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Why the government took home prices out of its main inflation index

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Re: Why the government took home prices out of its main inflation index

#131

Post by FollowingTheDao »

jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

> I don't understand why the writer of this article would chose to focus on the deceptive monthly payment argument rather than the concrete interest-rate argument.

Why? because they have a motive. The motive is to put out a propaganda piece to try to convince the FED not to raise rates.

Look at this AI triggering headline at CNBC this morning! They are using the FEDs "favorite" inflation measure, which is 4 points lower then the typical number quoted!

https://www.cnbc.com/2022/05/27/the-feds-preferred-gauge-sho...

Wondering why stocks are up today?

Re: Why the government took home prices out of its main inflation index

#132

Post by cpwright »

thathndude wrote: post #96
Decabytes wrote: post #90

Earlier quoted context omitted.

I was pleasantly surprised that Rocket Mortgage (Formerly Quicken Loan) actually has a calculator on the dashboard when I view my loan information that shows me how much interest I'll pay over the lifetime of the loan. I can even change my monthly payments and see how it will effect the lifetime interest of my loan and how much faster I will pay it off.

Under federal law, when you get your credit card bill, the bank is required to include a breakdown of, for example, how long you have to pay if you only make the minimum payment, and how much your total payments will be if you only make the minimum payment. We need something similar and conspicuous for mortgages. Let people really see/feel the interest. Another way I’ve seen it phrased is in terms of buying power, an…

> We need something similar and conspicuous for mortgages. Let people really see/feel the interest.

The disclosures you get from the lender are already required to contain a a "FINANCE CHARGE" which is the total interest you will pay on the loan, "The dollar amount the credit will cost you". They also have "TOTAL PAYMENTS", the "The amount you will have paid after you have made all payments as scheduled."

The forms are formatted clearly. If you want to know what the number is, it is right there with an explanation.

Re: Why the government took home prices out of its main inflation index

#133

Post by BlargMcLarg »

snarf21 wrote: post #126
jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

You are forgetting three things that changes a lot for home buyers: * The government lets you deduct your mortgage interest from taxes * The house will appreciate in value over the term of a 30 year loan (almost certainly) * You are paying for your interest and payment in tomorrow's money Also, what am I going to do instead, rent? My rent can go up $50 bucks a year where my mortgage payment is locked in. For most peo…

I'd change the perspective. Both you and the GP are right, but all these benefits are used against the consumer, to distract them from other things that are happening. It's a subtle race to the bottom which, when looking at younger generations / lower classes and their incapability to buy, suddenly isn't so subtle anymore.

The entire thing also creates a cycle of "house prices must go up!" which further exacerbates the problem, at the cost of those who haven't been able to buy houses. Or worse, it creates a large amount of debt which is begging for a 2007-2008 repeat.

Re: Why the government took home prices out of its main inflation index

#134

Post by nikanj »

Rent goes from $1400 to $1850, but inflation only went up by a few fractions of a percent? Downpayment needed for a family home went from $10k to $75k, and inflation was under 2%?

The numbers posted are wholly disconnected from the reality in our wallets.

Re: Why the government took home prices out of its main inflation index

#135

Post by FooBarBizBazz »

faangiq wrote: post #68
recursivedoubts wrote: post #20

https://www.longtermtrends.net/home-price-median-annual-inco... nb that there is little relation to interest rates, which have been steadily declining since 82: https://www.freddiemac.com/pmms with the recent spike, we are currently at ~2000 interest rates, when homes were at 4x incomes, rather than 7+x home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) and the fact that this…

This was all part of the plan to build a nation of mindless debt slaves. It was very effective.

It's actually true, in a way.

There was a worry after WW2 that a large number of young, single men, trained in combat and now returning home, would destabilize American politics, especially if they could not be absorbed by the labor market.

One response was the GI bill, so that some could go back to school. That would help to slow their return to the job market, and hopefully prevent unemployment.

Another was the 30-year mortgage. If these men were tied down with obligations, and families, and houses, they would cease to be a volatile element in society, the thinking went.

Re: Why the government took home prices out of its main inflation index

#136

Post by TimPC »

PretzelPirate wrote: post #123
thatfrenchguy wrote: post #101

Earlier quoted context omitted.

