No one is buying houses anymore, but they should

Making the calculation for myself in SF using Trulia’s Rent vs. Buy Calculator

Low Wage Growth + Rent Growth + No Savings = Less Buyers

The NYT just published a timely article called “Turning Renters into Buyers”, which discusses the current paradox around why many people who should be buyers are continuing to rent.

The upward trajectory of rents in many metropolitan areas, which shows no sign of abating, often makes home-ownership the better deal. But renters still aren’t rushing to buy.
Real estate listing and lender websites are awash in charts and mortgage calculators aimed at persuading renters that they can cut their monthly costs by buying a home. The problem is, “increasing rents have a very paradoxical effect on the housing market,” said Ralph McLaughlin, a housing economist at Trulia, the real estate information site. “Rising rents make it a relatively better deal to buy, but it also makes it more difficult for households to save up for a down payment.”
A recent report from Trulia found that the rent-versus-buy differential is the widest it’s been since 2012, when mortgage interest rates bottomed out. Nationally, buying is 23 percent cheaper than renting. It is also cheaper to buy than to rent, in varying degrees, in all but two of the country’s 100 largest metropolitan areas. (Honolulu and San Jose, Calif., are the exceptions.) — NYT

My fiancée and I recently went through this analysis ourselves and decided to buy a 2-bedroom condo in San Francisco. It was partly stressful because of the overall cost and the legal documentation involved, but more likely because of the fact that so few of our friends had done it.

These median prices always feel 10–25% lower to what we are actually seeing on the market for quality places.

We have been well aware of how expensive it has gotten in SF and had been looking for a new place to move into for quite some time. It was very difficult to justify moving to a place that we didn’t love and feel like we were throwing away $4000–6000 a month in rent.

We finally did the math and we realized we were crazy to continue renting and not be buyers.

For some context, if you make $100,000 per year, a three bedroom in San Francisco would eat up 100% of your post-tax salary. So, if you want to live in San Francisco, you can forget about having kids (AKA “roommates who stiff you on the rent each month”), or even about having a profession that’s only modestly lucrative. — Pricenomics
Yeah. We get it. There are serious benefits of owning.

Despite the fact that home-ownership is falling throughout the nation, I don’t believe it is just a Millennial trend.

Millennials generally have encountered more hurdles en route to home-ownership than previous generations, including strict mortgage-qualification standards, mounting student debt and, until the past year, weak job and wage growth. Meanwhile, they are waiting until later in life than did their elders to take steps that usually precede home ownership, such as getting married and having children.
However, the ULI survey also found that millennials remain as resolute as in past years to eventually own their home. The latest ULI survey found that 70% of millennials anticipate owning a home by 2020. That’s a tad higher than the 67% who said in the 2010 survey that they foresaw being homeowners by 2015.
“The Great Recession has not dimmed Generation Y’s preference for single-family homes, mostly detached,” wrote Leanne Lachman, the survey’s co-author, a real estate consultant and a Columbia Business School executive in residence, in a report outlining the survey’s findings. — WSJ

There are many positive benefits (tax and appreciation) and incentives (first time home-buyer programs) to achieve home-ownership in the US, however IMO they do not go far enough to help the younger resident attain the dream of home ownership.

I would love to see some sort of equity investment solution that other groups could invest alongside home-ownership. It would work much like how a typical joint venture partnership between a real estate GP and LP works. I know there are some real estate crowdfunding sites doing this at an individual level, but I believe this will only work on a massive scale if a bigger entity (like BlackRock) does the hard work of investing in smaller deals to provide real estate market and sub-market level equity appreciation access.

Has anyone seen a good example of this done well?