6 ms·

I think this is an overcorrection in the market. My wife and I purchased a house, that we couldn't afford, and lost it when the market turned. We lost most of o

by dalerus 11y ago

I think this is an overcorrection in the market. My wife and I purchased a house, that we couldn't afford, and lost it when the market turned. We lost most of our savings and have fought for years to get back out of debt. We've both agreed that for us renting is the way we are going to go. I hated homeownership.

Ygg2 11y ago
What is the biggest problem when it comes to home-ownership? Mortgage? Lack of agency?
- raverbashing 11y ago
  - Maintenance - Cost of rental more closely tracks income/economic situation, you're also free to go to a place that costs more or less depending on your situation (whereas in homeownership you're locked to a place and the cost is fixed for decades) - You're less free to go where the jobs are (opportunity cost) "Oh but you're not building equity" then your problem is in financial education. The problem is not homeownership per se, it is of locking yourself into a long-term financial commitment for an overpriced asset that you can't afford (even if today you can afford the mortgage payments)
  - zerr 11y ago
    But you can always sell the house, or rent it to others and move to cheaper neighborhood (and rent there yourself). To me, renting means losing money, while buying (or mortgage) seems like an investment. After all, even if potential ROI is not that high for you, think about further generations - your kids will be the owners of your house - and again, they can sell whenever they need.
    - raverbashing 11y ago
      > But you can always sell the house Sure, but at what cost? Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? > rent it to others and move to cheaper neighborhood But is rental covering the cost of your mortgage? Can you rent for that value? > To me, renting means losing money, while buying (or mortgage) seems like an investment Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc A lot of people thought their homes were an investment as well, until the bubble burst
      - pmelendez 11y ago
        >Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? Well, this is circumstantial, normally the value of a house climb faster than inflation. Sorry you have that bad experience but it was derived by a distortion in the market, one important component on each investment is timing. >Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc That is different though. Companies prefer to have variable cost and reduce minimum fixed cost. An airline doesn't know what will be his flight offer in 5 years so renting airplane allows them to be flexible and keeping their cost proportional production. The same for companies offer since you don't know how is going to be the size of the company, although big companies once they are stable tend to own their headquarters.
        raverbashing 11y ago
        > normally the value of a house climb faster than inflation "Normally" when? In what conditions? Japan's house prices have been falling for more than 20 years now. I guess someone should buy the cheap Detroit houses then, they can only go up in price. > Companies prefer to have variable cost and reduce minimum fixed cost. I don't disagree with this (though it is increasing their minimum operating cost)
        pmelendez 11y ago
        > "Normally" when? In what conditions? In a healthy economy with a moderate inflation and on markets that are not over-valued and/or with an unreal credit offer. > Japan's house prices have been falling for more than 20 years now. Japan's economy suffers a deflation since a long time, so not only housing prices are falling. >(though it is increasing their minimum operating cost) Actually it is not. Buying an asset have sense only when you know you are going to use it for at least is depreciation lifespan. If you have to sell it before that (because forced laid-off, moving out from city, etc.) you will most likely lose money since probably the interest rates are higher than the valuation rate. This is why most big company owns their headquater (they know/hope to use it for a long time) but rent everything else (They can find a bigger place easily if they need to hire more people, etc.)
    - deleted 11y ago
      [deleted]
    - Spooky23 11y ago
      You're right. The doom and gloom crowd here is an artifact of the boom/bust cycle that's a recent memory, and folks living in areas with insane pricing. If you're paying on equity, even if the house value declines slightly you're recovering some $$$ over time when you move. The other key thing is that you need to have a traditional mortgage where you are actually paying down principal. Without the ownership element, your family is subject to the vagaries of the market more directly. What happens when your high school sophomore is yanked out of school because your lease is terminated and you can't afford or get an apartment in your area?
    - s_kilk 11y ago
      >> To me, renting means losing money, while buying (or mortgage) seems like an investment. I heard this advice all the time pre-2008. Then those people got burned real bad when things didn't turn out the way they'd hoped.
    - jholman 11y ago
