Great story! I helped one of my kids get an apartment (a rental not a coop) and I thought the same thing ("...a mug's game") but paid the security deposits anyway as a gift because I'm not sure he's going to stay in that town for long. If a year or two goes by and he is still there, I might nudge him toward purchasing.
Thank you for your comment. It seems to me that many who've experienced the record low 3% mortgages of the last decade or so have no sense whatsoever of the double digit interest rates their parents paid. Those payments forced many of us into very modest and run down homes indeed. That said, the kinds of ultra-cheap housing available in the 1970s and 1980s don't seem to be so available now. One of the standards of my youth, old farmhouses that had never been plumbed but were otherwise still standing and in pretty good shape, these places don't seem to exist at all. They've all fallen apart in the last half-century. At the beginning of the 20th century, the majority of people lived in rural areas. By the 1920 census, the US became an urban-majority nation and now about 80% live in urban areas. I'm guessing the next gen fixer-uppers are in the rust belt cities? But maybe there's a stock of cement block 1960's housing out there worth revitalizing too. As for other debt, I think that's a terrible strain on people. There was no such thing as a FICO score when I was a young adult trying to figure out how to buy a house.
Thanks for you comments. I've been a renter and for one unhappy spell (when we tried to sell a house in a market swoon) was a landlord with a single rental property. "Decorating is not maintenance." True that! For whatever reason, "What to fix today?" is a question I ask myself every morning in this "retirement" phase of my life. I also separate maintenance into the small, ongoing bits (lawns mown, small cracks repaired) with the bigger, uglier, expensive ones (new roof comes to mind but that is cheap compared to a couple on my list). I guess when I was working my mind so focused on the job I could let the house stuff simmer unconsidered most of the time...
I haven't thought much about the house as a place of stability for a family, that's a new role for a house in my thinking. It echoes many things I've read in the last week as the hundred thousand or more who had to evacuate deal with the dislocation of not being "at home" as even a brief stint in a hotel or a friends's house disrupts. For those who lose their houses, the instability will last a long time and an insurance check is cold comfort. Most of us are willing to pay much of our earnings for stable housing. Despite it being expensive and a costly, illiquid investment that is not an "investment" in the traditional sense, unless one has two or more of them and only uses one as a home. As your father pointed out, a house is a place to live and is worth exactly a house, and one must live somewhere. If we sell our house, we must obtain somewhere to live in, generally quite similar to what we left. Still, I hear from some of a unique advantage in buying a house. We can purchase one (which tend to appreciate as a general rule) at a fraction of the total price, and this creates the sole "leveraged" investment available to many. In the documentary series Martin Scorsese made with his old friend Fran Leibowitz, she talks about renting, buying and selling her apartments in Manhattan over the past half century. Something she did while never making money on these transactions. Yet, she "owns" (maybe outright by now) a large apartment in Manhattan today and she's managed to eke out a living in that unaffordable town all these decades. It's a fun watch, this series, and educational if anecdotal.
