2022 is the beginning of what some predict will be some economic turmoil, even worse than what we are suffering in the early summer of this year. Inflation is out of control, homes and mortgage interest rates get less affordable, and rents keep increasing at alarming rates. The question is, how prepared are you? What can you do once this economic turmoil comes? In this episode, David Sidoni discusses how renters avoid getting crushed by landlords if buying a home means you will be “house poor,” or worse, “house broke.”
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Economy Meltdown 2022 And Being “House Poor”
What First Time Home Buyers Can Do To Avoid Being House Poor In A Bad Economy
Are we in an economic meltdown? Perhaps we’re not in a full-on Chornobyl, but many people are starting to see warning signs. If this is the case, then when it comes to buying your first home then, you should totally pump the brakes. Who knows what’s going to happen? In times of uncertainty, renters should be way more scared than people buying a home. Let’s talk about it.
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What is happening, my How To Buy A Homie? If you are new to the show, welcome. We’re very glad to have you here. If you’re looking for weekly advice and guidance on how to buy your first home, you want to know all the ins and outs and all the insider secrets, then subscribe. Become a homie and you get weekly information to digest into. You’re probably going to read homies. It’s part of the game.
Homies, I was going to get back to the alphabet definitions, but yet, another crack in the economy stirred the headlines. That means I know some of you need the calming reassurance of Uncle Dave to explain how this affects you. Relax. As always, I got you. How’s your summer going so far? If you watch the news, you’re huddled on their blankets somewhere. It sounds like we should all be headed to a bunker and hoarding canned goods.
Rise In The Fed Rate
I saw a guy on TikTok. Somebody was filming this dude. He was at a gas station with his pickup truck bed lined with a tarp. He was straight up filling the bed of his pickup with gas. He didn’t want to wait for it to go up another $0.20. The economy is crazy now with inflation at 8.5% in June of 2022. It doesn’t look like it’s slowing down as everyone had hoped for. The Fed went nuts and agreed to a 0.75% point rise in the Fed rate. Who knew that three-quarters of a point of anything, three-quarters of a percent, could be such a big deal?
If you had $100, that’s $0.75. This is a big deal because it’s the highest raise in the Fed rate since 1994. What happened? Everybody freaked out. Stocks went up and they went down. Bonds rallied and now everyone is talking about a recession. Meanwhile, maybe you’re thinking, “I’m new to this adulting thing. What the hell does the Fed raising the rate mean to me? If gas is more and food is more, does that mean the houses are going to be more too?”
I understand these are the questions you have. Let me give you the technical definition of what the Fed raising the rate means to everybody in our bottom line, pocketbook, wallet, and your money. It means that nobody knows what’s going to happen. The government is going to try to help but we don’t know how they’re going to help or who they’re going to help. If the Fed rate doesn’t fix it, we don’t know what to do next.
Home Ownership
The big corporations are going to keep screwing everyone because that’s what they do. Do you feel better now? Do you feel whole informed? The truth of this situation is, in times like this, stability is your best friend. You need to be stable to stay safe. There’s an extremely basic principle when you buy a home. Buying a home should be looked at as a safe long-term stabilizing factor in your economic life. Homeownership is a rock that will stay the course and be your foundation.
Now, this is the way homeownership has been viewed in the past. Since the Great Depression, people have been looking at it that way. It’s been a stabilizing force for over 100 years. However, in the past several years, because we’ve had these crazy wild swings in housing, suddenly, everyone is tossing their first home buying into this swirling mess of changing economy and thinking that somehow, they’re all tied up together. This is something that we call Recency Bias.
Recency bias is a psychological phenomenon where you give more importance to recent events compared to what has happened further in the past or historically. In the case of real estate, this is massively present now. I see serious recency bias when people talk about buying their first home as opposed to just renting. Some of you are starting to become adults, and in general, most 20 to 50-year old’s only think that real estate behaves in these huge swings because that’s the recent behavior that’s been happening in the last several years.
