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Comment by bcrosby95 | Hacker News Reader

It's less of a problem because you can opt out of buying a home by renting. This is what happened back in the 00s and I know a lot of people that rented to opt out of the purchase market. Speaking personally, I rented a 3 bedroom home in Los Gatos for $2k/month, which was "valued" at around $1 million.

The difference this time is its on top of huge increases in home prices and rents. So I think you wouldn't see that large of a correction after this particular run-up, because before it both rent and purchase prices were already extremely high.

Ultimately I see it as only a minor problem on top of the huge problem of the basic affordability of shelter.

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The article says that rents in SF are down. Housing prices are up. Anecdotally, almost everybody that I know that rents in the City has moved, because they were able to get a better deal.

I don't know about SF, but in the South Bay, house prices may be up, but condo prices are the lowest they've been in years. And that is despite record low interest rates.

This is a pandemic-specific phenomenon. I would expect it to return toward the previous price relationship over the next few years.

Yes, I'm pretty sure that's true in SF too. It's a great time to buy a condo in the Bay Area.

I'm paying $2500/month mortgage for a home valued at $1.1m. For the extra $500/month, I get: mortgage interest tax deduction, a house after 30 years, the freedom to modify my home the way I like, the security of knowing I'm not at the mercy of the landlord.

Personally, I think for the extra $500/month, buying is a better choice than renting; at least for me.

The main difference is your mortgage was likely acquired long before the value reached that level.

The choice was never between renting and buying a $1m home for a $500/mo difference.

> Personally, I think for the extra $500/month, buying is a better choice than renting; at least for me.

Let's do the math. Nobody is getting a 1.1million mortgage for 3k/mo, so let's pick something conservative but more realistic.

According to zillow, for a 3k/mo payment you can get a 520k loan with a 20% (130k) downpayment, 30 years with an average 3%. You'll be lucky to keep it to 3% for the next 30 years but we'll let that stay. This 3k/mo payment includes estimated property taxes etc., but no home maintenance costs - there's going to be 50k or so of that over the 30 years.

So after 30 years, you've got a 650k house + whatever appreciation it has over that time, minus the 50k expenses. Historically house appreciation is about the same as inflation, so if we stay in today dollars that washes out. After 30 years, you walk away with 600k (todays dollars). If we pretend it won't cost you anything extra, 650k

What if you stayed renting and invest that 130k? Stock market long term average is about 7%, net inflation about 4%. So lets use that, I'm cheating by stating in 2021 dollars and you just keep investing the $500/mo difference.

Take 130k today, invest for 3% with a 500/mo contribution for 30 years.

Result is: $601,000 (again, sticking in today dollars as i've zeroed out inflation)

Do the same thing at 4%: $760k

Base on historic market, you're likely somewhere in between. Looks like it's not a huge difference, which shouldn't surprise you. This means that pretty minor differences in your life circumstances can push you one way or another, but nothing is obviously compelling.

(Ok one thing jurisdictionally dependent I didn't mention, there can be tax implications of this or not, depending on where you live. Ymmv.)

Why would you not be able to keep a 30 year fixed rate mortgage at 3% for the next 30 years? Hopefully you're making one extra payment a year to cut it down a few years...

7% long term stock average in the past doesn't mean the future

3 condos I bought in the 2007 downturn are appraised at double today, much higher rate of appreciation than inflation...

3% was left in favour of the house buying but unlikely because the last dozen years or so are very unusual In real estate, so I used middle of the road numbers. You may lock in 3% for 5 years now but nobody is giving you that for 30 - historical averages are all about double . Very good chance that happens again over that time period but of course we don’t know . Assuming it won’t would be irrational though .

Of course past doesn’t imply the future will be the same , but I used long run averages for both stock market and housing market , so it’s fair .

Based on the spelling of favour I am assuming you are not from the US. In the US, fixed rate mortgages for between 15-30 years are very much the norm, with 30 year mortgages much more common than 15. You can absolutely get a 30 year loan up to $550k ($820k in California) for well under 3% these days.

A 5/1 ARM that changes rates after 5 years is a product you can buy, but it would only be used in niche scenarios.

I understand it is not like that in most other countries and I'm not 100% sure why. Something to do with the federal government backstopping most mortgages I think.

Fair - I bounce around a fair bit and haven’t looked in the US for about 10 years, mea culpa.

Just goes to show you have to do the non hand wavy version of this for your actual situation ; my broader point stands though.

> You may lock in 3% for 5 years now but nobody is giving you that for 30

I literally just closed on a condo last month and got a 30 year fixed rate jumbo mortgage at 3%.

I dunno. I just refinanced at 2.35%.... fixed 30 year.

You forgot that the rent is increasing with inflation, but the mortgage is not.

Yes but wages are too , so you keep the delta. And the mortgage payment goes up with interest rates. Which aren’t exactly independent events.

It’s not perfect but it’s reasonable. It may free up some other money in the house case , which you could use to make up some of the difference. Or that might get eaten by rates.

US mortgages tend to be fixed. Wages for up, payments on the house stay the same. At 3%, a $1m mortgage would be 2500 interest a month now, and in 2040.

