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Yeah we had a long-term plan to buy a house this summer and we stuck to our plan but it's definitely scary thinking about what will happen when interest rates r

Yeah we had a long-term plan to buy a house this summer and we stuck to our plan but it's definitely scary thinking about what will happen when interest rates rise, if we ever wanted to sell. I guess the counterpoint is that the whole market should move in lockstep, so if rates go up and the price of your house goes down, at least the rest of the market should be affected equally. It kills any idea of getting a real return on your house but frankly that was not a real thing through most of history anyway.

matwood 6y ago
Yeah, the real return is the equity. The house can act as a small savings account over time. But even that is questionable unless you're prepared to move out at some point, which means transaction costs and buying something new. IMO, for primary residences you did the right thing (if you want a house of course).
- nemo44x 6y ago
  I've come to terms with the fact that in most markets a home is not the best way to use your money in terms of return. However, you get to live in it and that's priceless. And like you said, it acts as a savings account over time and that generally works out as people will eventually downgrade after their kids have left. Another nice thing about owning a home is you can improve it (additions, adding bathrooms, etc) and certain additions more or less pay for themselves in terms of "getting your money back" over enough time. Again, probably not going to outperform the market, but you get to live in it. So even if the market tanks for a few years, I still get the benefits of whatever I've invested in my home. The trick is to not overspend on a home. Too many people use all their savings to make a downpayment and then use too much of their income to pay for it. This can not only get you in trouble but also puts you at a serious disadvantage in terms of accumulating wealth.
  - yrimaxi 6y ago
    The point of most things that you can buy should be the thing itself, not its investment-value. If not there is probably rent-seeking going on, i.e. a market failure. All things degrade due to entropy. Things cannot truly become more valuable by themselves.
    - nemo44x 6y ago
      Land? I think raw land is one thing that can become valuable on its own. Of course billions of years from now it will be gone. Where I live the land is very much a big part of the cost of the home. The structure is worth what it would cost to demolish plus rebuild it minus existing wear and tear/needed repairs I figure. The value of the structure doesn’t appreciate as fast as the land it is on due to degradations as you’ve pointed out and materials/labor usually not increasing as fast as appreciating assets which the land itself is. Of course in many locations the structure is worth more than the land it is on. Hence location being the most important part of the equation as any real estate agent will tell you.
      - yrimaxi 6y ago
        Land, i.e. the classic example of rent-seeking. The land doesn’t become “valuable on its own”, it’s just used to extract value from other things. > In that original state of things, which precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. He has neither landlord nor master to share with him. > ... > As soon as land becomes private property, the landlord demands a share of almost all the produce which the labourer can either raise, or collect from it. His rent makes the first deduction from the produce of the labour which is employed upon land. Wealth of Nations
ashtonkem 6y ago
Your local area matters a lot too. Is your city gaining or losing population? Is there new development adding units onto the market, or have NIMBYs locked it up? Do local tax laws incentivize long term owners over short term owner? All of these can have an effect that'll blow interest rates out of the water.

matwood 6y ago

Yeah, the real return is the equity. The house can act as a small savings account over time. But even that is questionable unless you're prepared to move out at some point, which means transaction costs and buying something new. IMO, for primary residences you did the right thing (if you want a house of course).

nemo44x 6y ago
I've come to terms with the fact that in most markets a home is not the best way to use your money in terms of return. However, you get to live in it and that's priceless. And like you said, it acts as a savings account over time and that generally works out as people will eventually downgrade after their kids have left. Another nice thing about owning a home is you can improve it (additions, adding bathrooms, etc) and certain additions more or less pay for themselves in terms of "getting your money back" over enough time. Again, probably not going to outperform the market, but you get to live in it. So even if the market tanks for a few years, I still get the benefits of whatever I've invested in my home. The trick is to not overspend on a home. Too many people use all their savings to make a downpayment and then use too much of their income to pay for it. This can not only get you in trouble but also puts you at a serious disadvantage in terms of accumulating wealth.
- yrimaxi 6y ago
  The point of most things that you can buy should be the thing itself, not its investment-value. If not there is probably rent-seeking going on, i.e. a market failure. All things degrade due to entropy. Things cannot truly become more valuable by themselves.
  - nemo44x 6y ago
    Land? I think raw land is one thing that can become valuable on its own. Of course billions of years from now it will be gone. Where I live the land is very much a big part of the cost of the home. The structure is worth what it would cost to demolish plus rebuild it minus existing wear and tear/needed repairs I figure. The value of the structure doesn’t appreciate as fast as the land it is on due to degradations as you’ve pointed out and materials/labor usually not increasing as fast as appreciating assets which the land itself is. Of course in many locations the structure is worth more than the land it is on. Hence location being the most important part of the equation as any real estate agent will tell you.
    - yrimaxi 6y ago
      Land, i.e. the classic example of rent-seeking. The land doesn’t become “valuable on its own”, it’s just used to extract value from other things. > In that original state of things, which precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. He has neither landlord nor master to share with him. > ... > As soon as land becomes private property, the landlord demands a share of almost all the produce which the labourer can either raise, or collect from it. His rent makes the first deduction from the produce of the labour which is employed upon land. Wealth of Nations

ashtonkem 6y ago

Your local area matters a lot too. Is your city gaining or losing population? Is there new development adding units onto the market, or have NIMBYs locked it up? Do local tax laws incentivize long term owners over short term owner? All of these can have an effect that'll blow interest rates out of the water.