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I never understood buying things that I can't afford. I always thought you earn money and when you earn enough money to buy something you can buy that something

• sokoloff 2y ago
  It's fine to expect some people to buy a house with cash. I don't think that precludes saving for many years to do so (meaning the median income doesn't need to be $1M/yr).
  • dheera 2y ago
    Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there, unless median income is close to ~1M by my back-of-envelope calculations, which include: - taxes (1M is close to 500K after taxes) - money that you need to cut out and put into retirement to sustain yourself from age 65-100 - living expenses and rent until you buy - real estate prices rising the whole time
    • sokoloff 2y ago
      > living expenses and rent until you buy Which will of course be stratospheric in a world where median labor costs $500 per hour.
    • prawn 2y ago
      Which is why taking on debt to buy property is often a good option - you lock in prices, then they rise. Where I live, house prices double in value every ten years, quite reliably. Recently, it's been faster. In ten years, you're paying rent on a $2m property while someone else is paying down a $500-800k loan (using your example figure).
    • steelframe 2y ago
      > sustain yourself from age 65-100 Fortunately my life expectancy has dropped in the past few years!
    • throwaway2037 2y ago
      > Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there Where? In many, many highly developed countries this isn't true. > 1M is close to 500K after taxes Woah. Where do you live where effective income tax rates are 50% for 1M+? Please don't confuse marginal ("headline") vs effective ("actual") tax rates.
      • ehmmmmmmmm 2y ago
        In San Francisco if you make $1M as a W-2 employee your marginal tax rate is ~53% and your effective tax rate is ~47%. If you make $1M on your own the rates are even higher. (That's not including the 10% sales tax you pay on almost everything you buy with the money you have left, property taxes on property you thought you owned, property taxes landlords financially pass onto you as a renter, etc.)
        • seanmcdirmid 2y ago
          Property taxes are the only thing in California that are pretty mellow given prop 13. Well, unless the property was just turned over.
        • throwaway2037 2y ago
          Don't worry, the home prices in SF are still much cheaper than Sydney or Hongkong.
• booleandilemma 2y ago
  I'm in the same spot. I'm in the middle class, I've been renting for years, and I refuse to go into debt by taking out a loan for a house. This is a societal failure.
  • prawn 2y ago
    A mortgage as a tool is available to you. If you refuse to go into debt, is that societal failure? Affordability of housing is a serious issue, but I'm not sure expecting to buy property without debt is necessarily so. It seems like a self-defeating position to take?
  • jjav 2y ago
    > I refuse to go into debt by taking out a loan for a house But you are renting. While renting isn't debt, it can be helpful to think of it as debt you have to pay every month (unless you plan to be homeless). So you have 12N (where N is the number of years you think you might still live) of rent debt payments that you are committed to pay. If you transform that into mortgage payments, at least you're building equity. And it will only be 1230 payments (given a 30 year mortgage) so it is a bounded number unlike 12*N.
    • dheera 2y ago
      Not really, you can get out of paying rent easily, usually the maximum penalty is one extra month of rent, which won't break most middle class people. It's not that simple to sell a house, and if real estate prices crash you're still on the hook for the several hundred thousand dollar difference.
      • jjav 2y ago
        > Not really, you can get out of paying rent easily And then, what? Unless you have a backup plan which allows you to live for free somewhere, you can't get out of paying someone for it. Whether rent or a mortgage. For housing, it is most useful to plan long term and consider you have a lifetime of housing payments coming up. How can you minimize that lifetime total?
• rcxdude 2y ago
  It's more typical to think of 'affording' in terms of your expected lifetime income, and this is generally a good predictor of people's spending habits. Lending generally enables this. Avoiding debt entirely is a very risk-averse strategy. As ridiculous as house prices are, they are still generally affordable for many (and whether renting or buying is a better overall financial decision is dependent on many factors which depend on your location, how long you expect to own the house, and your risk profile for real estate vs any other kind of investment. Factors like rental rights can also factor pretty heavily).
