tag:blogger.com,1999:blog-2096776708897685863.post3852732796480147890..comments2024-02-23T04:39:49.329-05:00Comments on Conversations in Klal: On House OwnershipProfKhttp://www.blogger.com/profile/17954446826821665314noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-2096776708897685863.post-76216469462056606992011-01-03T15:28:10.714-05:002011-01-03T15:28:10.714-05:00Over the LONG Run, housing normally appreciates at...Over the LONG Run, housing normally appreciates at around the wage growth rate, inflation + 1%. In the short run, who knows. In the time most people own a home, it's less than inflation...<br /><br />A graph showing housing prices back to the Civil War (when we started having useful records in this regard) showed 3 booms, post-Civil War, post-WW2, and 90s/2000s booms. Outside of those windows, housing prices appreciated slightly less than inflation, those booms made up for it however.<br /><br />However, the rent vs. own ignores a few things:<br />1: people are TERRIBLE savers<br />2: homestead protections, Florida, Texas, and a few other states protect your home in case of bankruptcy<br />3: financial aid calculations, for both Yeshiva AND College, take home ownership costs into consideration<br /><br />Regarding the Yeshiva fight... the fight is that basically, if you go house poor and buy a house with a big mortgage, your tuition reduction will be increased by your mortgage payment... i.e. if I rent for $2000 instead of carrying a $3500 mortage+taxes+insurance bill, the Yeshiva figures that I have another $1500 to pay for tuition.<br /><br />As a result, that big fancy mortgage is effectively paid for by the other parents.<br /><br />If I rent and save the $2k/mo in a savings account, the Yeshiva will expect me to exhaust that before getting financial aid. However, none will expect me to give them the equity in my home directly.<br /><br />Housing is a pretty good inflation hedge as well.<br /><br />In addition, what all the calculations ignore is that housing is the ONLY investment where normal people are able to get leverage, going 200% long in the stock market is VERY risky, while going 500% long (20% down mortgage) was very conservative until a few years ago, and 3300% long (3% down) was possible as well.<br /><br />If inflation runs 3%, housing goes up 4%, and I put 10% down on a house, I've made 37% on my investment in year 1 ($100,000 home, now worht $104,000, I invested $10,000 and now have $14,000 in equity, worth 3% less because of inflation). In a "normal" up market, housing is a "great" investment for more "normal" people.<br /><br />Even at inflation -1%, it's a good investment (I'd have $12,000 in equity, after inflation, still a 17% return).<br /><br />So yes, housing makes sense, but the Yeshiva mess is forcing EVERYONE to overleverage, overbuy housing, and therefore bubble the housing market since everyone is willing to overpay because they don't care.Miami Alhttps://www.blogger.com/profile/02977503720972852329noreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-74553908280087062022011-01-03T13:14:00.034-05:002011-01-03T13:14:00.034-05:00Anonymous, the last one, I'm guessing that you...Anonymous, the last one, I'm guessing that you bought somewhere in the 60s or maybe early 70s. So maybe a fixed mortgage in the 3-6% range? I know that house prices went up a lot since then, which benefits those of us who bought around then. But you're not going to see that kind of growth today.<br /> <br />You had your house about maybe 35 to 40 years? The person who bought your house at around $600 thou is not going to see that house worth 13 to 14 times what they paid for it 40 years from now.<br /><br />So a house as an investment, maybe the key is how much did you pay for it initially. How likely is that house to go up more than double in value or triple or quadruple? A savings account at 5% doubles every 12 years. Will the house you are looking at be able to do that over the time period you are looking to own it? If that's not likely you need to look for a cheaper house and probably a cheaper neighborhood if you want to collect any intrest on that house when you sell it.Ritanoreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-84733350015607174462011-01-03T11:51:30.794-05:002011-01-03T11:51:30.794-05:00May be one of the differences in looking at a hous...May be one of the differences in looking at a house comes with how old you are. Back in our day Prof there were only fixed mortgages not variable ones so we knew up front just how much our houses would cost us year to year. The tax advantages were also better than what the government is looking to do now.<br /><br />We looked in Brooklyn when we were first buying a house. We figured we could handle about %85-90K in house price. A semi-attached in Midwood with almost no property but the house was going for about $86k then. A semi-attached in Queens would cost us about $45k. We bought a semi-attached, both sides, and got the price at $88k with a little bargaining. We rented out one unit and lived in the other.<br /><br />Surprise, surprise, three years ago we sold both units for about $1.27 million. Even after taxes (and keep in mind the break for first time house sale) and taking into account money that had come in in rent and gone out on fixing up, we cleared $890k. That bought us a nice 3 bedroom condo in a sunbelt city and a 1/3 share with my sisters of a large apartment in Israel that we all use. And that left us with $670k in cash to finance not only any expenses on the two places and travel expenses but with money left over for other things.<br /><br />No a house shouldn't be the only way families save, but it can be one of the ways and if you're smart it can give you really nice dividends.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-45445418665838287162011-01-03T10:47:21.286-05:002011-01-03T10:47:21.286-05:00Thanks Anon, error fixed.
