In the US, you likely can’t afford the house you want. So you buy the house you can afford. Ideally, and this has been the case since 2014, the value of the house increases. So, now you say, “wow, looks like I can sell this house and get a better one”. And let’s say you do that. But the new house you just bought only has 3 bedrooms, and not 4. And maybe you have 2 kids now and need 4. So you hope and pray your new-ish house has gone up in value, and most likely it has, by a lot. So you sell that and buy a new one. You do this every 5-10 years. Once you hit retirement age, you sell the house and move into a long term care facility (aka “an old folks home”). These aren’t cheap though. Affordable ones are $5k/month, most are north of $10k. So what do you do? Well, you have the money from the sale of your house and hopefully some retirement funds. That’s why it’s kind of important that your house value goes up. It’s how you’ll survive when you’re older.
> the value of the house increases. So, now you say, “wow, looks like I can sell this house and get a better one”.
If the price of your house increases, the price of the better one increases even more. You can switch it if you saved or if you life improved. The price increase doesn't help, it hinders that change.
Not in my experience (3 houses so far, early 30s).
The way I’ve seen markets move is that certain price bands are more susceptible to fluctuations than others. For example, over the course of a 4 year period you might see the entry point for the market go from $400k to $500k, while the $500-$600k band sees a 30% increase, the $700-$800 band sees a 20% increase, and the $900-$1m sees a 10% increase.
So while the entire market is moving up, certain bands become more affordable if you can capitalize on a higher percentage band.
The other element is leverage. If you put 20% down (which is higher than average), you are levered 5:1. If all houses double in value, your equity goes up 5x. (Example: $100k down on a $500k house; price doubles to $1mil, your equity is now $600k; you can now easily afford 20% down on the higher price house, despite the fact that it is now $2,000k from $1,000k when you started the process.)
In Canada, the price for the detached home that you want increases faster than the townhouse you could afford, so the plan of buying a starter home to help buy the home of your dreams is not really sensible anymore. It requires your other wealth/income to increase to compensate for the different appreciation rates of the house vs townhouse, or for you to move further and further from your current location, which will probably negatively affect your income or at minimum, your quality of life.
