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Interest rates are so low compared to inflation that in many places the real rates for mortgages are negative. This means that just having a mortgage increases

by rndphs 5y ago

Interest rates are so low compared to inflation that in many places the real rates for mortgages are negative. This means that just having a mortgage increases your wealth more than it decreases it (because the value of the mortgage decreases over time faster than the interest accrues). We are in a very weird situation where the price of loans is being subsidized so heavily by central banks that you are literally better off getting a mortgage for a house than buying it with your own cash. This has an obvious big impact on the price of houses.

ReactiveJelly 5y ago
That's why I got a mortgage. The bank offered a surprisingly low rate, and I looked at my FIRE research and thought, "Eh I can probably beat that in the market" and so the money that would have been frozen in the house (if I had bought in cash) is growing in index funds, hopefully faster than the mortgage is consuming it. It's fucking weird. I think all these are true at once: - Renting is not inherently bad - A force is slanting the market away from "rent" and towards "buy" - Too many people have an emotional stake in home ownership as its own end, and they would be better off seeing it as a tradeoff made coldly. - Because the market has been slanted so badly for so long, these people are correct, but for the wrong reasons. They'll say that renting is throwing money away, because you don't get equity, but they won't say that equity is also throwing money away because of opportunity cost. They have never lived in a market where renting was actually allowed to compete with buying. - Part of the reason buying is favorable might simply be that it's a proxy for credit score and wealth, and anyone making a loan would give a cheaper rate to a wealthier person. Since renters tend to have less money, they have to pay more in case they default. It's not fair, but I don't expect markets to be fair. I think it's all an extended effect of the "White Flight". Having forgotten its racist roots, it's still got a strong emotional core of "Cities are full of crime and poor people. Renting is for poor people who are too dumb to save their money, and so they have it chipped away by rent." Or a leftist would say "Rent is inherently exploitative because landlords make money doing nothing." It's a weird horseshoe when my far-right Baby Boomer parents agree with 2020 Twitter communists that home ownership is its own end, whereas I only see it as a means to an end. The only time I rented an apartment, it was a fabulous experience. The only flaw was that it cost too much per square foot. And the ambient noise was high, because it was closer to the city core. Other than that, I really miss my old apartment.
- blip54321 5y ago
  > Too many people have an emotional stake in home ownership as its own end, and they would be better off seeing it as a tradeoff made coldly. This assumes risk neutrality. If rents go up to where someone is priced out, their kid lose their school, and all sorts of other Bad Stuff happens. Home ownership with a mortgage is stable. Home ownership once the mortgage is paid off means your life is stable even in a crisis, job loss, or economic downturn; you can rent out a room, and so long as you bring in enough for food and taxes, you stay alive and you're not homeless. For most people, home ownership is a rational choice. It doesn't maximize expected future $$$, but it does maximize expected future outcomes.
- afpx 5y ago
  I paid my house off a few years ago. But, last month I decided to max out an equity loan and buy dividend stocks. So, if all goes well, I'll have an extra million in 10 years. Worst case, I figure I'll break even.

by rndphs 5y ago

ReactiveJelly 5y ago

That's why I got a mortgage. The bank offered a surprisingly low rate, and I looked at my FIRE research and thought, "Eh I can probably beat that in the market" and so the money that would have been frozen in the house (if I had bought in cash) is growing in index funds, hopefully faster than the mortgage is consuming it. It's fucking weird. I think all these are true at once: - Renting is not inherently bad - A force is slanting the market away from "rent" and towards "buy" - Too many people have an emotional stake in home ownership as its own end, and they would be better off seeing it as a tradeoff made coldly. - Because the market has been slanted so badly for so long, these people are correct, but for the wrong reasons. They'll say that renting is throwing money away, because you don't get equity, but they won't say that equity is also throwing money away because of opportunity cost. They have never lived in a market where renting was actually allowed to compete with buying. - Part of the reason buying is favorable might simply be that it's a proxy for credit score and wealth, and anyone making a loan would give a cheaper rate to a wealthier person. Since renters tend to have less money, they have to pay more in case they default. It's not fair, but I don't expect markets to be fair. I think it's all an extended effect of the "White Flight". Having forgotten its racist roots, it's still got a strong emotional core of "Cities are full of crime and poor people. Renting is for poor people who are too dumb to save their money, and so they have it chipped away by rent." Or a leftist would say "Rent is inherently exploitative because landlords make money doing nothing." It's a weird horseshoe when my far-right Baby Boomer parents agree with 2020 Twitter communists that home ownership is its own end, whereas I only see it as a means to an end. The only time I rented an apartment, it was a fabulous experience. The only flaw was that it cost too much per square foot. And the ambient noise was high, because it was closer to the city core. Other than that, I really miss my old apartment.

blip54321 5y ago
> Too many people have an emotional stake in home ownership as its own end, and they would be better off seeing it as a tradeoff made coldly. This assumes risk neutrality. If rents go up to where someone is priced out, their kid lose their school, and all sorts of other Bad Stuff happens. Home ownership with a mortgage is stable. Home ownership once the mortgage is paid off means your life is stable even in a crisis, job loss, or economic downturn; you can rent out a room, and so long as you bring in enough for food and taxes, you stay alive and you're not homeless. For most people, home ownership is a rational choice. It doesn't maximize expected future $$$, but it does maximize expected future outcomes.
afpx 5y ago
I paid my house off a few years ago. But, last month I decided to max out an equity loan and buy dividend stocks. So, if all goes well, I'll have an extra million in 10 years. Worst case, I figure I'll break even.