Thank you for your thoughtful comments. You are correct, it takes time to rebuild, and there's no certitude that the rebuilt neighborhood will much resemble the one that it replaces. My family moved to Los Angeles in 1957. I remember well watching (from Mar Vista) the 1961 Bel Air fire, sitting on the hood of my dad's car. Our next door neighbor's brother and sister-in-law had a home in Bel Air. The sister-in-law evacuated while her husband (as have many, even in these latest fires) remained at the house to hose the roof down and hope for the best. Floods, fires, earthquakes, and more. Formosa termites. Urban decay, For a plethora of reasons, despite these risks, most of us hope to have a tiny piece of land to call our own, even if it soaks up a huge sum of our earnings for decades. And, for many, it ultimately becomes, as for you, our single most valuable asset. This creates the question of how to diversify our overall net worth, to better assist us in our final chapters. Absolutely, there is an argument to sell our homes as we age. This can reduce financial risk. And if you simply move from one place in California to another, statewide you can take your Prop 13 tax valuation to your new home. This is an advantage most retirees in most states don't have. I think moving out of large houses is better overall than drawing cash from that nest egg through home equity loans. Retirees who leave family-sized homes create an opportunity for growing families to move in. It's part of the overall flow of a healthy housing market. The necessity to jettison old stuff in the downsizing process is an eventual gift to one's heirs, who otherwise must empty the garage, attic and (if you have one) basement as well as the rest of the house once we shuffle off the mortal coil. That said, those same heirs, in California anyway and maybe elsewhere, often argue for mom and dad to stay put, keep the home in the family. I've read a number of stories out of Altadena of families where brothers/sisters/grandchildren are the ones living in the houses bought long ago, because the old neighborhoods have established social networks, and the properties are worth quite a lot. For any person who's been the one who paid the mortgage, it's a personal decision to keep the house or move. Also, it's important to consider where you might move to, and what social network you might already have in place or will need to build. I've found it good advice to explore at depth where you might go. Make some friends, find new favorite restaurants, theaters, coffee houses, shopping. Explore the local scene for whatever you might need or want. If you imagine a move to a new place, I'd put that exploration at the top of your To Do list. Once you know where you want to go, then make the plunge. I learn something new almost every day from the people I've met in the greater Tucson area, and from the places I go. I think it's good for my aging mind and body. It's made me aware, too, that it's easy to mask decline in our well-worn old neighborhoods, where we can navigate the streets blindfolded. That might be a good thing, making old age easier, but it also can lead to a sense of a precipitous decline when in actuality mom or dad has been slipping for years, just below the radar. Maybe things would be better if we address problems earlier? Don't know but maybe.
I agree. The options are limited for many people. I worked in Seattle for two years once, almost bought an apartment. It's a wonderful city with a difficult housing market, yes. That said, and we see some tales in comments below, people of modest means still find ways to buy a home, if that is their primary financial aspiration. Many do so by moving from expensive cities to lesser places, leaving city jobs behind or (in the case, say, of Californians who work in the Bay Area but cannot afford to live there) taking on grueling commutes. Some buy terrible places ("handyman specials") and spend decades to make them more livable. Who is the "we" who will build more houses? And who is the "we" who make the rules about what kind of houses can be built, and where they can be built? (Never mind the "we" who believes they can "nudge" demand in the direction of their preference.) Our society has made some poor collective choices. One such poor choice in my thinking is the K-12 model of "everyone goes to college" instead of using high school as years where many could choose to enter construction trades or learn how to start a small business and all should study at length how to contribute to the public good through civic participation. The negative consequences of the current curriculum are manifold. All this collective trouble aside, at the end of the day we live as individuals. If my still-living-at-home kid were to ask me, I'd advise them to save two thirds of their take home pay now to set up the potential of a condo or house someday. (They save a bunch, but we don't talk much about what they are saving for or when they will spend it.) Their cash flow doesn't support a house payment, but it could support a third of a house payment or a half of a rent payment. A year of saving could result in a year of rent. Two years of saving could pay a year of house payments. This is way too much careful planning for most 22-year-olds. But if a pattern is set now, I think by the time they are 30 they will be able to purchase a place of their own. Retirees who locate to less expensive cities, or leave the US for other countries, they are responding as well to the outsized cost of housing. Most cities don't seem to mind losing their retirees, but when the workers and families leave, the ripple effects cause elected officials to pay attention. But that seems insufficient to create the housing we need to make this less of a front burner problem.
Topical, this forum post, this is much more than a thought exercise for me, as a California homeowner and taxpayer. The JP Morgan estimate was $50 billion, with only $20 billion of the losses insured. As much as I wonder about the $20 billion, I'm also thinking of where the other $30 billion will come from. Among my happiest days this past year for me? The receipt of my 2024 California home insurance premium increase notice. Happy, because my insurance wasn't outright cancelled. I paid it without a second thought. When that letter comes again this year, how will I feel, if the rate has doubled, or tripled? I live two houses away from the nearest fire hydrant, so maybe 120 feet. My city is at the confluence of two rivers which flow year round. The nearest river is a 10 minute walk from my house, so it's a pretty dependable source for water in case of a massive conflagration. It's not the flashiest city and I don't enjoy cool coastal weather or ocean views.I have this house because it was affordable (almost) when I bought it 30 years ago, and not so far from work, avoiding a killer commute. Here's my take on the California insurance market. We have something of price controls on insurance, with a statewide Insurance Commissioner (an office created in 1988). Since term limits arrived in the state legislature, a steady stream of elected officials has lookedto extend their careers in other offices statewide (this trickles down to local government, with former officials becoming mayors or city/county council members and supervisors). So the role has been held by a series of career politicians. It's a constant struggle for the state to try to keep insurance rates affordable as there is no law that says a company must stay in business in California even if they lose money in the aggregate every few years. Just a few weeks ago, it seems, the commissioner and the industry came up with new rate setting rules that allowed prospective modeling to be included in rate cases. The LA fires will certainly play into this. We have something of a statewide pool in the high-risk FAIR plan.
