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Comment by rukittenme | Hacker News Reader

You're not accounting for the higher interest rates of the 1980s.

Which home would you prefer to buy:

$150,000 at 15% over 30 years. $350,000 at 4% over 30 years.

Hint: they both have approximately the same total loan cost and payment.

You can do this calculation with your parents. My home cost $350k at 3.8%. My parents bought my childhood home for $88k at 8%. Adjust my parents' home price for inflation and run the result through a mortgage payment calculator. You find that I paid slightly more for my home but my home is much nicer (central heat and air, closer to town, larger, better schools, etc).

My parents' home happens to be for sale currently (not by them). If I paid full asking I would pay MORE in raw dollars but LESS in inflation-adjusted-total-loan-cost (which is what actually matters).

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The hitch in this whole thing is that down payments have gotten ridiculous, it's gotten harder to save in desirable areas because rents and many expenses have grown out of pace with income for normal folks. Even as the percentage necessary for down payments has dropped, house prices have gone into orbit so much that it hasn't kept parity.

My girlfriend and I had to buy a house for $520k, at 5% down, just for the privilege of dumping $100K into it to make it livable. And we are the fortunate ones who can do that; we're both 31 and I'd say maybe a quarter of my friends are in the same boat.

Where do you live, the Bay area? At what point do you say that enough is enough, and you move to a location that even though you'll earn less, the COL adjustment will more than make up for it?

I live in the Boston area.

I can't foresee ever leaving because of cost-of-living expenses. I'm not an import; I've lived in New England my entire life and the Greater Boston area--let's define it as "the Red and Orange Lines, and I guess the Green Line if I was desperate"--is effectively the only place I can be short of blowing off my family and my support network of friends and colleagues. The area is congruent with my politics--I mean that not just in the "who you vote for" sense of the word, but in the "how a society should operate" sense of it. And while I own one for errands I really profoundly don't like commuting and don't like driving a car much even outside of that, which rules out much of the surrounding area like New Hampshire or Maine, where I'm originally from. My parents live in northern Vermont. It's nice to visit, when I'm not white-knuckling across ice-floe roads in February. I couldn't live there.

We're thankful that we bought what will eventually, after a big up-front whack, be a really nice house. And we did it somewhere where it's still kinda doable, rather than when it's not doable at all.

> congruent with my politics--I mean that not just in the "who you vote for" sense of the word, but in the "how a society should operate" sense of it

You believe that a society should operate such that a lot of people can't afford to live there?

Somerville is already one of the most densely-populated places in the United States (16th most densely populated city in the nation as per the 2010 census--6th most that isn't part of the NYC metro area) and I'm enthusiastically in favor of that increasing with additional building. Keeping in mind that new construction necessarily overwhelmingly favors high-end construction I'm also in favor of increased proportions of affordable housing, as well as rent control ordinances to help keep people in their homes. And I say that as a soon-to-be rental property manager and owner, too; these are things that would be skin off my nose in the near future.

So that's a pretty weak strawman--and, tbh, I've seen your posts before, I thought about ignoring you because I get a troll whiff out of them. But I will also push on the real question behind it, because there is the germ of something useful there. I believe that a society should openly welcome people who are not members of the majority, should emphasize that its public administration be mindful that it operates for its constituents, and where, when citizens need help, they can get help. The place where I live is not perfect, but there is a drive to adhere to such principles.

It is not impossible to find that elsewhere. It is unlikely to be found elsewhere that also doesn't involve disconnecting from my personal social networks and also doesn't require a car to commute.

> So that's a pretty weak strawman

I'm not trying to argue, just trying to understand what you said.

> I believe that a society should openly welcome people who are not members of the majority, should emphasize that its public administration be mindful that it operates for its constituents, and where, when citizens need help, they can get help.

You honestly believe that other parts of the country do not believe that? I feel some travel would get rid of such notions, but oh well.

> --and, tbh, I've seen your posts before, I thought about ignoring you because I get a troll whiff out of them

Probably a good idea not to engage if you're uninterested in engagement.

> I'm not trying to argue, just trying to understand what you said.

Cool (and I say that without snark). For future reference, I might suggest "can you explain what you mean by this?". It sets a better tone than what you wrote, which reads as points-scoring caricature.

> You honestly believe that other parts of the country do not believe that? I feel some travel would get rid of such notions, but oh well.

Of course there are, and I travel extensively--travel and consulting used to be my job. There are not, however, ones that fit my idea of how people should live (which rules out otherwise lovely places like Richmond, VA), don't decouple me from my personal social connections (i.e., are in New England; as an example I really like Columbus, OH) and have sufficient mass transit to not park my rear end in a car every day (i.e., not the Amherst area of western Massachusetts or somewhere like Unity or Orono, Maine--both places that I love, but the car dependence sucks).

So if I had just asked 'can you explain what you mean' you would have given me an explanation about how you appreciate the way of life in Boston, etc. I was more interested in the fact that -- across the country -- places similar to Boston (i.e., large, rich cities) seem to all be having the very problem you are calling out (high home prices). I was interested in an explanation of how you thus justify liking the politics (which in my mind are intrinsically linked to the high home prices) while simultaneously decrying its effects. Without asking my direct question, I don't see how I could have mandated this level of introspection.

Your response now seems to indicate that the main reason you want to stay in Boston is your family, which I get wholeheartedly. But your claim was that you appreciated the politics, which doesn't make any sense to me still, because in my mind, the way of life you idealize (and I'll admit I like it too) sounds like it leads to expensive home prices.

