Guest Post: How Housing Affordability Can Falter Even as House Prices Decline

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

How Housing Affordability Can Falter Even as House Prices Decline

The assumption that lower home prices improves the affordability of houses ignores two critical inputs: interest rates and income.

That the U.S. housing market is still in a post-bubble slump is no secret, as revealed by this chart courtesy of streettalklive.com: note that despite unprecedented intervention, including the complete socialization of the U.S. mortgage market (99% of all mortgages are guaranteed by the Federal government) and the socialization of subprime market for poor credit risks (3% down and easy credit from FHA), this chart punctures the happy-talk illusions of a rebound in housing.

Credit-asset class bubbles cannot be reinflated because they follow an S-curve. No matter how much taxpayer money the Federal government throws into the housing market, it will not reinflate. The financialization (credit/leverage bubble) of housing follows an S-curve as a system, and tweaking the parameters of the inputs (lowering interest rates, buying up toxic mortgages, etc.) doesn't change the curve.

Hubris-soaked central Planners are incapable of understanding that their numerous policy interventions have essentially zero impact on the curve. But if you can't believe systems don't respond to frantic policy measures, then consider these factors:

1. Tens of millions of households are too poor to buy a home (the FDIC calculated 40% of the U.S. households have insufficient income and credit to buy a home) without massive subsidies, and with no skin in the game their purchase is basically a lease with an option to sell later for a private gain at the expense of the government.

if it doesn't work out then it's last one on, first one off: they default with little loss and possibly much to gain, i.e. two years living rent-free in a not-yet foreclosed house.

2. Tens of millions of other households are drowning in underwater mortgages they can afford to pay (barely) but that have crippled their net worth and borrowing power. They are out of the housing market except as potential defaulters.

3. Millions of other credit-worthy buyers have woken up to the fact that buying a house is a form of consumption and a risky "forced savings" investment, as property taxes spiral ever higher and prices continue sagging in many markets. The risk is high and the potential gain is uncertain.

Those snapping up housing for cash are either buying to rent the homes or to speculate that a resurgent housing market will arise and they can "flip" for big profits. This segment simply isn't large enough to soak up all the millions of homes languishing in the "shadow inventory" of homes being held off the market in the vain hope prices will bubble higher.

The general idea of lower home prices is that once prices fall to some magic threshold, buyers will jump in and liquidate the inventory. That notion makes two enormous assumptions:

Interest rates will stay near-zero when inflation is factored in

Household income will stop declining.

In other words, there are three inputs to housing affordability, and price is only one of them. Interest rates and disposable income are equally important. Note that income in all quintiles (the entire spectrum of income--high, middle and low) has been declining since the housing bubble topped in 2007:

Official inflation has been running at around 3% a year, and many other measures suggest that number grossly understates reality by gaming the percentages of various inputs.

But taking the official 3% as a reasonable approximation, then buyers of 4% 30-year mortgages are earning a wafer-thin 1% in real return (4% - 3% = 1%) and they are taking a stupendous risk that inflation will remain well under 4% for the next three decades. Any surge in inflation and rates would destroy much of the value of their investment.

Let's take two examples. Let's say a house that sold for $400,000 at the top of the bubble is now selling for $250,000, $50,000 down (20%) with a $200,000 mortgage at 4%. let's say the household earns $50,000, so the mortgage is exactly four times gross income. The interest on the mortgage is $8,000 annually (principal, property taxes, insurance etc. are added to make up the total mortgage payment).

Now let's say the house declines in price to $225,000, so the down payment drops to $45,000 and the mortgage is $180,000. But let's say investors are now demanding 3% above nominal inflation and mortgage rates are now at the historically moderate level of 6%. Meanwhile, the household income has slipped to $45,000 annually as bonuses and hours are trimmed and workers transition to lower paid positions.

The ratio of income to mortgage is still 4-to-1, but the annual interest payment is now $10,800, $2,800 higher--a 35% increase. By any measure, the house is less affordable despite declining $25,000 in price.