It’s either shooting up or crashing down. Either you think this because you’re on the older edge of that 20 to 50, or if you’re on the younger edge, you think this because your parents got crushed in 2008, and that gives you all these horror stories. Now, as things get hairy, this generation could make sounder decisions by taking a step back to realize that when things get bananas, owning a home the right way is your best shelter, literally and economically figuratively.
It’s your best shelter when the storm of recession comes blowing. Homeownership may not be as sexy as it was when there was the 19.5% increase in prices and appreciation in 2021, but it has two huge comfort factors in an uncomfortable economic environment. Number one, buying a home is fixed and stable. Number two, you are in control. Prices are going up everywhere on everything, including rents.
The rent numbers are going straight up and they’re not stopping. Look at this chart. Straight up since 1988, a home is a fixed payment. Fixed and stable. If you own a home, you get a warm cozy blanket of fixed stability. It’s a non-changing bill that you can always be assured of. It gives you some peace of mind and you are in control. You cannot get kicked out of your home unless it’s your doing.
That is not the case when you rent. Your landlord can raise the rent for no reason other than people can’t afford to buy a house because they got scared. They didn’t make any Silverdale plan, so now he has more applicants since less people are trying to buy a house. More people are trying to rent or your landlord can decide they need to change the building completely to make it more profitable for them because things are going down the economy. They need to make more money, so they decide to rehab the whole thing and turn it into someplace that you can’t afford or isn’t designed for you.
Worst, if the recession hits hard, the landlord could sell the building that you rented and change it altogether. Getting your home sold out from underneath you is a real thing, especially if you’re renting in a smaller complex, a duplex, or those of you renting homes. If they need to sell it unexpectedly because they need money because of this recession, then you might need to go a lot quicker than you were expecting to.
[bctt tweet=”Your best friend is stability. It would be best if you were stable to stay safe. There’s a fundamental principle when you buy a home – buying a home should be looked at as a safe long-term stabilizing factor in your economic life.” via=”no”]
I even know stories where the landlords have lost their house in the recession to foreclosure and the sheriff comes and kicks you out. Again, no control. The fear that’s out there for home buying, I’m way more scared for the new renters out there now that maybe they need a few years to get it together and become a homeowner. These people are the most vulnerable people in economic uncertainty. That’s way more scary than trying to buy a stable living place to live in and ride all this out.
Homeownership is the opposite of uncertainty. Why don’t most people see it that way because of recency bias. Owners are fixed and are in control. I’m going to say something controversial now. Are you ready for me to get all TMZ on this? If you’re new to the program, check my credentials and find out that what I’m saying comes from a place of expertise and real-life examples because I’ve been doing this long enough to see what happens in long-term results and doing research all along the way.
If you check deep enough into my credentials, you’ll see that I’ve got a motivation behind giving my opinions, my guidance, and my service to first-time home buyers because I want first-time home buyers to succeed, and this is all done out of love. Some of you are saying, “I don’t want to be house poor,” and I’m telling you, to some of you, “You need to get over yourself.” People are using the term house poor to stay renter broke.
Avoiding being house poor is not a catch-all financially intelligent, financially safe, and smart plan. To be sure, if you’re thinking of now, “I’m a person that says I don’t want to be house poor, and that is indeed a factor in my decision-making process when I’m buying my first home.” I’m telling you, “You could be right, but you also might need to check yourself.” Where did you get the term house poor? What experience do you have to back up what that phrase means in a full and complete picture? Where you hear the term house poor and when you’re using the term house poor, do you have all the understanding of the data behind that to realize what you’re saying?
The Rent Replacement Formula
The biggest mistake I see is that people forget and do not include that rent replacement formula while they’re spewing out house poor so that they sound smart, intelligent, and safe. A lot of times, they don’t want to feel like a sucker. As I said, check my credentials. I come from expertise and I come for love. I’m not trying to push you into anything or sell you anything. I have seen a whole bunch of people hold themselves back because they’re so afraid of being a sucker. They throw around the word house poor not to realize they’re becoming rent poor.
