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These calculations ignore that most homes are eligible for extreme amounts of highly protected leverage. Sure, you can trade on margin on the stock market, but
by epistasis 3y ago
These calculations ignore that most homes are eligible for extreme amounts of highly protected leverage. Sure, you can trade on margin on the stock market, but you are subject to margin calls, which is not the case with a home.
So multiple that 16x by the typical 4x-5x leveraging, and homes turn out to be really great. And since the transaction fees and the non-existence of index funds in the 1970s made it harder to invest in the stock market at a small scale, and homes were a much better investment.
Add on to that that everybody needs a place to live, and your home acting as an investment vehicle with equivalent performance to the US stock market, and people from the 1970s have had had an amazing deal that younger people have not had access to.
- deleted 3y ago[deleted]
- fallingknife 3y agoBut you have to put that capital in anyway because house leverage is amortizing. Margin debt is not.
- compiler-guy 3y agoAll that leverage absolutely crushed investors in the 2008 housing crash, and is again now ruining people who had poor or nonexistent interest rate hedges. The idea that it’s easy or natural to make money via leveraged housing had ruined many people.
- ozr 3y agoThis isn't really a thing in the US right now. Less than 10% of mortgages are adjustable. The share of ARMs in 08 was much, much higher.
- ethbr1 3y ago*/1 ARMs are insane and shouldn't be allowed in the market. */5s or even */3s offer an interesting option, depending on terms.
- refurb 3y agoYup, people don't realize that leverage works both way. It's not a freebie.