US home maintenance seems high though - roof repairs are a known thing for some reason. In he U.K. I live near an estate of thousands of houses all 50 years old, I can’t ever remember seeing one being repaired.

I think it's because they are mostly wood framed, vs brick in the UK.

But yes, the mortgage rate is fixed in the US, your mortgage payment doesn't change, your wages increase at least with inflation, and relatively speaking the mortgage gets cheaper every year. Rents on the other hand, tend to adjust with inflation. The breakeven point is about 3-5 years as it happens.

>Historically house appreciation is about the same as inflation

If that's your investing thesis then obviously the expensive coastal metros make no sense. These prices reflect a history of excellent returns. It costs a lot more to own than to rent - people are paying to be landlords! Clearly they're doing this in the expectation that appreciation will make up for their losses.

That’s just the historical data.

Look obviously the details matter - we can cherry pick cases in either direction that “won” or “lose”.

The point is more that the sentiment in OP is common but wrong, it’s not obvious. One thing I didn’t get into is US specific but often it’s the mortgage tax credit that makes it worthwhile but again, it depends ....

You totally left out property taxes! $1.1 million house in SF has about $6,050 in year property tax, which is another $182k over the life of the mortgage (assuming rates don't change).

No I didn't, see the comment that the property tax was rolled into the 3k payment. I've added "property" to make that clearer.

You forgot to include tax on your investment, which in California I hear might be around 30% at the top income bracket.

Cap gains in both cases but treated differently depending where you live .... as I said ymmv

30 year fixed mortgage rates for good credit is 2.5%

This is super deceptive.

If you had actually needed to pay $1.1M in principal even at 0% interest over 30 years you'd be paying $2777 a month.

Your comment comes across as basically suggesting it is other people's fault for not buying a house when it cost half as much as it does now versus renting a house now.

I bet you bought that house fifteen years ago at least right?

You get there by refinancing to extend the loan and lower interest. It's not deceptive at all.

Yeah, I've owned a house for fifteen years. I know how this works. Saying your house is worth $1.1M now and you only have to pay a mortgage of 2500 a month completely ignores that you purchased it at a different price, or at least have put a substantial amount of capital into it so that your mortgage is certainly not covering $1.1M worth of principal.

I'm saying this is deceptive because that is not what people think of when they are comparing renting with buying. You're comparing renting today versus buying over a decade ago and getting lucky about the property value going up and being lucky about being able to afford to get a mortgage in the first place.

It's just not a nice thing to argue. I pay a lower "rent" than my friends who rent. At first I was paying much more than my peers, now I'm paying half as much. But most of them would happily go back in time and do the same versus paying rent now, that's just not possible, not to mention that they're often too young for it to have been financially possible for them to do it when I bought my house.

It is really unreasonable to suggest that someone now magically get themselves into a long term mortgage taken out a decade prior as if that's merely a $500 monthly premium. It's time travel or luck.

If you did this today, you have to refinance at a higher interest rate in the future. That's why it's deceptive.

But extending the period of the loan also reduces monthly payments. You don't necessarily need lower interest rates.

Buying very well might be a better option for you, but there are downside you aren't listing from owning:

* high transactions costs (if you decide to move after a few years, say goodbye to all of those savings)

* lower liquidity (if you rent, you can just call the landlord and break the lease. if you buy, you have to find an agent, stage the house, and wait for offers)

* highly concentrated market risks

Most regular non-trivial maintenance is also on your plate as a homeowner. Need a new roof? That's on you, and isn't reflected in the standard monthly payment. If you rent, its on the property owner.

I'm assuming your property taxes are not $0?? I don't know where you live but in Texas property taxes on a $1.1 million home are about $2,300 a month

In the U.S. at least, property taxes are normally treated as part of the mortgage payment.

They're not technically part of the mortgage payment, but they're a line-item in your monthly payment to the lender.

That's not really true. I've had mortgages for most of my adult life and have never paid property tax escrow. Most lenders only require it if you put little down. Not to mention there are some popular tax strategies (e.g. pay taxes for two years in a single calendar year, then nothing for the next year) that make paying escrow a bad idea.

Not that I’ve seen. Maybe it’s regional. I’ve always paid my property taxes directly to the county. Once a year when I was in FL, two installments in CA. The lender just takes principal and interest in its payment.

Escrow for property tax is (usually) _optional_ on a mortgage. I don't have escrow on mine because I heard horror stories from coworkers about payments getting screwed up when the mortgage was resold.

From the lender point of view, property tax escrow is slightly less risky than leaving it up to the borrower.

If you work with a mortgage broker and get quotes, ask for the rates with and without escrow. It’s pretty common that there is a slight reduction in rate if you include escrow.

It's 1-1.1% in most places in CA, and can grow by a max of 2% per year. The parent who deceptively advertised a much lower mortgage payment than would make sense given the current value, is probably paying around $10k/yr.

I thought NJ was bad! I pay $18k a year for a 1.1 million house (assessed at $950k though). Sending three kids to public school though so I make out and then I’m outta here!

In fairness Texas property taxes are high because there is no state income tax.

How big was your down payment?

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