91–100 of 208 posts
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Comps have nothing to do with loan value. Your income, credit, and assets and debt decide what your max loan value is.
your financing can be denied if the house doesn't appraise, depending on your deal with your lender
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> A house isn't an investment either though. An investment is an asset which is expected to go up in value faster than inflation. Most people who own homes only own the one they live in. If they did not own that home they would have to pay rent. So to figure out the overall value of the investment, you'd need to add up not just all the money it's going to cost the owner, but also subtract all the money the the owner…
Let's say we have two individuals - Alice and Bob - who each own a house. Each house has the same price on the real estate and on the rental markets. If Alice lives in Bob's house and pays rent to Bob and Bob lives in Alice's house and pays rent to Alice, their balance sheets are the same as if Alice lived in her own house and Bob lived in his own house. Excluding the rent income and rent expense (which offset), thei…
Selection of choice to rent vs buy typically isn't driven by net wealth change considerations; rather, it's an investment in an area, because the transaction costs of house purchases are much higher than changing rental leases, and thus you need to stay in a bought house longer to spread the costs. In particular, houses bought for living (rather than rental) are more often selected for life-changing events, like starting a family, or downsizing when children have left the family home.
Further, your bald assertion that unrealized rental income will be greater than rent expense otherwise incurred - if I read this right, it means you think people will buy a more expensive property than they would rent - I think is wholly unjustified. I think you've got it exactly backward, and that's certainly the case in my rental vs purchasing history: I've always rented places that I couldn't afford to buy.
When I was younger, I valued being closer to the heart of the city (London in my case). That meant denser living, apartments, etc. When I chose to buy, I couldn't afford to buy the places I'd been renting, but also my values had changed: I wanted somewhere with more space, not least because I had more stuff (like motorcycles, which meant a garage; and an office distinct from the living room; etc.)
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Looking at principal balances is all wrong. GDP means nothing in this instance either. What matters, and what lenders look at, is debt serviceability. Lenders don't want principal paid back, ideally you just keep paying interest for life. Let's say median household: Income: $4000/mo Rent: $1500/mo Other necessities: $2000/mo Let's say $500/mo "disposable." It's from this that the interest needs to be paid to service…
A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt. from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of t…
This is a myth that economics will not let go of. Almost all human decisions are influenced by emotions. Here's two examples:
[A] Would you rather receive $49 or have a 50% of receiving $100? - The rational decision would be to choose the 50% chance since your expected value would be $50. Most people go for the $49, humans are irrationally risk-averse in terms of gains.
[B] 1)You have $1,000 and you must pick one of the following choices: Choice A: You have a 50% chance of gaining $1,000, and a 50% chance of gaining $0. Choice B: You have a 100% chance of gaining $500.
2)You have $2,000 and you must pick one of the following choices: Choice A: You have a 50% chance of losing $1,000, and 50% of losing $0. Choice B: You have a 100% chance of losing $500.
Time after time, when presented with this problem, people chose B for question 1 and A for question 2. A rational person would choose either A or B for both questions. The expected value is the same for both questions, but it shows that people are risk averse in gains and risk seeking in mitigating losses.
Couple this with the number of people who actually understand the concept of compounded interest rates and yikes.
Just nitpicking, but people are not otherwise rational. Study after study has shown that emotions are involved in nearly every,if not all, decisions that we make.
Earlier quoted context omitted.
A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt. from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of t…
> convince otherwise rational people to make an irrational decision This is a myth that economics will not let go of. Almost all human decisions are influenced by emotions. Here's two examples: [A] Would you rather receive $49 or have a 50% of receiving $100? - The rational decision would be to choose the 50% chance since your expected value would be $50. Most people go for the $49, humans are irrationally risk-avers…
Earlier quoted context omitted.
A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt. from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of t…
> convince otherwise rational people to make an irrational decision This is a myth that economics will not let go of. Almost all human decisions are influenced by emotions. Here's two examples: [A] Would you rather receive $49 or have a 50% of receiving $100? - The rational decision would be to choose the 50% chance since your expected value would be $50. Most people go for the $49, humans are irrationally risk-avers…
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The important thing really is the financial fragility of the American household. Millions of people know that they are one unexpected event away from insolvency. GDP doesn't mean anything to them. Consumer debt just puts them more at risk.
Where isn't that true in the developed world currently? Very few places. Take a look at the extreme household debt to income ratios in Denmark, Sweden, Canada, etc. Look at the completely collapsed savings rate in Japan (stacked against their catastrophic budget / public debt situation that demands ever greater funding, while the economy has near zero spare taxing capacity). Japan has seen their real standard of livi…
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"Not dischargable" means you can't rid yourself of them easily through bankruptcy. It's the nature of most loans that you can't remove them from your portfolio; you have to pay them off.
The loan is a liability, the degree is the asset. If the degree is unable to land the person a job, or the earnings of the job over the career do not stack up to the price of the degree, then it is an "upside down investment" just like a house with negative equity.
Earlier quoted context omitted.
Let's say we have two individuals - Alice and Bob - who each own a house. Each house has the same price on the real estate and on the rental markets. If Alice lives in Bob's house and pays rent to Bob and Bob lives in Alice's house and pays rent to Alice, their balance sheets are the same as if Alice lived in her own house and Bob lived in his own house. Excluding the rent income and rent expense (which offset), thei…
Alice and Bob don't help or hinder your argument in any way. It just seems like a non sequitur. Selection of choice to rent vs buy typically isn't driven by net wealth change considerations; rather, it's an investment in an area, because the transaction costs of house purchases are much higher than changing rental leases, and thus you need to stay in a bought house longer to spread the costs. In particular, houses bo…
I'm countering this assertion that you need to subtract all the money that the owner did not have to pay in rent because this is going to be equal to the amount that the owner did not earn in rent by renting out their house.
People who buy a house for living (rather than rental) do not often make a rational economic investment decision which is kind of my point.
Sorry, I did not make it clear that I was assuming a comparison between renting and owning in the same neighbourhood. People (Americans in particular) generally rent apartments and buy houses, as you rightly pointed out. Within the same neighbourhood, a house is going to cost more to rent than an apartment.
Combine low wages, increasing loan delinquency, and the probable start of trade wars with mexico and china and I can't see how this doesn't turn out to be like 2008 on steroids.
Does America really have low wages? Granted, the lack of a minimum wage is crazy, but the median household income is $56k. Compare that to £23k in the UK.
You don't have $1000 in your checking account. You have an IOU from the bank for $1000. You can then 'spend' the money by transferring the IOU to someone else. But it is never guaranteed transferable for something real. It relies on everyone else believing the $1000 has value, which they do, so you are OK.