Everyday agents face potential clients who are questioning the value of homeownership. This incredibly stupid debate is being sponsored by our media for want of something to write. Dozens of articles, in legitimate publications, are now touting the great benefits of renting. This targeted pandering goes out to the huge swath of people formally known as first-time home buyers. And it helps no one.
This debate ends with the acknowledgement of one known fact. And, it has nothing to do with interest rates, down-payments or closing costs.
FACT: It is impossible to save for retirement when you are raising a family—period!
If you think you can, then you aren’t spending enough on your kids. Young families suck all the money out of the room. And it’s been this way since the war. And when I say war, I mean Civil War.
What does this have to do with the home ownership debate? Well, over the last 200 years, a lot of people who raised families have also retired comfortably. So how did they do that? Answer, “The American Dream”.
As long as young families made their mortgage payment, they didn’t need to worry much about their long term needs. For the last 200 years, all homeowners have followed a similar path. Their first home is less than ideal. But with sweat equity over time, homeowners were able to roll-over their initial home for something much better. As people age, they get raises which allows for a higher mortgage, setting off again another home roll-over. This real estate “circle of life” has been consistent since the early 1800s. There is nothing new or boomer about it.
In reality, “The American Dream” is nothing more than a math trick. Homeowners realize appreciation on the money they have borrowed. They have “borrowed” $300K for their home. A home appreciation of 15% means the mortgage holder realizes a “nest egg” value of $45,000 dollars without taking a dime out of their pocket. They simply paid their mortgage. Not taking advantage of this wonderful “life perk” makes your journey so much harder. Especially as you age.
Nobody wants to spend their “Golden Years” in a crappy apartment overlooking a Burger King hoping their kids will come through with a monthly check. But that is exactly what life-long renters do—they burden others because they couldn’t plan or didn’t want to sacrifice. “We’d love to buy a house, but our parents were “renters”, so we have to pay for them until they pass”. What kind of parent willing burdens their children’s lives?
Agents, if you have a client that is struggling with the buy versus rent debate, change the subject. Take their minds away from interest rates, and conditions of the current market. Sell the big picture. Without focusing on where, ask your client what kind of housing they see themselves living in as they hit their 60’s and 70s? Then work backwards, how do you get there? And more specifically, how do you get there without the American Dream math trick?
Singles and childless couples can rent. They have the ability to carve their own path of ongoing savings. But for the most part, families have no chance or path to any significant long-term savings. From any mathematical perspective, it seems pretty clear, if you want to raise a family and not burden your kids later in life, buy a house. And it has been this way for hundreds of years. Today’s $500K mortgage is just as daunting a prospect as the $1,200 mortgage was in 1880.
We mention both the past and the big picture view in the homeownership discussion, because both are critical elements in what’s going to happen over the next generation. It is being called the “Great Wealth Transfer”. Over the next 20 years, $72 trillion dollars will be generational transitioned. This obviously has huge consequences for our industry. In the next three months we will have several blogs on this topic specifically.
But for those still debating the rent versus buy issue, YOUR “golden years” will be well after the “Great Wealth Transfer”. If you think the “haves versus have-nots” is bad today. Well, it won’t be any better in 2057 either.
Bite the bullet. Beg, borrow, scrimp, and do whatever you can to become a homeowner. Your grandchildren will be eternally thankful.
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