Question for all: How many own their own homes?

[SomethingClever]

Here's a thread I started in the finanace forum last May about my housing situation.

link

Most of the relevant details are still the same, except the house is now worth about $320,000 [img]/images/graemlins/smile.gif[/img]

[Myrtle]

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The reason I started this thread was to attempt to get some clarity on the subject.

[/ QUOTE ]Here's something that I just remembered. I recently saw a TV documentary about a musician (who incidentally happened to be the best player in modern times of his chosen instrument), a truly world class artist, and buried amongst his many phrases in that interview was something that I found to be extremely profound and significant. Though I'm sure many people will see little to it:

"Y'know, for most of my life I struggled very hard to remain poor."

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Mickey,

I did not miss the gist of the above, and it certainly widens the scope of the discussion in this thread from beyond the practical and financial and moves it towards the ideological and philosophical.

I think you have brought up an important aspect, and feel that it should be brought more into the discussion.

At its' base, it asks the "WHY" question. Why do we want to own a home?

I'll start the ball rolling with a few of my own reasons, right or wrong....

I want the freedom (within reasonable bounds) to be master of my own castle. Until one 'owns' (debt free) ones own abode, one is not totally free in that manner.

The above statement encompasses a myriad of points.

What can I do if I own vs. if I rent? In terms of personal choice and freedom (leaving aside the financial implications of both conditions for the moment) the difference is huge.

If I own it, I can modify it (within local laws) in any way that I see fit to suit my family's style or utility.

How much is that worth in regards to state of mind? I can't speak for anyone other than myself, but to me it is huge.

There are three basic conditions under which one procures shelter. Rent…….Own (with a mortgage)…..and own (debt free).

Each has its’ advantages and disadvantages, and as SossMan points out in his ‘pokeresque’ response to one of my posts, the answers are many and ultimately boil down in many cases to…..”It depends’.

Not to be a smart ass, but I anticipated (and hoped) that by asking my simple OP question, that we would get a good, expansive range of responses, and I thank all for their contributions so far.

I can’t help but feel that there are many other sides of this issue to be discussed.

[Myrtle]

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so much bad advice in this thread, I don't even know where to start. not really bad advice, per se, but imagine a realtor message board having a thread about texas hold'em poker strategy. yeah, it's like that.

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Soss,

The reason I started this thread was to attempt to get some clarity on the subject.

If you feel that you have something of value to add, please take the time to do so.

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i can respect the response, but seriously imagine trying to answer questions or give suggestions to a bunch of realtors about their very general poker advice. the answer to so many of these questions is the same answer to so many poker questions...it depends.
Most everyone has a unique situation that would require a bit of analysis (personal and financial) to generate good advice. Without that, it would be like me saying...play tight aggressive and don't fold AA preflop.

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Ignorance of the nuances of real estate investment are a concern with either issue, but there is a difference between

- analyzing an individual decision
- analyzing the global state of consumer debt in America, particularly home debt.

OP was interested in the latter, and although we've mostly only gotten anecdotal evidence in this thread, it is good thing that the issue has been raised, even if no one leaves this thread with answers to the difficult questions.

Whether I understand the nuances of most Americans' personal situations, if a large percentage of them live in "purchased" homes of which they actually own a small percentage, even I can see that this is a window into a broader economic problem.

Between home debt and credit card debt, Americans spend a ridiculous percentage of their future incomes to satisfy current needs/wants. Whether individuals exist whose situation allows them to/indicates that they should put 20K down for a $600K place, or pay interest-only for years, a housing market full of these people cannot be a good thing, especially because we don't know how America's role in the world economy will change in our lifetime. If you are 25 and buying a place that you expect to finally pay for when you are 55 (or you expect whoever you flip it to will pay for it in thirty years), you should think a little closer about how sure you are about your ability to earn enough in thirty years to pay for it and everything else you've bought in between. I'm not talking about a standard thirty-year mortgage that you finally finish paying in thirty years, while paying a sufficiently small % of your monthly income and saving for retirement, etc; i'm talking about methods to delay and delay and delay, so that you can spend and spend and spend, ignore saving for retirement, all while (apparently) counting on income from ages 50-65 to finally pay for the house.

Credit is not a free pass. At some point, someone pays the bill. And if the economy is full of people who can't, the rest of us will end up bearing part of the burden, through higher taxes, a weaker economy, lower home values, etc. We aren't even discussing the economic disaster that 60-70 year olds with no retirement savings might be in thirty years while SS crumbles.