This is how affordability can decline even as home prices continue to slide.

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GeneMarchbanks's picture

Purchasing Power Bitchez!!

qqqqtrader's picture

LOL, posted this less than an hour before this article...

Who's left to buy a home?

But seriously, lets not forget... Real home prices 1890Q1-2011Q4

theMAXILOPEZpsycho's picture

Buy when theres fear in the mind and blood on the streets. Only idiots wouldn't take full advantage of these prices and zirp. I'm currently looking at buying properties in greece via a fund with a major investment bank; in a few years we plan to develop condos, casinos, gold courses, hotels, restuarants, spas, high class gyms, so when the economy picks up we'll be taking full advantage. Just let me know if you're interested in investing via our fund and making a killing along with us. These things just go in cycles, now is the time to buy.

TruthInSunshine's picture

I will not say your very specific-light claim will or will not be proven correct.

I will say that I can legitimately represent that I am involved in and have been involved in funds that either have or are planning to dip their well-capitalized toes into 'vulture prospecting,' and that thus far, at least in the context of those funds that have taken the plunge, the results have been a very mixed bag, leaning heavily towards the loss side of the ledger, including quite a few that unfortunately melted to near-zero or thereabout.

Carrying costs on real property in times like these can be a real bitch.

My personal opinion, based on what I've seen, read and heard, with the 'seen' being the most reliable and credible indicator for formulation of my opinions, is that if you don't have a very special relationship with an arm of government, providing you with at least an implicit guarantee of government making you whole (or, at least more whole) in the event of bleeding (e.g. see JPM or BAC or Blackrock), then you are merely gambling in a highly speculative fashion with your money and/or the money of the people you are managing.

Do you want some high rise condos with oceanfront views for literally 20% of what they were listed for back in 2007, that are brand new, never having been lived in, so long as you agree to buy a minimum lot of 50 units? [And they really are nice, even if the HOA fees and taxes are a huge burden]...

'Cause I know a group that thought they were geniuses buying the whole building two years ago, who would love to sell them to you for that which is now a loss, and just recoup some of their money.

 

*I am not trying to sound like I know all the answers, but the one caveat I would confidentally allow for in terms of it probably being a great time to buy, is for the individual who is well-capitalized, debt free, loves a particular property, and wants to buy it as the occupant/user on a quality of life basis, especially if it is close to family and/or work, and they do not care what its valuation does going forward, and they can easily manage the carrying costs. This is a different type of investment altogether, having nothing to do with having to obtain a return on investment, since the return has nothing to do with money. However, their aren't that many of these types of indivuals shopping the markets right now (I don't mean that there aren't any, but that there's no enthusiastic rush; I speculate because people like this are very, very intelligent and cautious, and they are not convinced they won't be able to score a better deal, even if it pains them to wait, later).

derek_vineyard's picture

ben bernanke inflation calculator

cost of food/energy/consumer products      +20%/year     x  .40       +8%

cost of home                                           -10%            x  .30        -3%

wages                                                     -10%            x  .30        -3%

                                                                                      100%= +2%

total cost of living: home, wages and consumer goods   +2%    exactly on target

AldousHuxley's picture

If your house valuation stays the same in price next 10 years, then you had 30% decrease in real terms.

 

roughly speaking....

home price increase > inflation : good investment

home price increase = inflation : break even

home price increase of 0% < inflation : losing money

home price decrease << inflation: you are working for free for years

 

 

 

 

Idiocracy's picture

never mind the condos, where are the gold courses???

Waterfallsparkles's picture

You are right.  Tenant selection is the biggest and you have to carry the property until you find the right tenant.  Other wise you have problems that cost you even more money than a vacant property.

Tenants with a bad credit report will just put you on the list of all of the other people they did not pay and you have to wait in line assuming you ever get paid.  Tenants with bad credit break things when they do not have the rent so they can tell the Court why they did not pay.  A broken Toilet, the Furnace does not work etc.  Plus, unless you do the work yourself the costs are exorbitant and eat into your profit.

