Owning a house.

[celiboy]

Keep in mind that when you buy a house, the cost of that mortgage will be less and less every month that passes. Firstly because of the time value of money - i.e. $500 on month 1 is more than $500 on month 60 of a five year mortgage in $'s adjusted for inflation - Secondly, you would presumably be making more in 5 years, so as a % your mortgage payment will be less.

In my case I bought my house for $185K in 2002 and now worth $500K+ but my mortgage has gone down from my initial term ($660 a month to $330 and it will be paid off in 6 months). Meanwhile renters here are looking at $1000 per month for a crappy 2 bedroom apartment which would have gone for $400 5 years ago. Who would you rather be? The home owner or home renter?

[celiboy]

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Your house appreciates in value too. It works out that if you get a good mortgage rate, it is in your BEST INTEREST to NOT pay it off right away even if you can. You can simply pay the mortgage and invest the money you would have used to pay off the house in the stock market and get better returns then just buying the house outright.

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This is regurgitated so much on here, it should be stickied. Not that it is wrong, per se, it just leaves a whole lot of stuff out. Non-mathematical reasons for wanting to own a home.

Also, appreciation is over-rated. To realize this, one needs to sell their home. And when one sells their home, they need to buy another one...which has appreciated similarly to the one they just sold. One way to realistically capitalize on "appreciation" is to "move down" ie, go from 3000 sq. ft. to 2500 sq. ft., move to another area of that major city which is yet to appreciate, or move to another market altogether (that has lagged behind).

Your primary shelter should be thought of more as utility and less as investment.

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Agreed, but it's the entry point that matters. Houses in the 70's were $50,000 for a nice home and the same house today will be over $700K. With this logic, you will never buy and never get any of the appreciation. Also at retirement you can either downsize to a smaller home or relocate to a cheaper locale and pocket the equity.

Also once you own a home, you should not really give a [censored] about it's value. I couldn't care less if my home drops 75% in value overnight as every other house would have as well...also I would probably have bigger things to worry about if that happened (as would everybody else).

[stewartkev]

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Also at retirement you can either downsize to a smaller home or relocate to a cheaper locale and pocket the equity.

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Or you could rent!!! [img]/images/graemlins/wink.gif[/img]

[jaydub]

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In my case I bought my house for $185K in 2002 and now worth $500K+ but my mortgage has gone down from my initial term ($660 a month to $330 and it will be paid off in 6 months).

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You need to elaborate on those numbers, in doing so I think you will answer your own questions. You clearly do not have a standard loan and have obviously prepayed greatly.

I will say it again, home ownership for the non investor is for utility and practicality not appreciation despite what these past few years have reinforced. As DC demonstrated clearly, over time you get inflation (or less).

J

[celiboy]

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Also at retirement you can either downsize to a smaller home or relocate to a cheaper locale and pocket the equity.

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Or you could rent!!! [img]/images/graemlins/wink.gif[/img]

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You are actually right. In a pinch I could sell my home outright at the $500K and that would let me rent out a luxury apartment for 20 years + on the proceeds of the sale without breaking a sweet. Your housing is the biggest expense so once that is taken care of (ie mortgage paid) you can basically [censored] off the rest of your life and stop being a slave to the MAN.

[celiboy]

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In my case I bought my house for $185K in 2002 and now worth $500K+ but my mortgage has gone down from my initial term ($660 a month to $330 and it will be paid off in 6 months).

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You need to elaborate on those numbers, in doing so I think you will answer your own questions. You clearly do not have a standard loan and have obviously prepayed greatly.

I will say it again, home ownership for the non investor is for utility and practicality not appreciation despite what these past few years have reinforced. As DC demonstrated clearly, over time you get inflation (or less).

J

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Yes, I've made a prepayment every year of my mortgage and at my 3 year renewal paid down a huge chunk while other people have taken out credit card debt and new car loans to pay for their "important stuff". I am not even arguing over the appreciation aspect, as someone else pointed out, it can not be easily realized (ie sell your house and you need to replace it). I guess my point is what is the alternative? When you are 70 years old do you still plan to rent an apartment? At some point you need to enter the housing market, and in alot of cases a mortgage is only abit more than rent...as someone else pointed out, after 25 years the guy with the mortgage will own a house, and the renter will own what exactly?

[jaydub]

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In my case I bought my house for $185K in 2002 and now worth $500K+ but my mortgage has gone down from my initial term ($660 a month to $330 and it will be paid off in 6 months).

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You need to elaborate on those numbers, in doing so I think you will answer your own questions. You clearly do not have a standard loan and have obviously prepayed greatly.

I will say it again, home ownership for the non investor is for utility and practicality not appreciation despite what these past few years have reinforced. As DC demonstrated clearly, over time you get inflation (or less).

J

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Yes, I've made a prepayment every year of my mortgage and at my 3 year renewal paid down a huge chunk while other people have taken out credit card debt and new car loans to pay for their "important stuff".


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Ok so you lived beneath your means and were prosperous. What's that got to do with anything?

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I am not even arguing over the appreciation aspect, as someone else pointed out, it can not be easily realized (ie sell your house and you need to replace it). I guess my point is what is the alternative? When you are 70 years old do you still plan to rent an apartment?


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Actually at 70+, downsizing homes to apartment like dwellings is really common.

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At some point you need to enter the housing market


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Well you don't have to but the utility of it makes it a generally good idea.

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and in alot of cases a mortgage is only abit more than rent


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This is the crux, actually lately no it hasn't been (in just about all major cities excepting nyc's bizzaro verse). This is why you see the economically inclined saying essentially, WTF.

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as someone else pointed out, after 25 years the guy with the mortgage will own a house, and you will own what exactly?

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You are skewing the timeline, it's not never buy, it's why buy now.

J

[fanmail]

Why not just buy the house with 1 check and pay no interest and never involve the bank?

[DesertCat]

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Why not just buy the house with 1 check and pay no interest and never involve the bank?

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A mortgage is useful if you have better uses for the money. I.e. if the bank will give you a 30 year loan at 6%, you might expect to be able to do better over 30 years in a stock market index fund (8-9%), so you'll net 2-3% a year that way.

The problems with this approach is that index funds are volatile and you might not get higher returns over shorter periods, including next decade. Paying off your mortgage is "risk free", no volatility.

[James282]

I don't think taking the entire country as a real estate market is a very useful way to analyze whether a given person should buy or rent. A person buying in Hoboken, NJ, will be dealing with a much different real estate market than someone in Carlisle, PA, who will deal with a much different real estate market than someone in Vail, CO, who will deal with a much different market than someone in San Francisco, CA. Outside New York City, for example, there is very limited amounts of land and an almost limitless amount of people who want to live there. I can't imagine housing prices really getting murdered in a place like this, and have to think that they are much more likely to go up than down.


But for me, it's a simple problem that first and foremost deals with quality of life. I buy a house, I know I can live there as long as I want assuming that I continue to make payments on it. Say I sign a 2 year lease on a place, and the owner of the building sells it after those 2 years...now I have to move. If I own a place, I'm personally much more likely to keep it very nice, take pride in the landscaping around the house, get to know people in the neighborhood(because I'll be more secure in the fact that I'm staying there) and so on. A lot of this stuff probably just reflects who I am personally - I won't pretend to say that it is right for everybody. Also, since my personal deduction gets chewed up by poker winnings, I do get a discount on the interest due to the tax break, which is pretty nice.