As a "DI3K", a house makes a ton of sense. We need space, we need a place for five people to live, and we need a house in an area where the schools are going to be great for the next 18 years. We don't need mobility as far as relocation goes, because it just doesn't make sense in our life choices right now. I mean, it's certainly possible, but I've seen second-hand what moving from town to town every 6 months does to a 7-year-old.
I'm not mad that our property (as far from the coasts as possible) has increased in value ~$50-80K, either.
Don't forget shorter mortgage commitments are available (And a much better deal when you can swing them).
If you pay a property manager 10% to make it their problem, the economics of paying a mortgage on a home you're no longer living in and renting it out become significantly more questionable - particularly in some place like the Bay Area, where mortgage payments are already often more than you would pay to rent the equivalent dwelling.
Otherwise, there’d be a line to file strategic bankruptcy after the last tuition payment was due...
It's a mild deterrent for some cases, but for a lot of situations, having the degree isn't anywhere near as valuable as having the education.
Not having two student loan payments and a couple unnecessarily-high car payments (a couple well-to-do millennials surely make possible) could certainly push your mortgage affordability much higher than someone straddle with that debt (but completely able to pay and maintain it).
Eventually there are a ton of empty houses on the market without buyers, sellers are forced to lower their prices. People in upside down mortgages cannot sell as housing prices are lowered and foreclose, further dragging down the price. Market crashes. People with capital swoop in and buy up houses to rent out, driving up rent further as they can set the price.
This collapse will be slightly quicker than the last as the market is not as propped up with sub prime style loans. If salaries don't keep up with inflation a crash is inevitable. Deck is stacked against people without a strong financial base (upper middle class parents) but hey, they can stay on their parents health insurance for longer now, so that's nice.
Median income has gone up by about 150% (to 2.5x) in nominal terms between 1986 and 2016.
https://fred.stlouisfed.org/series/MEHOINUSA672N
The story here is quite different - only a 19% increase, and much more unstable over the years. Most of the increase happened before 2000. Almost no change since then.
Health Care and Other Benefit Costs
As nonwage benefits are beefed up by U.S. employers, such as expanded paid leave and performance-based bonuses, fewer dollars in their total rewards budgets may be available for salary increases.
But health care benefit costs are a prime suspect.
"The rise of health-care costs is the most important reason wages have not increased more for U.S. workers," Nobel economics laureate Edward C. Prescott and Lee E. Ohanian of the Center for the Advanced Study in Economic Efficiency at Arizona State University, wrote in the Wall Street Journal in 2018. "The extra compensation is swallowed up by health-insurance premiums."
A new white paper provides evidence that "the rising values of fringe benefits, such as health insurance, may have offset potential wage gains for middle-income workers" despite falling unemployment. The authors, Jeff Larrimore of the Federal Reserve and David Splinter of the congressional Joint Committee on Taxation, contend that when factoring in the cost of health coverage, "total compensation may be higher than previously believed, also implying that employer-sponsored health insurance benefits may represent a larger share of employee compensation."
Economics columnist Robert J. Samuelson wrote in the Washington Post:
The problem is plain: We'd all like both cheaper health insurance and higher wages, but the way the health-care system is operating today, we might get neither. As insurance premiums get more expensive, inflation-adjusted ("real") wages will continue to stagnate or decline.
1. Every idiotic meme about how goods X, Y, and Z have more than doubled in price while [real] wages haven't. I'm torn between thinking the meme creators are completely clueless or epic trolls.
2. There is a substantial linkage between nominal wages and nominal inflation, especially for limited, competitively bid goods (like housing).
Looking at median house prices https://fred.stlouisfed.org/series/CSUSHPINSA , it looks like they went up slightly more than median wages (2.85x vs 2.5x in 30 years), which I think is likely more than explained by today's lower than historical norms interest rates (increasing affordability). https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate...
Mortgage rates over 10% in 1988 and under 5% today means that 1988 houses were less affordable on 1988 wages than 2018 houses are on 2018 wages.
That means that it's sufficient for the lower income tiers (relative to the house value) to have a few months of high interest rates (in a time frame of 15-25 years) in order to lose the house.
Buying at the current rates is risky, while the risk of rising rates in 1988 was much lower. Factoring that in should change your conclusion.
http://www.freddiemac.com/perspectives/sean_becketti/2017041...
People got burned bad by ARMs in the housing crash of 2009 and they still aren't willing to take the risk.
("Yes and") There's also very little rate benefit to adjustable mortgages right now, so it's quite sensible to take a fixed rate mortgage. When I bought my first house (in 1996), I recall that fixed rate mortgages were several points higher than adjustable rate mortgages during their fixed portion. In cases like that, it made for an actual decision.
With both fixed rates and ARMs having roughly the same initial rates, there's little reason to choose adjustable.