Landlords with high overhead make bad decisions to get their places rented.  I had one apartment vacant for 10 months because I could not find a decent Tenant.  Yet, my neighbor with high overhead has rented to anyone that would fog a mirror.  He has had evictions, court battles, repairs, clean ups and subsequent vacancy's.  Yet, he cannot rent or show again until he repairs the damage, re cleans the property and paints.

You are right, being a Landlord is not an easy road to toe.  Sometimes I think I am just a well paid cleaning, painting person.

derek_vineyard's picture

Here in Reno homes that cost 150/sf to build can be purchased for $75/sf  in nicer neighborhoods

Isnt there some inflation hedge when the materials and now cheap labor is so much greater than sales price?

Rubbish's picture

Im shopping for an RV, screw all this settling down nonsense. Been there done that.

Marc_W's picture

You're an investor, not a home buyer.  And investing in resort property in Greece will probably work out in the long run as the nation is reduced to being nothing more than a vacation colony for the wealthier E.U. nations.

 

I'd say there's a parallel between Greece today and Florida before it became the vacation/retirement capital of the Western hemisphere.

 

But for the individual home buyer looking for a primary residence, this is not the time to buy.  Unless you work for the government and therefore have a guaranteed income for life, in which case, go nuts.

Vic Vinegar's picture

I'd say there's a parallel between Greece today and Florida before it became the vacation/retirement capital of the Western hemisphere.

Um, Florida has a lot of Jersey Mike's sub shops that make a tasty sandwich and the people there still pay taxes?

Your confidence for six weeks in on Zero Hedge is way too high, spacemonkey.

Or just keep on mindlessly commenting and let me laugh at you.  It's all good either way.

Marc_W's picture

Every time I change accounts, and I do so often, I have some stupid fuck like you pulling this shit about seniority and longevity on the ZH forums.

 

Go fuck yourself.  And go back to Slashdot where you can brag about your 4 digit ID.

 

The only reason I even have these accounts is because they forced me to.  Let's go back to allowing anonymous posting.

Vic Vinegar's picture

Hottest chick you ever banged?

Describe her in 10 words or less.

quartshort's picture

Your Mom.

Only took 2 words...

Arnold Ziffel's picture

Wow! Your link shows house prices may drop by another 40% t0 50%.

Just another reason wny many say renting is safer right now. Plus, you don't have taxes, maintenance, repairs, etc. A foundation problem/repair can cost 25-35% the value of the house. Mine cost 28% and the company said I "got off lucky."

 

GL!

cherokeepilot's picture

Just out of curiosity, how and why do you think that "taxes, maintenance,repairs,etc." are not included in "rent".  They were always taken into consideration by every landlord I knew.  They were factored into the rent that I charged on my properties.  If they weren't you would soon be broke or bankrupt.

Element's picture

 

LOL, posted this less than an hour before this article...

Who's left to buy a home?

But seriously, lets not forget... Real home prices 1890Q1-2011Q4

 

 

 

And there will be an overshoot of that 100% average line to factor in also -- let's say another -20% or so.

Somehow I don't think many banks are going to make it to the other side.

MisterT's picture

US housing is in the crapper and I don't think it should ever be expected to return to where it was in 2006.  Your second chart does a good job in showing that.

However, the first chart is ridiculous.  It starts with the US population (PEOPLE) and subtracts the number of HOMES that are occupied?  What?  This makes absolutely no sense unless you assume that 1) only one person lives in each occupied house and 2) NONE of those people are potentially looking to move.  This implicitly assumes that if you're looking for a house, you're not currently living in one.

Furthermore, it assumes that these groups listed are all mutually exclusive.  In other words, according to the chart, the 49M living in poverty are ONLY between the age of 18-65, or they're living in poverty but not making minimum wage/living with others, etc.  The overlap in groups means that people are being double (or even triple+) counted, leading to the absurd conclusion.