I mean, that's fine and all, but you should probably just admit that you value the luxury of living in an extremely expensive area with lots of urban amenities. There's nothing wrong with it, but phrasing it like you simply can't live anywhere except these two particular metro lines comes off as really out of touch.

Urban liberals' lifestyle is a luxury consumption choice the same way that a Rolex or a Masarti is.

I mean, sure, I like those luxuries. I also get panic attacks when driving in stressful situations and more than moderate traffic. Not wanting to cause a crack-up rules out a commute into an urban area from an only marginally cheaper suburban area. (I've tried it before.) And fully-remote work is uncomfortable, socially isolating, and completely impossible for my girlfriend due to the urban-localized nature of her career, which makes living further out impractical.

I've tried living elsewhere; this wasn't my first choice and I'm very lucky to be able to afford it. Perhaps all this makes this urban liberal some kind of snowflake, but that's all right with me.

I'll mention since I am in the same boat in a sense. The cost of a house even 40-70 miles out from Boston on effective commute routes is still hovering in 350k to 500k. A house without a likely 100k in repairs is 450k It feels like for the Boston area they are just toeing the FHA limit or blowing completely past it instead of some other pricing dynamic. I haven't checked the Bay Area's FHA limits but since the max is 750k for 2019 and I keep reading about million plus properties I think they are just in a different category of appreciated values.

Do you mean you spent $520k for a 5% down payment? Why should anybody feel sorry for someone who is buying a $10m house? Even for bay area standards that's on the very high end and not at all representative of any meaningful fraction of people in the US

$520K sale price, 5% down. Edited for clarity. Thanks.

If you bought a house for $150,000 at 15% in early 80's, you likely refinanced as the interest rate continuously dropped from there. In 90's interest rate was below 10%, and around 7% in early 00's. Nobody would keep the 15% over 30 years.

Yes but refinancing is not a silver bullet. After 10 years you would have only paid off $7k in principal. So you'd re-fi at 10% at $143k and refi at 7% at $130k. Twenty years worth of payments for only $20k in principal.

Your payments would total $375k over that period. $350k at 4% would total the same amount but with $200k in principal paid down.

I'd much rather be in a situation with $200k in equity versus $20k in equity. And remember, both people have the same monthly payment amount!

I once did the math. Refinancing from high interest to low interest or refinancing low interest to high interest will cost you the same amount in interest over 30 years assuming identical house prices. However during times of low interest house prices are higher than during times of high interest and this means if you get a mortgage with high interest you end up paying less overall for the house but a bigger portion of your payments are used to service interest.

Therefore the 15% house is the best deal.

>closer to town, larger, better schools, You're shifting goal posts now. Buying a more expensive house doesn't get you any of that. Only buying more expensive land does.

The $150k loan at 15% is generally healthier, as you have increased ability to pay off the principle early by making more than the minimum payments during good times.

The larger principle is only a benefit if you will actually see that money by selling the home. Given that everybody needs a place to live, this will only occur if you sell and retire to a low resource area. Everybody else can only look at the illiquid funny money and pretend.

Never mind that the larger valuation provides a juicier target for eg real estate taxes.

a more accurate measure of housing costs is not "home prices" but "rent prices", and rents have gone up compared with inflation, causing housing to be absolutely more expensive. The generational warfare double whammy here is that the boomers are scooping up an insane unearned amount of value in both real estate appreciation and imputed rents.

A standard 30 year mortgage requires 20% down...what’s the percent of households that can put down $70k to purchase a home?

I just posted similarly about down payments, but 20% seems to not generally be the case anymore. FHA loans are as low as 3.5%. I paid 5% down for a non-FHA loan.

PMI is then a thing, of course, but you can get in the door.

(This is not to say that down payments, as well as initial habilitability outlay, might not crushing. Our small, train-accessible single-family in the Boston area cost half a million dollars and we had to immediately gut the place for remodeling and for asbestos remediation, to the tune of $100K.)

Not many first time home buyers do a standard mortgage now. Typically 3-5% is all that is needed.

That and the lowest home mortgages rates anyone alive has seen have contributed to the home price increase. It's not the total value of the house but the amount of the monthly payment that is the driver, and 3% (today) vs 13% (early 80s) mortgage rates provide a huge swing.

If the number of people that can afford to put down 20% has shrank significantly over time, won't the pool that can put 3-5% inevitably shrink as well? Will we return to 0-down homes? Where are down payments terminally headed?

OK, but now you hold less equity in your home and you're paying PMI on top of that until you reach ~22% equity. There's no free lunch here.

Down payments are the monkey wrench here. The requirement to have a down payment means high prices basically lock people out of homeownership, period. That in turn limits ability to build wealth at all, even at a crappy interest rate.

Owning a home is not the only way to build wealth, nor is it necessarily the best way to build wealth.

Having a mortgage is not a form of wealth.

I put $15,000 down or 4.2% of the total loan amount.

The main way that owning a home allows someone to build wealth is that it forces them to put money towards something productive rather than blowing it on stupid things.

My experience from buying a house two years ago is that though I suspected it, I never truly realized how many amenities were covered by my rent. I went from paying $30/month in utilities, etc. to ~$400 /month. I also now live 10 miles further away from where I work / hang out.

Granted, we live in a house that is ~2x as big as our apartment, plus two car garage. But if you factored out strictly the various recurring expenses I now pay from my previous rent, it is extremely close to breaking even. And that isn't including the increased cost of owning / operating two cars that now drive ~60 more miles a day between the two of them.

Our net worth increased much faster while we were renting than now that we have a house.

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