Forum slow lately

[Isaac Zachary]

Originally Posted by redpoint5

The one thing I'll point out is that Isaac owns the depreciating part of home-ownership (the structure) and not the appreciating part (land).

My houses have appreciated enormously, but between the 2 properties I need to replace a roof, siding, exterior paint, replace all fences, some window replacement, 4 decks/railing/stairs...

Between those expenses and inflation, the appreciation probably breaks even.

Housing prices that exceed inflation are by definition a bubble. Usually markets cool down to allow inflation to catch up, but once in a lifetime bubbles pop and prices drop.

This is why I'm thinking I'm better off investing in other things, at least while lot rent is cheap. If lot rent is $400/mo, but a condo is $2,000/mo, that's $1,600 savings that could be put towards the stock market or something similar.

[freebeard]

I tried owning property; once that fell through I was free to pursue employment around the state. (relocation, relocation, relocation)

Housing available on the market is insufficient for my needs (low cost, energy efficient and aerodynamic).There's hope on the horizon though -- Geoships and their 500-year homes.

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[redpoint5]

My youthful fantasy was to work in a high cost of living city in a van down by the river. Work any job for a decade, investing nearly my whole paycheck and then retire.

Buying a home when the bubble burst paid off well though. Buying another one in 2019 worked out well too.

[Ecky]

Originally Posted by redpoint5

The one thing I'll point out is that Isaac owns the depreciating part of home-ownership (the structure) and not the appreciating part (land).

My houses have appreciated enormously, but between the 2 properties I need to replace a roof, siding, exterior paint, replace all fences, some window replacement, 4 decks/railing/stairs...

Between those expenses and inflation, the appreciation probably breaks even.

Housing prices that exceed inflation are by definition a bubble. Usually markets cool down to allow inflation to catch up, but once in a lifetime bubbles pop and prices drop.

Points. (generally) Structures depreciate. Condos are structures. Land appreciates. Generally.

Rent equivalent is part of the inflation calculation, which is loosely tied to house prices. So, the two are never truly decoupled, no matter how much housing appreciates. Widespread home ownership has not been the historical norm, and it need not necessarily be in the future. It can be a bubble, but it can also be driven by regulatory environment (e.g. can hedge funds own homes? can banks extend mortgages to longer periods?) and by the cost to borrow money. Interest rates have trended down over time, and it takes time for the housing market to catch up. There are places in the world where homes are 20x the median income and still growing. In the US (a big place with a lot of variation, granted) home prices average 5x the median income. There is still room for prices to grow relative to incomes, depending on other factors. Maybe they won't.

Originally Posted by Isaac Zachary

This is why I'm thinking I'm better off investing in other things, at least while lot rent is cheap. If lot rent is $400/mo, but a condo is $2,000/mo, that's $1,600 savings that could be put towards the stock market or something similar.

100%. Opportunity cost, a great way to look at it.

Had I decided to stay in Vermont, I'd have had a $1000 per month house payment (inc insurance and taxes) for four bedrooms on two acres, 30 minutes outside a city with abundant work and moderate (decent) salaries, until 2050, at which point I'd be paying only taxes.

The deal looks less good now. The question is whether or not the deal will continue to get less good, or will get less bad. How are the regulatory winds blowing? Are we trending toward regulating out factors that can drive up the price to income ratio, or trending toward regulating them in?

[redpoint5]

Wish I could have locked in a 50 year mortgage at 2.5% interest. I'd take that any time. It's longer than I'm expected to live, but all the extra cash I could invest would far outweigh the interest I'll be paying. Can't complain about a 30 year loan at sub-3% rates though.

[Piotrsko]

You did calculate the cost of 50 years of payments value, right? Also recognize that the payment wasn't more than 20% cheaper, so the mortgage holder is getting screwed legally.

Afaics, youre underwater house value wise for 40 years so most sales are at a loss that you HAVE tp pay back plus accumulated interest. Wonderful if you make enough money to need a $500,000.00 deduction, sucks to be you if you don't. You could go bankrupt, wonder how that works out if the major portion of a city does it.

[redpoint5]

Originally Posted by Piotrsko

You did calculate the cost of 50 years of payments value, right? Also recognize that the payment wasn't more than 20% cheaper, so the mortgage holder is getting screwed legally.