Eireann go Brach's picture

Some of you folks on here are the most miserable bastards walking this planet! It's a great time to buy a home and here is why!

Here is a scenario, 1 person rents for the next 30 years and his rent increases every year, the other buys a house and has a fixed rate and payment around 4% and pays it off in 30 years, he now has no mortgage payment! Whereas the renter will continue to write his check to the landlord until he dies! Who enjoys retirement the most? It's a great time to buy a home for this reason alone!

zonkie's picture

You are most likely a real estate agent spraying from your kool-aid bottle.

Here is why your logic is flawed - I used to live in Cupertino in an apartment in 2000, tech bubble burst and everything plunged. My rents went down from $1600 to $850 in 3 years. I had the luxury to negotiate the rents.  I was close to buying a house but then lost my job in 2004 and had to SanFrancisco for another job - I could do that because I was not shackled to a house.

Overall in an ideal world if your income rises with inflation (no one can guarantee that) and you have a secure job (which doesnt exist really) and you do not have to move in 30 years (I am not sure who can predict that) - then your rhetoric holds some water, otherwise go ahead and find suckers to sell your inventory somewhere else.

Caviar Emptor's picture

3 words: Cost Of Homeownership. 

The renter is sheltered from the following rising costs : 

-Property taxes, insurance(s), maintenance costs including labor (renter pays zero), home improvements and upgrades (else not re-saleable) (renter pays zero), retro-fitting new technology including energy and telecom (renter pays zero), security, local services including garbage, legal and banking fees...

In brief, the renter is sheltered from both certainties and uncertainties: rising cost of ownership is a certainty, needing to relocate for job/family reasons presents an uncertainty in a market where selling is difficult, as does the future of all but the wealthiest neighborhoods (the value of your property is tied to the economic fate of your neighbors and other uncontrolable factors)

mkhs's picture

What?  You don't think costs are passed on to the renter?

I am Jobe's picture

Just try not paying your property taxes. Why should folks with no kids have to pay property taxes?

 

UP Forester's picture

It's for the children, duh!

Crab Cake's picture

Why? Good question.

Property taxes are in place to make true ownership impossible; bottom line. In the end all reverts to the crown, I mean government. Private ownership of land has been dead for quite sometime in this country. It's a horrific institution, one of many in the frightfest that is the USA, and a blunt instrument of state power that needs to be converted to a sales tax.

There is no such thing as ownership if one must pay the feudal lord yearly tribute.

memyselfiu's picture

I dunno...around here someone maintains the road and sidewalks, plows in the winter, picks up my garbage/recycling, maintains trees, and provides water and sewer. Not sure if that means I'm paying for tribute or for a service.

But let's go ahead and pretend we're oppressed, shall we?

Oh yes I forgot, the police and fire services take a piece of that action as well.

Oldwood's picture

And what if you want none of those services? They take your home anyway. You become state propeerty.

Esculent 69's picture

memyselfiu- then why do you pay sales tax or gas tax or carbon tax or dmv fees or alcohol tax or cigarette tax or state income tax (if u live in the fucked up states that sticks it to you by dp like here in communist kalifornia with both sales and income tax) or recylcing tax or regulatory fees/tax or having to pay $39 to become a food server/ waiter/ server here in Kalifornia which is a tax or electronic recylcing fee/tax that charges you per inch on your flat screen tv up to $65 or toll bridge/ tax or tax you on your social security that you already paid for or....................get the point!

I truly HOPE that people like you CHANGE your minds about those that wish to tax you for a public service when it is a prison for you paid by you for when you complain about to much government and not enough services. just think socialized healthcare which is about to be a real part of our lives in 2014, unless you vote for people to repeal it. Just read Hillary Clinton in her own words

http://sayanythingblog.com/entry/hillary_clinton_to_pakistanis_in_americ...

