The Borrow Smart Chronicles - Rent -vs- Own Conversations

Episode 34

Author

Todd Ballenger
June 28, 2024

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"Owning a home is a keystone of wealth—both financial affluence and emotional security".

Suze Orman - I didn’t think I’d ever quote her, so anything is possible…

Regarding housing, there is a lot of negativity in affordability, (see charts below), but this was a bright spot:

The house is the financial gateway through which all money flows, and it is a key to future financial affluence and emotional security which ‘per Maslow’ is key to stability and confidence which also leads to financial well-being.

From the report:

“Living in satisfactory housing conditions is one of the most important aspects of people's lives. Housing is essential to meet basic needs, such as shelter, but it is not just a question of four walls and a roof. Housing should offer a place to sleep and rest where people feel safe and have privacy and personal space; somewhere they can raise a family. All of these elements help make a house a home.

Housing costs take up a large share of the household budget and represent the largest single expenditure for many individuals and families, by the time you add up elements such as rent, gas, electricity, water, furniture or repairs. In the United States, households on average spend 18% of their gross adjusted disposable income on keeping a roof over their heads, below the OECD average of 20%.

We’re #1

a BORROW SMART CONCEPT
House - vs - Home

Many great discussions around about this podcast - and if you haven’t listened, it’s worth it. The New York Times has greatly impacted public opinion and sentiment with its Rent-vs-Own calculator. There are many good points made here both for and against owning a house (versus renting).

Key concepts in our course that stood out here:

LAG - Liability Asset Gap - you must look at the money invested in the house for the return against what that money could have done elsewhere.

Leverage - Real estate creates the most wealth because it is a forced savings plan with 5-20X levage.

House - vs- Home - the house is the physical structure that has financial benefits or (losses), while the home is the emotional reason and experience you have in the house. Both are important.

Appreciation - is the only way the house creates net wealth over time financially, and that appreciation offsets the cost of renting.

When I was originating this graph drove demand for housing that accentuated the desire to own, whether it made financial sense or not.

LIABILITIES and DEBT
What’s Happening.

housing is 1/3rd of all expenses for most

for new entrants that is higher and why renting may make sense now

big gap owners equivalent rent and actual rent showing housing prices are outpacing most renters ability to move up and buy

we are doing ok handling the debt (lower locked in rates)

because we have long term fixed mortgages

and our income has been increasing

housing is still inflationary

that’s why buy-downs and lower rates lead in incentives to buy

or moving to a place that is more affordable

fortunately commercial is getting a bid

"Make a mistake? Release the guilt, remember the lesson."

- James Clear

REAL ESTATE
What’s Happening?

big drop in sentiment this past week, driven by affordability

inventory increasing slowly

another look at inventory

but permits are dropping which lowers future inventory

another look

and prices are still going up

leading to purchase applications staying low

getting back to lower which is usually bulling in the next few quarters

prices still positive even with higher rates

an interesting look at affordability now

and the typical renter needs $66k just to rent a house, that might buy them 4X of $264,000 which isn’t bad in some markets, but very bad in others (location, location)

this showing income to buy now over $115,000

these higher rates hurt second home purchase - big demand building there for retirees

"Those who lack the courage will always find a philosophy to justify it."

- Albert Camus

ASSETS and INCOME
What’s Happening?

big week as markets keep rising

and with markets go net worth (housing and equities)

that HPI is a big wealth creator

retirees spending less than expected

and with it goals are shifting

those covid savings are running out

and inflation is running hot for things you need every day

but US food costs are low

many can spend more in retirement than expected

higher rates are really helping seniors WITH savings

just stay in the market if your time horizon is long enough

and expect volatility

market is rocking but still just average (surprisingly)

jobs are slowing down, which may hurt the lower income segments and usher in a recession of some kind…

Is there a bear market coming? (see Dopameme below)

“Problems that remain persistently insoluble should always be suspected as questions asked in the wrong way.”

- Alan Watts

ON BEING HUMAN
What’s Worth Sharing?

I create art that is meant to inspire me, and I’ll start to share… what does this say to you? What’s your boundary holding you back?

DOPAMEMES
And Other Happy Moments…

Artificial Intelligence
And the Future of Work…

my productivity is off the charts - are you learning to use AI?

software was the tool, not software has its own intelligence that is superior to human in capacity, memory, and speed, so creativity will rule in the future…

Sketch and creation animations:
https://www.autodraw.com/

Go see a good concert near you:
https://concerty.com/

Prompt from: The Daily Prompt
Create a classic Renaissance portrait of a human on a desktop computer in a high-quality portrait painting. The human is dressed in elegant Renaissance attire with rich colors and intricate details, they are using a modern computer, and standing against a traditional Renaissance background with elaborate patterns and luxurious elements.

amazing what you can create with MidJourney

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