/// THIS WEEK
Earners,
For most of the twentieth century, homeownership was a rational financial decision. That makes sense. A home provides long-term stability and something to call your own. Over time, this became an expected milestone for young adults with established careers.
This week, we’re discussing homeownership for younger generations and the unforeseen benefits that come from letting go of this milestone.
[ INSIGHT ]
Before we dive in, I want to clarify that I’m referring to residential real estate, not buying a home to rent out or the broader real estate business.
Today, owning a home has transformed from a broadly accessible wealth-building tool into a highly leveraged, illiquid and time-sensitive commitment. The economic conditions that once justified early ownership have materially changed.
In the 1970s and 1980s, modest leverage amplified appreciation on a relatively inexpensive asset. Today, extreme leverage is often required simply to enter the market. When prices stagnate or interest rates rise, leverage works in reverse. And it gets nasty.
Being priced out of housing is not necessarily a failure; it might be a financial safeguard preventing overexposure to an illiquid, leveraged consumption good at historically elevated levels.
/// DATA
1970: Median home price $23,000, median income $9,000 (2.5 x ratio)*
Today: Median home price $400,000+, median income $85,000 (4.7-5x ratio, 10x+ in LA/NYC/SF)*
Residential housing returns: 2-3% after inflation
Broad U.S. equity markets: 6-7% real annual returns over the past century
For median homeowners, primary residence = 60-80% of net worth
*via Federal Reserve St. Louis
[ BREAKDOWN ]
A primary residence behaves far more like a consumption good than an investment. An investment generates cash flow or appreciates due to productive output. Owner-occupied housing does neither unless converted into a rental.
Mortgage interest, property taxes, insurance, maintenance, and repairs are consumption costs. Maintenance alone costs roughly 1-2% of a home's value annually. On a $600,000 home, that's $6,000-$12,000 per year before taxes, insurance, or interest.
Let's look at the dream scenario: your home doubles in value over 10 years.
You buy a $500,000 home with $100,000 down and a $400,000 mortgage at 4.5%. Over 10 years, it doubles to $1,000,000.
Property taxes (1% annually): $75,000 Maintenance: ~$75,000 Insurance: $15,000 Total non-recoverable costs: $165,000
Your mortgage payments: $243,000 ($80,000 principal, $163,000 interest)
You sell for $1,000,000. Closing costs (7%): $70,000. Remaining mortgage: $320,000. You walk away with $610,000.
Cash out of pocket: $265,000 ($100,000 down + $165,000 costs) Cash back: $610,000 True profit: $345,000
That's roughly 8.7% annually nominal, or 6.7% after inflation—matching stock market baseline returns in a best-case scenario where everything goes right.
Appreciation in a primary residence is largely unusable. If a home rises from $600,000 to $900,000, you're not $300,000 richer unless you sell (eliminating the housing service) or refinance (converting appreciation into debt). Financial assets appreciate independently while providing liquidity and flexibility.
Housing is "forced savings," but most early mortgage payments go toward interest, not principal. A $500,000 mortgage at 6.7% results in tens of thousands in interest in year one, while principal reduction may be under $7,000. Selling costs 6-8% in fees—$42,000-$56,000 on a $700,000 home.
Housing introduces extreme concentration and timing risk. Buyers who purchased in 2006 often didn't recover any real value until after 2016. Over that decade, equity investors began to experience one of the strongest bull markets in history.
The most underappreciated cost is opportunity cost. A renter investing $2,000 monthly into a diversified portfolio at 6.7% real return accumulates approximately $1.3 million over 30 years. A homeowner redirects that cash toward mortgage, maintenance, and taxes, accumulating illiquid equity dependent on local conditions.
[ TAKEAWAY ]
I want to be clear, housing affordability is a real social issue. Supply constraints, restrictive zoning, and financialization have driven prices beyond reach for many people. These are structural problems that deserve policy attention.
My job, and the whole reason I am talking about this today, is to look at things as they are, not as I wish they were. Homeownership may not be accessible for everyone, and maybe that’s for the best. Not because exclusion is desirable, but because exclusion from an outdated financial script creates space for better decision-making. Wealth is built through ownership of productive assets, diversification, disciplined saving, and time.
With this in mind, being unable to buy is not necessarily a setback. It is in line with reality and the foundation of a more resilient path to wealth.
Earn more,
TCE
[MONEY TIP OF THE WEEK]
If you can't afford a home, redirect what would have been your housing premium into a diversified equity portfolio. Automate monthly investments. Over decades, this disciplined approach builds more resilient wealth than chasing homeownership at any cost.
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