Why are people OBSESSED with owning a house? (square foot, foreclosure, income tax)
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Those of us with a little experience under our belts recognize that each individual must evaluate his current life situation and long-term goals to determine which situation is best. There is no blanket solution for everyone.
My folks raised 9 kids in under 2000 SF.
1 1/2 baths.
While I would not recommend that to anyone, we had shelter and our 3 hots and a cot.
And we were better off than a few billion people are today.
And they owned it. Who would have rented us anything better, at a better price?
My folks would swoon if they saw the 2200SF Heart Throb and I have, with 2 1/2 baths and only two of us here.... Not that it is all that luxurious, but because we can be in a room alone...
People DO compromise some financial strength by over-developing their absolute needs, but people do have that right, too.
Average home sizes has doubled as average household sizes have declined.
Buying a house today is a sucker game.
There are still millions of Americans out there who are underwater in their mortgages, stuck in their homes and can't move, paying a rent to the bank.
Housing demand has been crashed since last June because homes are overpriced everywhere.
Think about it..... Homes are so overpriced that Americans can't afford mortgage rates over 4%.
Yes mortgage rates need to get back down to 3.25% in order to support those inflated prices today.
Only speculators left in this market. It will be interesting to watch what happens when the music stops.
Renting makes a perfect sense today and in the next few years. I wouldnt advise my worts enemy to buy a house today.
And some of us have paid off our mortgage and live in regions that have robust real estate markets. I've been both renter and homeowner in my life. The last time I rented was six years ago when I was not sure whether or not a relocation would be permanent. It was a good choice. Turns out that I liked it here and wanted to stay, so I bought a home. Also a good choice.
Please, only people in the market to buy a house today are inexperienced buyers, young adults buying at the top and destroying their lives with mortgage debt slavery on overpriced housing.
I don't think any of this is true, at all. I bought one years ago, and it was possibly the best financial decision of my life. My home values have risen considerably, I put down 1/3, so mortgage not too bad, and my interest rate is below 4%.
I don't think any of this is true, at all. I bought one years ago, and it was possibly the best financial decision of my life. My home values have risen considerably, I put down 1/3, so mortgage not too bad, and my interest rate is below 4%.
Good luck to you Vegas Boy as you will need it. Seriously who wants to live in Vegas????
Buying a house today is a sucker game. There are still millions of Americans out there who are underwater in their mortgages, stuck in their homes and can't move, paying a rent to the bank.
Housing demand has been crashed since last June because homes are overpriced everywhere.
Think about it..... Homes are so overpriced that Americans can't afford mortgage rates over 4%.
Yes mortgage rates need to get back down to 3.25% in order to support those inflated prices today.
Only speculators left in this market. It will be interesting to watch what happens when the music stops.
Renting makes a perfect sense today and in the next few years. I wouldnt advise my worts enemy to buy a house today.
As long as the FED keeps the rates low the insanity will continue. The stopping point will be the affordability ceiling. Eventually it will get there. People and even investors have a stopping point.
Those underwater homeowners will sell as the prices go back up. Banks are ok with getting another on the payment hook for 15-30 years.
Disagree; the 20% is just a figure pulled out of the air, there is no objective reason behind it. Why is it not 19%? or 23%?
A person could very well afford $1k a month payment, but have difficulty accumulating 20% due to having to pay rent for living. A person actually could be paying more in rent than what the house payment would be as is my case when I was approved for a 0% down VA loan (I declined to purchase for reasons other than financial).
Because they've had it programmed into them from birth by their families of origin as well as the popular media that you're a loser if you don't own a home (or some variation thereof). People tend to believe what they hear repeated most often, even if it isn't true.
Dec and full-year housing metrics from the CA Assoc of Realtors Jan 17, 2014
December single-fam sales were down 18.6% YoY
Full-year 2013 single-fam sales were down 5.9%
December Mos Supply up 27% YoY
December time-to-sell increased by 6%
YoY December single-fam prices up 19.7% YoY
To those who think real estate prices are firmly rooted in the laws of supply and demand, these metrics probably look very confusing; demand plunging, supply surging, and prices surging?!? Say what??? But, to those who believe that the past two years has been rooted firmly in unorthodox monetary policy and investing this makes perfect sense. Data such as these are a leading indicator of price decreases on deck. In fact, Fitch put out a recent report noting that based on the historic relationship between home prices and a basket of econometric factors house prices are 17% over valued nationally, 30% in CA. Which means they are probably 1.5x that and is more in-line with my models.
