Some reasons not to buy a home

An article offering some good points to consider:

http://moneycentral.msn.com/content/Banking/Homebuyingguide/P37627.asp


Getting laid off would have been a horrible experience for me, if I had listened to everyone and bought a house.  Because I rent, I not only have the freedom to live wherever I find a job, I have the luxary to work only for a company that's worth working for.

The main problem with a mortgage is that it's an expense which you can't easily reduce when you need to.  Unlike children, who don't HAVE to be fed.  They can beat up someone else's kids and steal their lunch money.  Live off the land, and all that.

VP
Saturday, February 28, 2004

As a homeowner all I would have to do is become a recalcitrant landlord and have someone like you pay my mortgage.

Oren Miller
Saturday, February 28, 2004

It's also not true that you can't reduce the expense.  What you generally do is get a long term mortgage say 30 years, and plan to pay it off in say 20 years.  You do the numbers before hand to figure out what you can afford at this rate.  If you have problems and can no longer afford to pay at that rate, you can begin reducing you're payments to the 30 year schedule (or somewhere in between) with no penalties.  With the tax break on the interest and the equity you build on the principal, it really is *generally* a good deal.

What is true is the part about flexibility of location.  If you have to move within 5 years of a purchase of your home, then the benefits are lost because of the various fees involved (though I would say 10% is very exaggerated).

Oren Miller
Saturday, February 28, 2004

The Ted bought a house that he could afford to pay off in 15 years, but took out a 30 year note on it, precisely in case I did get laid off.  Also, around here, my house payment is only $100 more than what I was paying in rent.  If I would've put 20% down on it, I could rent it out cash flow positive immediately. 

The Ted
Saturday, February 28, 2004

I don't know about where you guys live, but here in NJ, owning a home was a plus during the economic downturn.  I had one friend who had bought a new home only a few months before getting laid-off.  By that time, his builder was charging 75 grand more for the identical house, he therefore had 75 grand of equity that he borrowed against to live off of while searching for a new job.

He got a nice new job, with more salary, has paid off his equity loan, and now has 125 grand in equity since prices have climbed another 50 grand in the year since he got a job.  Try doing THAT with an apartment.

Ken Klose
Saturday, February 28, 2004

If you can: buy.  Especially if you're young.  Can't remember who said it, but words to the effect:

"They ain't makin' any more land"

Look at the price curve in Boston, NYC metro, etc.  You could have lost tons in the stock market in the last few years and made it all up in equity.

dir at badblue dot com
Saturday, February 28, 2004

Also, with the current interest rates and depending on your location, paying a "mortgage" is often cheaper than renting.

Saturday, February 28, 2004

VP, buying is a no brainer for the long haul.

When you buy, you lock in the same payment for 30 years.  The renter, OTOH, will only see your rent rise for the next 30 years. 

A person who bought a house in 1975 for $60k has been paying $300/mo to live in their house for the last 30 years.  And, now the house is paid and the cost is $0.  and they are also sitting on a $500,000 profit which will finance their retirement.

Meanwhile, the renter, is now paying $3000/mo to rent the same house.  And has $0 profit.

Also, last I checked, you ARE allowed to sell your house and move.  And in this market, you can find 3 buyers at the end of a week.  It can take the same time to sell a house as it does to get out of your renters lease.

bella
Saturday, February 28, 2004

Since this is a programmer's board, let's attune this reasoning to programming as an occupation. Demand has become increasingly spotty for our line of work. I know *many* programmer types who are hanging on by their fingernails, invested in home payments that were predicated upon the late 1990s type compensation schemes increasing ever upward.

Back in the 1970s and early 80s, the rust belt of the US was a bloodbath because of blue collar layoffs in the auto industry. Towns that specialized in auto manufacture and related stuff had incredibly damaged real estate markets that took years to recover. And what happened to blue collar industries in the last 20 years is now happening on a smaller scale to IT.

This is why I bought cheap and paid off my house early. At least I don't have a mortgage payment to think about.

Bored Bystander
Saturday, February 28, 2004

I don't think the issue is about buying a house or not.  It is about living within your means.  Buying a house that requires payments equal to 40% of your take home pay probably isn't the smartest thing that you can do financially (although I have done it).  It is just important to have an emergency fund that can get you through 3-6 months (or more) of 'normal' monthly expenses.  Although in this market maybe you need closer to a year or two worth of expenses to be really safe.