      You cannot always sell the house. The market may have fallen, or rates may have risen in a way that makes your home less affordable. Also, prematurely paying off your mortgage might have punishing penalties, and also there are frictional costs to selling. You cannot always necessarily rent to others. You may have strata / HOA rules that prevent renting. Buying with cash has an opportunity cost on your money. A mortgage is renting money. Whether you rent a home or you rent money, either way you're paying rent. You also have other "lost money" costs as an owner: maintenance costs (and labour), property taxes, possibly condo fees, etc. So when you consider the "losing money" aspect of owning, you're losing the interest payments, and you're losing some other fees... but the part of your mortgage payment that is excess of interest is not lost money (it's savings). On other other hand, there are advantages to owning. In particular, if you want to make a highly leveraged wager (5x being common), you can do that in real estate. If you win at the wager, you can win a lot of money. (Of course a casino lets you win a lot of money too, with extreme leverage, but the housing market has no "house" extracting a vig, pun not intended). Also, many countries have tax incentives for ownership. For example, US effective interest rates are somewhat lower than the contractual rate, because the government gives you some of it back at tax time (I think.... I'm not an ardent student of the US housing rules). In short, a statement like "you've always got options as an owner" or "renting is losing while buying is an investment" is so oversimplified as to be incredibly damaging. The math is tractable for a modestly smart person, but it does take some dedication.
      - toomuchtodo 11y ago
        I was one of those people who couldn't just "sell the house". My builder went bankrupt, the remaining land was sold by Bank Of America for pennies on the dollar, and I was ~$100K underwater. Doing the math (based on historical yearly real estate appreciation), it was cheaper to have 3-5 years of bad credit than 10-15 years of payments just to bring the house to neutral equity. My HOA wouldn't allow me to rent our townhouse out because several people bought them as investments, so we had reached "rental capacity" before the subdivision was even complete. I walked away, lost my $30K downpayment, 2 years of equity at $2K month in mortgage payments, and have ~3 years of bad credit. With only that negative mark on my credit, I still have a 680 credit score. I'm never willing to bet again that I'll be in the same location for 15-30 years. I'd rather rent and take what you'd consider "equity" and invest it in something I can get out of in less than 60 seconds (ETFs). EDIT: Mortgage underwriting guidelines now limit a new mortgage until after 3 years of a foreclosure, not the traditional 7. Why wouldn't someone walk away if it would take more than 3 years to reach neutral equity?
    - prostoalex 11y ago
      > But you can always sell the house, or rent it to others and move to cheaper neighborhood (and rent there yourself). The cost of transaction is higher than it seems if the goal is to minimize the loss. There's an expected 6% off the selling price, to be divvied up among the agents of your and buyer's choice. Depending on the nature of mortgage, there might be costs to recuperate, such as points and origination fees. In some states it's also customary for the seller to purchase a one-year home warranty in buyer's name. Depending on the price and size of the house, this could be another substantial expense.
  - briandear 11y ago
    If it doesn't put cash in your pocket, it isn't an asset. That's a fundamental misunderstanding. (I am basically agreeing with you.) the idea of the family home as an asset is completely wrong. It takes money out of your pocket each month without putting money into your pocket. It's a net loss. Now if that property created cash flow, then it would be a different conversation.
    - 2III7 11y ago
      Renting a house takes even more money out of your pocket.
    - pmelendez 11y ago
      According with the dictionary.reference.com: assets. items of ownership convertible into cash So buying a house is indeed an asset since you can convert it to cash. Renting is actually pure cost
    - jholman 11y ago
      This is so silly. Many things that do not put cash in your pocket are assets. Gold is an asset. A home is an asset if it can be sold for money, or used productively. If it turns out that your property is so worthless that no one will buy it at any price, and it's also useless to you as means of production, then it's not an asset. That combination of circumstances pretty much never happens. The asset value of a home is presumably offset by some debt you owe on it.... and if not, you're paying opportunity cost on the money you paid for the home. Whether or not real estate is a good investment is much thornier. But real estate is unequivocally an asset.
    - vetinari 11y ago
      Assets do not need to have zero-length payback period. If you buy a house for a cash, it will take years, until you break-even. And that's fine, businesses depreciate assets like this for decades, too. If you buy a house with a mortgage, there are costs related to it too. You need to take it into account in your payback period. However, you will eventually reach break-even point and since that point, you own an fully paid-for asset, that your kids can inherit, for example. With renting, you will pay indefinitely, and own nothing. You are just paying for the service of accommodation.
- tljr 11y ago
  30 year loan

by dalerus 11y ago

Ygg2 11y ago

What is the biggest problem when it comes to home-ownership? Mortgage? Lack of agency?

