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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

#161

Post by cupofpython »

ryandrake wrote: post #137
willcipriano wrote: post #92

Earlier quoted context omitted.

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 ren…

>but mortgage principal is not an expense.

this isn't entirely true either. You need to live somewhere. Yes you own the equity, but it's always going to be locked away as "home equity". It has an advantage of giving you higher debt flexibility by taking loans out against it - but to say it is the same as banking cash as compared to renting is wrong.

Unless you downsize your living or sell the house without buying another one (which means you will be renting) that money is effectively gone as far as liquid cash is concerned

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

#162

Post by BlargMcLarg »

hattmall wrote: post #74
mschuster91 wrote: post #35

Earlier quoted context omitted.

> home prices have been absolutely bonkers, with two massive bubbles (we are in one right now) Isn't the definition of a bubble that it has the capability to pop and then eventually pops? At least for urban housing, I see no way of that even being remotely possible, neither for the US nor here in Europe. Rural areas simply are too far left behind to support decent human life - no high speed Internet, no public transp…

Is this actually happening in Europe? The US is the exact opposite. It's rather trivial to improve rural areas and housing costs are outpacing urban areas at least in percentage increases. Most rural areas still have access to all the basics that urban areas provide and are only a couple hours drive from major urban centers. There's no public transport but no one cares about that in the US. Even in the largest cities…

It's similar in Europe. You need extreme rural conditions to be more than 30 minutes away from anything. Public transport is a mess in most rural places, with busses arriving maybe once an hour (two hours if you're unlucky) at bus stops in 5-50 minute walking distance.

That said, in The Netherlands, these places have also increased in prices. GP is underestimating correlation between rural and urban. If prices explode in the urban area, rural will generally see some increase too.

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

#163

Post by ChuckNorris89 »

em-bee wrote: post #107
chii wrote: post #73

Earlier quoted context omitted.

> won't want to start a family while living in the relative instability of rented accommodation it should be alleviated by making rental accommodation more stable - such as a longer term contract. What if you had a 30 year contract rental (with built-in, but known ahead of time increases).

in germany and austria time limited renting contracts are illegal. renting is always month to month, but landlords have no rights to evict anyone ever unless they do damage to the property or fail to pay their rent for at least a few months, and they still may have to sue to actually make the eviction stick. the only exception is landlords who only rent out a single home, and they can prove that they now need that ho…

>in germany and austria time limited renting contracts are illegal

No they're not illegal. In Austria you see time limited rental contracts all the time, usually 3 years. It's rare to find unlimited rental nowadays as landlords want to make money.

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

#164

Post by bombcar »

ar_lan wrote: post #148
ryandrake wrote: post #137

Earlier quoted context omitted.

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 ren…

Rent vs Buy has fairly standard calculators, especially when you're wealthy enough to factor in opportunity cost. If you're able to take a 30 year loan w/ a 2.7% interest rate and invest the rest of the equity, your house is cheaper than someone who buys it outright in cash. The only time I would disagree with you, however, is for poor people. "Mortgage principle is not an expense" is correct over a long-horizon, but…

The key for the people who are poor is they need to stay in the house much longer than normal, so that they begin to get the advantages of inflation and growing principle payments.

But the working poor are also the most likely to have to change jobs, which either forces them into a long commute or having to sell the house before they're really built any equity.

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

#165

Post by bombcar »

germinalphrase wrote: post #156
tjr225 wrote: post #142

Earlier quoted context omitted.

You can also eliminate your PMI if you can appraise your home at a price that escapes the difference, so keep an eye on that.

Is an appraisal enough or is refinancing required?

Check your loan documents, mine have often had a "if valuations go up you can pay for an appraisal when you cross 20% or it's assumed if valuations have gone up enough AND enough time has passed".

Usually it auto-expires when you pass the 20% equity mark based on original sale price.

It's easier with a local lender as opposed to someone who sold off the mortgage, of course.

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

#166

Post by ghaff »

bombcar wrote: post #155
ryandrake wrote: post #137

Earlier quoted context omitted.

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 ren…

The "principle" amount on a 30 year is negligible for the first 7-10 years or so, which coincidentally is about how long the average homeowner owns a house. People also wildly underestimate just how much taxes and maintenance can be, because they're not monthly - if you have to escrow taxes it's more noticeable, and if you correctly account for maintenance it's surprisingly high, even on relatively new homes. The mor…

>People also wildly underestimate just how much taxes and maintenance can be, because they're not monthly - if you have to escrow taxes it's more noticeable, and if you correctly account for maintenance it's surprisingly high, even on relatively new homes.

Even if a house is fully paid off, there are a ton of expenses that relate to ongoing maintenance of a house and property that really can add up--plus taxes and insurance as you say. The details vary by age, location, type of property etc. But $1K/month is not unreasonably high especially given that a lot of homeowners will have some sort of expensive job (some of which are admittedly upgrades) every handful of years or so which will easily chew through a year of that budget.

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

#167

Post by dont__panic »

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…

$50 sounds like an OK amount for rent to increase per month at lease renewal. In the last few years, many of my friends have had rent rise by $200-800/mo in a single renewal. Hell, the apartment I just moved from is renting for $600 more than I paid for it per month! That's more expensive than the house I'm renting right now.

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

#168

Post by dont__panic »

zie wrote: post #159
snarf21 wrote: post #126

Earlier quoted context omitted.

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…

> The government lets you deduct your mortgage interest from taxes This is effectively not true anymore. > 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 people, home ownership is the safest and best way to build a retirement nest egg and a tangible asset to borrow against in times of trouble. I'm going to push back a touch on this, it's…

>> The government lets you deduct your mortgage interest from taxes > > This is effectively not true anymore.

Care to explain? Is this because the standard deduction is so high, it's generally not worth itemizing for most people since the Trump tax system adjustment? Genuinely curious; I'm a current renter, hopefully purchasing in the next couple of years. But this is an important part of the buying calculus.

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

#169

Post by rnk »

loeg wrote: post #147
ryandrake wrote: post #137

Earlier quoted context omitted.

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 ren…

You can discount the principal payments somewhat, too, because you'll lose 10% of total value selling.

Why do you lose 10% selling? 6% for real estate cartel commission I guess. If you are in a hot market you can use redfin or similar low rate companies, don't pay the buyers agent. I'm trying to talk myself into it. No one is doing $60k of work selling your million dollar place.

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

#170

Post by bombcar »

leoedin wrote: post #44
dragonwriter wrote: post #32

Earlier quoted context omitted.

> the really psychotic aspect of this all is that in the long run it will destroy the economy as family formation craters Starting a family doesn't require owning a home. Vast numbers of people start families without ever owning a home.

The point isn't that you can't start a family without owning a home (obviously that's untrue) but that many people won't want to start a family while living in the relative instability of rented accommodation. That's almost certainly true - I definitely had buying a home as a pre-requisite to starting a family (and I don't regret that decision). There's always going to be some babies, but it's the societal level fert…

> The point isn't that you can't start a family without owning a home (obviously that's untrue) but that many people won't want to start a family while living in the relative instability of rented accommodation.

The amusing part of it is that small children are the most amenable to moving, it's not until they're a bit older and getting into school that moving becomes a real problem for them.

Fertility rates are low enough that it can't be entirely ascribed to housing.

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