Having said that if you are the type of person that likes a new environment every couple of years, maybe buying a house isn't for you at all.  You will almost certainly lose money if you buy and sell a house every two years...

Ray
Saturday, February 28, 2004

In Israel, the situation is reveresed - econmocially, if you can afford to buy a house without a mortgage, you're better off putting your money in the bank and renting a place with the interest you receive. If you buy a house and rent it out to someone else, you're getting less than you'd get at the bank.

And mortgage interest is not tax deductible, so you end up paying a _lot_. Unfortunately, since it isn't possible to "short sell" a house, I see no way to take advantage of this anomality, (other than renting my flat).

There are, of course, other reasons to buy a house - but the economics of the situation isn't one of them.

Ploni Almoni
Saturday, February 28, 2004

I've found that a big part of making the right the decission is having the right point of view.  The more point of views you have to consider, the better your chance of making a good decission  (then again, if you're given a lot of of the same point of views, then it might sway your decission that way, but I digress).  Thanks for sharing your opinions everyone.


Oren,

Good point about taking out a longer mortgage than you're planning to need.  When it finally does come time for me to buy a home, I'll keep that in mind.  Heh, too bad I can't take out a 100 year mortgage.  Though maybe that would have it's gotchas also, outside of not being able to find a bank that would give you one.


Ted,

Good point about renting your property to make cash flow.  Hopefully the renting market is good at the time when you need the cash, but it definately is an option.  I keep hearing horror stories about bad tenants you can't get rid of, due to some local law.  I guess it's up to you to keep informed.

On a side note, I came to realize that if I ever wanted to become a landlord, a source of advice would be my past landlords who I've rented from.  Assuming I didn't burn down their places *knock on wood* I would think they'd be happy to give me some pointers.


Ken,

Ah yeah equity.  Your example is what they call leverage?


Badblue,

It's true, over the very long term, land prices can only go up...unless they discover some nasty thing about your area, like it's susceptable to landslides, wildfires, full of chemical pollution, etc.

I agree that a home can be a good investment, as long as you remember that you can't sell it as quickly or easily as something like stocks or mutual funds.  As the article pointed out, if you know you'll be in the area for many years, you can wait out the the slow down turns.


Bella,

The article makes a point of home owners having to deal with rising property tax and the cost of maintenance (if they didn't buy their home fee-simple).  Of course how that compares to the rise of rent, I have no clue.  The cost of rent probably fluctuates more.

Good point about comparing the time it takes to sell a house vs. the time to get out of your lease.  I guess it depends on your luck at the time.  Are you in a seller's market?  Is your landlord nice enough, or lazy enough, to switch to monthly pay after you prove yourself with a few leases.


Bystander,

Yeah it's a shame tech jobs have become so volitale.  Morale of the story:  Marry rich!

Yeah like you, I can't help but compare the tech industry to the old blue collar industries.

When it does come to buying a home, I think I'll follow your lead and go cheap.  Once I have a home secured, I might consider the McMansion (heh, assuming I get paid enough for that, yeah right)


Ray,

Very good point, about living within your means.  Another critical part of me handling the layoff well was not have much in the way of expenses.  I'm lucky that my wife and I are happy with a simple life style, and the kids are still very young, but old enough to understand some simple tactics in intimidation and terrorizing.

I agree with you that 6 months of savings doesn't seem like enough these days.  The nice thing about one to two years savings is it allows you do more research and be more selective about the job you take.

I'm not the one uproot for the heck of it, but there are probably a good number of readers out there with wanderlust who should consider your point.

VP
Saturday, February 28, 2004

It would be nice if when you got a mortgage that it locked the price for 30 years.  Unfortunately that isn't the case in the general run of things in the UK, at most you'll get a deal for five years.

Simon Lucy
Saturday, February 28, 2004

You can't get a 15 or 30 year fixed note in the U.K.? 
Holy crap. 

The Ted
Saturday, February 28, 2004

I should have put my original post into context.  I live in an area where there are few tech companies to choose from.  If I get laid off, either I stay and take a crappy job, or move to greener pastures.  Hence my current preference for mobility.

Of course those of you who live near tech centers like Silcon Valley or San Diego, you can afford to stay put, so buying a home there is less risky.


