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Comment by madsbuch | Hacker News Reader

They do say the long real-estate cycle is 15-18 years. 2007 is 17 years ago.

While I don't like that type of rule of thumb, I can clearly feel why it makes sense.

I am on the brink of buying my first home as it is. And having seen peers having earned several hundreds of thousands from their houses over the past 4-5 years really adds pressure and FOMO.

I guess that is the sign to be extra cautious on buying. And I also think that this feeling is quite prevalent creating the perfect storm for a financial crisis.

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Now is probably not the right time to buy because interest rates are at the highest levels in recent memory. Nobody in their right mind is selling right now unless they are being forced to out of financial desperation.

The commercial real estate crisis is a different problem based on the pre-2020 assumption that it was a good investment because remote work would never be widespread.

If parent has access to US-style fixed-rate, refinance-without-penalty mortgages, the interest rate isn't a major component.

Provided you can carry the payments, what do you care?

Buying now: interest is deductible on itemized taxes, can refinance when rates drop, build any home value appreciation

Buying later: your rent money is literally doing nothing for you, you've missed home value appreciation, and you need to pay more for a home in the future

Systemic home valuation decreases is the bigger threat to watch for (i.e. keep an eye on prices:incomes, etc).

That's the classic line of reasoning re rent/buy. But if you're taking out a loan to buy a house, you're still paying rent, you're just renting money instead of housing. And now you're responsible for everything that happens to your property for at least the next 5 years if not 30 just to make it worth it on the closing costs vs renting.

Yep, right now the cost of money is more expensive than renting a house at 80% financing.

So on top of this, if you decide to buy a house at 500k, you lock up 100k and still pay more in interest + HOA than ren for comparative apartment.

In conclusion: It only makes sense to buy right now, if I have an expectation that the price will go up on the home.

/edit: Added the conclusion

> In conclusion: It only makes sense to buy right now, if I have an expectation that the price will go up on the home.

What if someone does not want to deal with the volatility of a landlord, such as rental terms changing, or the property being sold, or the owner not maintaining the property?

At a minimum, being able to ensure you don’t have to move your family due to landlord changing their mind is worth something.

you have protections around these things in most places, and especially in Denmark.

also, renters I am referring to are commercial renters (so definitely not the cheapest ones).

If you're putting 80% down in the US, I'd suggest the thought process is wrong. With good credit on a good property, 95% LTV isn't uncommon.

Looking at residential property as a forever home is wrong.

You're buying an asset, that happens to also let you not pay rent. Consequently, you want (1) value stability (see earlier qualities) and (2) leverage (as you get to keep all the profits and offset the interest).

80% LTV = 5x leverage of down-payment

95% LTV = 20x leverage of down-payment

Given that your net rate of return should also be against your down-payment, shrinking that substantially boosts effective return at time of sale.

> your rent money is literally doing nothing for you

Your rent money is, but your down payment is not. Its getting at least a 5% return, and at best much more than that. And renting is cheaper than buying right now, because interest rates are high for current buyers BUT NOT current owners; supply and demand will presumably change that over time, but i.e. I can rent out our Austin home pretty cheap as is; if I'd bought it today and rented it out, I'd need to charge MUCH more to break even.

I agree you should buy what you want and use the payments as the guide; and maybe you can re-finance in the future. But when I plug payments into investment calculators, buying the home isn't coming out ahead of investing the down payment and renting instead.

This could still backfire on you though. Say that you buy a house for $500,000 today with a 5% down payment and another 2008-esqe event happens and the value drops to $350,000. You are going to be underwater for the first mortgage when it is time to refinance the loan. I don't see how a bank is going to let you take a new mortgage for $475,000 on a house that's appraised by the bank for $350,000.

On my search, I trip over these situations very often: https://www.boligsiden.dk/adresse/sallingvej-62-2-th-2720-va...

in 2006 this was sold for 2.365.000, in 2015 for 2.195.000. Is, the apartment lost 130k (roughly 20k USD) in 9 years.

(In Denmark we can see previous prices all apartments was traded for back to 1992 online)

Just more fuel for the NIMBY'ism fire.

Trick is that in many places rental payments are way cheaper than a mortgage, plus you don't have to fork over a down payment.

Right now some places I look at would be ~5k + per month to purchase (factoring in taxes etc.), but rent for ~3.5k.

I am in Denmark where the real-estate market is a bit different. The sane way to do it now (with the expectation that interest rates drop):

1. Variable rate short-termed loan - these are adjusted to the index called CITA.

2. When the rate is sufficiently low, refinance with a fixed rate loan.

3. If the interest rate increases, sell of the fixed rate loan at a discount and refinance with either a higher fixed rate or variable rate, depending on risk profile. (In Denmark a lot of people sold their loan at rate 80 last year due to increasing interest rates).

>Now is probably not the right time to buy because interest rates are at the highest levels in recent memory. Nobody in their right mind is selling right now unless they are being forced to out of financial desperation.

It sure would be nice if selling out of financial desperation meant lower housing prices. This sure isn't the case though, even today.

That would make the case for higher cash to loan ratios. People still bought houses in the early 1980s when rates were dramatically higher than today.

First and foremost shouldn't housing be seen as a public need vs a profitable asset anyway? This sort of thinking is what leads to so many average Americans becoming obsessed with home values. I don't think real estate as asset squares well with we need real estate to live adequate lives, but I digress

The current rate is pretty close to the median rate for the last 50 years. My suspicion is we'll soon see the great Boomer sell-off as they try to get out at the top of the market, many of my friends (millennials and GenX) share the same stories of trying to get their aging parents out of mostly empty SFHs.

> share the same stories of trying to get their aging parents out of mostly empty SFHs.

Where are they moving to? My aging parents do not want to go to a condo or apartment, they have gotten used to living alone and don't want to deal with neighbors stomping on the floor above them, for instance.

Many people go to Florida. Eventually you kinda of have to go to assisted living, right?

Not everyone does. My grandmother died in her own home, with an aid coming to assist with daily caretaking. Though having taken care of a dying relative myself, it weighs on you and I'm really not sure if I could do it again.

With regards to residential property, after watching the last 20 years I've decided demand is the music to valuation-musical-chairs.

If demand falls, then prices go down.

Otherwise, they track inflation (multiplied by desirability of the area you're looking in).

Which basically means: buy in areas with growing populations, good economies, and good achool zones.

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