raverbashing 11y ago
- Maintenance - Cost of rental more closely tracks income/economic situation, you're also free to go to a place that costs more or less depending on your situation (whereas in homeownership you're locked to a place and the cost is fixed for decades) - You're less free to go where the jobs are (opportunity cost) "Oh but you're not building equity" then your problem is in financial education. The problem is not homeownership per se, it is of locking yourself into a long-term financial commitment for an overpriced asset that you can't afford (even if today you can afford the mortgage payments)
- zerr 11y ago
  But you can always sell the house, or rent it to others and move to cheaper neighborhood (and rent there yourself). To me, renting means losing money, while buying (or mortgage) seems like an investment. After all, even if potential ROI is not that high for you, think about further generations - your kids will be the owners of your house - and again, they can sell whenever they need.
  - raverbashing 11y ago
    > But you can always sell the house Sure, but at what cost? Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? > rent it to others and move to cheaper neighborhood But is rental covering the cost of your mortgage? Can you rent for that value? > To me, renting means losing money, while buying (or mortgage) seems like an investment Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc A lot of people thought their homes were an investment as well, until the bubble burst
    - pmelendez 11y ago
      >Oh and your mortgage was for 300k and you can only sell it for 250k? 200k? Well, this is circumstantial, normally the value of a house climb faster than inflation. Sorry you have that bad experience but it was derived by a distortion in the market, one important component on each investment is timing. >Of course. That's why a lot of airlines lease their airplanes, banks lease their offices, etc That is different though. Companies prefer to have variable cost and reduce minimum fixed cost. An airline doesn't know what will be his flight offer in 5 years so renting airplane allows them to be flexible and keeping their cost proportional production. The same for companies offer since you don't know how is going to be the size of the company, although big companies once they are stable tend to own their headquarters.
      - raverbashing 11y ago
        > normally the value of a house climb faster than inflation "Normally" when? In what conditions? Japan's house prices have been falling for more than 20 years now. I guess someone should buy the cheap Detroit houses then, they can only go up in price. > Companies prefer to have variable cost and reduce minimum fixed cost. I don't disagree with this (though it is increasing their minimum operating cost)
        pmelendez 11y ago
        > "Normally" when? In what conditions? In a healthy economy with a moderate inflation and on markets that are not over-valued and/or with an unreal credit offer. > Japan's house prices have been falling for more than 20 years now. Japan's economy suffers a deflation since a long time, so not only housing prices are falling. >(though it is increasing their minimum operating cost) Actually it is not. Buying an asset have sense only when you know you are going to use it for at least is depreciation lifespan. If you have to sell it before that (because forced laid-off, moving out from city, etc.) you will most likely lose money since probably the interest rates are higher than the valuation rate. This is why most big company owns their headquater (they know/hope to use it for a long time) but rent everything else (They can find a bigger place easily if they need to hire more people, etc.)
  - deleted 11y ago
    [deleted]
  - Spooky23 11y ago
    You're right. The doom and gloom crowd here is an artifact of the boom/bust cycle that's a recent memory, and folks living in areas with insane pricing. If you're paying on equity, even if the house value declines slightly you're recovering some $$$ over time when you move. The other key thing is that you need to have a traditional mortgage where you are actually paying down principal. Without the ownership element, your family is subject to the vagaries of the market more directly. What happens when your high school sophomore is yanked out of school because your lease is terminated and you can't afford or get an apartment in your area?
  - s_kilk 11y ago
    >> To me, renting means losing money, while buying (or mortgage) seems like an investment. I heard this advice all the time pre-2008. Then those people got burned real bad when things didn't turn out the way they'd hoped.
  - jholman 11y ago
