5 ms·

> Personally, I think for the extra $500/month, buying is a better choice than renting; at least for me. Let's do the math. Nobody is getting a 1.1million mor

by ska 6y ago

> Personally, I think for the extra $500/month, buying is a better choice than renting; at least for me. Let's do the math. Nobody is getting a 1.1million mortgage for 3k/mo, so let's pick something conservative but more realistic. According to zillow, for a 3k/mo payment you can get a 520k loan with a 20% (130k) downpayment, 30 years with an average 3%. You'll be lucky to keep it to 3% for the next 30 years but we'll let that stay. This 3k/mo payment includes estimated property taxes etc., but no home maintenance costs - there's going to be 50k or so of that over the 30 years. So after 30 years, you've got a 650k house + whatever appreciation it has over that time, minus the 50k expenses. Historically house appreciation is about the same as inflation, so if we stay in today dollars that washes out. After 30 years, you walk away with 600k (todays dollars). If we pretend it won't cost you anything extra, 650k What if you stayed renting and invest that 130k? Stock market long term average is about 7%, net inflation about 4%. So lets use that, I'm cheating by stating in 2021 dollars and you just keep investing the $500/mo difference. Take 130k today, invest for 3% with a 500/mo contribution for 30 years. Result is: $601,000 (again, sticking in today dollars as i've zeroed out inflation) Do the same thing at 4%: $760k Base on historic market, you're likely somewhere in between. Looks like it's not a huge difference, which shouldn't surprise you. This means that pretty minor differences in your life circumstances can push you one way or another, but nothing is obviously compelling. (Ok one thing jurisdictionally dependent I didn't mention, there can be tax implications of this or not, depending on where you live. Ymmv.)

random314 6y ago
30 year fixed mortgage rates for good credit is 2.5%
x3n0ph3n3 6y ago
You totally left out property taxes! $1.1 million house in SF has about $6,050 in year property tax, which is another $182k over the life of the mortgage (assuming rates don't change).
- ska 6y ago
  No I didn't, see the comment that the property tax was rolled into the 3k payment. I've added "property" to make that clearer.
neffy 6y ago
You forgot that the rent is increasing with inflation, but the mortgage is not.
- ska 6y ago
  Yes but wages are too , so you keep the delta. And the mortgage payment goes up with interest rates. Which aren’t exactly independent events. It’s not perfect but it’s reasonable. It may free up some other money in the house case , which you could use to make up some of the difference. Or that might get eaten by rates.
  - midasuni 6y ago
    US mortgages tend to be fixed. Wages for up, payments on the house stay the same. At 3%, a $1m mortgage would be 2500 interest a month now, and in 2040. US home maintenance seems high though - roof repairs are a known thing for some reason. In he U.K. I live near an estate of thousands of houses all 50 years old, I can’t ever remember seeing one being repaired.
    - neffy 6y ago
      I think it's because they are mostly wood framed, vs brick in the UK. But yes, the mortgage rate is fixed in the US, your mortgage payment doesn't change, your wages increase at least with inflation, and relatively speaking the mortgage gets cheaper every year. Rents on the other hand, tend to adjust with inflation. The breakeven point is about 3-5 years as it happens.
figers 6y ago
Why would you not be able to keep a 30 year fixed rate mortgage at 3% for the next 30 years? Hopefully you're making one extra payment a year to cut it down a few years... 7% long term stock average in the past doesn't mean the future 3 condos I bought in the 2007 downturn are appraised at double today, much higher rate of appreciation than inflation...
- ska 6y ago
  3% was left in favour of the house buying but unlikely because the last dozen years or so are very unusual In real estate, so I used middle of the road numbers. You may lock in 3% for 5 years now but nobody is giving you that for 30 - historical averages are all about double . Very good chance that happens again over that time period but of course we don’t know . Assuming it won’t would be irrational though . Of course past doesn’t imply the future will be the same , but I used long run averages for both stock market and housing market , so it’s fair .
  - AustinDev 6y ago
    I dunno. I just refinanced at 2.35%.... fixed 30 year.
  - mrep 6y ago
    > You may lock in 3% for 5 years now but nobody is giving you that for 30 I literally just closed on a condo last month and got a 30 year fixed rate jumbo mortgage at 3%.
  - positr0n 6y ago
    Based on the spelling of favour I am assuming you are not from the US. In the US, fixed rate mortgages for between 15-30 years are very much the norm, with 30 year mortgages much more common than 15. You can absolutely get a 30 year loan up to $550k ($820k in California) for well under 3% these days. A 5/1 ARM that changes rates after 5 years is a product you can buy, but it would only be used in niche scenarios. I understand it is not like that in most other countries and I'm not 100% sure why. Something to do with the federal government backstopping most mortgages I think.
lostmsu 6y ago
You forgot to include tax on your investment, which in California I hear might be around 30% at the top income bracket.
- ska 6y ago
  Cap gains in both cases but treated differently depending where you live .... as I said ymmv
closeparen 6y ago
>Historically house appreciation is about the same as inflation If that's your investing thesis then obviously the expensive coastal metros make no sense. These prices reflect a history of excellent returns. It costs a lot more to own than to rent - people are paying to be landlords! Clearly they're doing this in the expectation that appreciation will make up for their losses.
- ska 6y ago
  That’s just the historical data. Look obviously the details matter - we can cherry pick cases in either direction that “won” or “lose”. The point is more that the sentiment in OP is common but wrong, it’s not obvious. One thing I didn’t get into is US specific but often it’s the mortgage tax credit that makes it worthwhile but again, it depends ....

