patrick.net

You're a troll "War".

Yes, homes that are smaller have sold for 40% more in my neighborhood and there have been over 10 homes that have done so in the last 4 months.

You don't even attempt at answering the question.

Blocking you now

Congratulations on getting out of financial nightmare - I mean, didn't you short sell your last place?

Bubblesitter: Yes, I did short sell my last place back in 2009. Patrick.net really helped along the way. Hmmm, guess I should donate $10 to PAtrick now.

Oh, and thanks

Thanks SFace, that makes sense. I guess I didn't' articulate the question well. I am curious at the amount of principal paid off year to year on homes throughout the U.S. Let's say interest was always the same, and homes never appreciated/depreciated AND inflation didn't exist. Now, 20 years ago were people paying off their homes quicker (because they refi far less often)?

People are getting lower payments but extending their payment terms. Who has only a few years left on a 30 year? Probably very few.

kronicade,

Of the top of my head, about 1/3 of Americans own their house free and clear.

What SFace said above is correct about more principal pay down with lower interest rate. With interest rate so low, it doesn't make sense to have a lot of equity idling in your house, but it has to do with one's comfort level.

Say you have $400k in equity in your $1M house, and it drops 40% in value. You have just lost all of your equity. In general, your house goes up or down in value regardless of how much equity you have in it. Can you earn more than 3.5% on your equity?

Here is an example. A lady bought a duplex in 2005 for $720k. She put $360k down and borrowed $360k at 6.5%. In 2009, the same duplexes were selling for $330k to $360. Her equity was completely wiped out. Ouch.

There are some advantages to having the home paid off, even if the interest arbitrage is more favorable for not paying it off. The house (being a "homestead"? or whatever) is a protected asset against certain kinds of claims.

Thanks underwaterman, but as your username implies I think you have a slightly biased viewpoint.

The article also compares rocks to houses?

But, back to your question. Maybe an easier way to make the comparison is on percentages. What is the percentage of a person's salary going into actual principal today vs 10,20 and 30 years ago?

Obviously down payments have fluctuated from 20% to negative percentages. Obviously some areas have seen homes go up tenfold, and obviously interest rates have been all over the place since the 70's (mostly declining).

My point is that refinancing with a new interest rate prolongs the time it actually takes to own a home free and clear.

If a home actually has zero percent growth in value this make it easier. If a home is just considered a "Deed" how well are people paying it off compared to 30 years ago.

-Kronicade

So, I'm not interested in the "investment" of a home. I'm just curious at how well people actually pay the loan off (yes, yes, homes depreciate, but let's assume it's not).

Yes! That's exactly what I see too. People in my area almost never pay off ANYTHING from the original amount. It's almost like they're RENTING their own home with no real intent to pay it off.

Typical Example: 60 something friends of mine bought in the late 80's for about 210k. Their mortgage is about 350k. (home is easily 950k now)

Or, I know some people who purchased in 1989, after about 15 years decided on a new kitchen. Now, the house they bought at 225k has a 90k mortgage. (Should be paid off, home is about 500k).

true, true, very sad

Call it Crazy says

Plus many of these people who refied during the bubble are now sitting underwater and trapped...

Trapped for a generation,providing a steady flow of inventory to investors/flippers.

I know a few, very few who ATM'd the house, can barely afford the property taxes, and the fridge is basically empty. I know more who, and one or two upon my advice moved to a 15 year loan, getting as low as a 2.8% rate. These are places that they owe around 100k on so it's an affordable payment for them. Still, if you talk with the average financial adviser they would say don't bother, keep that 30 year loan, let the dollars you owe depreciate and invest them elsewhere. Still others may say, don't ever pay the home off. Still, I see quite a few home remodeling projects going on again, friend of mine who specializes in 3 season porch/ decks always has sales. Both my grandparents owned but they paid like 20 something thousand for these places originally. It's different everywhere you go, but prices are back up around where I live so it feels the same as it did pre 2008 anyways.

You might find a few answers in this paper co-written by Robert Shiller.

http://cowles.econ.yale.edu/P/cd/d18b/d1876.pdf

Note that page 19 of the last source link I posted states that the average length of a mortgage in the United States before a sale or refinancing is about seven and a half years. I believe this is the number being used by Patrick on this site and in his new book too.