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This is very important, especially when discussing it with people who rent. People who are paying 3000-3500 a month looking at a 1 million dollar house as somet
by shados 7y ago
This is very important, especially when discussing it with people who rent. People who are paying 3000-3500 a month looking at a 1 million dollar house as something insane (well, it is, sorry I'm just using round numbers to make it easier for myself).
But depending on interest rates and property taxes, these might be almost the same thing, or very close. Once you consider the portion of the mortgage that goes to the principal, and if you assume some amount of inflation and increase in value, the 1 million dollar home might be cheaper, even if you consider that you could have invested the money in S&P (in this particular example the market would have to be in a fairly ideal state to favor the mortgage, but still, it's close, and you get to make holes in the walls without anyone bitching about it).
Homes are this expensive because, for better or worth, they're worth it. That's the problem. As long as they are worth it it will keep going up (and rentals as well as infamously AirBnB are making sure they're always worth it unless you push out an INSANE amount of supply, where incremental boosts in house building, rent control and affordable housing initiatives may make things worse rather than better.
- conanbatt 7y agoWhat your analysis doesn't take into account is that if interest rates go up, demand plummets and the 1 million dollar home at 3.5% is worth 600k at 10% interest rate. A big RE mogul used to say "Its better to buy a cheap house with expensive credit than an expensive house with cheap credit. You can refinance the latter"
- ipython 7y agoI assume you meant to say “you can refinance the former”?
- conanbatt 7y agoYes, sorry.
- imtringued 7y agoWhen you have a $300k loan and refinance midway from high to low or low to high interest you will pay the same amount of interest in the end. The reason why low interest rates are bad is because everyone is bidding prices up. Paying $1000k at low interest for the same house is fundamentally worse than paying $300k at high interest.
- shados 7y agoSure, but in the markets people bitch about that hasn't happened. Even during the crash, prices didn't move downward that much. There is a risk for sure, but that's true of all investments that pay better than t-bills.
- conanbatt 7y agoDuring the crash, properties went down 50% and more. It was a hell of a time to buy.
- deleted 7y ago[deleted]