Simon,

Ouch, only five years?  Hmm do you think that's because there's less living space in the UK than the states?  Though I can't see an obvious connection.  Hmm.  There's probably another reason for only a 5 year mortgage.

VP
Saturday, February 28, 2004

Nope, well I'll revise that.  Gordon the Gopher Brown (Chancellor) would like long term mortgages, if nothing else it would cool the housing market and help bridge the gap between Us and Euroland so we can have multicoloured money too.

But there are reasons for them not really existing.  Historically the mortgage market has lived off marginal rates mostly running at around 2% above bank rate.  Now you'll see fixed rate offers for five years, or fixed marginal rates, our personal remortgaged rate is now about 1.6% below the bank rate.

In mid-80's the bank rate was at 15%, so some people were paying 17% on their mortgage at a time when housing prices were falling after a boom.

Right now were in another housing boom but in a market with far lower interest rates.  The result is that first time buyers are becoming excluded from the market, which in the end will slow it down.

Simon Lucy
Saturday, February 28, 2004

The usual in the UK is for 25 year mortgages *but* variable interest rates and often an initial discount.  The tendency is therefore for people to remortgage at the the end of the discount period.  You can get a fixed loan but there's a premium to pay and as Simon pointed out people have been caught out previously.

The UK Housing marking tends to be volatile to put it mildly  -  with booms followed by sharp corrections - but overall house values are relatively high - a product of population density and cultural values. 

a cynic writes...
Saturday, February 28, 2004

I can't even imagine not owning a home. That was my first priority once I started working.

I suppose if you plan on being transient and moving around a lot, then perhaps a home isn't such a great idea, but if you're having to uproot every few years I might suggest a different line of work. Life's too short to spend half of it moving!

Our first home is now a rental property and I've got someone else paying the mortgage and the taxes while I deduct it from my income tax. All the while I'm capturing the appreciation in value; not them. And I'm doing this on an initial investment of $2,500 down on the house. That's double-digit ROI. Try getting that every year on your 401k without insane risks.

Granted, this works out well until they move out and leave the house in shambles and I'm forced to pay two mortgage payments. But the risk is worth the reward. One of the best ways to slowly accumulate wealth in the US is through real estate.

Mark Hoffman
Saturday, February 28, 2004

> One of the best ways to slowly accumulate wealth in the US is through real estate.

Which suggests something is wrong. Why should people get wealthy by doing nothing, and exploiting others?

Me and the view out the window
Saturday, February 28, 2004

"Which suggests something is wrong. Why should people get wealthy by doing nothing, and exploiting others? "

Exactly how am I exploiting them? Are you going to let them live with you? Are you suggesting that they move into Section-8 housing, or perhaps you would rather than live on the street rather than enrich someone else?

My tenants, who have lousy credit, are able to live in a nice that they couldn't afford to purchase. That's a benefit to them.
I take a risk because if they up and leave, I'm stuck paying the mortgage until I find new tenants. For that risk, I am compensated by the income I earn on my investment.

Furthermore, most of the wealth is earned by the appreciation of the property value, not by the rental payments. Are you suggesting that the appreciation in land values in somehow unethical or immoral? How do you figure that?

Mark Hoffman
Saturday, February 28, 2004

> Heh, too bad I can't take out a 100 year mortgage. 
> Though maybe that would have it's gotchas also, outside
> of not being able to find a bank that would give you one.

I remember hearing about very long term mortgages (50+ years) in Toyko due to the extremely expensive real estate market (and very low interest rates?). 

I think the idea was you passed what was left of the mortgage on to your kids along with the house.

The problem is that the difference in payments between a 30 yr mortgage and a 100 yr mortgage would be very small, but you are paying one for a *lot* longer.

At a mininum you have to pay your x% interest a year regardless of the amortization term.

Rob Walker
Saturday, February 28, 2004

FWIW A Cynic Writes's comments apply to Australia as well.

Les C
Saturday, February 28, 2004

On the other side of the coin, I am a fairly recent graduate who lives and works about 45 min from NYC. Thanks to the 2-decade housing boom in this area, I can't afford a Condo inside a 1-hr commute radius, despite a salary which is quite comfortable. Furthermore, housing costs continue to outstrip wage increases (both on average and mine in particular) by a healthy margin.
This means that neither I nor anyone in a comparable or lesser-paying job in this area will likely ever own a home. That is simultaneously aggravating and demoralizing.

