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How Homeownership Became the Engine of American Inequality

nytimes.com

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Re: How Homeownership Became the Engine of American Inequality

#201

Post by smileysteve »

DamnYuppie wrote: post #7

I don't know of anyone who bases a home purchase decision on the mortgage interest deduction. Seriously location, school district, cost of home, time to commute, yard size, cost of HOA are all more important to everyone I know. In fact it has never come up in conversations about home purchases with my peer group.

> cost of home

The MID indirectly affects the monthly payment on a home. It reduces the effective monthly payment.

Anecdotally, for me; it 1/7 discount on my mortgage cost. (Which I can realize more quickly by adjusting my w4)

Re: How Homeownership Became the Engine of American Inequality

#202

Post by smileysteve »

avelis wrote: post #23

I think I remember hearing something on Planet Money on if the MID was reformed or eliminated that house prices would drop basically across the board as an adjustment to that tax code change. Certain homeowners with a mortgage could, almost overnight, go underwater with their home and on the other end homes could become more affordable under a smaller price point.

Micro economically, the same happens as interest rates go up. As interest rates go up, the demand at that price drops, which means that supply has to lower the price to keep a liquid market.

If you're in the currency manipulation / house flipping game, you ideally want to buy when interest rates are high and sell when interest rates are low.

Re: How Homeownership Became the Engine of American Inequality

#203

Post by thescriptkiddie »

JustAnotherPat wrote: post #134
AnimalMuppet wrote: post #101

Earlier quoted context omitted.

No. If you pay $X in mortgage interest, you get $X * Y% back, where Y% is your incremental tax bracket. That is not a net win. It's just less of a loss.

if you put your money in something like crypto instead, you can come out ahead easily.

People are going to downvote you for mentioning cryptocurrencies, but your point is true even of much more conservative investment strategies. A home is not an investment, it is a depreciating asset. If you can afford to buy a home (in cash or on a mortgage), you will almost always come out ahead if you put the money into mutual funds and rent instead.

Re: How Homeownership Became the Engine of American Inequality

#204

Post by AnimalMuppet »

thescriptkiddie wrote: post #203
JustAnotherPat wrote: post #134

Earlier quoted context omitted.

if you put your money in something like crypto instead, you can come out ahead easily.

People are going to downvote you for mentioning cryptocurrencies, but your point is true even of much more conservative investment strategies. A home is not an investment, it is a depreciating asset. If you can afford to buy a home (in cash or on a mortgage), you will almost always come out ahead if you put the money into mutual funds and rent instead.

I question your "almost always".

If I buy a home, it's a depreciating asset. That is, I buy a home (via mortgage) for $300,000, and at the end of the mortgage, it's only worth $200,000. So I've paid $300K for an asset that's only worth $200K. But if I rented, at the end of the same time period, I have an asset worth $0, and still have to pay to live somewhere.

But of course it's not that simple. I can often rent for less than I can buy; I can invest the difference. If I don't live in the same house until I pay off the mortgage, I don't wind up with a place to live for free. If I downsize, I can wind up with a place to live for free and a chunk of cash. And so on.

Let's take one specific example. Suppose I have little cash. I could borrow $300K and buy a house. At the end of 30 years, I have a house. I've paid, what, $2000/month in payments. At the end of the deal, I have an asset worth $200K, in which I also can live for free (but I can't do both - I can get the $200K, or I can live in it for free). If I want the same deal putting the money into a mutual fund, I probably can't get it, because nobody's going to lend me $300K to invest in a mutual fund. The deal I can get is to rent for $1000/month, which gives me $1000/month to invest. At the end of the same amount of time, I have nothing to show for the $1000/month in rent except having not been homeless. For the $1000/month I've invested, I have... well, it's hard to say. What's your best guess about the rate of return of the mutual fund, and what's your variance around that best guess?

Re: How Homeownership Became the Engine of American Inequality

#205

Post by komali2 »

pyoung wrote: post #79
komali2 wrote: post #62

Earlier quoted context omitted.