Blano's picture

Your assumption may be correct if someone stays in the same house 30 years.  But who does that anymore?  Not many.

quartshort's picture

Your assumption is that the buyer uses a 30 year mortgage. There are a whole host of financing options. Sure...if I stretch myself (family) to the hilt it will take 30 years.!
Here is how I perceive the market at this point. Those with a LARGE down payment should wait for higher interest rates- lower prices wait in the wings. Those that don't probably should be looking as the financing options will change soon. This is partially why the market is in the shape it is in however. Inflationary forces could make this a descent bet. Taxes and insurance are wild cards. In either scenario the goal should be to pay the least loan costs to the stank... I mean bank.
The best bet is all cash but relatively few have that option (yet). Benny is making damn sure it stays that way. At a point in the near future ANYTHING but slices of green colored tree matter will be the wiser choice.

Edit- before I get called a Lowlife Realtor know that I sold in 2007 and I have rented since. I have just started to look. I will not buy at peak season meaning at best next Jan-Feb. Meanwhile my down payment grows. It is hard to live in a bank account.

piceridu's picture

I see you have a public school education...math isn't one of your strong suits is it?

Eireann go Brach's picture

Some of you folks on here are the most miserable bastards walking this planet! It's a great time to buy a home and here is why!

Here is a scenario, 1 person rents for the next 30 years and his rent increases every year, the other buys a house and has a fixed rate and payment around 4% and pays it off in 30 years, he now has no mortgage payment! Whereas the renter will continue to write his check to the landlord until he dies! Who enjoys retirement the most? It's a great time to buy a home for this reason alone!

SoCalBusted's picture

Maybe or maybe not.  When state and local governments hit the wall looking for new and more "revenue", homeowners are sitting ducks.  I prefer mobility, even if it has a short term premium.

 

AustriAnnie's picture

Not necessarily true.

1) Someone can rent for 10 years at a very low cost, while putting money aside, earning interest on it, then 10 years later BUY the house outright.  Depending on the market/interest rates, etc, he may be better off doing this.

2) 30 years is a LONG time to wait to have no mortgage payment.  If you aren't absolutely sure you want to stay in THAT house on THAT block in THAT town for THAT long, then buying a house may not be the best way to go.  It is a long term commitment.

3) Two words: PROPERTY TAX.   With the unfunded liabilities this nation has, and the debt this nation has, and the rising spending this nation is taking on, taxes will be going up.  Taxes of all kinds, property and income taxes as well. 

4) In a country where entitlement programs are growing, more and more benefits may become means tested.  The system is moving toward one where owning anything (being the person who saved and paid their mortgage and saved for their own retirement) puts you on the list to bail everyone out of every debt they defaulted on.  "From each according to his ability, to each according to his need" -- that is where we are going.

5) Homeownership removes flexibility to relocate.  Labor markets are not what they used to be.  Staying in one town and working for one firm for your entire career is no longer as common as it once was.  The ability to relocate to the best job opportunity, or to lower cost-of-living states may be crucial to survival in the future.  Not only will states enact drastic changes to taxes and regulations, energy costs (if they rise) will hit some areas harder than others.  Furthermore, as long as the gov't gives preferential treatment to their campaign contributors, companies will go in and out of business according to political will.  The districts that receive the gov't money will prosper, while other areas will decline.  If you buy a house now in a town that depends on a few industries or on gov't money flowing to that district, you put your entire livelihood in the hands of politicians.

That being said, buying a home may still be a good bet for some people.  But the above should be considered, especially going forward into the future.  

AustriAnnie's picture

6) Unless there is massive migration into this country, as baby boomers move into retirement homes and die off, that will have an effect on demand for housing as well.  It is no coincidence that the housing boom years occurred during the years baby boomers were of the age to demand 3-4 bedroom homes for themselves and their 2.5 children and golden retriever.  