Devil's Advocate
Saturday, February 28, 2004

> I can't afford a Condo inside a 1-hr commute radius, despite a salary which is quite comfortable

By definition, you do not have a comfortable salary.  Wake up.  You are poor.  Piss poor, in fact. 

bella
Sunday, February 29, 2004

In Japan its normal, especially in the cities, to have the children inherit the parent's mortgage this is equivalent to serfdom, especially as many of the holders of the mortgage are the companies they work for.

Whether these can truly be called mortgages is moot.

Simon Lucy
Sunday, February 29, 2004

Mark, you just explained how you're exploiting them. You're having them pay your mortgage while you derive all the appreciation in value. You do nothing but get wealthy. They pay the bills and get nothing.

If it wasn't profitable for people like you to buy houses you don't need, other people would be able to afford them, instead of having to pay people like you for housing.

Second, you take very little risk or you wouldn't do it. You make a motza without lifting a finger.

Third, the appreciation in value arises from actions of the community, including better transport, not from anything you do.

George
Sunday, February 29, 2004

"They pay the bills and get nothing."

Actually, they get a place to live.

The Ted
Sunday, February 29, 2004

housing prices don't always go up. here in the seattle area, rents are far cheaper than real estate. real estate is probably in a bubble, it will correct or stop increasing at some point.
people who bought recently and rent out their houses lose money each month. if they're lucky, they don't lose much, and will gain it back very long term.
real estate is illiquid; not only is it hard to sell, the transaction costs are high (6-10% for most cases).

so if you plan to be somewhere long term, sure, it's worth it. and if the market is in the right place, it's worth it. but it's not the guaranteed investment some people make it out to be.

mb
Sunday, February 29, 2004

"but it's not the guaranteed investment some people make it out to be"

It sure does sell books though.

Sunday, February 29, 2004

mb, for example there's a graph at http://www.randi-emmott.com/market.htm that shows the fluctuation in Toronto.

Christopher Wells
Sunday, February 29, 2004

I've got a colleague here in Saudi whose family lives in a house in the Rust Belt, Pittsburg I believe. It's a four bedroom town house, maybe 1,600 square feet. He bought it for $24,000 about fifteen years ago, and it is now worth a whopping $32,000 he says.

You couldn't build a house for that price, never mind the cost of the land!

Land prices go up where there's work, skiing or nice weather.

Stephen Jones
Sunday, February 29, 2004

I suppose I know better than to feed the trolls, but perhaps some of this bears spelling out.

My earnings are very high (esp. for someone my age), but my assets are low as I have not been working very long. I say I am comfortable because I can afford everything I want (except real estate) and still put a nice chunk of money in the bank every month.

It doesn't take a genius to see that as long as housing prices increase at a faster rate than both wages and most investments, more people will be precluded from 1st time home ownership.

For single wage earners (in my demographic) starting to work in this area today, only the top 7-8% will be able to afford home ownership unless one of the trends mentioned above reverses. Hence 92% of new hires are destined to be "piss-poor" as Bella put it. Unless we all just save up for a few years and move to the Midwest, where houses are dirt cheap.

Devil's Advocate
Sunday, February 29, 2004

As a landlord, Mark does carry the burden  of risk.  Also the cost of maintaining the home is his, not the renter's.  Therefore he should be compensated.

Being wealthy or increasing your wealth doesn't automatically make you evil.

VP
Sunday, February 29, 2004

I decided to buy a house at the point owning a house became cheaper than renting one.

I was kind of fortunate to jump on the housing bandwagon at that point. I wanted a decent house in a nice area - where I wouldn't have to worry about parking the car at night...

So I happened on just the right place and bought it. It wasn't anywhere near my borrowing limit. People kept wittering at me that I "could borrow much more" when I inquired about loans. People looked at me askance for only borrowing twice my annual salary.

A year later, I've changed jobs and dropped salary, the same houses on the same estate were going for more than 3.5 times my salary.

A year after that, the same houses are going for nearly 3 times the combined income of me AND my other half. And my salary has gone down again... which is bonkers. It's a 3 bed detached "starter home". The house market in the UK is NUTS!

Katie Lucas
Sunday, February 29, 2004

here's another problem:

now if you want to sell that house and make back the 6 fold increase or whatever....

where are you going to live?

