Why Many Millionaires Do NOT Buy Homes

As a financial advisor for over two decades, I've had a chance to work with literally hundreds of millionaires. And people are often surprised to learn that some of these millionaires, while they could easily afford to buy a home, they choose not to. And in today's video, I'm going to share with you the three main reasons that I think they decided not to buy a home, and maybe it's something worth you considering as well. And towards the end, I'm going to share some takeaways that I think will be helpful for you as well. So let's jump into the first reason. And the first reason is, frankly, they just don't think it's going to be a good investment. You know, people ask me all the time, Asul, do you think the stock market's overvalued? But you know what? Very few people are wondering that about real estate as well. And yes, stocks by all historical measures are expensive, but you know what? So is real estate. And my millionaire clients are looking at this data. And they're saying, you know, looking back three decades ago, what multiple of people's salary did it take to buy a home? And what is that now? So here's some data on this. This is according to Harvard. This is the Joint Center for Housing Studies. And this report just came out earlier this year, as I record this. And the title is And this is what the average salary in the United States needs to be to buy the median home. So it says here in 2022, the median sales price for a single family home in the U.S. was 5.6 times higher than the median household income. And that's higher than any other point since 1970s. They go on to talk about just how fast that's increased. Remember, it's 5.6 now. It was as low as 4.1 before the pandemic. So that's a big price move in a short period of time. And they have in this report, they have a chart where you can actually look at the United States and see what was this ratio? How many years? Think of it this way. How many years does the person need to work to buy the average home? In 1980, if you look at this, the dark blue is under three, three years of work for the median household to buy the median home. But you know, there's a lot of light blue. And importantly, in that 5.6 range, the dark yellow, you know, really, that's just a couple places in New York and a couple places in California. And this is not because it's, you know, because of inflation, because it's kind of inflation adjusted because of the salary side of things. In fact, salaries have risen a little bit faster than the pace of inflation. So that should have made it better, not worse. But as we all know, it got worse. Okay, so in this same graph, I can also change the day. So you saw what 1980 looked like. This is what it looks like in 2022. And I don't know about you, but there's not a whole, I don't see a whole heck of a lot of light blue. And now I'm seeing a whole heck of a lot of the yellow, which puts us in the range of five to eight times median household income. So things have gotten expensive. So that's the first reason that people have decided that some millionaires decide they don't want to buy a home. The second one is many people, many millionaires, many of us live in cities where frankly, it's cheaper, and oftentimes a lot cheaper to rent as opposed to buy. And according to realtor.com, these are the cities where you can save money as of 2023. But it's pretty, pretty similar. These are the cities where it's cheaper to rent versus buy. And the headline here talks about the cities that will be cheaper. But then the sub headline is, in most of the country, it remains cheaper to rent than to buy for the same square footage for the same type of house. And these are the five markets where, you know, it's at the extreme, you can absolutely see it here. So it's Austin, it's San Francisco, it's Seattle, Portland, Oregon, and Boston, Massachusetts. And probably the extreme version of this is would be either San Francisco or New York City. But in San Francisco, the median monthly rent is a little under $3,000, where the median cost of ownership is closer to $6,000. Now, if you think the value of the house that you're going to be living in is going to double over the next 10 years, well, then it probably makes sense to own, right? This isn't financial advice, I don't know your situation. But the question is, are these prices going to continue to go up? And what the Harvard study has shown us is there's been a big price move and ultimately people buy their homes from our salaries. Now, you know, some people that have stock options in their company, they work for tech companies that have done really well. And the company goes public and they make a lot of money. That's how a lot of homes in California are being bought. But for most of us, we're paying for our homes from our salaries. So we're almost at six times our salary, whereas recently as 1980, that was as low as three times our salary. So can it go from six to nine? Can it go from six to 12? It could. But that's what these millionaires, that's what people are seeing is, they're just not sure that the value is going to be there. And even if things appreciate, it's still a high cost asset to sell, right? We've got realtors, brokers, it takes time, you need to get rid of your junk, you need to clean things up in order to sell. And not only is it cheaper in many cities, but it's also easier to just rent not have to go through this illiquidity and have your money tied up. Okay, so those are the cities where it's cheaper to rent. And to be fair, I want to go through the cities where it's cheaper to own versus buy. And those markets are Memphis, Tennessee, Pittsburgh, Pennsylvania, Birmingham, Alabama, St. Louis, and then Baltimore. And just to show you the extreme on where it's cheaper to own. In Memphis, Tennessee, the median monthly rent is a little over $1,250, where the cost of the median cost of ownership is $847 a month. And that's after Memphis just went through an almost 60% year over year increase in home prices. So I know, you know, we see these numbers and say a 60% increase in a year in home prices. But you know, Memphis was way undervalued. And the question is, that's already happened. So the question is, what do things look like going forward? Again, reason number one is they just don't think it's a good investment. Reason number two is it's cheaper, it's easier for them to rent. And the third reason is, frankly, it's people just want to spend their time want to spend their money differently. They don't want the commitment of having to take care of a home and do the maintenance. You know, they like being able to pick up the phone and talk to their landlord and say, hey, the water heater needs to be replaced. So they don't want the commitment. They don't want to be rooted in one community where it's difficult to move. When you rent, the lease is over, put your stuff in a moving truck and you head out. Now clearly, there's advantages to owning as well. But this video is about why millionaires choose to rent instead of buy. And then the last thing I want to talk about, really not the last thing, because I want to share some takeaways for all of us. But, you know, where did this dream, you know, the American dream of owning a home come from? You know, realtors make a lot of money when we buy homes. So I think that that's a big piece of it. And do realtors have our best interests in mind? Or do they have their best interests in mind? And it was just recently a lawsuit that resulted in a $1.8 billion conspiracy verdict. It was settled down to a little over $400 million, this article, according to Fortune. And you can see here that because of this conspiracy ruling, people are estimating that the real estate agents commissions could drop by 30%. So I think part of the way that this American dream of owning a home came to be is, frankly, there was a lot of money to be made by a lot of people to sell that dream to us. So it's about us making the right decision for us. Now, you know, I chose to buy it. And most of the places I've lived, I've chosen to buy a home. But towards the end of my moving around, I chose to own because I wanted it for my family. I wanted that stability for my family. In fact, when I moved to Utah, I told my wife that the house we were buying probably was not going to be a good investment. But I wanted that as a home for my family. And so that's an important fact to consider. It's about making great decisions. And that's why I made this video here. 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