> More of gen z are home owners than previous generations at that age[0]
If you’re going to make a claim this bold and this counter to the prevailing narrative, you’re gonna need to cite a better source than an outbrain-riddled webpage that tells me to “watch our video to find the lede we buried”. I’m not saying this isn’t true, but extraordinary claims require good sourcing and explanation.
> If you’re going to make a claim this bold and this counter to the prevailing narrative
What do you see as the prevailing narrative? The one I see is homeownership itself, which suggests that homeownership has been seen as being hotly desirable. I strongly suspect we wouldn't have a homeownership narrative to speak of if ownership was unwanted. When something becomes unusually desirable like homeownership has, it is not unexpected to see an uptick in participation around it; in this case owning a home. Much of the urban age has been marked with the majority of the population being renters. Everyone wanting to own a home with such furor is historically unusual.
I expect homeownership has become so desirable as it has become seen as a way to build wealth. While, historically, housing only kept pace with inflation at best, real home values have risen by unfathomable amounts in the last decade or two. Which, again, attracts people willing to risk it all for a chance at some of that wealth opportunity. It would be unusual if said generational group had comparatively lower ownership rates given the "FOMO" aspect. People run away when prices are falling, not when they are rising.
Given the market we've watched, the extraordinary claim would be that Gen-Z has lower ownership rates compared to previous generations at the same age.
Well said. I remember making a spreadsheet in maybe 1995 laying out the math to compare the real costs and expected gains from buying vs. renting.
It mathed out about even. I decided to go with renting instead of buying, with the logic that the S&P didn’t need me to buy it a new roof every 15 years or to work in its garden every weekend.
It worked nicely too, growing the money that would otherwise have gone into mortgages and property tax, letting me take some of it out recently and buy a house with cash.
I don’t see much of this attitude in my younger friends now. But living cheap and saving does actually work.
A retirement account is a ship in a bottle. You can't put much into it. The only way to make it huge is to take huge risks inside and have them work out. Which isn't a plan.
And -- options? The most leverage I can think of reasonably getting would be LEAPS (calls) and rolling them. But, even with LEAPS, you have limited timing flexibility, and are forced to realize more gains/losses.
There's nothing on par with a house. They're almost $1M everywhere now. You can't get that much into a retirement account when you're young.
You can back door around $70k per year into a Roth currently I believe. I don’t know where you’re from, but few people would say that isn’t much.
And I’m not sure why you’re talking about LEAPS. Options are naturally leveraged: you have synthetic positions on [complicated Greeks math]*100 shares with every option. Theta is only one of the Greeks. Same with futures contracts re: natural leverage.
With respect to “bets” and having them go your way: dude you’re talking about a $200k investment on a property worth $1MM. It seems like your whole view on property ownership is premised on the idea that property values always go up no matter what. That’s no more a fundamental law of nature than the stock market going up, and a bet on the property value for a specific home in a specific location is probably riskier than a broad market fund options play.
I’m also not sure why you’re talking about the full price of a house? A $1MM house with 20% down means the comparator is 200k - you can't get that kind of cash together when you're young any more than you can get it into a retirement account. But to the extent you can, you can back door that into a Roth in 3 years, and you have plenty of stock/options/futures setups that will give you leverage to $1MM notional of exposure. And capital gains on that position are actually tax free by the way, no shenanigans required with 1031s and residential conversion or having to wait until you’re dead to get the tax benefits.
The bottom line is that buying property is rarely the best investment decision quantitatively because you can get equivalent (and often better) returns in the market while maintaining liquidity, meaning that you can almost always pivot into a house at a future date for cheaper (on an adjusted basis). But people FEEL good doing it, so the mainstream view is that owning a house should be a goal. Common sense oftentimes isn’t; owning vs renting is one of those times.
> You can back door around $70k per year into a Roth currently I believe.
You can only backdoor $7k/year into a Roth IRA. That isn't much.
If you have access to a qualifying 401k plan, you can mega-backdoor $46,000 into a Roth 401k. Many 401k plans do not support this, however. In practice, a plan is unlikely to support it if the company doesn't give a 401k match (it's basically impossible for a plan to meet the "non-discrimination" requirement without matching).
> And I’m not sure why you’re talking about LEAPS. [...] Theta is only one of the Greeks.
Because the effect of theta is least for LEAPS. They're the "most share-like" options.
> Options are naturally leveraged: you have synthetic positions on [complicated Greeks math]*100 shares with every option.
I agree that the "natural leverage" is the reason for the appeal, but the 100x multiplier is priced in.
In practice, IIRC (it's been a while) I've found that, with long-dated calls near the money (ideally a little bit in the money, for lower risk), you end up with about 2x leverage. The "100% loss" downside sort of gets "balanced" (debatable) by "2x upside". In the past I've felt really smart doing this until it's blown up in my face. Given the multiplicative nature of gains/losses, I'm not sure it's a good deal at all.
> Same with futures contracts re: natural leverage.
Curious about this. I suspect that it's a sucker's game, but wouldn't mind learning more.
Debating the availability of a Roth backdoor is something that's orthogonal to the discussion. I agree that your $46k number is the correct number, so adjust the numbers in my prior post as appropriate (e.g., it'll take 5 years to get to $200k in a retirement account). I still assert my primary conclusion: buying property is generally not the best option on a purely financial basis.
>> [Options stuff]
I disagree with your view that LEAPS are the "most share-like" options. Short dated deep in the money calls are essentially a synthetic stock position, and they are the most share-like in that they will move nearly 1:1 with stock price whereas LEAPS do not move 1:1 with stock price fluctuations because of time attenuation. If leverage is what you want then there are probably better options than LEAPS (rolling 3 month to 6 month positions maybe) because you pay out the nose in terms of time value on LEAPS.
Interesting points about those calls: "Go shorter but deeper in the money, and roll more often". Would be a pain to do by hand, unless you enjoy it as a hobby. Makes me think about moving to Interactive Brokers so I can play with the API. Probably won't happen, but who knows; I might get bored one month.
There is little tax break for home ownership currently with the SALT cap + high standard deduction. You get some break if you have a large enough mortgage or high enough interest rate but it has been very nerfed.
I know SALT went away, but there's still 1031 exchanges, which mean that "capital gains" can be tax free, which is a big deal in an inflationary environment. So long as the government keeps printing money (which it will), there's a de-facto wealth tax that only real estate avoids.
A 5x levered bet with no prepayment penalty subsidized by future Americans, and it cannot be called and is non recourse in many states. And it provides shelter.
The claim isn’t that homeownership is undesirable to Gen Z, but that a lower percentage of Gen Z owns homes compared to previous generations regardless of the specific reason. I think in this case the most likely cause is the increase in prices is causing houses to be unaffordable to Gen Z, despite their desire to own houses.
There may be some temporal confusion here. Gen-Z rates of homeownership has stalled out over the past year or so. Prices are no longer rising like they once were, with fears over impending decline, so the desire is not what it once was. It may be fair to say that the narrative has shifted to "too expensive", but as they loaded up early when prices were rising at unprecedented rates there is a big head start at play. They don't have to buy any more homes for a while to maintain the lead.
If you’re going to make a claim this bold and this counter to the prevailing narrative, you’re gonna need to cite a better source than an outbrain-riddled webpage that tells me to “watch our video to find the lede we buried”. I’m not saying this isn’t true, but extraordinary claims require good sourcing and explanation.