by ska 6y ago

random314 6y ago

30 year fixed mortgage rates for good credit is 2.5%

x3n0ph3n3 6y ago

You totally left out property taxes! $1.1 million house in SF has about $6,050 in year property tax, which is another $182k over the life of the mortgage (assuming rates don't change).

ska 6y ago
No I didn't, see the comment that the property tax was rolled into the 3k payment. I've added "property" to make that clearer.

neffy 6y ago

You forgot that the rent is increasing with inflation, but the mortgage is not.

ska 6y ago
Yes but wages are too , so you keep the delta. And the mortgage payment goes up with interest rates. Which aren’t exactly independent events. It’s not perfect but it’s reasonable. It may free up some other money in the house case , which you could use to make up some of the difference. Or that might get eaten by rates.
- midasuni 6y ago
  US mortgages tend to be fixed. Wages for up, payments on the house stay the same. At 3%, a $1m mortgage would be 2500 interest a month now, and in 2040. US home maintenance seems high though - roof repairs are a known thing for some reason. In he U.K. I live near an estate of thousands of houses all 50 years old, I can’t ever remember seeing one being repaired.
  - neffy 6y ago
    I think it's because they are mostly wood framed, vs brick in the UK. But yes, the mortgage rate is fixed in the US, your mortgage payment doesn't change, your wages increase at least with inflation, and relatively speaking the mortgage gets cheaper every year. Rents on the other hand, tend to adjust with inflation. The breakeven point is about 3-5 years as it happens.

figers 6y ago

Why would you not be able to keep a 30 year fixed rate mortgage at 3% for the next 30 years? Hopefully you're making one extra payment a year to cut it down a few years... 7% long term stock average in the past doesn't mean the future 3 condos I bought in the 2007 downturn are appraised at double today, much higher rate of appreciation than inflation...

ska 6y ago
3% was left in favour of the house buying but unlikely because the last dozen years or so are very unusual In real estate, so I used middle of the road numbers. You may lock in 3% for 5 years now but nobody is giving you that for 30 - historical averages are all about double . Very good chance that happens again over that time period but of course we don’t know . Assuming it won’t would be irrational though . Of course past doesn’t imply the future will be the same , but I used long run averages for both stock market and housing market , so it’s fair .
- AustinDev 6y ago
  I dunno. I just refinanced at 2.35%.... fixed 30 year.
- mrep 6y ago
  > You may lock in 3% for 5 years now but nobody is giving you that for 30 I literally just closed on a condo last month and got a 30 year fixed rate jumbo mortgage at 3%.
- positr0n 6y ago
  Based on the spelling of favour I am assuming you are not from the US. In the US, fixed rate mortgages for between 15-30 years are very much the norm, with 30 year mortgages much more common than 15. You can absolutely get a 30 year loan up to $550k ($820k in California) for well under 3% these days. A 5/1 ARM that changes rates after 5 years is a product you can buy, but it would only be used in niche scenarios. I understand it is not like that in most other countries and I'm not 100% sure why. Something to do with the federal government backstopping most mortgages I think.

lostmsu 6y ago

You forgot to include tax on your investment, which in California I hear might be around 30% at the top income bracket.

ska 6y ago
Cap gains in both cases but treated differently depending where you live .... as I said ymmv

closeparen 6y ago

>Historically house appreciation is about the same as inflation If that's your investing thesis then obviously the expensive coastal metros make no sense. These prices reflect a history of excellent returns. It costs a lot more to own than to rent - people are paying to be landlords! Clearly they're doing this in the expectation that appreciation will make up for their losses.

ska 6y ago
That’s just the historical data. Look obviously the details matter - we can cherry pick cases in either direction that “won” or “lose”. The point is more that the sentiment in OP is common but wrong, it’s not obvious. One thing I didn’t get into is US specific but often it’s the mortgage tax credit that makes it worthwhile but again, it depends ....