[TravelTechGuy]

> The nightmare scenario for a financial institution is someone getting a mortgage, paying it off early, and not getting another mortgage.

I think the nightmare scenario for financial institutions is people buying houses for cash. No mortgage, no down-payments, no middlemen. The west coast right now is seeing an increase of such transactions. Add to that the slew of services trying to get around realtors, and the future may be bleak for such financial institutions.

One can only hope...

[keypusher]

Majority of Americans have less than $1000 in savings, I don't think "paying for the entire house in cash" is what's going to disrupt the housing market.

[eli_gottlieb]

Let's set a more ambitious goal. The real nightmare scenario for these institutions should be: people buy houses like refrigerators, as durable goods, with financing being only for the very worst-off.

[lostapathy]

Where do you live that people don’t routinely finance appliances for 2-3 years on consumer credit?

I don’t, but all the appliances sellers here advertise it so people must do it.

[droithomme]

That is interesting, I wonder how many people do buy appliances on credit.

I recently replaced a refrigerator, which was over 40 years old and which I'd done multiple overhauls myself on over the years.

Appliance store had lots of refrigerators in the $3,000-$16,000 range. With lots of features and compartments, multiple icemakers, LED zoned glow lighting, exotic hinges, internet connectivity, etc.

I got a good fridge for $500 for cash. No icemaker and a single fridge and freezer door so it had the highest energy efficiency rating, higher than all the high tech fridges there with exotic energy saving features. And plenty of room inside because it wasn't taken up by compartments and drawers and icemakers.

So... if most people are financing as you speculate, maybe it is because they are going for these $5000 refrigerators that don't work as well as the $500 refrigerators.

Also I just know that all the internet, digital stuff, and touchscreens on the $5000+ fridges is going to break down in a few years and cost a fortune to repair. No thanks!

[marssaxman]

Have you looked at the price of a house lately? Maybe the 1% can manage to buy houses for cash, but that's not something most of us can realistically aspire to.

[droithomme]

I've bought most of my houses for cash. If you start in an up and coming market and upgrade the property after 10 years you can sell at a big profit. So you sell the first one and have a bunch of money that you use to buy the second one outright in a less hot market but one with better lifestyle, and have a bunch of cash left over to buy an investment property. Then you have monthly income, but also a maintenance and tenant headache and you're anchored to that neighborhood.

If I had invested the money in my stock portfolio instead, I would be ahead of the game since in the US (I realize the article is about the UK) mortgage rates are ridiculously low, stock returns are good, and mortgage interest is deductible.

I like to upgrade my houses though including major demolition which the lienholder of record sometimes doesn't want to go for without trouble. I have more freedom with the property with an outright purchase. Despite the fact I'd have more money taking a mortgage and investing my investment gains have been dramatic enough that I'd rather have the freedom.

Anyone working in IT should own at least one house outright by age 30 if they want to and if the can't they need to upgrade their skills, switch jobs, or stop spending irresponsibly. Starting salaries for recent grads from decent colleges are $90k now on average. That's people with no experience. After 10 years everyone should be making a lot more than that and all these rates are vastly more than anyone needs to live on. Save save save in the early years, then invest. Don't spend earned income on anything other than bare essentials. Spend from surplus investment income. Lots of people are in trouble every month spending all their earned income despite making $180-$400k and they never get ahead. There's no excuse for that. Cut expenses to what the poor spend and invest the surplus until you can permanently live well off your investments. But continue working at that point.

[swagasaurus-rex]

> Starting salaries for recent grads from decent colleges are $90k now on average.

I graduated ~7 years ago. Besides this figure being far higher than I experienced as a starting salary,

1) These salaries are for high cost of living areas. Rent can and often is $25,000 or more a year.

2) These high cost of living areas, homes can and readily list for $1,000,000 or more, which is, in your estimate, 11 times the starting yearly salary, ignoring every and all expenses.

3) These 'decent colleges' can put you in several hundred thousand dollars in debt.

4) $180-$400k is not in the salary range for most software developers. This is well above average.

There's no way I'm buying a home when I'm 30. When I do, there is no way I will own it outright. And I feel like I make a good living for myself.

[FreedomToCreate]

Ok so lets do the math. Age 22, graduated and making 100K USD. After tax this is about 70K. Rent on the low end is 15000 a year, food is about 5000, and a car is about 4000. Assume you spend nothing else, you ae left over with 46000 dollars. You repeat and lets say you salary goes up by 5000 every year and nothing else changes, if you add up you will have 46K+49.5K+53K+56.5k+60k+63.5+67k+70.5k+74+77.5k = 617.5k

So after 8 years of living the bare minimum life style and using up the a good portion of your youth on saving money, you can finally outright buy a 800sq foot house in the poorer communities of silicon valley.

Sounds like a great plan to me. /s

Note you could invest the money while you build it, but get if the market tanks, good buy money

[droithomme]

Your math is great and comparable to many people's experience.

You do 10 years. Let's do 8 years instead so we take our next move age even 30. Using your numbers there's 465.5 saved total. But we put that in the market each year in boring run of the mill bread and butter commodity stocks with half decent dividends and reinvest the dividends. Over all we see a modest 7% annual return from the market all together, both gains and dividends. So we're 30 and have $625k in fungible stocks that can be cashed in. Similar to 617.5k but somehow having 0% returns, and we're 2 years ahead.

So the only option is to buy a lousy house in a bad neighborhood with crime in a city where homeless guys are blowing each other on the sidewalks which are strewn with feces and AIDS infected heroin needles?

No of course not. If in such an area the only rational thing is to move to another area.

Now if you bought a house in this hot market that house appreciated more than 7% for these 8 yrs. But you also were paying 4% or so on a mortgage. Still you have a big gain. You paid $480,000 for a condo in 2010 and now it's worth $1.3 million (12.5% APR). BTW, I'm using real numbers for a family member's property in the bay area with these exact years. So that's nice cash infusion as well, rather than losing money on rent. However ignore that, let's just go with rent and stock gains instead, which I recommend anyway. I don't recommend people pay cash for houses like I do unless they have a reasonable justification for doing so. It's better to let the bank front it when mortgage rates are low as they are.

Anyway so you get a transfer to Topeka or Bismarck or Austin or Durham. You buy a mansion with a swimming pool and a horse barn on a 2 acre parcel. Or maybe you decide to commute 10 minutes from outside town where you buy a 4500 sq ft farm house on 75 acres of land. And you pay $250,000 either way. If you had bought your condo in 2012 you have around $1 million to spend, if not you have around $625k to spend. The rest you leave in those stocks.

You took a big salary hit moving. Went from $140k with $300k in bonuses and equity to $110k and $300k in equity/bonuses if managed to move in-company but different office across country, or $110k and no equity if not. Either way your living expenses drop to near zero. Company has full benefits so you're paying utilities, low property tax, and food. Maybe $500 a month total since your mansion is paid off. Now you have $104k a year to stuff into those low yield commodity stocks.

But you get "lucky", like everyone who invests long term. It's not luck, it's just persistence. One of those stocks takes off. Or maybe you have an equity event in a company you're consulting with who couldn't pay market rate. So that's a few million here or there.

I'm not lucky or special. I just do basic common sense stuff and avoid stupid stuff. I know car mechanics who have done better than me by retirement with their investments because they took more risks. But I have done OK and my value is above $30M. I'm old and now have health problems, so it's nice.

[marssaxman]

May your unusually good fortune continue indefinitely.