Despite tame CPI-based inflation, rent, particularly in the Bay Area, has really exploded since 2011:
According to Zillow, San Jose, San Francisco, Palo Alto, and Berkeley rent has gained 40-70% since 2011, vs. only modest national gain in wages and CPI.
However, new renters pay more than established renters. Due to the difficulty of evicting deadbeat renters and to account for turnover, landlords need to charge enough at once to cover multiple months (typically up to a year) and to adjust for future inflation.
This is also an example of how the ‘middle class’ may be getting squeezed, with high rents, high student loan debt, and lousy job prospects.
Given these sobering statistics for renters, is it any surprise millennials are living with their parents longer, refusing to move out?
Or why home ownership may still be the best path to long-term wealth creation (or even short-term given that homes in some regions have surged 30-100% since 2012), versus lining the pockets of landlords month after month to no end? I would rather put that money into a home in San Jose, where prices are rising 15-20% YOY, than make the landlord rich.
From The Washington Post, Where it’s cheaper to buy than rent:
As you can see from the map above, there are very few regions where it’s better to rent than buy, yet many on the left (and some on the right) insist buying is bad. There are many (here is one, there are dozens others on Reddit) instances of people in their 20-30′s who have made big money in recent years buying and flipping properties, but that won’t dissuade the chants from the left that ‘all home buying is bad, you must rent’. Gets irritating after awhile. The left wants people to rent instead of buy, as part of the left’s war on the ‘ownership society’.
On a related note, this insistence that you ‘must move out of your parent’s house’ has also become repetitive in recent years, and is possibly wrong.
There are many millennials who believe financial independence is more important than location independence, if it means living with your parents longer so you can keep more of the money you earn instead of pissing it away every month to a landlord. But this requires that you have amicable relations with your parents, some millennials don’t.
$1,000 a month for rent could be better spent making yourself rich through stocks or on a down-payment on your own home. The stock market is up over 200% since 2009, and I predict that, like the Bay Area housing market, it has higher to go. Those who invested that $1,000 every month in the S&P 500 starting in 2009 would have A LOT (about $120-150k, depending on the calculation), versus a loss of $72,000 through rent (and this is not including rent hikes). Even if you started investing in 2007 at the peak of the last bull market, you would still come out way ahead. An investment in the S&P 500 in 2005 would be up 75% as of today, despite a bear market in 2007-2008.
$1,000 a month is the poverty line, yet wealth can be amassed if you aren’t pissing it away money every month for various expenses, and, secondly, if you invest it wisely, such as in the S&P 500.