You’re forgetting about inflation here. Sure you’re paying 300k of interest for a 400k house at 5%, but your mortgage payement keeps decreasing in real terms.

Do you benefit from inflation if your income or other investments don’t go up in value? Someone owning a house and making $300k/year loses purchasing power at the same rate as their mortgage “value” drops due to inflation.

You'd have to be in a pretty crappy situation to not have your income go up over a 25-year mortgage.

Re: Why the government took home prices out of its main inflation index

#137

Post by ryandrake »

willcipriano wrote: post #92
jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

I don't think that's entirely fair. When I bought my house 6 years ago I looked at the monthly payment and compared it to rent in the area. For my mortgage (and a small down payment) at the time I could rent something like a fairly run down three bedroom apartment or I could own a run down three bedroom house. If you can live somewhere for free you can think about it in those terms (and I think about smaller purchase…

One mistake a lot of people make is comparing their monthly mortgage payment to rent. You're not comparing apples to apples. You should be comparing only the interest portion of the payment to rent. The principal portion is money you're paying back into your own pocket in the form of home equity. Your actual "money that goes away like rent" expense is the interest. When you use this as your comparison, a lot more rent-vs-buy decisions swing over to "buy". Of course you also need to factor in amortized taxes, maintenance, and so on, but mortgage principal is not an expense.

EDIT: Plus, if you want to get even more exact, you should be comparing the interest portion minus the tax deduction to rent, because (at least in the US) the government lets you deduct mortgage interest from your income.

Re: Why the government took home prices out of its main inflation index

#138

Post by joshstrange »

joneholland wrote: post #124
jjslocum3 wrote: post #76

Mortgage loan officers (and also car salesmen) do all in their power to redirect people away from the fact that they're going to fork over e.g. $600k in total interest and principle for a $300k sticker-price house over 30 years. They do this by focusing on the monthly payment rather than the actual total spend. Convincing buyers that monthly out-of-pocket spend is somehow a proxy for the actual purchase price is a po…

Interest rate below inflation? I don’t care about that 300k, I would have lost it to inflation anyways. Mortgages let you pay 2052 dollars against 2022 prices and that’s under appreciated by the financially illiterate.

Exactly. My mortgage is at 2.25%, I'd be a fool to pay that off early in the current climate. I am stuck with PMI and I might consider refinancing or something like that in the future but if I can't get the lower rate then it might be worth it to keep paying.

One of the hardest things for me w.r.t. finances is removing the emotional aspect. I don't get worked up about a fee added onto my mortgage because when looking at it over a longer period of time it's insignificant compared to what I can do instead with my money. Like right now I could pay off my remaining student loans without issue but why would I while they sit at 0%? If they restart payments I'll wipe it out and there is a part of me that just wants them gone but it would be an emotional decision not a financial one. Paying off my car early was right on the line and I probably made more of an emotional decision when it came to that but no one is perfect.

Re: Why the government took home prices out of its main inflation index

#139

Post by dannyz »

hnthrowaway0315 wrote: post #12

I think one should have one's own inflation index. Basically I'd layout the expenses (food, utility, mortgage, child day care, etc.) and go from there. Some expenses inflates every year (food/utility), some are fixed for 5 years and then maybe jump up/down (mortgage, depending if Fed is cutting or hiking rates).

Statistics canada provides a service similar to this https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...

Re: Why the government took home prices out of its main inflation index

#140

Post by onlyrealcuzzo »

chii wrote: post #81
onlyrealcuzzo wrote: post #54

Earlier quoted context omitted.

You don't need to purchase a home - but historically - if you did - you've been much better off financially. It's the same as saying you don't NEED to go to college. No, you don't. You don't need much of anything... But if you did go to college - whether through correlation or causation - statistically you are much better off. So if college and housing get out of reach for most people - then maybe they will be worse…

> You don't need to purchase a home - but historically - if you did - you've been much better off financially. it's not the purchase of the home that made you better off financially, but the ability to purchase a home. If you had that ability, investing in another asset at the same leverage level (such as shares) would net you even more financial income (obviously, its higher risk).

False - investing in shares on margin would get you margin called and bankrupt in many time-scales. A house can't be margin called (if you can't afford the debt service, you can still end up bankrupt).
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