https://www.insurance.ca.gov/01-consumers/200-wrr/California-FAIR-Plan.cfm
https://www.cfpnet.com/
This covers only fires, so is no good for other, more typical insurance claims. A statewide insurance pool is unlikely to be established. I get none of the joys of ocean-facing property or the pleasures of living in the Sierra among the big trees. It's going to be hard even in single-party California to push through a statewide pool.
The two words that jump out to me above are "...in perpetuity." We don't have that level of certainty about anything. Is it likely that my house, which has been standing in its place since 1931, is likely, with routine care, to keep on going at least until I pass away? Likely, yes. Certain, no. If you want to play the leverage game, it can be done with investments just as you are doing with your housing. Then compare apples to apples. Money saved and invested is different than money spent. Possibly the biggest "leveraged" investments you will make will be raising your children. You will pour in hundreds of thousands, and the hope is they will earn millions over their adult lives. No less an eminence gris than Milton Friedman talked up the altruism of parents to expend effort toward the success of their family, as something a nation should encourage, and bank on. His ideas possibly play into our national values on housing and family life.
That variation in the value of your vacation house is crazy. We do our best, yet as you say luck and external forces (a work-related move, market conditions) play huge roles in whether housing decisions play out positively. As Jonathan has described repeatedly in his own stories, it's hard to get it just right. He offers more guidance in his 13 rules: https://humbledollar.com/2019/02/house-rules/ and myths here https://humbledollar.com/money-guide/housing-myths/ For many people, housing is the biggest single expense/investment of their lives, and the "home as piggy bank" concept holds an outsized impact on our culture. You are correct, overall in CA the housing market can be extremely volatile. I've experienced two periods where housing prices swung down nearly 50% in a hurry. Prices rise more slowly most of the time, but there are fast upward spells too which creates near-panic in first time buyers. These swings result in oddities that reflect in valuations across neighborhoods decades later. It reminds me of that Groucho Marx quip: "You can get stucco. Oh, how you can get stuck-oh."
Same! I think home ownership remains a good thing, a kind of forced savings to help establish that habit. Yet if I look at S&P 500 returns since 1987, your $159,000 would have grown to over $7 million in 38 years. (Don't we regularly see how much money we'd have today if only we'd spent differently long ago?) Or, looking at an inflation calculator, all things being equal a house costing $159,000 in 1987 would cost $440,000 in inflation adjusted dollars today. That inflation adjusted amount appears to be about what a median house runs today (though the 1987 median house was much less expensive than yours, at $104,000). Median rents nationwide have tripled from $600 in 1990 to around $1,800 today. Of course we don't live "nationwide" but in a particular town/city/state. Median rent in California is around $2,400. The cheapest apartment (in a dicey neighborhood) on a bus line near the school where my kid works is offered for $1300, about half their monthly take-home pay. My Arizona lot rent is $542, so I spend time here while they still live at home for now. Rent or own, housing prices have risen somewhat in line with inflation, and neither increase has beat market returns. With a house, at least after years of payments you have housing equity that's worth something. With rent all I have is a bunch of receipts. But if I rent below my means and invest the remainder, I create a different tale. Living modestly, saving and investing something, still seems the easiest path to a secure retirement.
Comments:
Great story! I helped one of my kids get an apartment (a rental not a coop) and I thought the same thing ("...a mug's game") but paid the security deposits anyway as a gift because I'm not sure he's going to stay in that town for long. If a year or two goes by and he is still there, I might nudge him toward purchasing.
Post: Rent Forever?
