Does It Still Make Financial Sense to Buy a Home?

Those damn Millennials. We’re apparently too busy munching avocado toast and mainlining Starbucks and THAT’S why we can’t buy those 2,100 square foot money-sucking behemoths that mysteriously a few lifetimes of salaries that simultaneously had their spending power totally nerfed in the past decade. Not like rampant wage stagnation and an economic infrastructure that rewards shooting cars into space has anything to do with that, no, not at all. Throw in a last-minute tax reform that has also negated many of the benefits that commonly come with buying a home, particularly if you live in a state with high property and income taxes like New York or California, and it’s really taken away much of the incentive for many people.

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Real estate professionals are getting their hopes up that 2019 will be IT for younger people to buy homes, and project that 2019 home sales will show a sharp increase in younger people buying homes compared to 32% of Millennials who were homeowners in 2015. But you know, Millennials wouldn’t be…us without there being two sides to the story. While there are millions of people under 40, as this is what is often used as the catch-all for “Millennial” these days, who want to buy homes but simply can’t afford to? There’s also many Millennials who are simply forgoing homeownership permanently or out of making the best decisions for their careers and lifestyles.

We’re blowing the lid on everything from career types, whether or not to get married, how we define a family, and holding secret meetings on what crappy chain restaurants and obsolete nonessential items we’re going to kill next. Is homeownership still a goal– or next in line for the Millennial black site where we’re about to go Leatherface on it– because it simply doesn’t make financial sense after we watched numerous peers and family members go underwater in 2008 and never get their financial security back?

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You Can’t Walk Away From a Deed or Mortgage Like a Lease

We’re making the best of the economy we wound up with rather than the one we were told we’d get when we were still bright-eyed bushy-tailed young things before the dotcom crash. There’s two sides to the itinerant nature of things like work, relationships, and communities that Millennials have largely been given. Some of us have embraced all or more of these aspects and even thrived with them because we just don’t fit that mold of “go to college, get married, get a good job, have kids, and live in this hulking suburban thunderdome til you shuffle off the mortal coil”. Whether it’s all of the things on that list or just some of them.

It’s hard to justify buying a home if you expect to move frequently for work or personal purposes.

Apparently, 89% of Millennials would move for the right company or role. Previous generations have moved because of company relocations or finding a better job elsewhere, families and all, so this isn’t anything new. But looking at what so many of my peers go through, particularly in fields where skilled professionals face incredibly short-term job security like game development and digital media, I definitely feel like an aberration for having had the same home for 10 years before buying a condo across town. Self-employed media professionals with a higher degree of autonomy may also opt to migrate more often to pursue opportunities in different cities on a regular basis.

Work is the most common impetus for moving, but what about personal factors like having to move to be closer to a family member who needs a caregiver? Or you meet the love of your life playing Warcraft so one of you has to move across the country? You can’t easily walk away from a home you own. It can be a major source of financial security but buying and selling real estate are not as simple as commencing or breaking a lease, so it can also be a major source of stress and additional financial strain in both the buying and selling stages. If you don’t expect to stay in the same place for very long due to the itinerant nature of work and/or relationships some of us just wound up with, it’s not worth it to buy.

Moving is expensive as it is. Tack on a whole other world of financial hurt when you’ve got numerous expenses associated with selling your home, which needs to be broom-clean and properly staged before putting it on the market. Depending on where you’re selling and what type of property it is, the transaction will take a minimum of a few weeks but could drag on for months all while you need another place to live and keep your stuff.

And we haven’t even gotten into the expenses you also face on the buyer side! Checking out properties takes time, so does applying for mortgages and in some cases you have to pay an application fee. If you’re looking at condo or cooperative housing, that’s more application fees and allowing time for board reviews. Not that finding rentals doesn’t have difficulty and expenses, but it’s still a far more expedited process so long as you have that security deposit.

For a vast majority of Americans, buying a home is the largest financial transaction they’ll ever have in their lives and really don’t want to go through it every couple years. Plan on putting down roots though? In an area that’s super amenable to your career where the market could explode, or perhaps thinking about renting out your home if you decide to head elsewhere? Owning a home is still likely to work in your favor, but ultimately depends on the property, your financial situation, lifestyle, and location above all else.

Is It All About Taxes?

