5 ms·

Several comments here state very confidently that either the commenter does not plan on moving for many years, or someone they know has similar plans. The prob

Several comments here state very confidently that either the commenter does not plan on moving for many years, or someone they know has similar plans. The problem with this line of thinking is to keep a brave face when the house is underwater, meaning that the house can not be sold without going into debt to pay it off. As "homeowners" approach that point, panic starts to take hold. Nobody wants to be trapped in a house they can't sell for risk of destroying their credit. So those brave statements about hodling a house should be viewed in the cold hard light of a multi-year price decline.

avgDev 4y ago
It is recommended that when you buy a house you buy it long term 5+ years. It is recommended that when you purchase index funds as investment you buy and hold long term 5+ years. The reason for this is because prices will fluctuate SHORT term, but generally are very stable long term and provide a return on investment. If we take a look at the current situation, even if someone becomes underwater on their house, they can still have lower payments due to really low interest rates, a 4% rate hike is HUGE. "The problem with this line of thinking is to keep a brave face when the house is underwater, meaning that the house can not be sold without going into debt to pay it off. As "homeowners" approach that point, panic starts to take hold. Nobody wants to be trapped in a house they can't sell for risk of destroying their credit. So those brave statements about hodling a house should be viewed in the cold hard light of a multi-year price decline." This is extremely flawed thinking and equivalent to "investors" who buy high and sell low. Real estate IS A LONG TERM investment, not day trading.
- SevenNation 4y ago
  > Real estate IS A LONG TERM investment, not day trading. US history over the last 3 decades suggests otherwise.
  - avgDev 4y ago
    Are you just saying things or have you actually looked? Average home price in 1965 was $21k. Average home price in 2020 was $514k. Long term after every drop the prices have surpassed ATH. https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS
    - rsj_hn 4y ago
      Average house built today is 2,560 square feet[1]. In 1950, it was 980 square feet. plumbing/electrical/insulation are all different. Many would not enjoy living in a 1950 house, and a typical 1950 house would not sell for the price of an average house in 2020 [1] https://www.nahb.org/blog/2022/03/new-single-family-home-size-continues-to-grow https://www.nahb.org/blog/2022/03/new-single-family-home-siz...
      - avgDev 4y ago
        Not sure what point you are trying to drive across. The graph I posted shows a macro trend. My home was built in 1970s. I believe the initial price was around $40k. Current worth is $450k. It is hard to take all the different things into account.
        rsj_hn 4y ago
        What I'm trying to do is provide some context. Start here: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS So from 1965 to latest, we went from 21K to 450K. Where is that coming from? 1. inflation 2. size of house 3. everything else - interest rate changes, increased value of land, etc. For 1, let's deflate: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS We get a multiple of 2.4. That is, $1 invested in 1965 gives $2.40 in 1965 dollars back, or a real gain of 140% over that 57 year holding period. But the average size of a new home went from 1200 to 2500 square feet, so it doubled. Thus on a price per square foot basis, the real gain is about 20% over that 57 year hold. So that is what "everything else" explains - a 20% gain over 57 years, which is good as an inflation hedge, but once you take into account that you should spend about 1% of the value of the house each year for maintenance, and then maybe throw in some property taxes, that bucket of #3 is basically zero gain and is probably a bit negative. So houses, on the national level, have been a good inflation hedge -- which is important, but that's about all they've been in this period from 1965 to 2022. Of course things very greatly by area. Buying a ton of almond orchards in silicon valley in 1965 would be very fortuitous. Buying an apartment complex in Detroit, not so much. If you want anecdotes, my parents bought a house for $80,000 in 1983 - Phoenix metro - and sold it for $250K in 2019. That's basically just inflation, and they put a lot of work into the house - remodeled kitchen, put in pool, changed the wiring, put in copper plumbing, new light fixtures, replaced carpet with tile in the living room, replaced wood fence with brick fence in the backyard, added new hardwood floors, replaced roof, double pane windows, paint, etc. Don't ask what the interest rate was back then, they needed to get some seller financing as the mortgage rates were obscene.
- juve1996 4y ago
  Houses are not a great long term investment vs other investing vehicles until interest rates were so low that it made it viable.