Everyone please keep ...Thanks Anon, error fixed. <br /><br />Everyone please keep in mind that the posting doesn't say a house as the only investment being made--that's house plus other savings as well. In the context of a diversified investment portfolio, the house works perfectly fine, as long as the investor is savvy and looks at the house cost realistically.ProfKhttps://www.blogger.com/profile/17954446826821665314noreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-34039342387066592902011-01-03T10:23:21.409-05:002011-01-03T10:23:21.409-05:00There's a reason that homeschooling is on the ...There's a reason that homeschooling is on the rise in the Orthodox Jewish community. Given the high average number of children in a family and the average cost of tuition, contrasted with the average income, it seems like an obvious solution. Granted, it is not for everyone, but I think that (a)it would work well for far more people than consider it, and (b)the more people who choose to homeschool, the more socially accepted it will become and the more options will become available to those who do choose it.<br /><br />As a parting note, be careful not to confuse cause and effect when looking at the often discussed correlation between homeschoolers and quirkiness, for lack of a better term.<br /><br /><a href="http://asformeandbeiti.blogspot.com/" rel="nofollow">Primum Non Nocere</a>Primum Non Nocerehttps://www.blogger.com/profile/01928564781704168333noreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-57418325972040854882011-01-03T10:06:58.204-05:002011-01-03T10:06:58.204-05:00Please correct 401C to 401(k). You are clearly an...Please correct 401C to 401(k). You are clearly an educated woman, but a careless error like this takes away from your message.<br /><br />Please note that I would not leave this comment on a blog that is not as well-written as yours.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-84070142331932509222011-01-03T08:48:46.716-05:002011-01-03T08:48:46.716-05:00I agree with ProfK that the issue shouldn't be...I agree with ProfK that the issue shouldn't be home ownership v. renting, but one of how much home, where that home is and how expensive it is. I would also add the question of when to buy. Too many people may have bought too soon. You should be able to save enough for a 5-10% down payment (10% is better)AND have a good size emergency fund to cover things like the roof that leaks, the furnace that goes in the middle of the winter.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-88311371245002872962011-01-03T08:45:17.630-05:002011-01-03T08:45:17.630-05:00Subwife is correct, but with the caveat that it al...Subwife is correct, but with the caveat that it also depends on the luck or good sense of when and where you buy and sell that house. However, no one should consider a home their retirement plan, for at least two reasons. First, you might need to sell and tap into that retirement plan in a down market. Second, if you sell, you will still need money for somewhere to live. If you aren't adequately funding a 401(K)/IRA, etc. you are going to be in some trouble at retirement time even if you have a home to sell, unless that home is a paid-off million dollar + home.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-15546496598534168452011-01-03T07:08:58.259-05:002011-01-03T07:08:58.259-05:00Last year was bizzare for the mortgage market. In ...Last year was bizzare for the mortgage market. In the first half of the year, you had a decent number of home sales keeping mortgages for purchases stable, thanks to the home buyer credit. In the second half of the year, that changed as demand crumbled when the credit was withdrawn. At the same time, you had very low mortgage interest rates throughout much of the year cause a mini-refinancing boom. 2011 will look very different, as the housing demand continues to struggle and mortgage interest rates have begun rising.<br /><br /><br /><br /><br /><br /><br /><a href="http://www.firsttimehomebuyercredittips.com/" rel="nofollow">home buyer</a>Rey Abisanhttps://www.blogger.com/profile/03521925875451131637noreply@blogger.comtag:blogger.com,1999:blog-2096776708897685863.post-47485050076045488122011-01-03T07:05:50.116-05:002011-01-03T07:05:50.116-05:00Just making a side point. I have read an article ...Just making a side point. I have read an article some years ago where the financial magazine author claimed that buying a house is one of the poorest investments one could make, even before the real estate slump (and over a 30-yr mortgage, there's got to be one or two of those). If one rented and put the difference between mortgage, insurance, repairs, etc into a sound investment, one would be better off financially because on average over a long period of time, stock market does significantly better than real estate market. His point was that if one wants to own a house, one should do it for reasons other that a good investment strategy. There were graphs, if I remember correctly, proving his point. Unfortunately, don't remember which magazine.SubWifehttps://www.blogger.com/profile/10130118656023678187noreply@blogger.com