Link to comment from January 14, 2025
Thank you for your comment. It seems to me that many who've experienced the record low 3% mortgages of the last decade or so have no sense whatsoever of the double digit interest rates their parents paid. Those payments forced many of us into very modest and run down homes indeed. That said, the kinds of ultra-cheap housing available in the 1970s and 1980s don't seem to be so available now. One of the standards of my youth, old farmhouses that had never been plumbed but were otherwise still standing and in pretty good shape, these places don't seem to exist at all. They've all fallen apart in the last half-century. At the beginning of the 20th century, the majority of people lived in rural areas. By the 1920 census, the US became an urban-majority nation and now about 80% live in urban areas. I'm guessing the next gen fixer-uppers are in the rust belt cities? But maybe there's a stock of cement block 1960's housing out there worth revitalizing too. As for other debt, I think that's a terrible strain on people. There was no such thing as a FICO score when I was a young adult trying to figure out how to buy a house.
Post: Rent Forever?
Link to comment from January 14, 2025
Thanks for you comments. I've been a renter and for one unhappy spell (when we tried to sell a house in a market swoon) was a landlord with a single rental property. "Decorating is not maintenance." True that! For whatever reason, "What to fix today?" is a question I ask myself every morning in this "retirement" phase of my life. I also separate maintenance into the small, ongoing bits (lawns mown, small cracks repaired) with the bigger, uglier, expensive ones (new roof comes to mind but that is cheap compared to a couple on my list). I guess when I was working my mind so focused on the job I could let the house stuff simmer unconsidered most of the time...
Post: Rent Forever?
Link to comment from January 14, 2025
I haven't thought much about the house as a place of stability for a family, that's a new role for a house in my thinking. It echoes many things I've read in the last week as the hundred thousand or more who had to evacuate deal with the dislocation of not being "at home" as even a brief stint in a hotel or a friends's house disrupts. For those who lose their houses, the instability will last a long time and an insurance check is cold comfort. Most of us are willing to pay much of our earnings for stable housing. Despite it being expensive and a costly, illiquid investment that is not an "investment" in the traditional sense, unless one has two or more of them and only uses one as a home. As your father pointed out, a house is a place to live and is worth exactly a house, and one must live somewhere. If we sell our house, we must obtain somewhere to live in, generally quite similar to what we left. Still, I hear from some of a unique advantage in buying a house. We can purchase one (which tend to appreciate as a general rule) at a fraction of the total price, and this creates the sole "leveraged" investment available to many. In the documentary series Martin Scorsese made with his old friend Fran Leibowitz, she talks about renting, buying and selling her apartments in Manhattan over the past half century. Something she did while never making money on these transactions. Yet, she "owns" (maybe outright by now) a large apartment in Manhattan today and she's managed to eke out a living in that unaffordable town all these decades. It's a fun watch, this series, and educational if anecdotal.
Post: Rent Forever?
Link to comment from January 14, 2025
Thank you for your thoughtful comments. You are correct, it takes time to rebuild, and there's no certitude that the rebuilt neighborhood will much resemble the one that it replaces. My family moved to Los Angeles in 1957. I remember well watching (from Mar Vista) the 1961 Bel Air fire, sitting on the hood of my dad's car. Our next door neighbor's brother and sister-in-law had a home in Bel Air. The sister-in-law evacuated while her husband (as have many, even in these latest fires) remained at the house to hose the roof down and hope for the best. Floods, fires, earthquakes, and more. Formosa termites. Urban decay, For a plethora of reasons, despite these risks, most of us hope to have a tiny piece of land to call our own, even if it soaks up a huge sum of our earnings for decades. And, for many, it ultimately becomes, as for you, our single most valuable asset. This creates the question of how to diversify our overall net worth, to better assist us in our final chapters. Absolutely, there is an argument to sell our homes as we age. This can reduce financial risk. And if you simply move from one place in California to