3 ms·

> 30 year ammortization of loan with a 4% rate (available now on 5 year ARMs) You realize that's how a ton of people lost their homes, right?

tomsaffell 16y ago
That's only a part truth. My example specifically deals with San Francisco (because Trulia showed it to be a 'rent not buy' city). In SF there have not been anything like the level of defaults seen elsewhere in the US. Elsewhere in the US, rate adjustments on ARMs were just one part of the problem. The other bigs ones behind the recent crisis were: over inflated house prices (in SF, prices were only down ~15% on peak); people qualifying for loans that they could not afford with-or-without rate changes (by lying about their income); people being unable to re-mortgage now because they have now equity/down-payment (tightening lending criteria as a result of previous over-loose criteria) Summary: what you say is a true statement about part of the reason the US housing economy blew-up. But it's not very relevant to my example about buying a $750K house in SF with 15% down and a mortgage that you can actually afford (the only type you can get today - i.e. $100K in income)
- klochner 16y ago
  My point is that you're taking on significant risk with a cavalier attitude. Let me try another: > if rates soar that means the economy has recovered and your house is worth more You realize that LTCM went bankrupt betting on asset price correlations?
  - tomsaffell 16y ago
    Well, the intention was not to be cavalier, but to try to ignore the risk side of the equation as much as possible, because thats what Trulia did, so the analysis could be comparable. Having read all the subsequent comments regarding risk, I now see that what I should have said is comparing renting to buying on a _cost only_ basis, w/o considering the differences in risk, is not a helpful analysis. I still stand by the original assertion: buying in SF can be cheaper than renting (see the revised numbers), and the risk and reward there entailed is actually pretty small if: buying now (after a recent fall), getting a 30-yr fixed rate, and sticking around for ~5+ years
    - scott_s 16y ago
      What does it mean to consider cost without considering risk, when the risk is that the cost may become more than you can afford?

tomsaffell 16y ago

That's only a part truth. My example specifically deals with San Francisco (because Trulia showed it to be a 'rent not buy' city). In SF there have not been anything like the level of defaults seen elsewhere in the US. Elsewhere in the US, rate adjustments on ARMs were just one part of the problem. The other bigs ones behind the recent crisis were: over inflated house prices (in SF, prices were only down ~15% on peak); people qualifying for loans that they could not afford with-or-without rate changes (by lying about their income); people being unable to re-mortgage now because they have now equity/down-payment (tightening lending criteria as a result of previous over-loose criteria) Summary: what you say is a true statement about part of the reason the US housing economy blew-up. But it's not very relevant to my example about buying a $750K house in SF with 15% down and a mortgage that you can actually afford (the only type you can get today - i.e. $100K in income)

klochner 16y ago
My point is that you're taking on significant risk with a cavalier attitude. Let me try another: > if rates soar that means the economy has recovered and your house is worth more You realize that LTCM went bankrupt betting on asset price correlations?
- tomsaffell 16y ago
  Well, the intention was not to be cavalier, but to try to ignore the risk side of the equation as much as possible, because thats what Trulia did, so the analysis could be comparable. Having read all the subsequent comments regarding risk, I now see that what I should have said is comparing renting to buying on a _cost only_ basis, w/o considering the differences in risk, is not a helpful analysis. I still stand by the original assertion: buying in SF can be cheaper than renting (see the revised numbers), and the risk and reward there entailed is actually pretty small if: buying now (after a recent fall), getting a 30-yr fixed rate, and sticking around for ~5+ years
  - scott_s 16y ago
    What does it mean to consider cost without considering risk, when the risk is that the cost may become more than you can afford?