sauce and where I could take control & get ahead.
Worked smarter and harder at my businesses and building home equity. Now, every bit is paid for and it only took 20 years.
I complained that the rich had it all, then buckled down and made it happen for myself. Anyone that says they can not make it when home mortgages are 6.5% has little real world experience. I saw mortgages at 9% after they had been > 15% for young people back in the 80’s.
Homes in Salt Lake City that were $120k @9% mortgages in 1982 fell the the $70’s @ 7.5% over a three year period according to my older friends.
If you feel frozen out of the market start saving ~ and ~ when the market shifts and falls like 2008 – 2011? Buy low!
Start with the worst house on the best block with cosmetic needs (NOT STRUCTURIAL) and build from there.
Timing is everything!
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People don’t want to hear that hard work, stability, reliability, and frugal living are good. They just want to hear that they are down because of the evil rich (many of the ones saying this ARE rich … but that’s a different story). I bought my first house in 1983 with a variable rate which allowed me to only pay 12% interest (fixed rates were around 16% at the time … and variable rates sucked (super high caps et al) … but it was worth it. I bought a duplex, worked my axx off while doing a job that was 55+ hours a week. I truly believe it is harder today, but still quite doable. Big issue is that the “gender studies” or “study of patriarchy and misogyny in western cultures” degrees are going to make it hard to find a job.
That works in the 3rd world because of multigenerational households. If people can’t afford to hav kids, there isn’t going to be any multi generation to put in the house.