HOUSING

I Betrayed My Renting Brethren and Bought a House in the Suburbs.

What changed my mind so forcefully?

Photo by **Kaboompics .com** from **Pexels**

A couple of years ago, I wrote an article wholeheartedly in support of renting instead of buying a house. I had felt that way for quite some time and planned to continue renting for the foreseeable future.

At the end of the article, I spell out six distinct milestones that you should meet before buying a house. I only met two of them, stability and maintenance costs, before buying my current house just 18 months after writing that article.

So what happened?

In a word: COVID.

To be more precise, the titanic political, economic, and public health and shifts we have witnessed since the beginning of the pandemic.

The Quickly Vanishing Single Family Home

A new business model of Build-to-Rent (B2R) has sprung up the past several years, and the pandemic just pushed it into overdrive. Home builders are constructing new homes, even entirely new neighborhoods, that will never hit the real estate market.

Instead, these brand new homes will be marketed as Single Family Rentals (SFR), rented with all the appeal of a new home but without the maintenance.

As [Todd Wood, CEO of Christopher Todd Communities] puts it, “The American Dream is changing. The last recession hurt a lot of people, and homeownership is at a 20-year low.”

Most single-family renters fall into one of two categories: Baby Boomers who are downsizing, or Millennials. The latter, says Wood, are saddled with large amounts of student-loan debt and either can’t or won’t buy a home.

Renting affords them a more mobile lifestyle. The same goes for Boomers who lost their homes to foreclosure during the recession and are gun-shy about purchasing another.

This seems to create a supply of single family homes to quench the current demand. But does it really?

With the demand shifting from single family purchases to single family rentals, prices are going to increase. In fact, they already are. “…rents for [SFR] are growing fast at 4.5% annually now compared with 3% rent growth for multifamily apartments.”

It may take several years, but SFR rentals will reach their peak, and home ownership might not seem so bad.

Until then, renters can enjoy all the benefits of ownership, right? Not so much.

The phrase, “a man’s home is his castle” comes from a 1604 court ruling by Sir Edward Coke. The original quote starts with, “That the house of every one is to him as his Castle and Fortress as well for defence against injury and violence, as for his repose…”

This was the impetus behind our current “castle doctrines”, allowing property owners to defend their homes as well as protecting them against unspecified or incorrect police warrants.

While the legality of the castle doctrine for a rental mostly applies to the current occupant, many of the other protections and benefits enjoyed by homeowners do not.

Sure, your contract provides some form of “protection”, but most people can’t afford the court fees should a landlord try to pull something shady. Even if the landlord is on the up and up, you still only have 12 months of guaranteed housing, at best.

Stela G. wrote a great piece about how even the option of buying a house is being economically prohibited on a massive scale, creating “Generation Rent”. Here is the harrowing opening to her article.

The woman who showed us around the house had her hair up in a bun and put out a cigarette before we walked inside. We asked her if she was the estate agent. She said no, she was the tenant.

It felt off. Here we were looking to potentially buy this home and here she was, with years of accumulated furniture, bric-a-brac, and memories — and no choice in the matter.

Later, the estate agent said the landlord was looking to consolidate his portfolio. He had many homes he was renting out and wanted to work with fewer properties. But the house itself was lovely, the estate agent insisted. The lady who lived there with her children absolutely loved it and felt safe and happy — she’d been there for years.

We saw many other houses after this one. But the resigned look on that woman’s face was haunting. She smiled and spoke softly and she welcomed us into her home and showed us her daughter’s room.

A few months later, someone else bought her home.

She didn’t own it so all she could do was leave and find somewhere else to house herself and her children and make memories. For as long as she was allowed to stay anyway.

I wish I could write openings like that.

But back to the main subject, the poor woman in this situation could do nothing but stand by as her home of several years was deemed inefficient and sold out from under her.

That is no castle. That’s a sinking ship.

You may say that this situation doesn’t happen in large complexes, but you would be wrong. When we were trying to arrange the final move-out date for our apartment, we asked the front office what would happen if we needed to stay should the home purchase fall through.

Their response was that we were free to stay and pay rent, if the apartment wasn’t already rented out during our final two-month move-out period. If that happened, well, tough luck, but we’ll have to move to another apartment.

Housing Will Only Get More Expensive

There have been some signs that prices may have peaked this summer, but you can’t tell me they’re going all the way back down. No sir.

As with a whole bunch of other items, manufacturers have found that demand is rather inelastic nowadays, and increased prices have not decreased the volume of units sold anywhere near as much as expected. Home prices are no different.

Now that sellers know just how much they can get for their house, most of them will keep the prices elevated. And when most everyone keeps their prices high, a race to the bottom will never materialize.

So sure, I may have bought my house at or near the “peak” of housing prices, but any drop-off in 2021 will be small and made up for over the next few years.

Besides, what am I going to do…rent?