Regarding 2: I cannot wait to pay off my debts (scheduled in September!) and start putting money in IRA and 401(k) :) Every time someone asks me if I'm using the 401k I always feel sheepish answering "no... because I have debts with a higher interest rate than I'd get on the return..." Nobody seems to buy it but I've run the math again and again, it's just true.

Does your company offer a 401k matching program? If so, that is basically an instant 100% return. If they are not matching, then you might be right, but if their is a match on the table, it probably makes sense to max that out.

Hah, I should have mentioned, yea we have no matching. Good catch!

We do have options though. Those will vest into millions... one day.... any day now....

Re: How Homeownership Became the Engine of American Inequality

#206

Post by mikekij »

callalex wrote: post #185
mikekij wrote: post #169

It seems many of these articles see tax deductions as the government giving money to tax payers, instead of the government agreeing to forcibly take less of a tax payer's income. It's an important distinction I rarely see made by the NYT.

What practical difference does this actually make?

They're conditioning a generation of taxpayers to see tax dollars as the government's money, rather than the taxpayers' money. This breeds economic entitlement and class warfare.

Re: How Homeownership Became the Engine of American Inequality

#207

Post by joshrotenberg »

snuxoll wrote: post #100
komali2 wrote: post #62

Earlier quoted context omitted.

Regarding 2: I cannot wait to pay off my debts (scheduled in September!) and start putting money in IRA and 401(k) :) Every time someone asks me if I'm using the 401k I always feel sheepish answering "no... because I have debts with a higher interest rate than I'd get on the return..." Nobody seems to buy it but I've run the math again and again, it's just true.

Something worth keeping in mind is employer matching as well as the ability to take loans from your 401(K). My employer matches up to 6% of my salary at 150% (man is this awesome), the past year I've been putting my 6% in and just last month I took half of everything (including the employer match) out as a loan to pay off debts at 4.25% APR. The money would perform better in the market than the interest I'm paying ba…

If I remember correctly this kind of loan also doesn't affect your credit since you are borrowing your own money.

Re: How Homeownership Became the Engine of American Inequality

#208

Post by tanderson92 »

accountyaccount wrote: post #188
tanderson92 wrote: post #116

Earlier quoted context omitted.

It is currently in-place at $1m of mortgage debt, and this fact was mentioned numerous times in TFA. It was mentioned in the article that Rep. Keith Ellison wants to move that number down to $500k.

No, I mean remove it entirely. If you're buying a $1m property you don't qualify for any MID. From the first $1 on.

Ah! It's a good thought. I would be concerned that it's regressive in a different way. As it is you already see people unable to afford certain cities. This will only compound the effect since regional differences in real estate markets trump the difference within.

It might work, but that is my reservation.

Re: How Homeownership Became the Engine of American Inequality

#209

Post by scarface74 »

kcorbitt wrote: post #25

So this article advocates for the removal of the mortgage interest tax deduction, because subsidizing home ownership leads to a larger economic divide between owners and renters. As a renter, I appreciate the intent, and I also appreciate any measure to simplify the tax code. That said, I also see compelling arguments in the deduction's favor. The sad truth is that most Americans are terrible at saving and in very po…

The mortgage interest deduction doesn't help the middle class that much with today's low interest rate.

If you're married filing jointly, your standard deduction is already $12000 -- which is more than you would pay in interest the first year on a $300,000 mortgage at 4% interest.

The median price of a home is $188,00 (http://m.huffpost.com/us/entry/4957604).

Re: How Homeownership Became the Engine of American Inequality

#210

Post by snuxoll »

joshrotenberg wrote: post #207
snuxoll wrote: post #100

Earlier quoted context omitted.

Something worth keeping in mind is employer matching as well as the ability to take loans from your 401(K). My employer matches up to 6% of my salary at 150% (man is this awesome), the past year I've been putting my 6% in and just last month I took half of everything (including the employer match) out as a loan to pay off debts at 4.25% APR. The money would perform better in the market than the interest I'm paying ba…

If I remember correctly this kind of loan also doesn't affect your credit since you are borrowing your own money.

This is correct.
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