    You cannot always sell the house. The market may have fallen, or rates may have risen in a way that makes your home less affordable. Also, prematurely paying off your mortgage might have punishing penalties, and also there are frictional costs to selling. You cannot always necessarily rent to others. You may have strata / HOA rules that prevent renting. Buying with cash has an opportunity cost on your money. A mortgage is renting money. Whether you rent a home or you rent money, either way you're paying rent. You also have other "lost money" costs as an owner: maintenance costs (and labour), property taxes, possibly condo fees, etc. So when you consider the "losing money" aspect of owning, you're losing the interest payments, and you're losing some other fees... but the part of your mortgage payment that is excess of interest is not lost money (it's savings). On other other hand, there are advantages to owning. In particular, if you want to make a highly leveraged wager (5x being common), you can do that in real estate. If you win at the wager, you can win a lot of money. (Of course a casino lets you win a lot of money too, with extreme leverage, but the housing market has no "house" extracting a vig, pun not intended). Also, many countries have tax incentives for ownership. For example, US effective interest rates are somewhat lower than the contractual rate, because the government gives you some of it back at tax time (I think.... I'm not an ardent student of the US housing rules). In short, a statement like "you've always got options as an owner" or "renting is losing while buying is an investment" is so oversimplified as to be incredibly damaging. The math is tractable for a modestly smart person, but it does take some dedication.
    - toomuchtodo 11y ago
      I was one of those people who couldn't just "sell the house". My builder went bankrupt, the remaining land was sold by Bank Of America for pennies on the dollar, and I was ~$100K underwater. Doing the math (based on historical yearly real estate appreciation), it was cheaper to have 3-5 years of bad credit than 10-15 years of payments just to bring the house to neutral equity. My HOA wouldn't allow me to rent our townhouse out because several people bought them as investments, so we had reached "rental capacity" before the subdivision was even complete. I walked away, lost my $30K downpayment, 2 years of equity at $2K month in mortgage payments, and have ~3 years of bad credit. With only that negative mark on my credit, I still have a 680 credit score. I'm never willing to bet again that I'll be in the same location for 15-30 years. I'd rather rent and take what you'd consider "equity" and invest it in something I can get out of in less than 60 seconds (ETFs). EDIT: Mortgage underwriting guidelines now limit a new mortgage until after 3 years of a foreclosure, not the traditional 7. Why wouldn't someone walk away if it would take more than 3 years to reach neutral equity?
  - prostoalex 11y ago
    > But you can always sell the house, or rent it to others and move to cheaper neighborhood (and rent there yourself). The cost of transaction is higher than it seems if the goal is to minimize the loss. There's an expected 6% off the selling price, to be divvied up among the agents of your and buyer's choice. Depending on the nature of mortgage, there might be costs to recuperate, such as points and origination fees. In some states it's also customary for the seller to purchase a one-year home warranty in buyer's name. Depending on the price and size of the house, this could be another substantial expense.
- briandear 11y ago
  If it doesn't put cash in your pocket, it isn't an asset. That's a fundamental misunderstanding. (I am basically agreeing with you.) the idea of the family home as an asset is completely wrong. It takes money out of your pocket each month without putting money into your pocket. It's a net loss. Now if that property created cash flow, then it would be a different conversation.
  - 2III7 11y ago
    Renting a house takes even more money out of your pocket.
  - pmelendez 11y ago
    According with the dictionary.reference.com: assets. items of ownership convertible into cash So buying a house is indeed an asset since you can convert it to cash. Renting is actually pure cost
  - jholman 11y ago
    This is so silly. Many things that do not put cash in your pocket are assets. Gold is an asset. A home is an asset if it can be sold for money, or used productively. If it turns out that your property is so worthless that no one will buy it at any price, and it's also useless to you as means of production, then it's not an asset. That combination of circumstances pretty much never happens. The asset value of a home is presumably offset by some debt you owe on it.... and if not, you're paying opportunity cost on the money you paid for the home. Whether or not real estate is a good investment is much thornier. But real estate is unequivocally an asset.
  - vetinari 11y ago
    Assets do not need to have zero-length payback period. If you buy a house for a cash, it will take years, until you break-even. And that's fine, businesses depreciate assets like this for decades, too. If you buy a house with a mortgage, there are costs related to it too. You need to take it into account in your payback period. However, you will eventually reach break-even point and since that point, you own an fully paid-for asset, that your kids can inherit, for example. With renting, you will pay indefinitely, and own nothing. You are just paying for the service of accommodation.
tljr 11y ago
30 year loan