(if you believe it's a bubble, you could sell & rent for a while. but market timing is always hard.)

mb
Sunday, February 29, 2004

I'm in a similar boat to Devil's Advocate, though I suspect my salary sucks in comparison (and conversely, real estate in Melbourne, despite it's insanity, is probably much less crazy than NYC).

All I can say is no amount of long-term gain stops borrowing an amount of money equal to *fifteen times* my current after-tax salary from being terrifying.

Every degree of terror down from there takes me a *long* way from the city, which is not only where I work, but where I overwhelmingly prefer to live.  Add in my complete lack of interest in housing matters (not only the market, but renovating, gardening etc) - and I'm at a distinct disadvantage to the thousands in this town who live and breathe housing.

Maybe it's not the best move in the long term, but I'll keep renting, thanks.

Mediocre ASP Monkey
Sunday, February 29, 2004

Devil's Advocate, there are plenty of condos in New Jersey which are affordable by anyone making a "comfortable salary" ($100K) in Manhattan. I have a friend who just bought a house in Ruthersford for $270K.

Also, anywhere with jobs and decent school districts in the midwest is going to be more expensive than you think.

 me again
Sunday, February 29, 2004

All,

As I understand it, interest repayments on your own home is tax deductible in the US?

This is not the case in all countries (eg Australia).

Seeya

 
Sunday, February 29, 2004

Landlords carry very little risk. Before letting their property, they are allowed to perform more rigorous checking of the tenant than a bank performs a mortgage applicant.

The cost of "maintaining" a house is low compared to the rent return and appreciation. As well, most landlords fail to maintain their properties at levels they themselves would consider suitable.

There is a difference between acquiring wealth through hard work and acquiring it through exploiting low-income earners.

George
Monday, March 1, 2004

George,


You're focusing on the most despicable type of landlords.  Like most JoS readers, I know they exist and I dislike them also.  Nothing new there.

I'm focusing on landlords who worked hard and sacrificed their short-term desires for the ability to own a home.  I assume Mark is one of those types.

I hope you never have to suffer under the kind of landlord you keep talking about.  If you do, you have my pity.

I count myself lucky to have a very good landlord.  I'm happy to help him pay off his mortgage, because I get what I want out of the deal.  I don't feel taken advantage of.

VP
Monday, March 1, 2004

ASP monkey,


Good point about being terrified by the cost of a home compared to your salary.  Related to Ray's comment about living within your means.

For me, I appreciate not having the fear of a high mortgage.  I can rationally research and choose my next job.  I can take a more satisfying job even if it means a salary cut.  It helps keep me from making decisions based on fear.


Kattie,


Congrats on owning a home and purchasing it at the right time.  Kudos to you for only borrowing what you were comfortable with.  I'm sure those bankers would have wanted you to borrow more!

Too bad about the crazy housing costs.  I hope the realestate taxes are reasonable.

VP
Monday, March 1, 2004

The appreciation in value of my house has paid my mortgage several times over. Payment from rent disappears completely from my life.

Most mortgage companies will happily come to reduced payment arrangements with you, providing they think you will get another job. It makes them more money to do so (they make money on interest remember, you reduce your payments, you pay more interest in the long run). Wheras most landlords will not reduce your payments (they have their own mortgage to pay).

Mr Jack
Monday, March 1, 2004

You can just move whenever you want if you're renting w/o consequence?

Around here landlords make you sign 1 year contracts when renting. 

If you move, you are still responsible for rent until they can re-rent the place.  Obviously, sometimes they aren't too motivated.

If you own a house, you get to be in charge of getting it sold. 

 
Monday, March 1, 2004

Just to give you some context  - the average price of a UK house sold between July -Sept last year was £146,150.  That's  $273,651.28 at today's exchange rate.  That doesn't take into account local variations.  By contrast, a recently quoted figure for a UK devleoper's salary was £25,883 /year ($48,463.33).

a cynic writes...
Monday, March 1, 2004

Sorry George, but you've obviously never been a landlord before. My father and my best friend from college both let out rental properties. Sometimes tenants decide to quit paying rent for months at a time. Even if you ultimately get a court order to evict, you can never be repaid for the months of lost rent. Typically the ones that stop paying decide it would be a good idea to trash the apartment before they leave. If you only have a few units, I think it's easy to see how you can go from breaking even or making a small profit, to having a major loss for the year.

