​How To Afford a House These Days

[roomtempmayo]

Beating the drum for a 40 year mortgage today: https://www.cnbc.com/2024/08/20/op-ed-the-case-for-a-40-year-mortgage.html

Really bad ideas from a guy who claims to be in the business of financial literacy:

A 40-year mortgage program can also address the growing wealth gap in America. Homeownership has historically been one of the most effective ways for families to build wealth. By making homeownership more accessible, particularly for young people, minorities, and those in rural areas, we can promote more equitable wealth distribution and help close the economic divide. This approach also addresses social justice concerns, particularly for historically marginalized communities like African Americans, where the homeownership rate lags at 45% compared to 75% for white Americans. Bridging the homeownership gap can help close the wealth gap, advancing social justice through an economic lens.

Extending the mortgage term and subsidizing interest would just boost prices and be a gift to all the existing homeowners.  Meanwhile, the new buyers would be on the hook for those prices for four decades, often past their working years.

Not to mention that home ownership is often a trap for poor people.  The maintenance costs are lumpy, and even if they can finance the big stuff it's on bad terms.  Houses on the bottom of the property ladder don't appreciate to the degree more desirable neighborhoods do.  It's all the risk of a house with less upside.  Renting isn't the worst thing in the world.

Squeaking into a rundown house in a bad neighborhood with a 40 year mortgage is a trap, not the path to generational wealth.

[clarkfan1979]

Beating the drum for a 40 year mortgage today: https://www.cnbc.com/2024/08/20/op-ed-the-case-for-a-40-year-mortgage.html

Really bad ideas from a guy who claims to be in the business of financial literacy:

A 40-year mortgage program can also address the growing wealth gap in America. Homeownership has historically been one of the most effective ways for families to build wealth. By making homeownership more accessible, particularly for young people, minorities, and those in rural areas, we can promote more equitable wealth distribution and help close the economic divide. This approach also addresses social justice concerns, particularly for historically marginalized communities like African Americans, where the homeownership rate lags at 45% compared to 75% for white Americans. Bridging the homeownership gap can help close the wealth gap, advancing social justice through an economic lens.

Extending the mortgage term and subsidizing interest would just boost prices and be a gift to all the existing homeowners.  Meanwhile, the new buyers would be on the hook for those prices for four decades, often past their working years.

Not to mention that home ownership is often a trap for poor people.  The maintenance costs are lumpy, and even if they can finance the big stuff it's on bad terms.  Houses on the bottom of the property ladder don't appreciate to the degree more desirable neighborhoods do.  It's all the risk of a house with less upside.  Renting isn't the worst thing in the world.

Squeaking into a rundown house in a bad neighborhood with a 40 year mortgage is a trap, not the path to generational wealth.

Good points on lower appreciation for less desirable neighborhoods. I take a similar approach when buying single family rentals. Single family rentals that look really good on a spread sheet are rarely good performers long-term when you consider (tenant management, vacancy, on-time rent payments, appreciation and cash flow).

You have to start somewhere. As a result, if your first rental is at a lower price point in a less desirable neighborhood, that is fine as a starting point. Be a landlord for 5 years, learn the trade and then scale into more desirable neighborhoods. 

[ChpBstrd]

Beating the drum for a 40 year mortgage today: https://www.cnbc.com/2024/08/20/op-ed-the-case-for-a-40-year-mortgage.html

Really bad ideas from a guy who claims to be in the business of financial literacy:

A 40-year mortgage program can also address the growing wealth gap in America. Homeownership has historically been one of the most effective ways for families to build wealth. By making homeownership more accessible, particularly for young people, minorities, and those in rural areas, we can promote more equitable wealth distribution and help close the economic divide. This approach also addresses social justice concerns, particularly for historically marginalized communities like African Americans, where the homeownership rate lags at 45% compared to 75% for white Americans. Bridging the homeownership gap can help close the wealth gap, advancing social justice through an economic lens.

Extending the mortgage term and subsidizing interest would just boost prices and be a gift to all the existing homeowners.  Meanwhile, the new buyers would be on the hook for those prices for four decades, often past their working years.

