… the home “owner” still has to pay the same mortgage, and will continue to pay so they can eventually own the house (actually own it) worth a fraction of what they paid for it.
Unless you have cash on-hand to buy a house, you have to get a mortgage. So it’s actually the bank that owns the house, they just let you live there while you pay back a large debt.
The reason why houses are so expensive is because they are considered investments, not just places to live. That creates a politcal incentive to keep housing prices high because a lot of people will lose that “equity” if the price of housing decreased. Most of the benefits listed under home “ownership” centers around a house being an investment.
The boomers aren’t getting any younger, as more of them die, more houses go onto the market while the incentive for maintaining that equity for people that already own a house decreases. That “stability” thing listed as a benefit of “owning” a house may not hold true forever.
The owner probably still comes out ahead, no matter what.
Think of the 2008 housing crash. Must have sucked to be paying a fixed mortgage when the market went down. Except the person bought the house in 2004 and was paying the same mortgage they were then, and that’s still less than typical rent after a crash calmed things down a bit.
You don’t pay the mortgage of the house as it would sell right now, you pay the mortgage based on the purchase price that over years almost certainly trends lower. So as the landlord prices according to current market, the owner costs are largely based on the prices from years ago (except property taxes and insurance).
That’s of course assuming you have a mortgage at all, and ignoring the fact that the mortgage goes away entirely at some point.
One thing I will say where renting wins hands down is if you are going to only be there a couple of years. You probably would have needed the mortgage, the property value wouldn’t have increased by that much, and the loan origination fees, interest, and various other closing costs means you likely would lose money selling it that soon. The renter may be no worse off financially, but they are no better off then either. Except they can just leave and not worry about finding a replacement.
The boomers aren’t getting any younger, as more of them die, more houses go onto the market
Problem being that many of those houses suck. They are likely to be where there’s no housing shortage already, because no one is interested in living there. They tend to be old, and not charmingly over a hundred years old but still standing; like 50 years old with questions of asbestos and polybutylene; with dubious insulation at its best and likely decayed a bit. Terribly in need of maintenance with busted HVAC, rodent destroyed ductwork, dangerous wiring, and moldy crawlspace. Cracked foundations and sagging structures suggesting the wrong storm could just ruin it. They also tend to be relatively tiny compared to houses built in the last couple of decades. I had a boomer relative die, and what did their children manage to get for the house, after months and months on the market? $60k. We were shocked but that was actually a bit higher than houses in their area went for.
Now the key question is did it drop below the price the owner would have been paying? Assuming the owner had it for at least 3 or 4 years, the rate drop was probably still not below their loan payments based on the purchase price.
Exactly. I roll my eyes at the idiot home owners who are happy when real estate prices are going up. If the only real estate you own is the one your are living in, a price increase has zero benefits for you. You can sell it for a higher price, but unless you want to live on the streets, that means you buy another, which has also gone up in price. Congrats, I guess.
The only people benefiting are real estate investors, which 99% of people are not.
Now there are opportunities to get better interest rates by taking a loan out on your house, but that’s depressing. It is, however, a common thing for older people who can’t live on their retirement benefits otherwise.
But on the other hand, if market does not go to shit, the rent increases, while your mortgage stays the same, on as asset that increases in value.
Houses may be considered an investment, but at the same time they are a place to live.
And when boomers die, their house gets inherited by a family member, not just going to a ‘pool of houses’. I think the inheritor either moves in, or sells because they already have a house
I will say that at least right now in my area, renting is actually a bit lower than the expected mortgage payment for comparable housing. However, that advantage would shift after 2-3 years as rent goes up but the mortgage would have stayed the same.
And the principle and interest can’t change (unless you did something like an ARM). Escrow and insurance might go up, but that won’t remotely pace inflation.
If the housing market goes into the shitter…
… the renter pays less rent.
… the home “owner” still has to pay the same mortgage, and will continue to pay so they can eventually own the house (actually own it) worth a fraction of what they paid for it.
Unless you have cash on-hand to buy a house, you have to get a mortgage. So it’s actually the bank that owns the house, they just let you live there while you pay back a large debt.