Strong evidence is now pouring out confirming what I think many have instinctively known for a long
time; that the house price parabola -- over 50% of the past 2-year Twist/QE induced gains came between Jan and June of 2013 -- was not necessarily due to a 'fundamental' increase of demand or a 'lack of
supply'; rather largely tied to new-era "investor" activity. And that there really isn't much difference between what occurred between 2003 and 2007, on the back of aggressive 'leverage-in-finance" stimulus that turned every homeowner in America into speculators; and 2011 to 2013, on the back of the most aggressive interest rate and monetary policy known to mankind that turned a much smaller cohort of professional investors into speculators who drove prices twice as quickly as during the previous bubble.
I'm not arguing that point, but it appears that many people do not seem to understand that the cost of owning a home far exceeds its initial price tag, and one doesn't always come out ahead just because a house sells for more than its purchase price.
This contains both true and false implications.
The total amount of dollars I will spend on principal and interest is more than the price of the house when I purchased it. However, the interest I am paying is at a rate of 3.375%. If I paid interest at a rate of 0%, then I would only have to pay the principal. But paying 1000 dollars thirty years from now is better than a thousand dollars now, because I could invest my money and earn interest on it. The bond funds I'm invested in are returning around 8% per year, after accounting for the decrease in prices from an increase in yields. Since I can earn more than 3.375% on my money, I want to keep the money borrowed for as long as possible. As a result, the present value of my payments, is less than the price of my house.
My PITI payment is about 950/month. I've got my financial calculator beside me, so I'll do exact numbers. It is 965.60 / month. (3.375 APR, compounded monthly over 360 months on a mortgage of 218,500) This represents a 5% down purchase. I could've done more than 5%, but I did the calculations and opted not to.
I'm going to ignore taxes and insurance for now, since they would complicate the math and make it difficult for most readers to follow. If people can't read this, it is a worthless post.
So I bought a house for 230k. (k = thousand) I put down 11.5k. My total payments are 965.60 X 360 = 347,616.00. Clearly that exceeds the 218.5k I had on the mortgage. However, if I had the money to buy the house outright, but instead I used it to invest in a bond fund that was paying 8% after taxes...(This is very possible by using tax advantaged accounts. There are several bond funds that will average better than 8%.)
If the appropriate discount rate is 8%, what amount would I have to invest today to make all of the payments, and run out of money in the fund at the end? To get an actual annual yield of 8%, we need a monthly yield calculated as 1.08^(1/12)-1= .0064. We find the present value of the amount needed to invest is 135,751.25. This is substantially less than the amount I am carrying on the mortgage, because the mortgage requires a lower interest rate than I can reliably earn.
Since most people don't invest heavily, you are correct in stating that the cost of the house is more than the initial price tag, and clearly there are taxes and insurance to consider, but it is possible to turn the mortgage into a positive thing. Note: If you are itemizing deductions, you may be able to achieve comparable results with a regular taxable account. I live in an area with very low property taxes and few things outside of insurance to itemize. As a result, I use the standardized deduction and do not treat mortgage interest as a tax deductible expense.
Sometimes, it isn't possible to find better bond funds than the rate you would get on a mortgage, but currently mortgage rates are very low.
Finally, if we adjust for inflation by assuming that it will average 3% per year, then in 30 years my $965 payment to finish paying off the house is only equal to $397.56 in today's standards. Since my interest rate is only slightly above my estimate of the long run inflation rate, I'm in a pretty good position. If I was able to live in another person's house for free, that would clearly be the best financial position. When choosing between rent and owning, if someone is staying put, owning is usually (though not always) the best option. For many middle class Americans the process of paying down the loan creates a forced savings account.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Those of us with a little experience under our belts recognize that each individual must evaluate his current life situation and long-term goals to determine which situation is best. There is no blanket solution for everyone.