(Not just the demand for housing overall, but possibly also the size of home demanded, may be very different in the future than one would expect by looking at past trends)

Caviar Emptor's picture

Agree. We're in an economy that's signaling wage/income deflation with rising cost of home ownership, cost of doing business and even cost of going to work. Being a real estate owner in such an environment becomes a business venture. Without big capital to ride out the ups and downs this becomes a losing venture for many. What if there's a divorce/illness/tornado/in addition to the usual job change issue? Then there are local factors: the sunbelt seemed the surest place to make a killing in eal estate for 40 years....until 2008. Phoenix, Vegas, Florida, Georgia....OMG. 

What was once a reliable certainty is now very uncertain. 

Bottom line, as long as the real economy continues to deflate (jobs, real wages, advancement prospects, job security) real esate will be a bust except for the super-high end. 

Marc_W's picture

The elites in the Anglo New World Order are obviously betting that their economic system based on infinite growth will continue for the foreseeable future.  This is why all of the Anglo nations are so eager to allow immigrants into the country to spur population growth.

 

I do not believe the system will be maintained much longer, and infinite growth based fiat economics will disappear.  Therefore, the gamble of the Anglosphere in allowing massive 3rd world non-white immigration is going to backfire in a bad way.  This will pave the way for culturally and racially homogeneous nations like China, certain parts of Europe, and even Japan to prosper and gain the upper hand both economically and geopolitically.

 

So we will continue to have a "massive migration" into this country.  From the 3rd world hell holes of Mexico and South America.  Only it won't work out how most people seem to think.

The Navigator's picture

Marc_W

You have some points but with respect to China and Japan, I comment as follows:

China is not homogeneous country and this leads to some future problems re prosperity and gaining an economic upper hand - this subject couldn't be covered in 1,000 pages.

Japan is really screwed - demographically, they are projected to fall from 120mil population today to 75mil by 2050 - re tax/social security/GDP and everything else, they are screwed unless they can turn their demographsics around by having more babies and getting rid of a debt/GDP of 200% that they own to themselves (a debt that bankruptcy will aleviate).

Growth in babies/economies/money are all tied together and either these are inflationary or deflationary - when you grow it's inflationary, when you shrink it's deflationary. Shrinking their economy will be painful; something not seen in modern economies. Same for Italy and other European countries.

"May you live in interesting times", a Chinese curse or blessing; either way, we ar there now.

Marc_W's picture

The things you own end up owning you.

 

I want to stay liquid and mobile.  Free to relocate at the drop of a hat to work for the highest bidder.  Never afraid of losing a job due to geographic immobility.  I don't need a big house full of garbage to worry about.

 

Besides, you can't "own" property anyway.  You rent it from the banks and the government.  And sometimes you're subject to so many HOA/county/municipal regulations that you can't even decide the color of your mailbox.

Kayman's picture

"Besides, you can't "own" property anyway

Our Realtor Troll seems to think making mortgage payments and paying property taxes, isn't "rent". It is.

And his/her simplistic comparison of renting vs "owning" assumes everything else remains equal over 30 years.  It does not.

 

 

i-dog's picture

7)  Unless you plan on becoming a life-long single, your place of shelter has vastly different requirements over a 30-year span: no children, young children sharing rooms, teenage children not sharing rooms, children gone and living on your own, children returning (with their own children!), etc.

Far better to rent what and where is appropriate for your current circumstances and desires -- while owning rental properties that provide a good return (eg. inner city) and minimal maintenance (eg. commercial).

Some advice from my own parents and grandparents which has served me well ... YMMV:

a. Never own the property you live in unless you plan to rent it out later after moving elsewhere.

b. Never sell a property -- just add more to your portfolio when you can afford it.

c. Don't over-spend on renovations -- what suits you may just be demolished by the next owner.

d. Remember, a house is a depreciating pile of rubble sitting on an appreciating patch of dirt.

The Navigator's picture

i-dog you got it right in so few words.

As a RE broker for 22 years I concur - too many think/thought RE is/was the bubble that would make them rich.

May your points 1-4 live in infamy to save those from future bubbles that will vaporize their dreams.

Kayman's picture

 "From each according to his ability, to each according to his need" -- that is where we are going.