another, statewide you can take your Prop 13 tax valuation to your new home. This is an advantage most retirees in most states don't have. I think moving out of large houses is better overall than drawing cash from that nest egg through home equity loans. Retirees who leave family-sized homes create an opportunity for growing families to move in. It's part of the overall flow of a healthy housing market. The necessity to jettison old stuff in the downsizing process is an eventual gift to one's heirs, who otherwise must empty the garage, attic and (if you have one) basement as well as the rest of the house once we shuffle off the mortal coil. That said, those same heirs, in California anyway and maybe elsewhere, often argue for mom and dad to stay put, keep the home in the family. I've read a number of stories out of Altadena of families where brothers/sisters/grandchildren are the ones living in the houses bought long ago, because the old neighborhoods have established social networks, and the properties are worth quite a lot. For any person who's been the one who paid the mortgage, it's a personal decision to keep the house or move. Also, it's important to consider where you might move to, and what social network you might already have in place or will need to build. I've found it good advice to explore at depth where you might go. Make some friends, find new favorite restaurants, theaters, coffee houses, shopping. Explore the local scene for whatever you might need or want. If you imagine a move to a new place, I'd put that exploration at the top of your To Do list. Once you know where you want to go, then make the plunge. I learn something new almost every day from the people I've met in the greater Tucson area, and from the places I go. I think it's good for my aging mind and body. It's made me aware, too, that it's easy to mask decline in our well-worn old neighborhoods, where we can navigate the streets blindfolded. That might be a good thing, making old age easier, but it also can lead to a sense of a precipitous decline when in actuality mom or dad has been slipping for years, just below the radar. Maybe things would be better if we address problems earlier? Don't know but maybe.
Post: Rent Forever?
Link to comment from January 14, 2025
I agree. The options are limited for many people. I worked in Seattle for two years once, almost bought an apartment. It's a wonderful city with a difficult housing market, yes. That said, and we see some tales in comments below, people of modest means still find ways to buy a home, if that is their primary financial aspiration. Many do so by moving from expensive cities to lesser places, leaving city jobs behind or (in the case, say, of Californians who work in the Bay Area but cannot afford to live there) taking on grueling commutes. Some buy terrible places ("handyman specials") and spend decades to make them more livable. Who is the "we" who will build more houses? And who is the "we" who make the rules about what kind of houses can be built, and where they can be built? (Never mind the "we" who believes they can "nudge" demand in the direction of their preference.) Our society has made some poor collective choices. One such poor choice in my thinking is the K-12 model of "everyone goes to college" instead of using high school as years where many could choose to enter construction trades or learn how to start a small business and all should study at length how to contribute to the public good through civic participation. The negative consequences of the current curriculum are manifold. All this collective trouble aside, at the end of the day we live as individuals. If my still-living-at-home kid were to ask me, I'd advise them to save two thirds of their take home pay now to set up the potential of a condo or house someday. (They save a bunch, but we don't talk much about what they are saving for or when they will spend it.) Their cash flow doesn't support a house payment, but it could support a third of a house payment or a half of a rent payment. A year of saving could result in a year of rent. Two years of saving could pay a year of house payments. This is way too much careful planning for most 22-year-olds. But if a pattern is set now, I think by the time they are 30 they will be able to purchase a place of their own. Retirees who locate to less expensive cities, or leave the US for other countries, they are responding as well to the outsized cost of housing. Most cities don't seem to mind losing their retirees, but when the workers and families leave, the ripple effects cause elected officials to pay attention. But that seems insufficient to create the housing we need to make this less of a front burner problem.
Post: Rent Forever?