Trust me, there's plenty of risk in renting your property to others. I would never take on the hassle myself. If I want to be exposed to the rental sector, I'll go buy shares in a real-estate investment trust.

Rob VH
Monday, March 1, 2004

I remember making a spread sheet which compared renting and then buying a home outright, renting until I had half the value of the house and buying the house from the get go. 

I think it ended up that renting would leave me with more money in the bank (assuming some sort of yearly interest on my saved money) compared to the other two options. 

So I'm renting until I got the money to buy.  Another benefit is that with renting, you get to checkout the neighbourhood before being locked in. 

Zekaric
Monday, March 1, 2004

The mortgage payment isn't the only thing to think about.

Let's see, since the beginning of this year I've had to replace a garage door, replace a garbage disposal, add gutter toppers to stop ice dams, replace water damaged carpet from those ice dams, buy a new snowblower, and dozens of smaller things. These things don't come cheap.

Welcome to the world of home ownership!

Samo
Monday, March 1, 2004

George,

I bear little risk? Really? Your ignorance of the subject is showing.

If my tenants don't pay the rent, it can take me upwards of 6 months to have them evicted. In the meanwhile, they can literally tear the house apart and there is nothing that I can do. During this time, I either have to fork over the mortgage and let them rent-free, or let the house go into foreclosure.

Over the summer, I spent a small fortune having a new AC unit put in. (We're in Texas.)  That's a cost I have to bear. Not the community.

You say that "most landlords" fail to maintain the properties. Is this a subjective statement, or one borne out of your ignorance? Are you referring to some tenement in NYC? Or middle class homes in the suburbs?

You also said "If it wasn't profitable for people like you to buy houses you don't need, other people would be able to afford them, instead of having to pay people like you for housing."

Oh yes, but of course! If it weren't for me owning that rental property, my tenants credit rating would suddenly go from poor to A+, they would instantly know how to manage their finances and they would immediately be able to purchase a home. Geesh. In many cases, the issue isn't being able to afford a monthly mortgage; it's having piss-poor credit or not being able to save a down payment because of poor personal finance skills.

Mark Hoffman
Monday, March 1, 2004

Here's an interesting article from Slate on mortgage rates (at least from a U.S. perspective).

http://slate.msn.com/id/2096313/

Name? I knew I forgot something...
Tuesday, March 2, 2004

I often wonder what Greenspan is smoking... he notes that the option-adjusted price of fixed rate mortgages is higher than ARMs. As the author of the articles comments, "Duh."

Hey Alan, most U.S. consumers don't understand the concept of spending less than they take in every month. Now they're supposed to run Black-Scholes on their mortgage before they refinance? Back to the ivory tower with you!!!

Rob VH
Wednesday, March 3, 2004

A landlord does not need to justify his risks to anyone.  Anyone who thinks landlords just "sit back and rake in money" has NO clue about teh day to day issues in real estate management.  Don't waste your breath explaining things to this total and complete imbecile.

bella
Wednesday, March 3, 2004

> For single wage earners (in my demographic) starting to work in this area today, only the top 7-8% will be able to afford home ownership unless one of the trends mentioned above reverses. Hence 92% of new hires are destined to be "piss-poor" as Bella put it. Unless we all just save up for a few years and move to the Midwest, where houses are dirt cheap.


Instead of complaining, have you ever considered how to afford a house? For starters, stop spending every last cent of your paycheck.  For a few years:  Live with a few roommates.  Move to a less desireable part of town. Don't eat out.  Move into your parents basement.  Do without a car.  Find a higher paying job.  Cancel the gym membership.  Don't go shopping.    Invest.  Sell stuff.    Get a 2nd or 3rd job.   

ie:  Do whatever the fuck it takes to save up some cash.  And a lot of it.

Then, if you do it right, you won't have to worry about these stupid statistics, b/c you'll just pay CASH for your house.

bella
Wednesday, March 3, 2004

>  For single wage earners (in my demographic) starting to work in this area today, only the top 7-8% will be able to afford home ownership

What percent of people marry and have kids?  Certainly  more than 7%.  And a lot more than 7% of families live in houses.  So somethings gotta give.  (most likely this retarded statistic)  Do not overlook the fact that your wife may have to contribute to the mortgage, hence making it more affordable. 