That’s because they’re not using the rent replacement formula. Did you check yourself? Cool. Now you could be on the right side of things. I do believe the term house poor can be a smart financial philosophy in theory but I’ve seen the pendulum swing way too far in the other direction. At its core, I agree with the philosophy.
I’ve seen it work in the right way where one partner is helping the other partner stay within their budget. Maybe one of the partners is watching way too much HGTV and has some unrealistic dreams. It’s the people that want a home with shiplap, an open floor concept, a farmhouse sink, a generous on suite, subway tile, functional features, exposed brick, and fabulous curb appeal all for $100,000 less than the current market value of that neighborhood.
Here’s the story behind that. I swear I had about 75% of those terms off the top of my head because I do this stuff every single day. When I went to Google it, there was a place called HGTV Bingo. They had all those terms on a bingo card, you watched the show, and you put the bingo on it. That makes me laugh. Am I a dork? That question has been asked and answered. The problem is I see so many people using the term house poor to quell their fears and satisfy their insecurities. By not buying a home, they don’t have to feel like they’re getting ripped off or they’re making a bad decision.
The key is they do not realize the simple math of the rent replacement formula. If you pay $2,000 a month and buying a home costs you $3,000, $1,000 more, don’t say, “We can’t afford that. We’ll be house poor, paying an extra $1,000 a month.” Perhaps look at it this way, the economic mess is coming and you can’t afford to continue to put in $2,000 a month, a huge chunk of your monthly payments to an asset that gains you nothing in the long run. You can’t afford to find a way to put an extra $1,000 a month into your shelter payment to help it stay fixed when these changes are coming.
House Poor Or Rent Broke?
You can’t afford to figure out how to possibly rearrange your current budget, your savings, and maybe even your retirement plans to stretch for that extra $1,000 month, so you can transform that wasted $2,000 a month that you spend into something else. By the way, it’s also going to be $2,200 next year and $2,500 the year after that. I saw another person on TikTok. Am I spending time on TikTok? I’m doing it for research people.
I saw somebody comment to a younger realtor encouraging home ownership. This comment said, “FYI, for anyone watching this, this is a recipe for financial disaster. You’ll be house poor. Don’t let this influencer talk you into this mess.” A few thoughts on this. I’m not a fan of the influencer realtors, and frankly, I hope they all burn out and fizzle into oblivion.
Avoiding more home than you can afford is a smart move. I am totally with you, but I say to you, do your research. If some slime ball salesman tells me I should buy life insurance from him, her, or them, is actual life insurance a bad idea because the person who is telling me to do it is a slime ball? Is the idea wrong or do I not like the messenger? I want to get the phrase rent broke into the zeitgeist. That’s what matters.
Rent broke, gaining no equity in paying into something instead of paying into a historically safe asset. Paying into that because that’s going to cost you way more in the long run than changing your budget a little bit and buying a home within your financial means. Being totally unstable and not fixed has more chances to make you so poor as opposed to being in a situation that doesn’t change and you control. Being rent broke or rent poor means that you don’t control the situation, and you could change at any time.
Do you want to be poor? Live paycheck to paycheck, while you put your largest monthly out payment to nothing while you’re ignoring the potential to replace that and use that payment every single month in a simple safe, proven long-term wealth builder. That’s poor. I don’t want you to be poor. It’s not going to be easy now but you do have an opportunity to change the narrative. Let’s stop being afraid and insecure. Let’s start being educated, empowered, and comfortable taking advantage of the cards that were being dealt.
[bctt tweet=”Owning a home the right way is your best shelter, literally and economically. Figuratively, it is your best shelter when the storm of recession comes a-blowing.” via=”no”]
It’s easy to freak out about this and listen to other people warning you about this. When the people out there like myself, I do not promise super sexy returns anymore. It’s easy to contradict my long-term unsexy non-get-rich quick game plan. Go back and ask the homeowners who are 40 times more wealthy than renters. How many of them who bought in the last recession are house poor now? True house poor people would have overextended themselves and gone into foreclosure.
