3 ms·

Although I agree that there are some cases where it [buying] has merit, I can't help but point out what I consider to be a flaw in your math that likely exacerb

Although I agree that there are some cases where it [buying] has merit, I can't help but point out what I consider to be a flaw in your math that likely exacerbates the problem. This is especially true IMO for those that are likely far less informed than the HN crowd. Due to how amortization works, it's very unrealistic to assume that with a $1k/mo mortgage payment, that $900 of that is going to equity. In fact, in most cases (standard down payment, 15 or 30 year mortgage, etc.), it'd be closer to the opposite of what you outline, especially at the beginning of the loan term. You can pull up a calculator to see for yourself but typically in the first few years of a new mortgage you'll be paying closer to $900 of that $1k towards INTEREST with the remaining going to principle / money that you may see later assuming home value is indeed retained. That said, I hate paying rent -- but I've also been "burned" a bit on home purchases a couple of times, too! ;-) EDIT - As someone above mentioned, you also have to keep in mind things such as PMI, property taxes & special levies, upkeep, etc...

aliston 13y ago
This is part of the problem with the American housing industry. How did it become "normal" to borrow 4/5ths of the value of a home? It didn't used to be that way. If you look at average loan-to-value ratios over the last 40 years, they've consistently gone up. Same with the home value to income ratio. Home prices have appreciated much more quickly that they should have based on fundamentals of the economy, propped up by government incentives, cheap money sloshing around, and an oversized mortgage industry. Ultimately, what we really need is to go back to a system where people can actually afford the homes they live in. The vast majority of Americans, whether they "own" or "rent," are still renters with no real chance of ever actually owning their home outright. If that perception changed, prices would come down, and we'd eventually get back to a system where you could buy a home for 2X your annual income. The problem with a return to a sane system is that it would bury existing homeowners, and we aren't willing to accept the pain in the short run. We need to artificially inflate housing prices in order to allow people to sell their homes, keep the economy functioning etc. So, in short, we're stuck. http://www.doctorhousingbubble.com/wp-content/uploads/2013/02/HouseholdPercentEquityQ32012.jpg http://www.doctorhousingbubble.com/wp-content/uploads/2013/0...
clavalle 13y ago
If all but $10 goes to interest, $10 is still greater than $0.

aliston 13y ago

This is part of the problem with the American housing industry. How did it become "normal" to borrow 4/5ths of the value of a home? It didn't used to be that way. If you look at average loan-to-value ratios over the last 40 years, they've consistently gone up. Same with the home value to income ratio. Home prices have appreciated much more quickly that they should have based on fundamentals of the economy, propped up by government incentives, cheap money sloshing around, and an oversized mortgage industry. Ultimately, what we really need is to go back to a system where people can actually afford the homes they live in. The vast majority of Americans, whether they "own" or "rent," are still renters with no real chance of ever actually owning their home outright. If that perception changed, prices would come down, and we'd eventually get back to a system where you could buy a home for 2X your annual income. The problem with a return to a sane system is that it would bury existing homeowners, and we aren't willing to accept the pain in the short run. We need to artificially inflate housing prices in order to allow people to sell their homes, keep the economy functioning etc. So, in short, we're stuck. http://www.doctorhousingbubble.com/wp-content/uploads/2013/02/HouseholdPercentEquityQ32012.jpg http://www.doctorhousingbubble.com/wp-content/uploads/2013/0...

clavalle 13y ago

If all but $10 goes to interest, $10 is still greater than $0.