That was the knee-jerk take my friend had. So long as the mortgage interest is less than inflation AND average investment rates, the 20% lower payment costs allow for investments that will outgrow the interest costs.

Perhaps more likely, and in my case, I would leverage the lower mortgage costs to get approved for a higher dollar mortgage (more house). I always seek to maximize the amount I'm approved for, because fixed rate mortgage debt is the best hedge against inflation, the interest is tax deductible, and appreciation will quickly decrease the Loan To Value (LTV) deficit.

This directly addresses the problem of newer entrants to the labor market being priced out of the housing market. Since people tend to make more money over their careers, that loan becomes easier and easier to swallow each month. They could even refi to a shorter loan term.

Afaics, youre underwater house value wise for 40 years so most sales are at a loss that you HAVE tp pay back plus accumulated interest. Wonderful if you make enough money to need a $500,000.00 deduction, sucks to be you if you don't. You could go bankrupt, wonder how that works out if the major portion of a city does it.

That's not how it works. You're only "upside down" for a couple years generally speaking, and that's only due to loan origination and closing costs. The equity increases as the home value increases and the principle is paid down. Interest payments are made monthly; they don't accumulate.

Bankruptcy is a strategic move for those who bought in a bubble and the value tanked, which so far has happened once in a hundred years. It causes banks to eat the loss.

I don't get how people are mad that they now have an option they aren't forced to take.

[Isaac Zachary]

Originally Posted by Ecky

The deal looks less good now. The question is whether or not the deal will continue to get less good, or will get less bad. How are the regulatory winds blowing? Are we trending toward regulating out factors that can drive up the price to income ratio, or trending toward regulating them in?

That's something to think about. I knew plenty of people who went after their dreams of owning a home only to be hit by the 2008 financial crisis. Jumping into a house around here on the very edge of what I can afford could spell disaster. Jumping to another state just to afford a house, even though much cheaper, could also be a disaster.

Originally Posted by freebeard

I tried owning property; once that fell through I was free to pursue employment around the state. (relocation, relocation, relocation)

If I were to buy a house outside of my area I'd want to rent there for a while to make sure things would pan out. Otherwise I risk leaving the area and having to sell a house just months or a year or so into the mortgage.

Originally Posted by redpoint5

Wish I could have locked in a 50 year mortgage at 2.5% interest. I'd take that any time. It's longer than I'm expected to live, but all the extra cash I could invest would far outweigh the interest I'll be paying. Can't complain about a 30 year loan at sub-3% rates though.

I kind of doubt that will ever be an option. At current interest rates it almost seems better to get the 15 year mortgage. It adds another 20% or so to the mortgage payment, but also means the equity builds more quickly and the house gets paid off more quickly too. That, and much less is spent on interest.

One reason less is spent on interest is that interest on a 15 year mortgage is less than on a 30 year. If you could get a 2.5% 50 year mortgage chances are that 30 year would be even less. Yet the lowest rate for a 30 year mortgage was 2.96% in 2021. The chances of that being even lower are slim.

[freebeard]

I feels weird having the site load so quickly.

[redpoint5]

Originally Posted by Isaac Zachary

I knew plenty of people who went after their dreams of owning a home only to be hit by the 2008 financial crisis...

If I were to buy a house outside of my area I'd want to rent there for a while to make sure things would pan out. Otherwise I risk leaving the area and having to sell a house just months or a year or so into the mortgage.

There are 2 types of losers; the risk averse, and the over-confident. Most losers are too risk averse.

At current interest rates it almost seems better to get the 15 year mortgage. It adds another 20% or so to the mortgage payment, but also means the equity builds more quickly and the house gets paid off more quickly too. That, and much less is spent on interest.

One reason less is spent on interest is that interest on a 15 year mortgage is less than on a 30 year. If you could get a 2.5% 50 year mortgage chances are that 30 year would be even less. Yet the lowest rate for a 30 year mortgage was 2.96% in 2021. The chances of that being even lower are slim.

The average mortgage interest rate since 1975 is 7.7% We're at 6% now, which isn't bad historically. That said, a 15 year mortgage never sounds like a good idea to me, since what is the likelihood that the rate you've got now will be the best over the next 15 years? That, and the fact that the stock market averages 10%.

Those thinking our government is going to be fiscally responsible any day now, stemming inflation, are out of their mind.