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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

#151

Post by Qem »

BlargMcLarg wrote: post #133
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…

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 t…

Now that people have less children, or no children, and the population tends to age-out and shrink in many countries, I wonder if we'll reach a point where real state prices start to consistently fall every year, reversing the current trend, as people die of old age in large numbers leaving lots of empty properties behind.

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

#152

Post by ar_lan »

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.

The country would be in shambles if, over a 30 year horizon, your investments did not outpace that interest rate. There's a reason why the <3% interest rate era we just left was considered free money - especially entering into an 8% inflation USA.

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

#153

Post by helge9210 »

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…

> $600k in total interest and principle for a $300k sticker-price house over 30 years

Present value of $600k paid over 30 years is less than $600k. Depending on the discount rate it might be even less than $300k now.

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

#154

Post by jt2190 »

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…

> … minus the tax deduction to rent.

Make sure to not use the deduction verbatim, but calculate the amount that the deduction reduces your actual tax bill.

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

#155

Post by bombcar »

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…

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 mortgage deduction only applies if you are not taking the standard deduction, and even then only the differential really applies (as otherwise you'd take the standard deduction) - something like 87% of filers will take the standard deduction.

Remember that if you have a copy of TurboTax or something similar laying around, you can do "what if" scenarios by inventing various 1099-INTs and playing around with them.

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

#156

Post by germinalphrase »

tjr225 wrote: post #142
joshstrange wrote: post #138

Earlier quoted context omitted.

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…

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?

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

#157

Post by throwaway0a5e »

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…

Treating a mortgage payment as "money I'm lighting on fire" is the safe way to do it if the mortgage is on an asset that you can't liquidate in order to get access to the equity (because you're living in it).

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

#158

Post by ghaff »

cokelee wrote: post #149
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…

It’s also important to include a sinking fund for expected maintenance costs when you own.

And property taxes, insurance, utilities (which you may have in an apartment but will probably be lower than a house) etc. I live in an older house on a reasonable bit of land so my expenses are probably on the higher side. But I figure $1,000/month is a reasonable round figure for budgeting. Condos will be lower in general--though there's a condo fee in that case.

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

#159

Post by zie »

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…

> 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 not really true. Mortgage rates don't usually change in the US(because we take 30yr fixed mortgages generally). But housing costs do go up for owners: property taxes, and property maintenance.

Generally renting vs owning is mostly a wash, sometimes one is cheaper than the other, just depending on the local housing market.

Historically property has a about a 1%/yr real rate of return, so housing basically keeps up with inflation, but not much more. I know recent history makes people think this is not true, but it really is. It seems unwise to think this recent history will continue forever. Equities historically get a 4-6%/yr real return, drastically outperforming the historic returns of real estate.

But yes, lots of people tend to not save for retirement, making their houses their de-facto retirement savings. The problem is, they have to live somewhere, making their house value somewhat hard to spend in retirement.

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

#160

Post by dont__panic »

thatfrenchguy wrote: post #103
dont__panic wrote: post #58

Earlier quoted context omitted.

Interestingly I wonder the exact opposite -- can urban housing really justify these insane valuations when US cities have next to no appeal to me? I recently moved out of a major city to a small, walkable town so I can get away from the crime, traffic, noise, dirtiness, and car-domination of US cities. It's pretty remarkable to see people and children walk around my neighborhood now -- didn't have that in my major US…

> next to no appeal to me That’s sort of the point. I’d kill myself before I’d live in a small town again instead of San Francisco. I can walk to 10 grocery stores, 20 restaurants, literally find all the food I want, and the public transit is pretty good. Who wants to raise kids in rural areas where there won’t be any opportunities for them?

Different people have different preferences, for sure. I used to feel that way when I lived in a small town with no amenities. But now I'd hate to move back to a major US city, for the reasons I list above.

I'm not interested in raising kids, but if I was, it wouldn't be in SF, Seattle, Austin, Denver, or NYC. I'd raise kids someplace where I could let them walk around and explore in a safe way -- the situation on the street in many US cities is not that. They'd be accosted by the mentally ill or run down by giant trucks and SUVs in no time.

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