The Great Housing Bamboozle

shawn

shawn

running dog lackey of the oppressor class
Administrator
Joined
Mar 13, 2005
Location
Raleigh, NC
It doesn't seem particularly political, so I'll post it here.

http://www.businessinsider.com/the-great-housing-bamboozle-2010-9

Today we’ll be exploring the mathematics behind the US housing market over the last thirty years to determine how smart we really want our kids to be. If you can successfully complete (or at least understand) the accompanying quiz you’ll have a more thorough understanding of economic realities than every Ivy League professor (including Nobel Laureates) active in government and mainstream media.
Click to expand...
 
LOL, yeh right, buying a house isn't worth it, lol. That guy is an idiot.
 
Whether or not buying a house is "worth it" is a different question from whether or not it's a sound investment strategy.

There are lots of people still under the delusion that as soon as "X" happens, the housing market is going to take back off and they'll be able to recoup the money they've lost.

As the example showed, purchasing a house in 1980 was actually a net loss in the long term after you factored in inflation and the interest rate drop. Interest rates aren't going to get any lower than this, and if they go up in the long-term, you'll actually lose even more money.

Consider also that the Feds are still actively seeking no-money-down buyers for Federally-insured mortgages under the premise that these people can get into a house and start "creating wealth" for themselves.
 
If you buy a house when you are in your 20's, pay it off during your 50's, then live in it for free(no rent or mortgage payment) for 30+ years till you die, it is a good 'investment'.
 
Not necessarily. Like the example showed, by the time the mortgage was paid off, they were $75k in the hole, not counting property taxes, insurance, or maintenance and repairs. So you've got to live there beyond the payoff period long enough to get out of that hole, minus the taxes, insurance, and repairs that will be ongoing in the meantime.

In other words, it's no sure thing. And you're extremely unlikely to get rich, which is what most people hope for when they consider 'investments'. Best case, you break even, and your kids make a little cash on the deal after you kick the can.
 
This has come up before, right?

It's an important point, and certainly the math is valid.
But, there are LOTS of "side benefits", both from an individual and societal view, of hoem ownership... but that's not teh point here.

The biggest problems is that it overlooks a minor little detail - that you have to live somewhere.
Now, you can just live on teh family property for free forever - but lets face it, currently American society really frowns on that. A shame really, but reality.

So, if you don't buy a home, then what... you gotta rent. Now, as a renter, you're not paying all that interest... but you WILL pay for inflation. You think you rent the same place for 20 years, the landlord won't raise your rate to match the market? Think rent rates today haven't increased w/ inflation? Get real.
Since inflation is the main point, and mathematical lynchpin here, you're still stuck,
So over that 30 years, you're still gonna pay close to the same amount, but have nothing you own by the end... leaving nothing to balance against the inflation loss.

Take home messege - great theory if you like living in Mom's basement.
 
Ratlabguy, you nailed it.

saf-t scissors said:
Not necessarily. Like the example showed, by the time the mortgage was paid off, they were $75k in the hole, not counting property taxes, insurance, or maintenance and repairs. So you've got to live there beyond the payoff period long enough to get out of that hole, minus the taxes, insurance, and repairs that will be ongoing in the meantime.

In other words, it's no sure thing. And you're extremely unlikely to get rich, which is what most people hope for when they consider 'investments'. Best case, you break even, and your kids make a little cash on the deal after you kick the can.
Click to expand...


Assume house paid off at age 55, and live till 85.

$1,000 month rent x 12 months x 30 years = $360,000.

$360,000- $75,000 = $285,000

Obviously it is much more complicated than that, but still.
 
RatLabGuy said:
The biggest problems is that it overlooks a minor little detail - that you have to live somewhere.
Click to expand...

I think you're confusing the issue.

As I said earlier, whether or not buying a house is a good idea is a separate question from whether or not buying houses is a sound investment strategy. When you look at stocks and bonds or mutual funds or commodities, you're concerned with what the return will be normalized against inflation. The people that look at housing as an investment don't understand or don't realize that they're getting outpaced by inflation to such a great extent. I mean, SIXTY percent. That's unreal.

But there are still lots of folks out there that think owning a house is going to make them rich.

Look at it another way -- when I got out of school, the mantra was "you need to buy a house RIGHT NOW, or you won't be able to afford one." Prices were going up 15-20% *a year* in some markets. You complain about the cost of living in MD? That's all recent history, bub. I used to know a guy that made $250k by owning a townhouse in NoVA for two years. It's not normal, and it was all based on unsustainable externalities.

On the other hand, my grandfather was telling me about his brother's house in Michigan. Kinda like the one in the story, bought it back in the late 70s or early 80s for $75k. Today, you'd be lucky to get $20k for it, because nobody wants to live in fawking Flint.
 
I'm just glad they keep building roads & wallmarts. I'll be needing me a shoping cart to push around & a bridge to sleep under.
 
I thought of another metaphor that I think explains my position on this a little better. We can talk about buying a new car vs leasing a new car, and the factors that go into making a decision one way or the other, and how owning a car past the loan payoff is saving you money on paper, but leasing might be cheaper if you're going to only need the car for two years, etc.

But nobody is going to make the argument that getting a car constitutes an 'investment', because we all know the fawker depreciates $5k the day you drive it off the lot. And its value begins on a long, slow slide from there (with a few very rare exceptions). But people talk about houses in these terms, despite there not being any evidence that they behave like investments in the long term.

:beer:
 
This is the reason my wife and I would like to purchase a duplex, but it's funny how a bank views that as an investment property and we would need more $ down. I find this strange as we would have an added source of income to pay the mortgage.

Not very many decent duplexes on the market right now. Building costs are high still so I don't know what we'll do. I've had friends tell me they've had a hard time collecting rents too.
 
Back
Top