Mirroring the last sweeping material change to the tax code in 1986, the 2018 tax reform has rendered the mortgage interest deduction worthless to millions of Americans. Speaking as a former tax advisor (still got my Enrolled Agent license but have thankfully not set foot in a tax office in years!) I saw many a client get starry-eyed at the prospect of owning their little half-acre castle in Westchester or New Jersey or perhaps grabbing that reasonably-priced 1-bedroom apartment in Inwood before it turned into Dubai on the Hudson. The idea of not paying egregious rent every month when you can own something and get huge tax deductions to boot? Who WOULDN’T want to sign up for that?

American tax policy is often used as a social engineering tool. People will make decisions based on what they hear about the tax code, even if they don’t personally benefit but are under the impression that they will. For instance, many people will donate to charity because they hear it’s tax-deductible even though prior to the 2018 tax reform only about two out of three taxpayers took the standard deductions on their returns and thus got a tax benefit. Of course, giving to charity is still a personal decision that millions of people will still make because they feel good supporting a cause they care about regardless of how the outcome affects their tax bill.

And the same is true of owning a home: other developed countries like Canada and Australia don’t have the same tax incentives, but The mortgage interest deduction is purely an American thing that was actually in the tax code since it became law in 1913. Most people owned their homes outright and we didn’t have things like the mortgage industry until decades later, followed by HELOCs then the exotic financial products that were the equivalent of jamming a fork and tinfoil in the microwave as far as the country’s economic security was concerned.

People still want to buy a home to do what they want with the property, especially as far as having pets and friends come and go is concerned. With the casual rental economy in swing thanks to Airbnb and VRBO, it’s an excellent option for passive income even if you lost your tax advantages for buying. There’s also having the security that the landlord won’t suddenly uproot them because a commercial developer suddenly wants the land, or perhaps the landlord dies and has a reverse mortgage on the place and suddenly the bank swoops in and all the tenants need to GTFO.

But it definitely kills a lot of incentive to buy when you used to get significant deductions for owning your place and now you’re capped on both income AND property taxes in the same deduction, if you’re even going to itemize at all because of the bolstered standard deduction.

Ongoing Maintenance Expenses and One-Time Catastrophes Can Ruin You Financially

Don’t tell me he took out a HELOC for this…

Renting sucks when you know you could damn well afford a mortgage and all the associated expenses with it, don’t get me wrong. But when I was working my old tax advisor job, something I saw frequently was that those starry-eyed clients would only be thinking about mortgage payments and property tax relative to rent. If you’re buying a traditional single-family home, you’re going to be paying a LOT more than that.

For one, you really need homeowners’ insurance because crap can and does happen. The average annual premium for a single family home is $1,083 but varies greatly by state and property type. For example, New York’s average per that chart is $1,256 but as a condo owner in NYC I only pay about $400 annually. Tenants’ insurance averages $197 per year in comparison.

While tenant law varies from state to state, in America your landlord is generally on the hook for major and minor repairs plus appliances (unlike say, Germany where you’re stuck buying your own gas range and even more when you move to a new rental). That ALL goes out the window when you buy a house. Hear some mysterious rattling and it’s not your child playing with a toy, or perhaps the friendly local danger noodle who’d like to check your walls for dead mice?

DAT FACE

You have to take the time and money to figure out the cause because if you don’t, you can face potential dangers and sinking property values. The costs of maintaining your home goes beyond those mortgage payments and taxes. Utilities alone can suck up any semblance of disposable income you once had, as heating and cooling a single family home can get pricey. Water bill? Trash collection? All your responsibility now.

When it’s 10 degrees out in the middle of the night and suddenly you have to drag a busted hot water heater to the curb and now need to rush to the hospital for a herniated disc? Owning a place goes WAY beyond what you see on tax forms for sure. And you can’t even deduct any of it!

A Home =/= A House Necessarily

Tiny linguistic differences can actually mean a lot.

People tend to think of homeownership as buying a house. But it’s not necessarily the case. A house can be a wonderful home full of new memories about to be made, your own castle to do what you want with, or an eldritch abomination waiting in a murky morass to suck up all of your time and money. It’s something that has no appeal if you don’t want to spend your weekends doing yard work or your money towards paying someone to do it.

There’s tiny houses, but also freestanding condos and apartments. You have to pay fees every month, but the upside is you still get the security of owning your unit and possibly a maintenance department to provide many of the same services landlords are supposed to. A lot of Millennials are choosing lifestyle over space, I definitely did.

But we can’t do anything right so we’re told we’re stupid for paying condo fees, but if a childless Millennial couple buys a house they’re told they don’t need that much space.