5 ms·

For the individual, the answer is Debt. And servicing repayments of debt. Eg, that on the typical mortgage you repay ~3 times what you borrowed.

nicbou 6y ago
3 times? How so?
- feralimal 6y ago
  Sorry - my mistake. I was going off memory. 2 times, including the principle. Looking here: https://finance.icalculator.info/mortgage-calculator.html https://finance.icalculator.info/mortgage-calculator.html I enter, Mortgage Amount: 100000 Annual Interest Rate: 5% Term of Mortgage: 30years The interest paid is 93255.20
  - blaser-waffle 6y ago
    That's also a 30-year mortgage, paid off at the lowest rate possible, with no refinancing. And also leaves out that the rate of inflation over 30 years means your monthly cost decreases; hopefully you're getting inflation adjustments to your salary...
  - benibela 6y ago
    But that is still cheaper than paying rent for 30 years
    - bbeekley 6y ago
      I semi-regularly plug numbers into this Buy v Rent calculator by NYT [1]. They're pretty equivalent in the 10-30 year range and match housing prices I've seen. It's hard to beat the SP500's >8% average return [2]. [1] (paywalled) https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... [2] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average...
      - benibela 6y ago
        That can change depending on the area Then, I live in Germany. There is a 28% tax on stock market returns, but selling your home is tax free
        bbeekley 6y ago
        Absolutely. I think one of the fun things about that calculator is that you can mess around with the numbers to try different situations. Perhaps there's a way to account for that tax (e.g. by using ~5.8% returns as the after-tax rate).
        nicbou 6y ago
        Not in Berlin. It's tax free after a few years only, to prevent people from flipping houses. Also capital gains tax is around 26% (incl. solidarity surcharge), if it hasn't changed. However there are other scary things about house ownership in Germany. For example being liable for street work in front of your house for the first few decades. The city can decide to repave the street and stick residents with the bill.
    - ultrarunner 6y ago
      In our area average rent has now overtaken our mortgage payment. So glad we got off that treadmill.
      - jlokier 6y ago
        It's cyclic. Where I live, when I was too young to buy, mortgage was cheaper. When I was old enough to buy, rent was cheaper and prices had already risen enormously, so I stuck with rent, and hoped prices would stabilise or fall. In retrospect this was a mistake, as prices continued to rise. Now mortgages are cheaper than rent again.
        ultrarunner 6y ago
        That is interesting. I have only owned a house for ~7 years, so I likely haven't experienced this cycle. Thanks for the insight.
dnautics 6y ago
I think that most people in the lower 50% wage bracket do not have a mortgage. People in the lowest 20% don't even have a credit card, probably. The answer is still likely: Debt. When we take out sovereign debt it increases cost of living, and usually the way that sovereigns typically use that debt is via payouts to contractors, which does not go to the bottom 50%, except perversely via trickle-down effects. If you look at the "socialist" countries that have low poverty rates, typically they also have low rates of sovereign borrowing (think Norway, Sweden, and Denmark).

nicbou 6y ago

3 times? How so?

feralimal 6y ago
Sorry - my mistake. I was going off memory. 2 times, including the principle. Looking here: https://finance.icalculator.info/mortgage-calculator.html https://finance.icalculator.info/mortgage-calculator.html I enter, Mortgage Amount: 100000 Annual Interest Rate: 5% Term of Mortgage: 30years The interest paid is 93255.20
- blaser-waffle 6y ago
  That's also a 30-year mortgage, paid off at the lowest rate possible, with no refinancing. And also leaves out that the rate of inflation over 30 years means your monthly cost decreases; hopefully you're getting inflation adjustments to your salary...
- benibela 6y ago
  But that is still cheaper than paying rent for 30 years
  - bbeekley 6y ago
    I semi-regularly plug numbers into this Buy v Rent calculator by NYT [1]. They're pretty equivalent in the 10-30 year range and match housing prices I've seen. It's hard to beat the SP500's >8% average return [2]. [1] (paywalled) https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... [2] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average...
    - benibela 6y ago
      That can change depending on the area Then, I live in Germany. There is a 28% tax on stock market returns, but selling your home is tax free
      - bbeekley 6y ago
        Absolutely. I think one of the fun things about that calculator is that you can mess around with the numbers to try different situations. Perhaps there's a way to account for that tax (e.g. by using ~5.8% returns as the after-tax rate).
      - nicbou 6y ago
        Not in Berlin. It's tax free after a few years only, to prevent people from flipping houses. Also capital gains tax is around 26% (incl. solidarity surcharge), if it hasn't changed. However there are other scary things about house ownership in Germany. For example being liable for street work in front of your house for the first few decades. The city can decide to repave the street and stick residents with the bill.
  - ultrarunner 6y ago
    In our area average rent has now overtaken our mortgage payment. So glad we got off that treadmill.
    - jlokier 6y ago
      It's cyclic. Where I live, when I was too young to buy, mortgage was cheaper. When I was old enough to buy, rent was cheaper and prices had already risen enormously, so I stuck with rent, and hoped prices would stabilise or fall. In retrospect this was a mistake, as prices continued to rise. Now mortgages are cheaper than rent again.
      - ultrarunner 6y ago
        That is interesting. I have only owned a house for ~7 years, so I likely haven't experienced this cycle. Thanks for the insight.

dnautics 6y ago

I think that most people in the lower 50% wage bracket do not have a mortgage. People in the lowest 20% don't even have a credit card, probably. The answer is still likely: Debt. When we take out sovereign debt it increases cost of living, and usually the way that sovereigns typically use that debt is via payouts to contractors, which does not go to the bottom 50%, except perversely via trickle-down effects. If you look at the "socialist" countries that have low poverty rates, typically they also have low rates of sovereign borrowing (think Norway, Sweden, and Denmark).