The debt is not a problem, as long as you’re not too hung up on the house being an ‘investment’. (For one, the house you’re looking at is cheaper than quite a few ordinary cars).
Here’s a scenario that approximates the worst case (it did get worse than this for people who bought during the bubble):
You buy the house with a small down payment. You make the payments (that are about half of your current rent) and live there for 5 years. You sell the house for the exact same amount you paid for it. (It’s rare to have that little appreciation in value).
The net effect would be that you lived somewhere nicer than your apartment, for half the price, for 5 years.
I actually think it is rare for houses to lose value, especially over a few years. But I might well be missing something.
Yes, there was recently a housing “bubble” where many did lose value. My understanding is that the typical case there was a house that went up 40% in value from 2000 to 2007, then plummeted to its 2000 value. Sucks if you buy in 2007 I suppose.
And there are instances where an individual house can lose significant amounts of value. It could become unintentionally mobile, for example.
Because of the messed up US housing market there’s a huge glut of houses on which the owners are in technical default but the bank hasn’t yet seized or sold. A clearing of this glut would greatly increase the supply of houses and potentially cause their prices to plummet in certain areas. The housing market is in an extremely untypical situation and it’s dangerous to rely on past performance to predict what’s going to happen in the future. Plus, the enormous future US federal government debt might cause Congress to eliminate the mortgage interest tax deduction and this would devastate the housing market.
there’s a huge glut of houses on which the owners are in technical default but the bank hasn’t yet seized or sold.
That’s not even the worst of it: a sizable part of that glut consists of houses which, legally, no one owns due to banks cutting corners with the paperwork. This video, The next housing shock, describes the situation. The market is in an extraordinarily warped state right now.
I actually think it is rare for houses to lose value, especially over a few years. But I might well be missing something.
That should be “it is rare for houses to lose value without a corresponding insurance payout”. Natural disasters and fires sometimes cause houses to lose value rather precipitously.
(Which is another thing to remember about house ownership: it requires insurance.)
It was much, much worse than that in Florida, where they overbuilt and there was a glut. As far as I know, there was not as much excessive building in Adelene’s city.
The debt is not a problem, as long as you’re not too hung up on the house being an ‘investment’. (For one, the house you’re looking at is cheaper than quite a few ordinary cars).
Here’s a scenario that approximates the worst case (it did get worse than this for people who bought during the bubble):
You buy the house with a small down payment. You make the payments (that are about half of your current rent) and live there for 5 years. You sell the house for the exact same amount you paid for it. (It’s rare to have that little appreciation in value).
The net effect would be that you lived somewhere nicer than your apartment, for half the price, for 5 years.
You would never say this for a stock, don’t think it for the extraordinarily undiversified quasi-financial asset named house.
I actually think it is rare for houses to lose value, especially over a few years. But I might well be missing something.
Yes, there was recently a housing “bubble” where many did lose value. My understanding is that the typical case there was a house that went up 40% in value from 2000 to 2007, then plummeted to its 2000 value. Sucks if you buy in 2007 I suppose.
And there are instances where an individual house can lose significant amounts of value. It could become unintentionally mobile, for example.
Because of the messed up US housing market there’s a huge glut of houses on which the owners are in technical default but the bank hasn’t yet seized or sold. A clearing of this glut would greatly increase the supply of houses and potentially cause their prices to plummet in certain areas. The housing market is in an extremely untypical situation and it’s dangerous to rely on past performance to predict what’s going to happen in the future. Plus, the enormous future US federal government debt might cause Congress to eliminate the mortgage interest tax deduction and this would devastate the housing market.
That’s not even the worst of it: a sizable part of that glut consists of houses which, legally, no one owns due to banks cutting corners with the paperwork. This video, The next housing shock, describes the situation. The market is in an extraordinarily warped state right now.
Good point. I hadn’t considered that that whole mess hasn’t shaken out yet.
That should be “it is rare for houses to lose value without a corresponding insurance payout”. Natural disasters and fires sometimes cause houses to lose value rather precipitously.
(Which is another thing to remember about house ownership: it requires insurance.)
It was much, much worse than that in Florida, where they overbuilt and there was a glut. As far as I know, there was not as much excessive building in Adelene’s city.
Note that if the Fed raises interest rates, credit will become more expensive, demand will decrease, and prices will decrease (all else equal).