avgDev 4y ago

It is recommended that when you buy a house you buy it long term 5+ years. It is recommended that when you purchase index funds as investment you buy and hold long term 5+ years. The reason for this is because prices will fluctuate SHORT term, but generally are very stable long term and provide a return on investment. If we take a look at the current situation, even if someone becomes underwater on their house, they can still have lower payments due to really low interest rates, a 4% rate hike is HUGE. "The problem with this line of thinking is to keep a brave face when the house is underwater, meaning that the house can not be sold without going into debt to pay it off. As "homeowners" approach that point, panic starts to take hold. Nobody wants to be trapped in a house they can't sell for risk of destroying their credit. So those brave statements about hodling a house should be viewed in the cold hard light of a multi-year price decline." This is extremely flawed thinking and equivalent to "investors" who buy high and sell low. Real estate IS A LONG TERM investment, not day trading.

SevenNation 4y ago
> Real estate IS A LONG TERM investment, not day trading. US history over the last 3 decades suggests otherwise.
- avgDev 4y ago
  Are you just saying things or have you actually looked? Average home price in 1965 was $21k. Average home price in 2020 was $514k. Long term after every drop the prices have surpassed ATH. https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS
  - rsj_hn 4y ago
    Average house built today is 2,560 square feet[1]. In 1950, it was 980 square feet. plumbing/electrical/insulation are all different. Many would not enjoy living in a 1950 house, and a typical 1950 house would not sell for the price of an average house in 2020 [1] https://www.nahb.org/blog/2022/03/new-single-family-home-size-continues-to-grow https://www.nahb.org/blog/2022/03/new-single-family-home-siz...
    - avgDev 4y ago
      Not sure what point you are trying to drive across. The graph I posted shows a macro trend. My home was built in 1970s. I believe the initial price was around $40k. Current worth is $450k. It is hard to take all the different things into account.
      - rsj_hn 4y ago
        What I'm trying to do is provide some context. Start here: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS So from 1965 to latest, we went from 21K to 450K. Where is that coming from? 1. inflation 2. size of house 3. everything else - interest rate changes, increased value of land, etc. For 1, let's deflate: https://fred.stlouisfed.org/series/MSPNHSUS https://fred.stlouisfed.org/series/MSPNHSUS We get a multiple of 2.4. That is, $1 invested in 1965 gives $2.40 in 1965 dollars back, or a real gain of 140% over that 57 year holding period. But the average size of a new home went from 1200 to 2500 square feet, so it doubled. Thus on a price per square foot basis, the real gain is about 20% over that 57 year hold. So that is what "everything else" explains - a 20% gain over 57 years, which is good as an inflation hedge, but once you take into account that you should spend about 1% of the value of the house each year for maintenance, and then maybe throw in some property taxes, that bucket of #3 is basically zero gain and is probably a bit negative. So houses, on the national level, have been a good inflation hedge -- which is important, but that's about all they've been in this period from 1965 to 2022. Of course things very greatly by area. Buying a ton of almond orchards in silicon valley in 1965 would be very fortuitous. Buying an apartment complex in Detroit, not so much. If you want anecdotes, my parents bought a house for $80,000 in 1983 - Phoenix metro - and sold it for $250K in 2019. That's basically just inflation, and they put a lot of work into the house - remodeled kitchen, put in pool, changed the wiring, put in copper plumbing, new light fixtures, replaced carpet with tile in the living room, replaced wood fence with brick fence in the backyard, added new hardwood floors, replaced roof, double pane windows, paint, etc. Don't ask what the interest rate was back then, they needed to get some seller financing as the mortgage rates were obscene.
juve1996 4y ago
Houses are not a great long term investment vs other investing vehicles until interest rates were so low that it made it viable.