Admiral wrote: KlangFool wrote:
Over the long haul I believe prices will go up...if only due to inflation and nothing else. And I have a lot of equity so I'm not concerned about fluctuations (up or down) on a monthly or even yearly basis. If I had a house that I did not intend to keep--or a job that did not have reasonable security--then I might feel otherwise.
The world may not turn as you believed. There are houses that do not keep up with inflation. Houses in my area had not recovered from the 2004/2005 level. Much less keeping with the inflation.
KF, this is a general discussion. Obv all housing markets are local, and one has to make a choice (which is essentially a prediction). I get a 3% raise each year. I am lucky; others may be less lucky, or much, much more lucky.
In GENERAL, I believe that OVER THE LONG HAUL, housing prices will GO UP NATIONALLY. How's that?
Of course taxes and insurance go up over time. But I feel OVER TIME rents will increase much by more than my R.E. taxes will. If I plan well, in 15 years or less I am VERY CONFIDENT that I will own, outright, a valuable asset that I can live in with a very low monthly payment of taxes and interest
insurance--which not coincidentally makes for a much easier calculation of retirement expenses.
Can the renter say the same?
Absolutely agree. Plus in my state, they value homeowners over schools and while they can increase your property tax amount, they can't reassess your home value even if it keeps going up. So another inflation hedge.
I know what KF is saying that people buy too much...but sometimes that can still pay off. I paid 20% more in mortgage than I was paying to rent when I first bought. My mortgage is now 30% cheaper than equivalent rent in the area. This is a combination of home prices going up and therefore rents going up, as well as refinancing to lower rates for me. I haven't been in the house that long, so this savings amount is only going to get better.
Of course. Instead of paying extra for the house, the renter maxes up their Trad, 401K account and save a lot of tax NOW. And, the investment portfolio will keep up with the inflation.
No liquidity risk and do not need to count on job security. No need to put all the eggs in one basket.
Money is fungible.
Who is in a SAFER position? The renter or the house owner?
Okay I ran some numbers, so let's look at this objectively (if you can).
I bought 8 years ago, about a $350 a month increase between my rent at the time and my new mortgage. So let's pretend I kept renting and invested that $350 a month instead. Annualized returns for S&P 500 including reinvestment of dividends are (according to something I found on the 'net), 6.8%. So doing a PV calc in excel I'd have $46,731 extra now.
Except, now my rent would be $450 a month more
than it was 8 years ago, based on going rates in my neighborhood. And I have $130k in equity approximately. I recognize home equity is a nebulous value bound to change, but so are stock market investments, and this is a hypothetical only.
And in real unadjusted for inflation dollars, my mortgage today is $200 cheaper than my rent was 8 years ago. I am including property taxes and homeowner's insurance in all my numbers.
And taxes? That $46k might have saved me 15% in taxes today, but I'm going to have to pay them some day. On the other hand, there's an exemption on home value taxes, so if I move I can sink my equity into a new place to live without paying taxes on how much my home has appreciated since I bought it.
A very diligent saver might be better off renting. I still say the 'average' person (and I am decidedly average) would not be an idiot to buy if they can afford it.
Where the tides of fortune take us, no man can know.