Foreclosures are at about 1%. Don’t even try to tell me that there’s a crash coming and that more people are going into foreclosure because I have dozens of episodes on that. Not to mention that buying a home in the last decades has been far more stringent and difficult than it was in the past, meaning that banks wouldn’t even give you a loan to a level that would truly make you house poor. That wave of the foreclosure crisis that you’ve been predicting, by the way, I have been predicting it for years and I haven’t seen it happen yet.
Every year, they keep predicting that. It’s not coming before, and it didn’t, and it’s not coming in the future. In basic principle, I do agree with parts of house poor. Mostly, I agree with the fact that you should be house smart but stop misusing this phrase as a simple catch-all to satisfy your need to do the easy thing, stay put, and stay renting. Instead of doing the work and realizing that the hard thing to do, the unsexy, the not-get-rich quick decision is going to make you wealthy in the long run.
That’s my rant. The question is, why aren’t more people making podcasts, posts on social media, and screaming this information to you? Long-term wealth doesn’t sell and they can’t make money off of you because it’s not catchy enough to get you to open your wallet. If you’re listening to me, welcome to the nerd dome. By the time you realize how much money all this free information made you, it’s going to be years from now. I’m not going to make any money off you, I’m going to be retired on a boat, and not making a dime off of all this wealth guidance that I’ve helped you accumulate over the years, but that’s okay. That’s my mission here.
Start the how-to-buy-a-home process, work the plan, and you will be in better position years from now. Now, rant over. Back to you and what all this economic upheaval means for you. As far as housing goes, you miss the rollercoaster and it’s time to get on the kiddie ride, the one that goes round in circles. That’s the usual real estate market. It’s not thrilling. You don’t get the gaudy fast equity numbers in the huge profits but you also don’t get the super scary ten-story drops.
It’s some simple twists and turns with the occasional jump scare that goes away once you turn the corner and get past the scary wicked witch. It’s simple and fixed. It’s stable in a time of uncertainty. You got me in your holes and your eyeballs if you’re watching me on YouTube. You’re here in eyeballs or ear holes because you want to buy a house. If you want to flip houses or buy a home like an investor, nice to meet you, the wrong podcast.
That’s more guidance than I care to attempt to offer because I have seen far too many people jump into that without understanding the risks. All they see is the rewards. For those types of people, they’re definitely not going to dig my whole let’s be stable speech. This show here is for people who want to stop paying rent and find a more economically viable way to spend your largest monthly payout. That means you need to chill a little bit.
I’m not flexing when I say that. I’m attempting to calm your nerves. I want you to realize there are solutions here. Do you know who is the most vulnerable people in the most vulnerable position in an economic crisis? It’s not the homeowners. It’s hard to buy a home. Don’t get me wrong. It’s not going to be easy but once you’ve got it, you’re in a better position than the renters. Those are the people that are going to be in trouble as we move forward. Again, a lot of recency bias going on.
In the last crash, people bought homes like investors, and they could not afford the homes that they bought, so people freaked out when they heard about a recession. A little reminder, it’s not the same way as it was the last time. People are buying homes like investors now and in a more stable way. How about that? A home being stable. Who would have thought? I told you about the potential recession back in 2019. There’s an episode on that way back when and now, all this news is going to affect mortgage rates. You’re right, and that’s going to affect you.
As I’ve discussed in previous episodes, the rest of this news doesn’t do much for you or for anyone making a plan to buy your first home as the foundation of your financial prosperity. There’s data, math, history, and plenty of me ranting on other episodes to explain that to you. With this in mind, let’s get you started on a stability plan to prepare for the economic cluster mess that looks like it’s only going to get worse for us now before it gets any better.
