If the economy is as bad as some believe it is, why is the housing market on fire? (vs, money)
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Location: Live:Downtown Phoenix, AZ/Work:Greater Los Angeles, CA
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Quote:
Originally Posted by Mircea
That's right.
There's been a cultural shift in the reason to own a home. The reason to buy a home now is to have a big giant credit card called a HELOC.
Even worse is they make no attempt to save money for a down-payment.
Which builds Wealth: Putting 0% down on a $250,000 McMansion and paying $250,000 for a McMansion, plus paying $318,000 in interest....
...or...
....Saving money to put 20% down on the $250,000 McMansion and paying only $79,956 in interest....
...and then use $238,044 saved to invest or save or both to build Wealth?
Instead of spending $661/month on interest, if you put that in a Roth IRA which is typically 7%-10% you'd have over $800,000 for retirement after 30 years and if you lived 20 years beyond age 65 you'd have $40,000+ per year in addition to your Social Security retirement benefits.
And then people got the nerve to say they ain't got no wealth. Well, no, they don't, not if they're going to freely hand it over to everyone else.
The median 20% down-payment is more than the median annual wage, you know how long it would take the lower half of wage earners to save over one years pay in cold hard cash?
The median 20% down-payment is more than the median annual wage, you know how long it would take the lower half of wage earners to save over one years pay in cold hard cash?
The problem is the growing inequality gap, but solutions to that are a topic for another thread.
In the interim, the short and blunt answer is they shouldn't be buying homes they can't afford (and not having even 20% down is a sign you can't afford it), even if the median home is more than they can afford.
Pushing their finances to buy a home also has the side effect of driving up home prices on the lower-priced homes, thus continuing the vicious cycle of unaffordable homes. If the poorest 50% stopped trying to overextend themselves to buy homes, that market would correct in price and the poorest 50% would find they can suddenly afford a 20% down on the cheaper homes. Of course, this will never happen as much of society will trade near-crippling debt every day if it means they can put on the appearance of looking a little less poor than they really are.
Location: Live:Downtown Phoenix, AZ/Work:Greater Los Angeles, CA
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Quote:
Originally Posted by id77
The problem is the growing inequality gap, but solutions to that are a topic for another thread.
In the interim, the short and blunt answer is they shouldn't be buying homes they can't afford (and not having even 20% down is a sign you can't afford it), even if the median home is more than they can afford.
Pushing their finances to buy a home also has the side effect of driving up home prices on the lower-priced homes, thus continuing the vicious cycle of unaffordable homes. If the poorest 50% stopped trying to overextend themselves to buy homes, that market would correct in price and the poorest 50% would find they can suddenly afford a 20% down on the cheaper homes. Of course, this will never happen as much of society will trade near-crippling debt every day if it means they can put on the appearance of looking a little less poor than they really are.
You're correct sadly, people almost always buy/rent more house/apt/condo than they can afford, and it's for 1 or 2 reasons:
A. School district if they have kids
B. They don't want to live with poor people/or in a high crime area, even if that's what they can technically afford
I am so glad I own a home, my friends pay more for an apartment than I do a large home I pay less in utilities even since everything is modern and led.
The problem is the growing inequality gap, but solutions to that are a topic for another thread.
In the interim, the short and blunt answer is they shouldn't be buying homes they can't afford (and not having even 20% down is a sign you can't afford it), even if the median home is more than they can afford.
Pushing their finances to buy a home also has the side effect of driving up home prices on the lower-priced homes, thus continuing the vicious cycle of unaffordable homes. If the poorest 50% stopped trying to overextend themselves to buy homes, that market would correct in price and the poorest 50% would find they can suddenly afford a 20% down on the cheaper homes. Of course, this will never happen as much of society will trade near-crippling debt every day if it means they can put on the appearance of looking a little less poor than they really are.
The S&P 500 has averaged 11%+ over the past 5 years (~17% in the past 2 years). Why should I put 20% down when mortgages are at 3%?
The S&P 500 has averaged 11%+ over the past 5 years (~17% in the past 2 years). Why should I put 20% down when mortgages are at 3%?
Your argument holds water when having a conversation about whether to put 20% down or 50%. I opted for a 25% down payment on my home this year because of what you stated -- instead of putting that extra $400k down, I could roll that into stocks and use the growth/dividends off that to offset the interest I'm accruing from the added interest. However, that argument isn't applicable all the way down to 0% down.
Why?
Banks don't care if you get a better return in stocks; they don't want borrowers who are underwater on a home in a market downturn (which would also likely mean you are not getting 11%+ at that time, either). I don't want to be in that situation, and I don't think you do either.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Quote:
Originally Posted by bradnsota
How does that explain the income low and middle income people have in order to buy these homes?
Very few low income people cannot buy homes, with prices so high. As for the middle class, we are saving hundreds every month by working from home, without commute costs, we are saving the money we used to spend on entertainment and restaurants, and the government is giving us stimulus money. I already have a house so mine has gone into the bank as savings, and many others didn't need it with their tech jobs paying well and being able to keep working from home. In my neighborhood 3 empty nesters have sold since March, all 3 went to millennial families with 2-3 kids, all tech workers at Amazon or Microsoft.
Location: Live:Downtown Phoenix, AZ/Work:Greater Los Angeles, CA
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Quote:
Originally Posted by Hemlock140
Very few low income people cannot buy homes, with prices so high. As for the middle class, we are saving hundreds every month by working from home, without commute costs, we are saving the money we used to spend on entertainment and restaurants, and the government is giving us stimulus money. I already have a house so mine has gone into the bank as savings, and many others didn't need it with their tech jobs paying well and being able to keep working from home. In my neighborhood 3 empty nesters have sold since March, all 3 went to millennial families with 2-3 kids, all tech workers at Amazon or Microsoft.
Plenty of middle class workers still have physical jobs they can't do from a home computer (myself included)......
Very few low income people cannot buy homes, with prices so high. As for the middle class, we are saving hundreds every month by working from home, without commute costs, we are saving the money we used to spend on entertainment and restaurants, and the government is giving us stimulus money. I already have a house so mine has gone into the bank as savings, and many others didn't need it with their tech jobs paying well and being able to keep working from home. In my neighborhood 3 empty nesters have sold since March, all 3 went to millennial families with 2-3 kids, all tech workers at Amazon or Microsoft.
A lot of us in tech didn't get stimulus money, so that wasn't a factor in home buying power.
Your argument holds water when having a conversation about whether to put 20% down or 50%. I opted for a 25% down payment on my home this year because of what you stated -- instead of putting that extra $400k down, I could roll that into stocks and use the growth/dividends off that to offset the interest I'm accruing from the added interest. However, that argument isn't applicable all the way down to 0% down.
Why?
Banks don't care if you get a better return in stocks; they don't want borrowers who are underwater on a home in a market downturn (which would also likely mean you are not getting 11%+ at that time, either). I don't want to be in that situation, and I don't think you do either.
Now you're moving the goalposts, though. You said everyone "should" be putting 20%, or else they really couldn't afford the home. We chose not to put 20% (or more) down for the very reason I posted earlier.
Why is it limited to 20% v. 50%? Why does the argument not still hold at 5% v. 20%?
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