I'm not smart enough to analyze the details of this problem, and I haven't studied enough economics to state any meaningful conclusions, but anyone with a little common sense can see that it is a problem (or at least, *if*, say X% of Americans own <30% of their home, and the remainder owed is Y% of their expected future income, for large enough values of X and Y, we have a serious problem, especially given general saving/spending/debt habits of the average American).

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Thanks much for a well spoken and thought out response.

Yup, I'm more interested in the latter point as you point out, but not at the total expense of the first point.

I can only speak for myself, but once I made my personal decision to progress down the path of 'home ownership', the reality of the larger, second broader point then came to the forefront, and now in hindsight points out to me possibilities that I never considered when I made the original decision.

The more I learn, the less I know.

[turnipmonster]

this is great, but this line:

"If we add up all the good and the bad future values, we can say that this investment would be worth X less than if you had not spent any money and just invested in the market. Well, not quite, you would still have to live somewhere."

is weird. they should just have a box where you put what your rent would be if you were to rent instead and invest in the market.

[meep_42]

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If you own more of your home than the absolute minimum to ensure the lower rate possible on your mortgage, you're leaving money on the table. Owning a home outright is for retirees and suckers, but mostly just suckers.

-d

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Please elaborate. My home is fully paid for while other suckers have 1000+ mortgages each month. I'm playing about 5K every month into retirement accounts partly because I don't have a mortgage to pay. Keep in mind these are after tax dollars, so to save a grand per month on your mortgage requires 1500 of actual income depending on your marginal tax rate. Now having said that, I'm in Canada and mortgage interest is not tax deductible whereas in the U.S. it is, so in the U.S. having a mortgage versus not would be a closer decision...in Canada it's a no brainer to pay it off ASAP. If you have a mortgage of 5% and pay it off, that is like making a risk free return of 8% after factoring in taxes. Let me guess...all of you ballers will easily get 20% return every year for the rest of your lives....lol....see dot com crash from a few years back for a reality check suckers.

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You can take the money you have in your house -- say 60% of it, and put it into investments that easily eclipse the interest portion of your mortgage, especially considering that you're paying less than the stated interest rate on that mortgage due to the gigantic tax benefits given.

Example -
Step 1. Take out $250k of a $400k home.
Step 2. Invest it getting 7-8%, while paying 3.5-4% on the money.
Step 3. Profit.

The whole point of buying a home is that you're leveraging your down payment to invest in the appreciation of the entire asset -- so keep your money making money.

-d

[meep_42]

Prime,

There's quite a difference between debt and bad debt, which is why every corporation in the world, profitable and not, has a lot of it.

-d

[PanchoVilla]

I am looking at this issue now. I bought a new house and moved then put up my old house on the market. Initially I just planned to take all the proceeds from my old house once it sold and pay down my new mortgage. Then I did the numbers.
Option A is keep a 625k mortgage (jumbo, 80% of house price) and invest 208k and assume a 5% return.
Option B is to pay down the loan to 417k which turns it into a conforming loan and refi saving about .25-.375% on the rate.

In my case, with my rates between 5.75 and 6.25% range Option A is about 2900 a year cheaper due to the tax deduction. Its just an issue of making sure that I have the right amount of liquidity to cover the oops my wife or I lost our job for 6 months case. As long as you can handle the payments either way, I will take the extra 3k a year. Of course my wife would prefer to have 0$ in stocks and own 95% of the house, but I am working on her.

Mortgage loans are the cheapest money you can ever get. May as well take advantage of it. Just be smart and don't overextend yourself where you can screwed up by short term fluctuation.

Pancho

[LearnedfromTV]

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Prime,

There's quite a difference between debt and bad debt, which is why every corporation in the world, profitable and not, has a lot of it.

-d

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To my earlier post let me add that there is a big difference between

- using the fact that a bank is willing to loan you money on your house at 4% or 5% or 6% to invest in securities you can reasonably expect to earn better than the rate you pay.

- using the fact that a bank is willing to loan you money at 4%-6% (or higher) on your house to buy a bunch of [censored] you don't need while delaying paying it off based on expected future (often far into the future) income.

The second one is obviously better than putting everything on a credit card; it's still, imo, dumb, if the scale you are talking about is enough that you need to borrow against the entire value of your house, often up to several multiples of the amount you've actually paid into the house.

As for newly-indoctrinated real estate "investors" leveraging each new loan into more highly leveraged properties, ad infinitum: in all but the most expert hands, this forces one to take on more risk than any sane person should accept. Money isn't free!

[meep_42]

Learned -

Noted, and I agree.

-d

[SossMan]

Let me get this right....you are borrowing at 6.25% to reinvest it at 5%?

How is this a good idea?