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Irrelevant what rates were in the past. Either you buy home A at today's rates, or you buy home B at today's rates. History enters the equation precisely nowhere.
Nonsense. Projections are for rates to head up.
It's a good inflation hedge if you pay cash for the whole thing. If you get a mortgage you are actually over-compensating or over-hedging - which is to say, you purchasing power actually would suffer in a case of low inflation. A good hedge should make you roughly indifferent to high or low inflation. If your situation is such that you are better off with high inflation than low inflation, you are not indifferent, rather, you are over-hedged.
No, for a thirty year mortgage at 3.5% interest you are hedged against future inflation.
Then explain why P/E ratios in the stock market were similar to today in the early to mid 1980s despite rates being much higher. According to your theory, this should not happen.
You can learn more by reading David Stockman's blog. Interest rates were headed down then, which boosted stocks. Stocks had been crushed first by inflation, then by historically high interest rates. As rates came down, stocks were on fire. There are long cycles to the economy, that repeat over 30-50 years. Read about Kondratieff waves. This is the wrong part of the cycle to buy stocks. Companies have been borrowing zero percent money from the Fed to boost their stock price. Read what Stockman has to say about PE ratios.
This is irrelevant to the question of what is the better financial decision. The lifestyle question is a different question. It also depends on how much the individual cares about those considerations in the first place.
This is not a purely financial decision. Quality of life matters too.
You are pre-supposing an increasing gap between low and high-priced areas (in percentage terms, not dollar terms). Again, this trend cannot continue forever. Eventually it must reverse.
So why don't you go buy some real estate in Hamtramck?
Last edited by Graywhiskers; 02-09-2015 at 05:39 PM..
So why don't you go buy some real estate in Hamtramck?
1. Rates going up is at most an argument to not move once you buy a house and to not get an ARM. Not an argument to buy more house. More debt at a lower interest rate is still a higher interest cost, even at 3.5% rates.
2. It's too much hedging. The amount of hedging you want is enough to compensate for a loss, not enough to make you have the opposite risk. What you propose is tantamount to buying $500,000 of collision coverage on a $10,000 car (if, hypothetically, you could find a company that would offer this to you).
3. Just because someone has their theories on the future of the markets does not make them true. A lot of economists disagree.
4. If you need to bring quality of life in to justify your position, you implicitly admit that the financial discussion was a red herring and not the real reason. Even if QOL matters, this does not mean you get a pass on arguing for "the right thing for the wrong reason"!
5. I don't want to deal with the hassles of being a landlord and fixing up a place. Hence why I don't buy in southeast Michigan.
1. Rates going up is at most an argument to not move once you buy a house and to not get an ARM. Not an argument to buy more house. More debt at a lower interest rate is still a higher interest cost, even at 3.5% rates.
2. It's too much hedging. The amount of hedging you want is enough to compensate for a loss, not enough to make you have the opposite risk. What you propose is tantamount to buying $500,000 of collision coverage on a $10,000 car (if, hypothetically, you could find a company that would offer this to you).
No - you have to live somewhere. Pay rent or buy a house. Now is the time to buy a house, at historically low interest rates. IF inflation grows, you are hedged. Wait a couple years, the P&I payment will be the same, but one will have a lesser house.
3. Just because someone has their theories on the future of the markets does not make them true. A lot of economists disagree.
4. If you need to bring quality of life in to justify your position, you implicitly admit that the financial discussion was a red herring and not the real reason. Even if QOL matters, this does not mean you get a pass on arguing for "the right thing for the wrong reason"!
Total nonsense. Now is the time to buy a house (existing), based on rents (high) and cost of new housing (high), combined with low interest rates. I was admonishing you not to ignore quality of life.
5. I don't want to deal with the hassles of being a landlord and fixing up a place. Hence why I don't buy in southeast Michigan.
This discussion with you is wasting bandwidth.
I think everyone agrees as far as advice for the OP, don't buy in Hamtramck.Buy elswhere.
OP,
I think that you should simply decide where you want to live and then consider buying in that community. Buying in Hamtramck, simply because you view it as cheap, it not necessarily the best investment decision--especially if you intend to move in three years or so. It would be much better, IMO, to buy a more modest house in a better community. I think that such a house would hold its value--or appreciate in value--much more than a house in Hamtramck.
You don't need to start off buying your "dream house" and you shouldn't stretch yourself on what you can afford. Besides, buying a $50k house in Hamtramck is probably at the higher range of housing prices in that community, as difficult as that may be for many here to fathom. Your resale opportunities will be limited as most people with any means, similar to yourself, will more likely be looking to buy in better areas. (For those not familiar with this area, Hamtramck is a city within the City of Detroit. Need I say more?)
So...unless you're more moved by your social responsibilities in trying to improve a particular neighborhood, I think you'd be better off by looking elsewhere. Take your time to shop around and see what is available. I see that from your other posts you're still considering a number of different communities. Narrow that down first and then begin your home search in earnest. And if you don't find something that you like, you can always continue to rent.
I think everyone agrees as far as advice for the OP, don't buy in Hamtramck.Buy elswhere.
Not an argument.
And if you are going to appeal to consensus, then why are you invoking such non-mainstream view on the future of the stock market?
You have double standards when they suit your argument and are invoking massive special pleading .
You're also claiming that other posters said something they did not - this discussion was not about buying in Hamtramck! OP specifically said in post #5 that buying in Hamtramck was not the topic of discussion!
I can virtually guarantee you that in the long run, stocks will appreciate faster than real estate. This has been shown time and time again and is well known. Apparently some people are so in love with some homes that they will deny basic economic truths in order to attempt to justify their housing decision. I of course can't tell you what you can and can't buy; however, I can point to statistics to support the financial impact of the decision, or lack thereof.
To the OP: In general, in the long run, you'd expect houses not to rise faster than inflation, and they also have a lot of carrying costs. Stock markets generally rise 2-5% faster and have no carrying costs. this is the argument for not buying too much house.
To those that disagree: Please explain what is wrong with Nobel-prize winning economist Robert Shiller's argument against houses as an investment:
You're also claiming that other posters said something they did not - this discussion was not about buying in Hamtramck! OP specifically said in post #5 that buying in Hamtramck was not the topic of discussion!
Actually, the OP indicated that the 48212 zip code area--Hamtramck--was not to be the site of their "forever house". Perhaps you have missed the OP's other threads where this was discussed in more detail.
Actually, the OP indicated that the 48212 zip code area--Hamtramck--was not to be the site of their "forever house". Perhaps you have missed the OP's other threads where this was discussed in more detail.
Buy a house now that you'll feel comfortable living in 10 years from now. Interest is VERY low, so you'll be able to buy more home with your income than would normally be the case, very likely a nicer home than you could after three years of saving more down payment. I'd not buy a home in a poor neighborhood, no matter the cost and no matter whether it's to occupy or to rent.
If you're not sure you can afford your "forever home" now, buy a smaller version of it but in the right neighborhood.
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