4 ms·

How can it be that they earn enough to make the monthly payments, then?

tdfx 5y ago
Historically low interest rates. Also, the average percentage of household income allocated towards housing has been steadily increasing.
crooked-v 5y ago
They're already paying more than that much in rent. They just can't put together that and 20% of the full (greatly inflated) valuation at the same time.
- closeparen 5y ago
  Where? In the expensive coastal markets the price to rent ratio is enormous; the mortgage is much higher than the rent on the same home.
  - nicoburns 5y ago
    A lot of the UK
  - chrisseaton 5y ago
    > the mortgage is much higher than the rent on the same home That would really surprise me. Everyone I know talks about how much cheaper it would be to buy if only they could afford the deposit. Most of the time the mortgage is lower than the rent for the obvious reason that when you rent you're both paying the landlord's mortgage, plus their profit.
    - fknorangesite 5y ago
      > when you rent you're both paying the landlord's mortgage, plus their profit. True, of course. But you are also paying the landlord's property taxes and maintenance costs and (sometimes) utilities and.... A pet peeve of mine is when people compare mortgage payments to rent payments as if they are a equivalent. There is a lot of additional overhead in homeownership beyond the mortgage payment. Though maybe it's a sore point for me because my furnace died this morning and it's -40 outside so guess who gets to drop an unplanned $6k this week?
      - chrisseaton 5y ago
        > There is a lot of additional overhead in homeownership beyond the mortgage payment. Which you pay via your rent as well, as your landlord is also paying those overheads. When you rent you're paying everything you pay when you own... plus profit for someone else.
        Turing_Machine 5y ago
        > plus profit for someone else. Well, possible profit. There is risk involved. Underwater mortgages are totally a thing. More recently, a fair number of landlords are in trouble right now due to the COVID eviction pause. Their tenants stopped paying, but their own principal, interest, and insurance payments kept going clickety-clickety-click. Some of them are even walking away from the properties. It's also important for everyone to keep in mind that not everywhere is the Bay Area, or even California. Judging nationwide housing conditions by the conditions in those regions is likely a mistake.
        fknorangesite 5y ago
        Yes, that's what I just said. The problem is that there is a tendency for people to compare the rent payment directly to only the mortgage payment.
    - jandrewrogers 5y ago
      Many landlords do not have a mortgage. Or if they do, the cost basis is much lower than if you bought the same place today. Also, there are major costs to owning home beyond the mortgage. To use myself as an example, only ~60% of my ownership costs are the actual mortgage. Whether or not the fully burdened mortgage is less than the rent depends on the region but it is not uncommon for the costs of owning to be higher than the costs of renting, and this still makes sense for the landlord because of differences in cost basis.
      - closeparen 5y ago
        A long-tenured landlord made some money in his role as a speculator, and currently has it invested as equity in the property. Which, yes, gives him a lower mortgage payment than you would face. This $X invested in the property is yielding him $Y in marginal cash flow per month. You can do that too, assuming you have $X, by paying extra towards your own mortgage. But do you want to? Depends on the value of $X and $Y; you may be better off buying index funds.
    - closeparen 5y ago
      It is surprising, and counterintuitive. In the "hot," high price to rent ratio cities (NYC, BOS, DC, LA, SF, SEA, etc) landlords don't make money in their capacity as landlords, but as speculators. Rent is just a little bit of gravy to partly offset the cost of owning those appreciating assets. It's not the point.
  - fleddr 5y ago
    That makes no sense at all. Nobody would buy in that scenario and for the landlord the return is negative, so they wouldn't buy either.
    - sokoloff 5y ago
      Property appreciation can make renting below the mortgage payment financially attractive. A house that's appreciating 5% per year is covering for a lot of negative cash flow.
cpursley 5y ago
Well, they're probably paying rent before buying. And in many places in the country a monthly mortgage plus tax and insurance payment comes out well under rent.
deleted 5y ago
[deleted]
doovd 5y ago
Oh they earn enough to make monthly payments. They just happen to be paying someone else's mortgage, rather than their own.
- closeparen 5y ago
  I can see this being true in some markets, but the places where we talk about house prices going crazy, they are doing so not just in absolute terms but in proportion to rents.
- Gigachad 5y ago
  This often ignores the cost of council rates, insurance, loan interest, etc. You need to be able to afford more than just rent to own. But if the bank approves you, it’s likely right because they don’t want to give loans that people can’t afford.
  - R0b0t1 5y ago
    No, it's pretty common that people end up paying more in rent than they would for a mortgage. You could maybe argue that the job security is what is priced into this, but it happens to working professionals too.