The reason why houses are so expensive is because they are considered investments, not just places to live. That creates a politcal incentive to keep housing prices high because a lot of people will lose that “equity” if the price of housing decreased. Most of the benefits listed under home “ownership” centers around a house being an investment.
The boomers aren’t getting any younger, as more of them die, more houses go onto the market while the incentive for maintaining that equity for people that already own a house decreases. That “stability” thing listed as a benefit of “owning” a house may not hold true forever.
The owner probably still comes out ahead, no matter what.
Think of the 2008 housing crash. Must have sucked to be paying a fixed mortgage when the market went down. Except the person bought the house in 2004 and was paying the same mortgage they were then, and that’s still less than typical rent after a crash calmed things down a bit.
You don’t pay the mortgage of the house as it would sell right now, you pay the mortgage based on the purchase price that over years almost certainly trends lower. So as the landlord prices according to current market, the owner costs are largely based on the prices from years ago (except property taxes and insurance).
That’s of course assuming you have a mortgage at all, and ignoring the fact that the mortgage goes away entirely at some point.
One thing I will say where renting wins hands down is if you are going to only be there a couple of years. You probably would have needed the mortgage, the property value wouldn’t have increased by that much, and the loan origination fees, interest, and various other closing costs means you likely would lose money selling it that soon. The renter may be no worse off financially, but they are no better off then either. Except they can just leave and not worry about finding a replacement.
Problem being that many of those houses suck. They are likely to be where there’s no housing shortage already, because no one is interested in living there. They tend to be old, and not charmingly over a hundred years old but still standing; like 50 years old with questions of asbestos and polybutylene; with dubious insulation at its best and likely decayed a bit. Terribly in need of maintenance with busted HVAC, rodent destroyed ductwork, dangerous wiring, and moldy crawlspace. Cracked foundations and sagging structures suggesting the wrong storm could just ruin it. They also tend to be relatively tiny compared to houses built in the last couple of decades. I had a boomer relative die, and what did their children manage to get for the house, after months and months on the market? $60k. We were shocked but that was actually a bit higher than houses in their area went for.
In nearly 30 years of renting, the rent has never gone down, regardless of what the market is doing.
Depends on location. I had a rent drop in Knoxville once. Excess units in a bad local economy will do it.
Now the key question is did it drop below the price the owner would have been paying? Assuming the owner had it for at least 3 or 4 years, the rate drop was probably still not below their loan payments based on the purchase price.
Ackshually you own the house, the bank just has the right to take it if you don’t keep up payments.
Exactly. I roll my eyes at the idiot home owners who are happy when real estate prices are going up. If the only real estate you own is the one your are living in, a price increase has zero benefits for you. You can sell it for a higher price, but unless you want to live on the streets, that means you buy another, which has also gone up in price. Congrats, I guess.
The only people benefiting are real estate investors, which 99% of people are not.
It mostly just means higher property tax.
Now there are opportunities to get better interest rates by taking a loan out on your house, but that’s depressing. It is, however, a common thing for older people who can’t live on their retirement benefits otherwise.
But on the other hand, if market does not go to shit, the rent increases, while your mortgage stays the same, on as asset that increases in value.
Houses may be considered an investment, but at the same time they are a place to live.
And when boomers die, their house gets inherited by a family member, not just going to a ‘pool of houses’. I think the inheritor either moves in, or sells because they already have a house
Making large principle payments significantly reduces the paid interest.
Also for the average price of a home and the average interest rate monthly payments are cheaper than average rent.
I will say that at least right now in my area, renting is actually a bit lower than the expected mortgage payment for comparable housing. However, that advantage would shift after 2-3 years as rent goes up but the mortgage would have stayed the same.
Having an interest rate significantly lower than high yield saving account returns significantly reduces my interest in making any extra payments.
Congratulations, though a lot of folks are certainly not in that boat.
Making small principal payments significantly reduces paid interest, nevermind large.
And the principle and interest can’t change (unless you did something like an ARM). Escrow and insurance might go up, but that won’t remotely pace inflation.