Correction: That is where we are. 

Groucho

Esculent 69's picture

Kayman- More right than you know. What is the first pilar of communism?  Hell here's all of them just to be absolutly clear who and what we are dealing with.

1. Abolition of property in land and application of all RENTS of land to public purposes.

2. A heavy progressive or graduated income tax.

3. Abolition of all right of inheritance. 

4. Confiscation of the property of all EMIGRANTS and REBELS.

5. Centralization of credit in the hands of the STATE, by means of a national bank with State ccapital and an exclusive MONOPOLY.

6. Centralization of the means of communication and transport in the hands of the State.

7. Exstentions of factories and instruments of production owned by the State; the bringing of cultivation wastelands, and the improvement of the soil generally in accordance with the common plan. 

8. Equal liability of all to labor. Establishment of industrial armies especially for agriculture. 

9. Combination of agriculture with manufacturing industries; GRADUAL ABOLITION of the distinction between town and country by a more equitable distribution of the population of the country.

10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc., etc.

Which political ideology believes in more government to run our lives and which one believes in personal responsibility and individual freedom.  Please vote for the latter and pass it on. 

Marc_W's picture

Who among us is stupid enough to believe we can maintain a stable income while tied to a specific geographic location for THREE DECADES?

 

I hope you work for the government.  Because job security is a thing of the past.  We're all temp workers now.  No pension, no job security, no income stability.

 

Good thing the vast, vast majority of young people can't afford a down payment on a home anyway (since the average household headed by a 30 year old has a networth of $3,000), because otherwise some of them might actually be stupid enough to plop down their life savings and "buy" a home.

 

For a little perspective on what can happen in 30 years, both WW1 and WW2 were fought within a 30 year span.  And you expect me to assume that:

1. I'll want to stay in one place for 30 years

2. I'll be able to pay the mortgage for 30 years

3. There won't be geopolitical instability that forces me out of the area within 30 years

4. etc.

 

Laughable.  The American Dream of 30 years of debt based indentured servitude paying a mortgage to the bankers is dead.

Vic Vinegar's picture

If ur talking about the big cities in the US your point is valid.  But in a lot of rural areas (or even Detroit for that matter!) you can buy a home working as a K-Mart cashier.  If that gig doesn't last you 30 years, odds are you will find a another one.

It's silly to unilaterally state buying > renting or renting > buying.  It all depends on where you are at.  Even if you don't "own" ur property 'cuz of property taxes, at least you have some $ coming back to you when you sell.  You still get 0 at the end of renting.  Unless you clean real nice and get the security deposit back.

Marc_W's picture

For stupid poor people a mortgage payment can be like a forced savings account.  Since they always spend all of their money, they need a mortgage payment to "build equity" (i.e. save).  Given that most stupid people are, in fact, poor, I think this necessity of buying a shitty home in the middle of Shitsville USA you describe makes sense.

 

For anyone with an IQ in the upper quintile making 6 figures+, this logic does not apply.  First, smarter people make vastly more money than stupid people.  So "throwing away" your $1,000 a month rent doesn't mean that much when you're netting $7,000+ a month from your salary.  Second, smarter people tend to be more capable of managing their finances such that saving is possible on a voluntary basis.  I save about 50% of my monthly income with a rent that only eats 1/8 of my take home pay.

 

Social Security, "pre-tax savings" taken out of your paycheck (401K's), your argument in favor of having a mortgage, and other forms of "forced savings" exist because stupid people cannot control themselves and their finances.

Vic Vinegar's picture

For anyone with an IQ in the upper quintile

Never had my IQ tested and never will.  So I'm not really sure what that means.

I save about 50% of my monthly income with a rent that only eats 1/8 of my take home pay.

Good on you!  

You get a Katy Perry video and big :-) from me.  

Don't be so angry - it doesn't get anyone anywhere.

http://www.youtube.com/watch?v=98WtmW-lfeE&ob=av2n