tdfx 5y ago

Historically low interest rates. Also, the average percentage of household income allocated towards housing has been steadily increasing.

crooked-v 5y ago

They're already paying more than that much in rent. They just can't put together that and 20% of the full (greatly inflated) valuation at the same time.

closeparen 5y ago
Where? In the expensive coastal markets the price to rent ratio is enormous; the mortgage is much higher than the rent on the same home.
- nicoburns 5y ago
  A lot of the UK
- chrisseaton 5y ago
  > the mortgage is much higher than the rent on the same home That would really surprise me. Everyone I know talks about how much cheaper it would be to buy if only they could afford the deposit. Most of the time the mortgage is lower than the rent for the obvious reason that when you rent you're both paying the landlord's mortgage, plus their profit.
  - fknorangesite 5y ago
    > when you rent you're both paying the landlord's mortgage, plus their profit. True, of course. But you are also paying the landlord's property taxes and maintenance costs and (sometimes) utilities and.... A pet peeve of mine is when people compare mortgage payments to rent payments as if they are a equivalent. There is a lot of additional overhead in homeownership beyond the mortgage payment. Though maybe it's a sore point for me because my furnace died this morning and it's -40 outside so guess who gets to drop an unplanned $6k this week?
    - chrisseaton 5y ago
      > There is a lot of additional overhead in homeownership beyond the mortgage payment. Which you pay via your rent as well, as your landlord is also paying those overheads. When you rent you're paying everything you pay when you own... plus profit for someone else.
      - Turing_Machine 5y ago
        > plus profit for someone else. Well, possible profit. There is risk involved. Underwater mortgages are totally a thing. More recently, a fair number of landlords are in trouble right now due to the COVID eviction pause. Their tenants stopped paying, but their own principal, interest, and insurance payments kept going clickety-clickety-click. Some of them are even walking away from the properties. It's also important for everyone to keep in mind that not everywhere is the Bay Area, or even California. Judging nationwide housing conditions by the conditions in those regions is likely a mistake.
      - fknorangesite 5y ago
        Yes, that's what I just said. The problem is that there is a tendency for people to compare the rent payment directly to only the mortgage payment.
  - jandrewrogers 5y ago
    Many landlords do not have a mortgage. Or if they do, the cost basis is much lower than if you bought the same place today. Also, there are major costs to owning home beyond the mortgage. To use myself as an example, only ~60% of my ownership costs are the actual mortgage. Whether or not the fully burdened mortgage is less than the rent depends on the region but it is not uncommon for the costs of owning to be higher than the costs of renting, and this still makes sense for the landlord because of differences in cost basis.
    - closeparen 5y ago
      A long-tenured landlord made some money in his role as a speculator, and currently has it invested as equity in the property. Which, yes, gives him a lower mortgage payment than you would face. This $X invested in the property is yielding him $Y in marginal cash flow per month. You can do that too, assuming you have $X, by paying extra towards your own mortgage. But do you want to? Depends on the value of $X and $Y; you may be better off buying index funds.
  - closeparen 5y ago
    It is surprising, and counterintuitive. In the "hot," high price to rent ratio cities (NYC, BOS, DC, LA, SF, SEA, etc) landlords don't make money in their capacity as landlords, but as speculators. Rent is just a little bit of gravy to partly offset the cost of owning those appreciating assets. It's not the point.
- fleddr 5y ago
  That makes no sense at all. Nobody would buy in that scenario and for the landlord the return is negative, so they wouldn't buy either.
  - sokoloff 5y ago
    Property appreciation can make renting below the mortgage payment financially attractive. A house that's appreciating 5% per year is covering for a lot of negative cash flow.

cpursley 5y ago

Well, they're probably paying rent before buying. And in many places in the country a monthly mortgage plus tax and insurance payment comes out well under rent.

deleted 5y ago

[deleted]

doovd 5y ago

Oh they earn enough to make monthly payments. They just happen to be paying someone else's mortgage, rather than their own.

closeparen 5y ago
I can see this being true in some markets, but the places where we talk about house prices going crazy, they are doing so not just in absolute terms but in proportion to rents.
Gigachad 5y ago
This often ignores the cost of council rates, insurance, loan interest, etc. You need to be able to afford more than just rent to own. But if the bank approves you, it’s likely right because they don’t want to give loans that people can’t afford.
- R0b0t1 5y ago
  No, it's pretty common that people end up paying more in rent than they would for a mortgage. You could maybe argue that the job security is what is priced into this, but it happens to working professionals too.