Housing Expense

So much of our life is centered around how much money we make so that we can afford the things we need and want in life. There are so many obligations - rent, food, transportation, insurance, healthcare costs, utilities, and more. Some people don’t have anything extra after paying for the necessities; some don’t even have enough for all their needs. I’ve been asking myself, “how can we keep our expenses minimal so that we can afford the other things we want in life — the fun stuff and the things that will grow our financial wealth? How do we put more of our money towards savings, investments, and buying the other things in life that bring us joy?”

I keep a monthly budget tracker in Excel to track my expenses. The largest expense we have is housing, followed by utilities (gas/electric, water, garbage, internet), food, insurance, gas, travel, etc. And, luckily, I have some money left over at the end of the month for savings and/or investments, i.e. adding money into my brokerage account. But, this brings me to the bigger question I have around housing. How can I keep this expense minimal so that I can focus more time, energy, and money into other areas?

Housing is typically one of the largest (if not the largest) expense for most people. I‘ve asked myself many times, “is buying a house worth it?” There are many considerations when answering that question, but let’s tackle the topic of this post - the expense. How would buying a house change our monthly expense? First, it will increase it — mortgage + interest + insurance will be more expensive than our rent. Second, there will be additional expenses for maintenance, repairs, upgrades, etc. that we didn’t have to consider before. The good thing about buying a home is that you can pretty accurately predict this expense for the life of your loan. You will always know the mortgage and interest payments. Property taxes do adjust over time, but you can reasonably factor those payments in as well. What you cannot do is have that same certainty around a rental payment. Rent will most likely increase over time, and there is no guarantee by how much; you can only make a reasonable assumption based on past data. So, one benefit to buying a home is being able to more accurately plan for your housing expense over time.

But, here is where I get caught up - I get scared of the finality of it. Renting gives me the flexibility to move around, change my neighborhood, home, city, and all I have to do is give a 30 day notice. Buying does not give you that luxury, and for some, they can become trapped in a home because the market isn’t right for selling. I saw my brother (and many others) lose his home during the housing market crisis that happened after 2008. His loan payment increased, and he was unable to afford the higher cost. This is a big fear for me. What if I buy a home and one day I cannot afford the payment? What if I lose my job, and I cannot find another that allows me to make the same mortgage payments? That scares me. A mortgage is a big price tag and a stringent obligation.

This leads me to another contention I have about home buying — the total interest payment on a mortgage these days. It doesn’t sit right with me to pay $500k in interest on a $500k loan. I feel morally opposed to giving the bank that much money. But, that is the cost of buying a home these days, unless you are paying cash; you have to take out a loan, and that comes with a cost. Of course, the price of the house will dictate how much interest is paid, and we can opt for a smaller house to decrease that cost.

So, does buying a house create an unnecessary, expensive burden? The truth is, whether you’re renting or purchasing, you will always have a housing expense (unless you move in with friends or family or are somehow gifted housing). We could do something unconventional — buy land out of state where land is cheaper, setup a tiny home for less cost, and go off grid to avoid increasing utility costs. It’s a tempting option, giving us more autonomy and allowing us to spend less money. We could certainly avoid a large, monthly mortgage payment for the next 30 years. But, realistically, for now we want to be in Humboldt County, near town, close to family and friends, shopping, and schools.

My partner, Travis, and I have been looking at the housing market pretty consistently for the past few years - rental and for sale. After COVID, the housing market grew by double digits, and the rental market has seen a steady increase too. Now it seems to be correcting, and growth has slowed down. Even with the market changing, home prices won’t be the same as they were four or five years ago, and it’s always hard to adjust to inflated prices (see my post on Buying a Car for a similar concern).

So, when is the right time to buy? We can’t predict the market — any investor will tell you the same. In the book The Psychology of Money, written by Morgan Housel, he explains that the biggest financial disruptors of our time (9/11, dot com bubble, COVID) were not predicted. And, the same goes for our future economy. We can try to make reasonable predictions about how the next several years or several decades will go, but there will always be unpredictable events that can and will create change and volatility. But, if you look at the long-term data, housing prices continue to increase throughout the decades. It’s reasonable to expect a roughly 4% increase in your home value year over year (this number is dependent on location, market conditions, etc., — you can find specific data for your area online). Housel states in his book, the best you can do is make reasonable bets with your money. There is no guarantee that the housing market will continue to grow how it has in the past, but we can make a reasonable assumption that it will follow similar trends.

So, what’s the best option? Buy a home and face the fear of commitment to an increased expense and agree to pay a large amount in financing? Or, rent and know that we will always have a variable expense that can go up over time (and none of that money comes back to us in equity)? If we rent, we can use the extra money to invest in the stock market. But, is that a better financial decision? When looking at a calculator I created in Excel (assuming average returns / growth for the stock market and real estate market) the answer is no. The data suggests that buying a house is the better option. And, there is also the emotional component to this question outside of the financial considerations — wanting a place for our family to call our own, to make exactly how we want, to gift to our children when we go.

My biggest goal with money is to build my sense of security. They say that money doesn’t buy happiness, but I have to disagree. Having a warm home, food, freedom to make choices, that’s what money gives you, and that leads to happiness. It isn’t everything, but without the things money can buy, I think I would be less happy. I believe the trick is ensuring that you are able to grow your money one way or another, whether that is a home, the stock market, or even just a little bit of savings to build a cushion in case of an unexpected expense.

So, maybe there is no right or wrong answer. I’m putting my faith in God to help guide me along my path; I will know the right decision when it’s time. And in the meantime, I’ll keep putting my energy into my next steps (looking at houses, continuing to save, buying index funds — a post on that to come). I simply want to continue to learn how to have a growth mindset and put my energy (and money) out there into the world to expand. It’s helpful to have other perspectives on the topic, so please share your thoughts with me!