  • dheera 2y ago
    Why is avoiding debt a risk averse strategy? I actually do a lot of high risk investments with a small percentage of my net worth -- bitcoin, options, you name it. But I do it with hard cash to my name. If I lose a chunk of that I don't owe anyone anything. I just never thought spending someone else's money and then owing them was even anywhere close to my moral radar of things I would do. The only one time I took a debt is for a car when I had the cash to buy it but it was 2022 and I took a loan at 2% and put the balance of the car in treasury and municipal bonds at ~5% and paying back the loan slowly while selling off the bonds. I wouldn't take a loan if I didn't have the money. Before I could afford a car I just rented cars.
    • rcxdude 2y ago
      because the risk with debt is not being able to pay it back - and you are paying the lender for their side of that risk (generally paying less the more of that risk falls on your side, like secured debt). It's a service they are freely offering (and in fact benefits them disproportionately on average), I don't see how it's a moral issue at all.
      • dheera 2y ago
        The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something. However, the most basic clean-and-functional versions of basic necessities (food, water, shelter, and transportation) should be accessible to everyone working a full-time job, in my opinion, without having to spend other peoples' money. 3 out of those 4 are attainable even with a low-paying job, it's really just shelter that is the problem.
• Dylan16807 2y ago
  I agree that house prices should come down. But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees? Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.
  • synergy20 2y ago
    my landlord friend told me, many of her tenants earn decent salary, definitely more than her income, they can even spend $8000 or more to remodel a car or things like that, but can never save up to the 20% down payment ever.
    • bmicraft 2y ago
      > spend $8000 or more to remodel a car > can never save up to the 20% down payment something tells me those two things are connected
      • brailsafe 2y ago
        Well, at that rate, one could not remodel 15 cars and maybe have enough for the down payment on a studio in some markets. Or one could remodel a car and give up on home ownership, because it seems like a losing idea atm, and they'll have pursued something they find fruitful for the time being. At least they'll have the car in common with their boomer neighbors.
    • deleted 2y ago
      [deleted]
    • throwaway2037 2y ago
      > remodel a car What does this mean?
      • chasd00 2y ago
        Restore a classic or like high performance (or other) customizations.
• jjcm 2y ago
  > I never understood buying things that I can't afford. I think even if you choose not to use debt as a mechanism, you should understand why it's used as a mechanism, much like the parent comment has. Debt as a mechanism is not a bad thing - there's ample proof out there that availability of credit is an extremely strong indicator of future economic activity at the macro level.
• zharknado 2y ago
  I think halal mortgages are instructive on this point. To be clear, I’m not Muslim nor a lending expert, I just think it’s a really interesting setup. As I understand it, sharia law forbids paying interest, so a conventional mortgage is not an option for adherents. However, several different mechanisms are allowed by which the purchaser gradually gains full ownership of the home. E.g. one is roughly equivalent to a rent-to-own agreement. The financier still gains a profit that reflects the risk their upfront investment is subject to. What I find interesting is a recognition that some people need a lot of time to attain homeownership, and it may be valuable to let them live in the home before they fully achieve it, despite the outright rejection of lending as the mechanism.
  • dheera 2y ago
    Well damn, can I just take out $10M in personal loans, tell them my religion doesn't believe in paying interest, buy Treasury bonds with it, and live off the interest?
    • dtx1 2y ago
      If you find someone who lends you 10M interest free sure
• t0bia_s 2y ago
  I agree. I think current economical "norm" of having debt is made for purpose by states and banks. Because when you have debt, you will be more obedient citizen, always voting in favor of system that gives "benefits" of using money that you don't own. With price of loosing our freedom with every new regulations.
• jjav 2y ago
  > I never understood buying things that I can't afford. For most things, that's a wise philosophy. Going into debt for something that depreciates like cars or furniture or electronics, is not wise. Housing is different though for several reasons. One is that you must live somewhere. So (unless being homeless in an option) you have to pay for housing one way or the other. So you either buy (build equity) or rent (a pure expense). Another reason is that a house may (often does) appreciate in value so you're leveraging that debt to make money. Even if it depreciates, it hardly ever depreciates faster than paying rent. Another reason is that rents always go up, a mortgage locks in your cost for the next 30 years.
• GuB-42 2y ago
  You can think of a mortgage like renting a house from your bank. Or a bit more precisely, for the time the mortgage is running, you and the bank are essentially co-owners, and you rent the share you don't own from the bank (that would be the interests) while at the same time, you buy the bank share bit by bit (that would be the principal). At the end, you become a full owner and stop paying "rent" to the bank.