And when private banks provide near-unlimited debt the total cost of the average mortgage will consume all income after paying for food/heating/fuel.
And if we get more productive disposable income will go up and that will feed into land prices.
All the rentier need do is wait.
edit: would love to hear the counter to this from whomever downvoted me - it's a fact that with our system productivity improvements flow into land prices therefore speculating on land sees you capture these gains.
I didn't down vote you but here is the flaw. Rent typically trends upward with property values which eats away at a tenants ability to save. This is particularly true in markets like NYC, SF, LDN and HK where people are paying over 50% of their paycheck to rent.
The moral of that cartoon is that we should all become beggars I guess.
It's a funny way to represent it, but there is one person missing from that cartoon. The person that refuses to go into debt, saves until they have the money to spend on whatever it is they want to buy. Another useful addition would be someone with a mortgage that they actually pay off on, their net worth would likely dwarf the net worth of the beggar.
>It's a funny way to represent it, but there is one person missing from that cartoon. The person that refuses to go into debt, saves until they have the money to spend on whatever it is they want to buy.
There's another person missing from that picture - a person who has debt and has positive net worth.
Honestly debt is not a boogeyman, it can be very enabling and given the current economic situation, interest rates and economic outlook people saving are going to end up on the losing side in the long run.
Yeah true (and the point actually) I was responding to OP who was talking net worth and got confused I just bunched all those people in comic into negative net worth :D
> The person that refuses to go into debt, saves until they have the money to spend on whatever it is they want to buy
That's me!
> Another useful addition would be someone with a mortgage that they actually pay off on, their net worth would likely dwarf the net worth of the beggar
And they're so old their body has given up and they spend their days sitting in front of the TV, thinking about all the things they wish they did in their life.
> And they're so old their body has given up and they spend their days sitting in front of the TV, thinking about all the things they wish they did in their life.
There is a stress in renting too. You never know if your landlord might want to change things resulting in a request for you to move out. eg he wants relatives to have the apartment, etc.
This is something that is definitely overlooked in these discussions. I'm in the US, not living in SF or NYC but in a city growing fairly rapidly and closing on a house in a few weeks. I know that my mortgage won't increase (property taxes excluded), and I don't have to worry about a landlord deciding he wants to redevelop the property or just raising the rent enough that I'm forced to move - both of which are happening with regularity in my area.
I don't think home ownership is a decision to be made lightly and I disagree with the idea presented in the article that it should be done to make money, but there are definitely numerous benefits and the idea of a mortgage being somehow evil just because it's debt is extreme. As another commenter mentioned, debt is a tool which can be used poorly or wisely.
No landlord would want their family renting the place in lieu of real tenants. Real tenants pay, on time. Family likes to take advantage of you (ie. they find excuses to pay less or not at all).
Family is a convenient way to push out tenants in many cities, though. Even cities with strong tenant protections often have exceptions for evicting tenants in order to allow family members to occupy the rental.
This is less of an issue if your landlord is a giant faceless soulless holding company that operates many real estate businesses. Though such landlords have their own problems.
I recently bought a flat - my only real debt is the mortgage. There is a psychological shift - I was in London for 7 years and thought I'd rent forever. But it bugged me to be pissing away 1300 a month to a landlord... and it was never big enough. And London is its own headache. The shift for me at least has to do with 'settling down'.
I bought this current flat (outside of London) primarily as an investment (gentrification is already happening here) and so the much lower "rent"/mortgage (than even renting in this city) is an upside. I wish I'd bought in King's Cross 10 years ago, but that's how life goes.
But I do get the social pressure to "own". Under 30s these days are screwed. I always thought London was overpriced, but it kept going up and up and up... At some point, the bubble will burst, but the Tories don't care about the future for anyone but themselves at all.
As an aside, my friend just finished off his <$100 quid a month mortgage he got in the 80s and his two up-two down is easily worth 200K now. I think he paid like 50K overall?
A Seattleite here, I know someone who bought a townhouse near Dollis Hills station on Jubilee line. £750K. Seemed like an eye-watering amount for a crummy looking neighborhood. What am I missing?
Responsible adults manage debt. In my opinion it's a sign of immaturity to exclude funding sources available to you to accomplish goals. If the goal is starting a business, borrowing money to do so helps you get to market. If you have employees working for you and you cannot make payroll because profits were poor as you start, borrowing money to make payroll keeps you afloat.
On a personal level, buying a house might be more than you care to take on. But with a mortgage, you can certainly predict what your payments will be for the next 10, 15, or 30 years.
And it can be renegotiated when interest rates drop.
Understanding this is what makes people responsible adults. What makes them irresponsible is buying things on a whim on credit and carrying large credit card balances. That is indeed a great way to ensure a stressful life.
It's an expense, not a debt. It's like an operating expense, versus a mortgage, which is more like a capital expense amortized over a number of years.
I have no issue with mortgages entered into by people who understand how to live within their means. There are lenders who prey on those who don't truly understand what their means are, sure, but that doesn't make the whole enterprise of home ownership a faulty one.
And before anyone nitpicks: yes, you do own the house you buy with a mortgage. It's security for the loan, and the mortgage gives the banks the right to take the property away from you to settle your debt. On well negotiated loans used to purchase property smartly, it can actually be an investment. One that may not pay as much as an index fun after 30 years, but in the meantime, you've had a place to live.
I would also suggest that many (not most, just many) people without a mortgage are unmarried and/or not parents. There is an intangible benefit to "setting down roots" and "making a home of memories" with a family. I, personally, have found that to be invaluable.
A house is a risky investment. Over the life of a 30 year mortgage, you may spend 100% the price of the house on interest, plus ever rising property taxes, repairs, roofs, driveways, land care and maintenance, and more. There's also transfer tax in some municipalities (2% on buy and sell in Philadelphia for example), 6% to a realtor to sell, and so on.
You'll need your house value to rise to at least ~225% of its initial purchase price over the life of your mortgage just to break even.
That doesn't count the time you spend on repairs and maintenance of your property that you never get back.
Here in the US, I have friends still under water from 2008, so house values don't always go up (and this is in the pricy DC metro area).
All investment is a risk. Never buy a house because you feel you should - do it because you want to. You want to put in the kitchen of your dreams, you want to live near family, you want your kids to grow up in one house their whole childhood.
If you make a profit in the end, wonderful! But don't do it for that. Rather, decide the kind of life you want to lead (do you enjoy moving every few years? Do you want to live abroad for 5 years? Do you prefer he flexibility and lack of responsibility that comes with renting?) and live that - if a house fits into it, great!
Well, at least around here, after the first six months, you never have an obligation beyond one month (you must give two months notice, but since you must usually pay two months in advance at the start, you don't pay the last).
