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Homeownership: What's the New Normal?

Unless you’ve been living under a rock, it’s hard to argue with the fact that the housing market has changed quite a bit in the last 20 years. From gentrification to the Great Recession and the bursting of the housing bubble, the world of homeownership in the U.S. has certainly had its fair share of ups and downs in recent years. The question is, with all of the flux what does the new face of homeownership look like to the majority of Americans trying to make ends meet in this crazy new world?

To Rent or to Own? That Is the Question

Many modern millennials are struggling with a choice that has become much more of a wash than it once was: Should they try to rent or own the house they live in? On one hand, renting provides a scenario with more flexibility and an overall decrease in responsibilities. For instance, many of the typical housing concerns and even regular maintenance can simply be passed off to a landlord.

On the other hand, buying a house -- if you can afford it -- still remains an excellent way to build up some equity and not just dump your rent money into a black hole with no return. It also allows a homeowner to do as they wish with their property, rather than being restricted by the rules of the actual owner.

But at the end of the day, can a modern individual, much less a growing family, afford to own or even rent their living space in this economic climate?

The Costs of Life

While figuring out where you're going to dwell is an obviously critical factor of living, it can't take up every waking minute of your time. Life is too busy. And we're not talking about time spent lounging on the sofa binge-watching Netflix. There are countless other concerns and responsibilities facing the modern American apart from figuring out how to pay the mortgage. Millennials, in particular, are facing quite the uphill battle before they even begin to consider the gargantuan commitment of purchasing a house.

For example, education costs alone have become an astronomical factor that must continue to be accounted for years and years after a person graduates. College Data reported that the average price of an academic year at a public institution from 2017-2018 averaged over $25,000 with the price tag for a private university coming in at roughly double that. That is a per year statistic during an era when even a four-year bachelor's degree may not be enough to find employment.

In the modern era healthcare costs have become another expenditure that has skyrocketed at a shocking pace, with premiums, deductibles, and monthly payments spinning out of control and the number of uninsured yet again on the rise. In this case, the problem can be even more devious than simply siphoning away the available funds for housing, too. Unpaid medical bills eventually affect things like credit scores which, in turn, can directly impact the ability to get a mortgage. And yet, one can't expect health to be cast to the wayside in the pursuit of homeownership.

These kinds of issues don't only have the potential to hold back millennials from being able to scrape together enough cash for a down payment on a house. They can also stop them from even having a clean enough credit history to financially function in general. The consequences of these numerous fiscal struggles are literally serving to stall out an entire generation from getting its footing in the world, driving many millennials to opt for "third-party options" like living with their parents for extended periods of time or even co-owning a house with other families in order to ease the financial burden.

An Urban Problem? Hardly

The struggle to be able to afford housing has historically been an urban issue. It has generally been the case in the past that city dwellers tend to feel the lack of space or the gentrification of neighborhoods, along with the consequent price increases they typically entail, more keenly than those living in the more sprawling countryside.

But research has shown that there are actually many rural areas where the cost of housing is just as much of a crisis as in urban as well as suburban areas. Not only that, but many of the issues facing the rural crowd are the same as their city counterparts. This simply goes to show that the crisis is a national conundrum and not just one affecting certain demographics, even if some specific, geographic areas do seem to be harder hit than others at times.

Navigating the Future

No one is immune from the effects that the modern housing market is having on the current American landscape. From struggling with the decision to rent or own to finding ways around the problem by cohabitating with another family or remaining with your parents, the housing future is shaping up to be a vastly different beast from the more stable, conventional options of the past.

Posted by Magnolia at February 1, 2019 10:47 AM
Comments
Comment #437609

Finding a home or housing is especially difficult in certain places like California, and some large cities, like New York City.
Perhaps people should consider moving to states with better economies.

Houses in most states cost about one-third (or less) of what they cost in California.

People should probably rent until they are serious about building equity, and paying less interest to the bank, and that cannot happen by only making the scheduled payment on a 30 year loan. That is, they should not buy too much house, they should try to save up a large down-payment, and they should double the periodic payments (cutting the total interest by about 67%, or better, and reducing the loan from 30 years to about 10.83 years, or less). Think of it as paying yourself, instead of the bank.

For example, a $200K loan at 4.0% for a 30 year loan will have a $954.84 per monthly payment, and total interest over 30 years will be $143,735.87 .

And, a $200K loan at 4.0% for a 30 year loan (but paid in 10.83 years) will have a $954.84 per monthly payment, and an additional $954.84 per month (specifically, on the principal), and total interest over only 10.83 years will be $46,925.17 (67.4% less; a savings of $96,810.70).

All home buyers should understand the following, and track the bank’s calculations, because the banks make mistakes sometimes.

COMPOUND INTEREST LOAN (Annual Percentage Rate):
Payment = Principal * ( I * (1.0 * I)^n) / ((1.0+I)^n -1.0)
n = total number of payments
I = (%Interest_Rate) / (100.0 * (PaymentsPerYear))
PeriodsPerYear = 12
$PeriodicInterest=((%Interest_Rate)/(PeriodsPerYear*100))*(RemainingPrincipal)
APR = Annual Percentage Rate = Periodic_Rate * Periods Per Year
APY= Annual Percentage Yield = ((1 + Periodic Rate)^(Periods)) - 1

Here’s a Microsoft Excel template calculator.

Posted by: d.a.n at February 1, 2019 2:34 PM
Comment #437630

CORRECTION:

Payment = Principal * ( I * (1.0 + I)^n) / ((1.0+I)^n -1.0)

Here’s a Microsoft Excel template calculator.

Posted by: d.a.n at February 2, 2019 2:22 AM
Comment #437632

Have you ever watched Tiny House Nation?
https://www.youtube.com/watch?v=P1H1kVSfCs8

Perhaps downsizing is an option?
Especially for young people without a large family.

Posted by: d.a.n at February 2, 2019 2:26 AM
Comment #437668

Property should be considered an heirloom, not a commodity.

Posted by: Weary Willie at February 3, 2019 2:40 PM
Comment #437739

A huge part of the problem today is that younger people are too quick to get deep into debt, they want to buy more than they can afford to pay off quickly (i.e. a 30 year loan is a trap in which the total interest on the loan over 30 years can be VERY costly), and they still have nearly ZERO equity after 10 years. That’s crazy. Just because everyone else does that (or, many people), doesn’t mean it is a good thing to do. IF you already have a 30 year loan, it can be paid off in about 1/3 of the time by doubling the payments.

Again, here is a Microsoft Excel spreadsheet (loan calculator) that can be educational in seeing how much difference extra payments can make in the total interest on the loan.

Posted by: d.a.n at February 6, 2019 12:29 AM
Comment #437982

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