If you can't afford a house, you are probably brain damaged or supporting a stay at home wife.  B/c housing is still DIRT CHEAP.  A $450k house with $9k in taxes willl run you $3k a month BEFORE tax breaks.  $3k a month is $36k a year.  Which converts to about $55k/year before taxes.  For a dual income couple making $80-100k each, the housing cost of their budget is more than manageable.. 

bella
Wednesday, March 3, 2004

bella, with all due respect I don't consider $3k/month for housing to be "cheap."  While if I were married and my wife made a good income I could afford it, I don't want to have to rely on two incomes to pay the monthly expenses.  It's too much risk and eliminates any flexibility for one parent to stay home.

Please remember that the median income in the US is around $30k.  It happens to be a lot higher in the IT world but that only represents a small percentage of the population.  Many many families are stretched thin financially because of living beyond their means, and that includes oppressive mortgages.  What's the joke?  DINKs (dual-income no kids) decided to have kids and then become SITCOMs (single-income, two children, oppresive mortgage).

Even with my quite good salary for my age as a recent graduate, I'm not eager to buy a home in the Seattle market given housing prices here.  If I did, I'd have to move 25-40 miles from work to buy something that wouldn't have an oppressive mortgage given a single-income.  It's what my brother did to afford a condo and I would have made the same choice as him.

Jeremy
Friday, March 5, 2004

Nice chat.  I am in Ontario, Canada.  I'm also married and have 1 kid, not that any of that is relevant to what I am about to say but you may like to know anyway.

I also made an Excel spreadsheet to compare the cost of buying vs. renting.  It's interesting an dvery enlightening.  Mortgage brokers, banks and real-estate agents all enourage taking on the largest mortgage for which you can get approved.  They will tell you to "weigh the risks" and "do your research" but always tout the superficially relevant difference between the monthly mortgage payments and monthly rent payments. 

They don't seem to want you to also consider costs such as: condo fees (if it's a condo), CMHC (Canada Mortgage and Housing Corporation) fees - which add 2% to the purchase price if the down payment is less than 25% of the total price of the house, land transfer taxes, property taxes, home-owner's insurance, moving expenses, furnishing, window coverings, decorating, landscaping, snow-shoveling (ie a snow blower), re-shingling, fixing the furnace, paying the utility bills (often included with rent), cable tv (often included with the rent), getting a gym-membership (inlduded if renting a condo with a weight rom and pool), repairing the appliances, re-painting, cutting the grass, re-sealing the driveway, worrying about housing-market price fluctuations,  cleaning the gutters, all the time and energy it takes to make the place feel and look like "home" etc, not to mention the cost of car insurance (which can change dramatically from one part of the province to another - as much as 50%), commuting a possibly longer distance, possibly requireing a second vehicle (or a first, if never had one).  Floods, leaky roof-tops, fires, hail and tornadoes take on new meaning.  O sure, you have homeowner's indurance (for now) but here in Ontario, insurance companies won't even warn you before they cut you off completeley and label you as "uninsurable" or a "bad risk" if you make more than 1 (read it - ONE, SINGE, UNO) claim in 5 years.  There is only one compnay here (can't recall the name) that would insure you after that and you pay at least tripple for the isureance.  You'd better be tip-toing around like never before if a tree ever falls on your roof or if ANYTHING happens for which you make a claim.  The unwritten rule when it comes to insurance here is "make no claims". 

Ok that's a lot, but now add to it the act that, on a modest 175,000 mortgage, over 30 years at a modest 4.5% interest rate you pay about $145,000 in interest and lose of thousands in potential other investment income, even at a consistantly very low rate of return.  That plus all the headaches, makes buying a home a rather poor invenstment for an otherwise shrewd investor. 

For other people, who, instead of renting and investing the difference, decide to go and take out car loans, eat out a lot, go on extravagant vacations and otherwise pamer temselves on credit, loans and dont-pay-a-cent events, they would be much better off strapping themselves into a mortgage for a few decades and foregoing some of the frivolities in exchange for building a touch of equity (even if it is only a touch). 

As for me, I still would love to own a charming old place in a semi-rural setting on a big beautiful treed lot with a fireplace and a fenced back yard with a swing, sandbox, garden and fruit trees etc.  Ahhhh - you just can't put a price on raising a family in a place like that. 

Chow.

Nice Guy
Friday, March 26, 2004

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