patrick.net

And, the moral of the story is?

My table columns didn't come out quite right - I hope people can understand To Masayako 2456 - borrow real money from real people is the moral!

Your numbers may be a bit off, but your premise is correct in my opinion.

I remember some years back I heard a shocking statistic that only 2% of Americans actually own their own home. I think if you have an outstanding mortgage on your home it cannot be considered true "ownership" or at least I never have, it's more of a rent to own type relationship to me it would seem.

Of course Americans believe it's their own home because the deed may be in their name, never mind that the vast majority of foreclosures by a bank are succesful.

This is a very good sign, everyday more and more people are waking up.......

madhatter says

As a matter of fact, the bank likes nothing better than to foreclose on a house where the borrower holds a lot of equity. It can easily sell the property for at least the outstanding balance on the loan and be guaranteed a profit.

Will you please stop writing posts without being informed? First you write that private investors with massive cash will loan money at 2% for unrelated/unaffiliated people to buy houses, and now you're suggesting other bizarre things:

1) that the equity of redemption doesn't exist
2) that people who necessarily must default 25 years into a 30-year fixed loan don't realize that they could sell their home as a remedy

In answer to some criticisms about my conclusions:

The owner, after 25 years of paying, having borrowed $300,000, does not want to default but to sell instead:
Assumption: there has been no down payment on the loan
Sold after 25 years when there has been no annual appreciation - (of course any down payment must be added to the loss below!)

Selling price $300,000
Original purchase costs ($10,000)
Selling costs: ($30,000) - includes 6%commission
Unpaid principal ($78,000)
Interest already paid ($227,000)
Loss: ($45,000)

Conclusion: Appreciation over 25 yr MUST happen if you are not to lose money - real appreciation, that is, not false appreciation due to inflation.

If prices decline??? You do the math. It is obvious that you must lose even more and probably a lot more!

I have no idea what $300,000 today will be worth 25 years from now although it is possible to look back, and by one inflation measure (the change in the Consumer Price Index) $600,000 today will buy what only $300,000 could buy 25 years ago.

I’m not attempting to write an all-encompassing treatise about the housing market.
Even if this were possible, it would fill a library and nobody would read it.

I cannot predict future inflation-deflation rates, future supply-demand or regional property taxes, tax deductions for individual cases, future local rents, future real estate appreciation or depreciation etc. - the future is simply not predictable. Each of these factors and many more are important. I’m simply applying a concept I learned in school - break down a complex problem and examine it one piece at a time.

It is up to the individual to make assumptions and apply his or her personal parameters to gain insight and help make decisions based on incomplete information. Good luck!

How many of you still tell people after years of paying a mortgage that the price you paid is the number the Realtard told you your house was worth when purchased. ,..um anyone ever look at the number on the back pages of the loan paper work.
that's what you're paying. it's a lot larger and I never hear anyone use that number which is the real price you've signed up for., the one you're going to pay over time.

my car was 25k sticker price. but when someone asks me I tell them I paid $32,500 at the end of it all. because i don't lie to myself like a home borrower does.

Katy Perry says

How many of you still tell people after years of paying a mortgage that the price you paid is the number the Realtard told you your house was worth when purchased. ,..um anyone ever look at the number on the back pages of the loan paper work.

that's what you're paying. it's a lot larger and I never hear anyone use that number which is the real price you've signed up for., the one you're going to pay over time.

my car was 25k sticker price. but when someone asks me I tell them I paid $32,500 at the end of it all. because i don't lie to myself like a home borrower does.

/slowcap

excellent point

Austinhousingbubble says

In my experience, rents often remain static for years and even occasionally go down. There's also the the ability to move to another rental with relative ease compared to a permanent address.
Meanwhile, total housing costs do not remain static if we include insurance costs and property taxes. I have friends who bought in the early nineties and their taxes and insurance are more now than the prinicipal and interest payments on their houses.

What have rents done since the early nineties? That would be the proper comparison.

It's probably regional to some degree. Personally speaking, from 1994 to 2003, my rent went never went up once; from 2003 to 2008, it went up about 150 bucks; from 2008 to present, it's remained static. Maybe that's unusual -- but I honestly don't know.

I think an even more germane question may be - how much money would someone have saved by renting an equivalent structure starting in the early nineties, as opposed to buying the same? I know I saved a lot.

