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Maybe treating housing as an investment was a mistake

goodreason.substack.com

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Re: Maybe treating housing as an investment was a mistake

#421

Post by chipsa »

nemo44x wrote: post #262
dfxm12 wrote: post #58

Earlier quoted context omitted.

What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), l…

Buy a "starter house" and begin to build equity. It's how people have always done it. You buy a really small house that isn't in the most desirable location and start making payments into it. Down the road you have built equity and you can sell your starter home and buy a nicer, larger house. You maybe have some family to support then and need more room. But you see young people renting for 15 years in expensive plac…

This implies that you can buy a starter house. The problem is that they stopped building them, so it’s a decreasing proportion of the houses built. And that’s largely because of increased regulation making it unprofitable to build small instead of large.

Re: Maybe treating housing as an investment was a mistake

#423

Post by cool_dude85 »

gwright wrote: post #266
dfxm12 wrote: post #58

Earlier quoted context omitted.

What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), l…

> It took a handful of years of renting cheap places (with roommates) Is this now considered unusual? I didn't purchase my own home for almost 12 years after graduation from college. I lived at home, then with roommates, which was a completely normal thing to do at the time (1987 college graduation).

It's more usual than ever, but living at home or with roommates still makes it very difficult to ever afford a home. Let's take a look:

1999 median home cost: $165,000; 1999 median household annual income: $42,000; 1999 home cost / annual income: 3.9

2022 median home cost: $468,000; 2022 median household annual income: $71,000; 2022 home cost / annual income: 6.6

Re: Maybe treating housing as an investment was a mistake

#424

Post by prds_lost »

lolinder wrote: post #383
dfxm12 wrote: post #58

Earlier quoted context omitted.

What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), l…

> especially the 20% needed so as to not need to get mortgage insurance The mortgage insurance isn't nothing, but it's not a big enough cost to warrant waiting until you have 20% down if that's still a long way off. You can also very easily remove the mortgage insurance once you get to 20% equity, so it's not like it sticks around throughout the entire mortgage if you can't scrape enough together at the beginning.

With the exception of FHA (life for < 10% down, otherwise 11 years prior to ability to request MIP removal).

Re: Maybe treating housing as an investment was a mistake

#425

Post by patcon »

nh23423fefe wrote: post #372
distrill wrote: post #109

Earlier quoted context omitted.

I feel similar cognitive dissonance every time I compare myself to people I know outside of tech. Pretty much without exception, they work harder jobs than me or my colleagues with worse hours and for a fraction of the income. I don't think my observation is tied to the housing market, other than it being a vehicle to expedite the wealth gap.

Do you believe your income is unearned? Or are you just virtue signaling about what the labor market values?

Bah, "virtue signaling" accusations are such a toxic thought-terminating cliche :/

Re: Maybe treating housing as an investment was a mistake

#426

Post by __derek__ »

sokoloff wrote: post #278
xapata wrote: post #173

Earlier quoted context omitted.

I'm an economist, yet I only recently realized that adjustable-rate mortgages are economists' consensus best choice for consumers. Based on the expectation that personal economics are well-correlated with broad market economics, and that interest rates will decline when the economy struggles.

I have a hard time squaring that with 15 year fixed rate mortgages being under 3% for several years in the very recent past and 30 year fixed mortgages being at/under 3% for part of that time. How would an adjustable rate mortgage be the best choice for consumers in that situation? I got an initial mortgage at 5.625%, refi’d to 3.875%, then again to some ~3% 15-year. I never seriously considered an ARM (and now wish…

Most homebuyers don't hold their mortgage to term, whether due to selling or refinancing (like you). All things equal, an ARM will be priced lower than a longer-term FRM, so taking out the ARM with the intention to sell or refinance will mean lower guaranteed costs on the initial mortgage. They're basically a call option on rates during/after the initial fixed term. Even if rates go up a lot (like now), the pre-defined ratchet probably keeps them competitive relative to FRMs. Eventually, a weaker economy probably brings lower rates, especially combined with more equity and a shorter term.

When 30-year FRM rates are 3%, though, take the fixed.

Re: Maybe treating housing as an investment was a mistake

#427

Post by jedberg »

wankle wrote: post #365
jedberg wrote: post #195

Earlier quoted context omitted.

That sort of makes sense. When you own a property, you have to maintain it and pay property taxes. When you add all that up, you either need a lot more than rent, or you need the mortgage to be lower than rent so you can afford those other expenses.

Our home was $200K. If we own it for 30 years, the property taxes will average to about $180K over that time. If we have $70K expenses (roof, HVAC, etc.) then the total would be 250K. If we sell our home at the end of 30 years for exactly what we bought it for, no raise in value at all, 200K, then 250K of maintenance works out to around $700 per month for each month of those 30 years. Any amount we can sell the house…

You're confusing assets and cashflow.

Yes, after 30 years, you came out ahead. But also, you can't sell your house when the drain breaks and you need $10,000 today to pay for fixing it. Especially if you just bought the house.

Also, you forgot to account for the $180K in mortgage interest.

Re: Maybe treating housing as an investment was a mistake

#428

Post by entangledqubit »

orangepurple wrote: post #349
mortehu wrote: post #283

Earlier quoted context omitted.

I just love this quote from Sid Verma: "A lot of Americans are bragging that in their country they can get a fixed mortgage for 30 years. But it's worth remembering that for cultural and historic reasons, a lot of Europeans choose to reject socialism." https://twitter.com/_SidVerma/status/1575185906218442752?s=2... Note that the mortgages aren't even fixed rate, since you can replace them with a lower rate mortgage i…

Insignificant penalty?! Maybe if all you think about is your monthly payment and not the total payment amount over time. You should check the amortization schedule of a typical 30 year fixed rate loan. You are paying nearly nothing but interest for about 10 years, THEN you start paying down the principal balance significantly more. The first ten years you are basically renting your property from the bank. When you re…

I think the point was that people with mortgages will opt into lower interest rates but will clearly not opt into higher rates. (Assuming the interest savings is greater than the refinance cost.)

I'm not sure why you bring up the amortization schedule since since you definitely save on the overall interest side of the mortgage. Put another way, if you get the lower interest rate and keep paying the same monthly payment you were paying before, you'll pay everything off faster.

Re: Maybe treating housing as an investment was a mistake

#429

Post by convolvatron »

greenie_beans wrote: post #347
nineplay wrote: post #268

Earlier quoted context omitted.

People aren't paid by how hard they work, they're paid by how much money they generate and how hard they are to replace. A head chef might be hard to replace but popular bars and restaurants are not, as we saw during Covid. They have often been replaced by people deciding to save money and eat at home. Your cognitive dissonance isn't unusual but I think it does a disservice to our ability to have productive discussio…

this is true, but it doesn't make it right.

this is not even true. i've witnessed plenty of very highly paid people who actively undermine the organizations paying them

Re: Maybe treating housing as an investment was a mistake

#430

Post by kortilla »

jedberg wrote: post #195
Muromec wrote: post #165

Earlier quoted context omitted.

And here at the bottom of the see, there is no down payment (financing up to 100%), but young renters still can't get the a mortage of the same monthly amount as they pay rent, because of regulatory reasons -- mortage ceiling is defined as something like 5x gross yearly salary. Somehow it's fine to pay half the salary in rent, but not fine if it's financing the mortage.

That sort of makes sense. When you own a property, you have to maintain it and pay property taxes. When you add all that up, you either need a lot more than rent, or you need the mortgage to be lower than rent so you can afford those other expenses.

Property taxes are usually collected as part of the mortgage payment for just that reason. The bank doesn’t want another lien risk lurking there.
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