Link to comment from January 14, 2025
Topical, this forum post, this is much more than a thought exercise for me, as a California homeowner and taxpayer. The JP Morgan estimate was $50 billion, with only $20 billion of the losses insured. As much as I wonder about the $20 billion, I'm also thinking of where the other $30 billion will come from. Among my happiest days this past year for me? The receipt of my 2024 California home insurance premium increase notice. Happy, because my insurance wasn't outright cancelled. I paid it without a second thought. When that letter comes again this year, how will I feel, if the rate has doubled, or tripled? I live two houses away from the nearest fire hydrant, so maybe 120 feet. My city is at the confluence of two rivers which flow year round. The nearest river is a 10 minute walk from my house, so it's a pretty dependable source for water in case of a massive conflagration. It's not the flashiest city and I don't enjoy cool coastal weather or ocean views.I have this house because it was affordable (almost) when I bought it 30 years ago, and not so far from work, avoiding a killer commute. Here's my take on the California insurance market. We have something of price controls on insurance, with a statewide Insurance Commissioner (an office created in 1988). Since term limits arrived in the state legislature, a steady stream of elected officials has lookedto extend their careers in other offices statewide (this trickles down to local government, with former officials becoming mayors or city/county council members and supervisors). So the role has been held by a series of career politicians. It's a constant struggle for the state to try to keep insurance rates affordable as there is no law that says a company must stay in business in California even if they lose money in the aggregate every few years. Just a few weeks ago, it seems, the commissioner and the industry came up with new rate setting rules that allowed prospective modeling to be included in rate cases. The LA fires will certainly play into this. We have something of a statewide pool in the high-risk FAIR plan. https://www.insurance.ca.gov/01-consumers/200-wrr/California-FAIR-Plan.cfm https://www.cfpnet.com/ This covers only fires, so is no good for other, more typical insurance claims. A statewide insurance pool is unlikely to be established. I get none of the joys of ocean-facing property or the pleasures of living in the Sierra among the big trees. It's going to be hard even in single-party California to push through a statewide pool.
Post: The Twenty Billion Dollar Problem
Link to comment from January 10, 2025
The two words that jump out to me above are "...in perpetuity." We don't have that level of certainty about anything. Is it likely that my house, which has been standing in its place since 1931, is likely, with routine care, to keep on going at least until I pass away? Likely, yes. Certain, no. If you want to play the leverage game, it can be done with investments just as you are doing with your housing. Then compare apples to apples. Money saved and invested is different than money spent. Possibly the biggest "leveraged" investments you will make will be raising your children. You will pour in hundreds of thousands, and the hope is they will earn millions over their adult lives. No less an eminence gris than Milton Friedman talked up the altruism of parents to expend effort toward the success of their family, as something a nation should encourage, and bank on. His ideas possibly play into our national values on housing and family life.
Post: Rent Forever?
Link to comment from January 10, 2025
That variation in the value of your vacation house is crazy. We do our best, yet as you say luck and external forces (a work-related move, market conditions) play huge roles in whether housing decisions play out positively. As Jonathan has described repeatedly in his own stories, it's hard to get it just right. He offers more guidance in his 13 rules: https://humbledollar.com/2019/02/house-rules/ and myths here https://humbledollar.com/money-guide/housing-myths/ For many people, housing is the biggest single expense/investment of their lives, and the "home as piggy bank" concept holds an outsized impact on our culture. You are correct, overall in CA the housing market can be extremely volatile. I've experienced two periods where housing prices swung down nearly 50% in a hurry. Prices rise more slowly most of the time, but there are fast upward spells too which creates near-panic in first time buyers. These swings result in oddities that reflect in valuations across neighborhoods decades later. It reminds me of that Groucho Marx quip: "You can get stucco. Oh, how you can get stuck-oh."
Post: Rent Forever?
Link to comment from January 10, 2025
Same! I think home ownership remains a good thing, a kind of forced savings to help establish that habit. Yet if I look at S&P 500 returns since 1987, your $159,000 would have grown to over $7 million in 38 years. (Don't we regularly see how much money we'd have today if only we'd spent differently long ago?) Or, looking at an inflation calculator, all things being equal a house costing $159,000 in 1987 would cost $440,000 in inflation adjusted dollars today. That inflation adjusted amount appears to be about what a median house runs today (though the 1987 median house was much less expensive than yours, at $104,000). Median rents nationwide have tripled from $600 in 1990 to around $1,800 today. Of course we don't live "nationwide" but in a particular town/city/state. Median rent in California is around $2,400. The cheapest apartment (in a dicey neighborhood) on a bus line near the school where my kid works is offered for $1300, about half their monthly take-home pay. My Arizona lot rent is $542, so I spend time here while they still live at home for now. Rent or own, housing prices have risen somewhat in line with inflation, and neither increase has beat market returns. With a house, at least after years of payments you have housing equity that's worth something. With rent all I have is a bunch of receipts. But if I rent below my means and invest the remainder, I create a different tale. Living modestly, saving and investing something, still seems the easiest path to a secure retirement.
Post: Rent Forever?
Link to comment from January 9, 2025