My point was this: at least where I am, the monthly mortgage payment is not static between payment one, and payment three-sixty. YMMV.

Austinhousingbubble says

I think an even more germane question may be - how much money would someone have saved by renting an equivalent structure starting in the early nineties, as opposed to buying the same? I know I saved a lot.

You are the exception then. My guess is that 95% plus of people that purchased in the early nineties and have remained there til now are ahead of renters. I'd say most are WAY ahead.

If we're both guessing, and my guess is as good as yours, then it's not certain that my situation is exceptional. It may be, but again...I don't know. I think Patrick suggested that his rent had also remained at par for the last several years.

What I do know is that if my friends had tied up that same downpayment money in Dell stock circa 95, they'd have done much better.

Austinhousingbubble says

What I do know is that if my friends had tied up that same downpayment money in Dell stock circa 95, they'd have done much better.

lol. And if they had tied it up in Blockbuster stock, then they'd have done much worse.

Katy Perry says

because i don't lie to myself like a home borrower does.

LOL. good point.

Katy Perry says

How many of you still tell people after years of paying a mortgage that the price you paid is the number the Realtard told you your house was worth when purchased. ,..um anyone ever look at the number on the back pages of the loan paper work.

that's what you're paying. it's a lot larger and I never hear anyone use that number which is the real price you've signed up for., the one you're going to pay over time.

my car was 25k sticker price. but when someone asks me I tell them I paid $32,500 at the end of it all. because i don't lie to myself like a home borrower does.

Haha - this is a good point, but a bit disingenuous. With so many different factors going into it, if somebody asks "Hey, nice car/house, mind if I ask how much it cost you?" you don't go into detailed answer about your credit history and how it affected your loan interest rate and then explain that because you paid it off in 2/3 the time you saved some money, etc.

I bought my truck in 2007 - 5 years, 0% financing. Out-the-door I borrowed $31,000 with no interest. Sticker price was $39k, I put $2k down. So when somebody asks me how much my truck cost me, I can say "$33k".

My wife's car, we bought in 2009 for $15k, used. Interest rate was 6%. When somebody asks me how much it cost, I don't reply with $17,500 or whatever. I say "I bought it for $15k" because that was the sale price. Whether I paid cash or borrowed the money, I bought the car at that price.

The money I'm paying back in interest isn't for the car, it's for the convenience of borrowing the money.

I think that's an important distinction. When you buy a $500k house @ 5%, you're doing it likely because you don't have $500k in cash. (or you do, but you think you can make a better than 5% return on it)

The extra $450-$500k in interest charges over the 30 year life of the loan are convenience fees.

So yeah, total cost of ownership should include those numbers, but the price of the initial item stays the same.

Which is why they advertise things with those prices - because your method of buying it and mine could be completely different and we need to compare apples to apples.

madhatter says

I’m simply applying a concept I learned in school - break down a complex problem and examine it one piece at a time.

But you didn't do it correctly. Your original post completely ignores the equity of redemption and remedies beyond foreclosure, as I mentioned above. I'm not sure if it's because you don't understand how foreclosure works, or something else.

In addition, if someone is 25 years into a loan, inflation likely helps them out quite a bit since their mortgage payment may have been fixed for the last 25 years.

I don’t have to speculate. We purchased our current home in 1991. That’s 20 years for the math challenged. Original payoff date would have been 2021. We refi’d twice to reduce interest rates. We have also been making extra principal payments since 2008. Our last payment is planned for December 2011. The cost of interest listed on the initial 30 year mortgage is irrelevant.

Default? I don’t think so. Even when we were struggling from 2004-2007 due to husband’s increasing disability, our choice was to sell, not default. Husband was approved for SSI, so we canceled the listing agreement. In 2007, we had about 75% equity from our down payment, plus 16 years of payments, and appreciation. Yes, that appreciation is much lower today, but we will have 100% equity 5 months from now.

Payoff2011 says

Even when we were struggling from 2004-2007 due to husband’s increasing disability, our choice was to sell, not default.

Exactly! Why would you?

Again, I don't think the OP knows about foreclosure, because the bank would have to give you the equity in excess of the amount owed anyway. If you can sell it yourself, and the bank would certainly encourage it in this case, everyone is better off -- the bank doesn't take on the liability and cost and time wasted, and you get more money in the form of your equity.