Start Your Plan Now
Let’s do some simple planning. We’re not day trading stocks and we’re not finding the best crypto strategy. We’re not attempting to time the NFT market. You do that after you’ve turned your rent into your stability. None of the immediate news should affect your long-term 7 to 10-year plans. If you’re way out from buying but you want to protect yourself, start your plan now. Maybe if you know, there’s no way you’re going to be able to buy in 2022, what’s the worst thing that can happen if you start your plan now?
If you started like you were getting ready to buy a home next month? What’s the worst? You’ve looked at your credit, started budgeting, and started savings. You worked on your debt and you’re now going through life with some sense of purpose and a plan instead of mentally flailing it and hoping to survive. What if you are one of those people who’s close to buying? What do you do to stabilize yourself and the poop show that’s happening out there? Here’s one way. I got this email from an audience. They went to HowToBuyAHome.com and this is the email that they sent me.
For those of you who we’re getting ready to go now, you might be there and you don’t even know it. Here’s the simple step-by-step plan. It was great. He sent this email to me like this. It says, “Timeline: June 8th, I emailed you. June 9th, you responded with a form, which I completed. June 11th, you connected me with Stacy. June 14th, I met Stacy in person to discuss my goals. She recommends a mortgage broker to me. I submitted my loan application and all his documentation for underwriting and pre-approval.”
The next headline of the email, next steps. “June 15th, meeting with a broker on Zoom to discuss financial position in more detail, and next, start looking at houses!!!” He put at the end, “Additional notes: Stacy was great and helped me feel better about the whole process. If there is a single most important thing I’ve learned from your show so far, it’s finding the right real estate agent matters. I won’t celebrate yet but I am feeling optimistic and less stressed out about this process.”
[bctt tweet=”Home ownership may not be as sexy as it was when there was a 19.5% increase in prices and appreciation in 2021. Still, it has two colossal comfort factors in an uncomfortable economic environment – it is fixed and stable, and you are in control.” via=”no”]
This might not be for everyone. I understand you might need a few months to get pre-approved, so this timeline is not for you. What are you doing now to get your plan started? Not the listening and the researching. You can’t count having me in your ear holes now doing something. What are you doing? Do you have a professional guiding you? Go to HowToBuyAHome.com and find the resources you need. Either get the info on how to interview, who to interview, and the guides to help you get started or ask for a unicorn recommendation.
I don’t care how you find a pro. I want you to get the right pro for a first-time home buyer and get one ASAP who’s going to work with you on the planning, not just the purchasing. HowToBuyAHome.com, go there. Hit the Ask David button. If you want to look on Instagram and get some more stuff, that’s @DavidSidoni. TikTok, you know I’m there. That’s @HowToBuyAHome. If you are digging the YouTube, it’s the How to Buy a Home Podcast page. Go check it out, subscribe, and ding that bell.
I never want to hear you say this ever again, “Damn. The economy sucks.” It does, and we all know that. The summer was hot, and we knew that too. What are you going to do? Are you going to whine about a hotter it is, or will you go buy a fan or fix your air conditioner? Next, I don’t want to hear this one, “I don’t want to be house poor.” Stop using that excuse. Say, “I want to be house wise and not rent poor.” That way, you’re thinking about the whole picture.
Now share this show with anyone who needs to hear this message. We can change the world one friend at a time. I’m tired of living in a world of whiners. Aren’t you? Wouldn’t it be great if we could spread this practical positivity and make the world a better place? Give people a message of hope instead of a message of despair. I’m seeing people do this. Out of the worst recession since the Great Depression, I sold hundreds of first-time buyer homes during that huge recession of 2008 to 2011, and none of them are house poor now. All of them were happy to be stable through unstable times because they heard me tell them this, “You can do this.”
Important Links
- HGTV Bingo
- @DavidSidoni – Instagram
- @HowToBuyAHome – Tiktok
- How to Buy a Home Podcast – YouTube
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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