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Articles like this make me think that there is going to be a big cultural shift in America with regards to how people see debt. I'm guessing that when these you

by mtoddh 14y ago

Articles like this make me think that there is going to be a big cultural shift in America with regards to how people see debt. I'm guessing that when these young people get older and have kids of their own, that generation may have a far less cavalier attitude about taking on debt (for housing, college, etc) than generations before.

spaghetti 14y ago
It's happening already. For example I'm totally opposed to taking on any substantial debt. The only debt I accept in my life is temporary 30-day credit card debt which is of course payed off in full every month. I find the massive debt associated with "owning" a home to be ridiculous. It's like you're renting the home from the bank for 30 years. In exchange for paying rent every month you get to maintain the home and pay for repairs, potentially deal with idiotic HOAs, pay property tax which in some cases is equivalent to renting an apartment for a year and endure the burden of cleaning the giant thing. I realize there are circumstances where the above downsides of "owning" a home are acceptable. For example when one has a family and/or the home is purchased very early in the housing price bubble cycle. However I'm already planning alternatives for my family.
- rayiner 14y ago
  There is a difference between mortgage debt and credit card debt or student loans. You can't just "cash out" your student loan debt by selling the asset. You can usually do it with a house. Moreover, unlike a car, TV, etc, a house is typically an appreciating asset not a depreciating one. In a way, mortgaging a house is like renting the home from the bank, but there is a key difference: you own any appreciation in the value of the home, not your landlord. Your mortgage payment is the same every year (and in real terms goes down over time because more of each payment becomes principal and because of inflation). Your apartment, meanwhile, gets more expensive every year. My rent in downtown Chicago has gone up 11% in three years. Moreover, the mortgage interest and property tax deductions are among the only tax deductions available to higher-earning singles and couples. Your $2000 rent payment is not deductible, but $1500 of a new $2000 mortgage payment is deductible. Also, the portion of your rent payment that goes to paying property taxes is not deductible, but your property taxes are deductible. Depending on your tax bracket, this can be a lot of money. Finally, buying a house is one of the only leveraged investments available to most people. Say you buy a $500k house with $100k down, at a low mortgage rate of 4.5% per year (mortgage rates are as low as 3.5% today). Say you're in a high tax bracket (= 33%). If your house appreciates 10% after two years, then after paying your interest your total return is 29% on your original $100k investment. Now all of the math depends on the specifics of your situation. E.g. in Chicago property is pretty cheap relative to rent, so buying makes sense for more people than in places where rents are cheap relative to buying. The tax deductions are also much more valuable for people in higher tax brackets, particularly people who get hit with the AMT. As an aside, it's inaccurate to say that all housing is characterized by a "bubble cycle." Housing prices in major metro areas increase in the long run because the amount of developable space in these areas remains fixed while population grows. This is unlike most commodities. The price or gold may fluctuate based on the discovery of deposits, but nobody is going to discover more land on Manhattan. This is not a rigid law of nature, of course... housing prices in Detroit collapsed when the city entered a death spiral of shrinkage, but something like that happens once a century. Even in this current housing bubble, most people in established metro areas are still up from where they were in 2000. The people who are underwater on their mortgages are mostly people who bought right before the bubble popped, people who refinanced, or people who bought in unestablished areas.
- luser001 14y ago
  In my own case, I found the idea of locking in my monthly rent for 30 years to be an attractive proposition. Why is why I "settled" for a house whose monthly payment (after my downpayment, which I realize I am handwaving away) was very close to my apartment's rent (which itself wasn't the most expensive apt. people in my situation were renting). We specifically avoided HOA houses since the HOA payment is an unbounded future liability. I think it makes sense to buy a house if the monthly payment is close to rent. I'm curious about your alternatives. Good luck!

by mtoddh 14y ago

spaghetti 14y ago

It's happening already. For example I'm totally opposed to taking on any substantial debt. The only debt I accept in my life is temporary 30-day credit card debt which is of course payed off in full every month. I find the massive debt associated with "owning" a home to be ridiculous. It's like you're renting the home from the bank for 30 years. In exchange for paying rent every month you get to maintain the home and pay for repairs, potentially deal with idiotic HOAs, pay property tax which in some cases is equivalent to renting an apartment for a year and endure the burden of cleaning the giant thing. I realize there are circumstances where the above downsides of "owning" a home are acceptable. For example when one has a family and/or the home is purchased very early in the housing price bubble cycle. However I'm already planning alternatives for my family.

rayiner 14y ago
There is a difference between mortgage debt and credit card debt or student loans. You can't just "cash out" your student loan debt by selling the asset. You can usually do it with a house. Moreover, unlike a car, TV, etc, a house is typically an appreciating asset not a depreciating one. In a way, mortgaging a house is like renting the home from the bank, but there is a key difference: you own any appreciation in the value of the home, not your landlord. Your mortgage payment is the same every year (and in real terms goes down over time because more of each payment becomes principal and because of inflation). Your apartment, meanwhile, gets more expensive every year. My rent in downtown Chicago has gone up 11% in three years. Moreover, the mortgage interest and property tax deductions are among the only tax deductions available to higher-earning singles and couples. Your $2000 rent payment is not deductible, but $1500 of a new $2000 mortgage payment is deductible. Also, the portion of your rent payment that goes to paying property taxes is not deductible, but your property taxes are deductible. Depending on your tax bracket, this can be a lot of money. Finally, buying a house is one of the only leveraged investments available to most people. Say you buy a $500k house with $100k down, at a low mortgage rate of 4.5% per year (mortgage rates are as low as 3.5% today). Say you're in a high tax bracket (= 33%). If your house appreciates 10% after two years, then after paying your interest your total return is 29% on your original $100k investment. Now all of the math depends on the specifics of your situation. E.g. in Chicago property is pretty cheap relative to rent, so buying makes sense for more people than in places where rents are cheap relative to buying. The tax deductions are also much more valuable for people in higher tax brackets, particularly people who get hit with the AMT. As an aside, it's inaccurate to say that all housing is characterized by a "bubble cycle." Housing prices in major metro areas increase in the long run because the amount of developable space in these areas remains fixed while population grows. This is unlike most commodities. The price or gold may fluctuate based on the discovery of deposits, but nobody is going to discover more land on Manhattan. This is not a rigid law of nature, of course... housing prices in Detroit collapsed when the city entered a death spiral of shrinkage, but something like that happens once a century. Even in this current housing bubble, most people in established metro areas are still up from where they were in 2000. The people who are underwater on their mortgages are mostly people who bought right before the bubble popped, people who refinanced, or people who bought in unestablished areas.
luser001 14y ago
In my own case, I found the idea of locking in my monthly rent for 30 years to be an attractive proposition. Why is why I "settled" for a house whose monthly payment (after my downpayment, which I realize I am handwaving away) was very close to my apartment's rent (which itself wasn't the most expensive apt. people in my situation were renting). We specifically avoided HOA houses since the HOA payment is an unbounded future liability. I think it makes sense to buy a house if the monthly payment is close to rent. I'm curious about your alternatives. Good luck!