Not to mention that home ownership is often a trap for poor people.  The maintenance costs are lumpy, and even if they can finance the big stuff it's on bad terms.  Houses on the bottom of the property ladder don't appreciate to the degree more desirable neighborhoods do.  It's all the risk of a house with less upside.  Renting isn't the worst thing in the world.

Squeaking into a rundown house in a bad neighborhood with a 40 year mortgage is a trap, not the path to generational wealth.

At some point along the spectrum of single-family-home subsidization, it becomes a rental plan to the government. Here in the US we pay probably 1-2% lower rates than we would in a full market economy, and we get amortization schedules and terms more extreme than anywhere else - 15 to 30 year fixed rate loans. Then we invented programs so that all the people who can't put 20% down can put down 5% or even 3%.

The combo of low down payments, government subsidized rates, and extreme loan terms was supposed to make house ownership accessible to the poor, and in the long run cheaper than renting (although the "cheaper" part was due to taxpayer subsidization, i.e. transfer of the cost of ownership to the national debt). In reality, it only made homes into investments, incentivizing the expansion of the average American home to almost 3000sf, and made it possible to have housing bubbles.

40 year mortgages would extend all of these trends. As noted, they'd pump up the value of houses at the expense of new market entrants. Imagine putting down 3% on a house with a 40 year mortgage. Five or ten years in, you'd still have almost no equity, and no disincentive to walk away in an economic crisis. The house would be a highly leveraged option on future appreciation, treated more like an investment than a consumption item or place to live. We're already there to some extent with 30 year mortgages, but a 40 would make worse every trend that has made suburbia so desolate for the past 50 years.

[LaineyAZ]

Related to the realities of SFH new construction, there's an independent housing inspector who does YouTube short videos on his findings. 
What he reveals in pricey homes just a few months old is pretty shocking:  leaking showers and tubs, broken welds in corners of windows, missing attic insulation, ducting not hooked up, natural gas hookups leaking, landscaping not graded properly, stucco missing on exterior, broken roof tiles, etc. 
All of these homes, costing anywhere from $400,000 to $1million, had received final approval by the state housing inspector.

When the homeowners take the evidence to the state Registrar of Contractors to force the builder to fix the issues, the ROC may or may not side with the homeowner despite video evidence.  In fact, some builders have sued the independent inspector and tried to prevent him from posting videos with their names.
These are the same building companies with multi-million dollar profits. 

I know there's a labor shortage in the construction trades but all of this is something else to consider before deciding to become a homeowner.

[sonofsven]

Related to the realities of SFH new construction, there's an independent housing inspector who does YouTube short videos on his findings. 
What he reveals in pricey homes just a few months old is pretty shocking:  leaking showers and tubs, broken welds in corners of windows, missing attic insulation, ducting not hooked up, natural gas hookups leaking, landscaping not graded properly, stucco missing on exterior, broken roof tiles, etc. 
All of these homes, costing anywhere from $400,000 to $1million, had received final approval by the state housing inspector.

When the homeowners take the evidence to the state Registrar of Contractors to force the builder to fix the issues, the ROC may or may not side with the homeowner despite video evidence.  In fact, some builders have sued the independent inspector and tried to prevent him from posting videos with their names.
These are the same building companies with multi-million dollar profits. 

I know there's a labor shortage in the construction trades but all of this is something else to consider before deciding to become a homeowner.

My recent experience is the opposite.
My business partners and I recently sold a million dollar home that we built. We have decades of experience as builders.
The home inspector hired by the prospective buyers wrote a multi page report that purported to show various defects in the construction, all of which he was completely wrong about.
He even referenced certain buildings codes to reinforce his opinion, I was able to show that he was misinterpreting the code. I don't know if it was from inexperience, or a tactict to force price negotiation. We had already negotiated on the price.
Some of his opinions were so wrong as to be laughable, but I still wasted a week dealing with it. And since the buyers presumably paid good money for it, they were not easily convinced to discount the report
In the end, we did make one correction on his report: removal of a wasp nest under the eaves.

Having said all that, though, I would agree that the price point of a home built by a volume builder should in no way be a referendum on its quality.