Not likely. Rent prices are going to be relatively higher than buying a home soon enough. Already, no minimum wage employee can “afford” rent anywhere in America. Hell, even average wages can’t afford rent.

The report, released Tuesday, defines “affordable” as spending no more than 30% of monthly income on rent, in line with what most budgeting experts recommend. Nationally, NLIHC puts the “housing wage” for 2020 — or what a full-time worker must make in order to afford a fair market rental without spending more than 30% of his or her income — at $23.96 per hour for a two-bedroom rental and $19.56 per hour for a one-bedroom.

That means even the average hourly worker who earns $18.22 per hour cannot afford rent, the report says. Many workers deemed essential during the coronavirus pandemic earn even less. “Grocery store cashiers earn a median wage of $11.61 per hour, while building cleaning workers and home health and personal care aides earn $12.94,” per NLIHC.

Am I seriously going to stay a renter when this is the type of situation I’m going to put myself in? Not at all.

For those of you who might be tempted to call the recent spike in home prices a bubble, I respectfully disagree, and so do many economists.

Housing prices have been hit with many headwinds, including a lack of inventory, high demand from Gen Z and Millennials, and historically low interest rates.

However, the scourge of NINJA loans is missing and adjustable rate mortgages have almost disappeared, so borrowers won’t have mortgage payments triple overnight.

Inventory is low and will likely remain low, “…and builders cannot afford to put up affordable homes due to skyrocketing construction costs.” If/when inventory catches up and pushes prices down, inflation will have counteracted those price drops.

All is these point to buying now being better than waiting.

The Financial Benefits that Come From Stability

Amelia and I have moved too many times since we first got married. It was a combination of just starting our careers, which entails job changes at a higher pace, and “the grass is greener” syndrome, mostly on my part.

We are finally in a place where we both have stable jobs, our kids are in a good school system, and we don’t have plans to move until our youngest is out of high school.

Here is a list of milestones we will reach in the next 10 years by staying put.

1 years, 11 months: Our first car will be paid off, with an estimated 85,000 miles on it. ($307/month)
2 years, 3 months: I will be eligible for my state pension, and adding to the total every year I work.
2 years, 8 months: Our second car will be paid off, with an estimated 65,000 miles on it. ($334/month)
4 years, 1 month: Our youngest will be out of daycare and in public kindergarten. ($1,221/month)
4 years, 5 months: I will be eligible for Public Service Loan Forgiveness
~5 years: Amelia will be eligible for Public Service Loan Forgiveness
7 years, 10 months: Our oldest will graduate from high school
8 years, 1 month: Our oldest can attend any in-state school with tuition assistance. (Up to $25,000/year)
~9 years: Our Loan-To-Value drops below 80%, and the private mortgage insurance falls off. ($212/month)

We will have accomplished all this in just a decade, plus paid down a good chunk of our mortgage. We will have also incurred no more moving expenses, which can put a big whole in your budget, even when moving from only a rental.

I understand that not all of these are housing related, but any savings we get while staying put can be invested or otherwise used for our benefit instead of getting gobbled up by the cost of moving.

Safety, Security, and Peace of Mind

The current pandemic aside, we are going to face many more challenges ahead. Climate change, water scarcity, political discord…you name it.

There have been two instances where I have slept more soundly after a big financial decision.

The first was when I got a 20-year term life insurance policy.

It is big enough to cover my family’s expenses for about a decade, so I knew that they would be taken care of no matter what. That is peace of mind that is hard to find nowadays.

The second was after purchasing this house.

It provides a place to call home that is all ours. It will be a much better place than any apartment to go through future lockdowns. We have chickens with plans for a garden and greenhouse. There are trees to climb, a yard to run in, and only one immediate neighbor who isn’t there half the time.

Even if nothing like COVID happens again, it provides the family with a stable residence, quieting the voice in the back our heads, asking when are we going to move again.

The Takeaway

When talking about personal finance, you need to focus on the personal side first, then talk about finance part.

That’s struggle that many writers, including myself at times, don’t always overcome.

Here’s a second issue that can be even bigger: change.

People change.

Circumstances change.

The world changes.

A plan made with today’s information in today’s environment may not work next year, or even next month.

That’s exactly what happened to me.

Apartment living was the right choice for our family…at the time. Then everything changed, and it was no longer the right choice for us.

It’s not right or wrong. It just is.

From the book, The Psychology of Money.

People do some crazy things with money. But no one is crazy.

Here’s the thing: People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons.

I appreciate the sentiment that no one is crazy when it comes to money. It’s a trope that is often used in personal finance, using examples of weird (to us) purchases.

But that person isn’t crazy. Just informed by a very different lifetime of experiences.

Here’s another quote I like.

Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.

The information I had back in 2019 was vastly different than the information I had in 2021, and that information is being input into a different brain that experienced 18 months of my life.

Information changes, our environment changes, and we change…daily.

Allow for change to be incorporated into your money systems and you’ll go much further than if you had been unforgivably rigid in your approach.

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This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.