🏠 House-less but Stress-less

Why Buying a house is not fancy anymore and how does Renting let me roll with the Economic Punches?

So once you start to settle for a nice paying job, the next obvious question the society asks you "When are you gonna buy a house?"

My answer would be a "Hard NO!"

📊 The Numbers

Before getting into my notion, let's pull up some data comparing the house mortgage payment Vs. salary.

A report released by the National Association of Realtors (NAR) confirms that: Due to rising interest rates and low inventory, the average income of a homebuyer between July 2022 and June 2023 was $107,000, up from $88,000 the year prior - one of the highest levels since NAR started tracking in 1981. But the housing market continues to churn.

So this means that Home affordability is in the gutter.

🚪 Renting Vs Buying a house

Now, the data tells why the current salary can't afford a house and I am gonna add a few points to comprehend this

Anything that puts money into your wallet is an asset and anything that takes money from your wallet is a liability.

- Robert Kiyosaki in Rich Dad, Poor Dad

Most of the time, a house is bought on a loan. So every month you need to pay the mortgage, and of course, you will pay the rent if you are on the other end of the spectrum, i.e. renting a home.

But paying rent and paying a mortgage are never the same. Monthly mortgages are usually high.

From an ROI perspective, if you are paying a loan of 10% interest every month and on average your house is giving 10% return (15% return - 5% depreciation), i.e you have neither made money nor lost money but have been paying an EMI to a bank for the past 20+ years without saving money, or spending on a vacation. Basically, you can't enjoy your life but be committed to a bank paying mortgage monthly. High chances of burning out quickly.

Of course, the answer to this - the pride of calling it your home at the end of the 20-year tenure. But the majority of the people are living a very nomad life and they are moving from city to city, country to country for work, education, marriage etc. So what will you call home then? The city that you are currently living in? or the city where your mortgage is?

And for me personally why I feel renting a house is better cause -

• I am gonna live a very nomad life. I don't have a clear vision of where will I settle in and why would I commit to a house in a city that I am not gonna even live in.

• Also personally, I feel that the housing market in Tier 1 cities of all countries has reached its peak and there is less supply while the demand is still increasing, leading to the over-valuation of houses.

😶‍🌫️ Is it all gloomy then?

Then buying a house is a very bad option, isn't it? Uhm not really. Let's understand when and why to buy a house

• A psychological Safety - but this is a very emotional aspect and I really don’t look at this aspect when buying a house. But most of the people do it. I try to keep emotions as far from my money decisions cause the more emotions I bring in, the more mistakes I am gonna make.

• When you are not a financially sound person i.e. you cannot control the extra cash flow in your bank account, then it’s better to buy a house and pay the mortgage, cause at least you have something at the end of 30 years. But if you can take full charge of the extra disposable income you have and can invest in growing assets, then avoid buying a house.

One more piece of data from NAR to bolster my argument.

Home Buyers are getting older. The average first-time homebuyer is 35, up from 29 in the 1980s. NAR found that the median age of a repeat homebuyer last year was 58. In 1981, it was 36.

So the trend shows that people are taking time to buy their houses only after saving a huge chunk of liquid capital.

💰 House ≠ Safe Investment

Well, long story short, people wanted a very safe investment option and they thought the house was the safest out of all investment options, but not anymore. At least not in this century.

And I would definitely not invest in a house. I would rather buy a house (perhaps an A-framed house or tree house) somewhere in touristy cities like Goa, Manali or Denpasar and rent it out on Airbnb. So basically, this will add money into my pocket (asset), rather than being a liability.

Btw, check out the Reventure Consulting YT channel which teaches about housing market conditions.

I wanted to break down even further with unit economics but I don't wanna make this long and boring - so sharing a YT video from the 'Personal Finance for expats' channel which breaks down in detail the unit costs for renting vs buying.

What's your notion on this? Feel free to drop a comment :)