Have ya'll factored in that rents climb with the rate of inflation, but mortages on fixed rates stay pretty flat. My father-in-law makes payments on a $400,000 house at a rate of about $200 a month. Can't imagine what the rent would be on it today. SM
You are absolutely right. My kid was in a second grade last year and his "first love's" family was moving to another location. That is why I know many details.
That's because of the amortization schedule, which reflects home equity (savings) by the owner. Your father-in-law is paying only $200/month because he has already saved the vast majority of the price of the house. In order to accomplish that, he had to pay a great deal of interest at a time when dollars were much more valuble than they are today. Martin
I think that what he means is that you can lock the same payment over 30 years whereas as a renter you have no choice but to pay prevalent market rates. Inflation helps the homeowner since the mortgage payment remains the same whereas revenues should increase. So what was once taking up 30% of monthly cash-flow, may only take 5% after 15 years.
Inflation expectations are built into mortgage rates. If the rate of inflation is relatively constant, it helps neither homeowner nor renter. Rising inflation helps an owner with a fixed rate mortgage. If you want to bet on rising inflation, go ahead and buy a house on fixed notes. Or short long bonds, it amounts to the same thing. Martin
Ive seen similar 17% declines here in san diego. 17% of 975K is painful. Someone near me is in the hole $165,000, has a mortgage he can barely afford, has an ARM and an interest only loan. He may be forced to sell if interest rates click up again. A lot of people are going to be real hurt in the next few years in SoCal.
I can live in a house, can't live in a bond. Hardly the same thing. If when you bought your house 20 years ago your mortgage payment (on your 30 year FIXED) represented 30% of your net income, and it still represents the same amount now, then I am sorry for you because you did not get a pay raise in 20 years. Of course by now, the amount left on our mortgage is probably small enough (as a % of revenues) to be completely paid off.
There is no general, correct answer. It depends on what return you can get... on the equity in the property. If it's 5-10% then owning is the way to go... If it's 30% (like me) then real estate is not attractive. Also... A property often becomes a millstone for the owner. Instead of capitalizing a successful business and an independent lifestyle... Many home owners sentence themselves to a life in corporate, cubicle hell. Also... The wife will get the house 100% of the time.