I am not going to die on the hill of "Seven Year Mortgages", but I will point out a few advantages:
I agree that it is totally unrealistic for nearly everybody when we are talking about the median house price in the US of $400k or of a typical new-construction of about $600k, it is not beyond the imagination when talking about a $150k house in a medium-sized, mid-western city like Lansing, Michigan.
With 10%, the financing payment (not including property-taxes and insurance) is about $1900 a month. That is well within the reach of many two-income families.
Regarding the "crime" issue: It would vaporize all of the airy-fantasy, criminal justice tripe they were force-fed in college. Crime is bad in cities because well-to-do liberals in safe suburbs elect soft-on-crime judges and prosecutors. If more newly minted liberals lived in the areas impacted by crime, they would start demanding that city and county "justice systems" start doing their jobs.
Regarding "lack of asset appreciation": I subscribe to the "rational market" theory where every seller is demanding a price whereby future appreciation is boiled into the price they are asking.
Regarding crappy schools: They are all crappy schools now, regardless of where you move. You either home-school or send them to private schools (good luck finding a solid one). Or, you can sell out when your oldest kid turns five and move to what you think is a "decent" school district. And, may I point out that if you waited a year before you tried to make a baby, you oldest kid turns five about...seven years after you got married.
Regarding crappy construction: Yes, there are some crappy houses in legacy cities. There are also houses built with real, oak trim, fine plaster work and hardwood floors. Survivor bias means that the IKEA, throw-away construction houses are gone.
Regarding crappy neighborhoods: Pick a house that is very close to a church you are willing to be active in. Eat out at the closest pedestrian-friendly restaurant. Join the local bowling team. Walk your dog and chat-it-up with the other dog-walkers. Stay in your house after dark. Don't flaunt your wealth. Give every appearance of sinking roots rather than being a snooty tourist.
When we were kids we paid $120k for our brand new starter home. And for years that mortgage kept me awake at night. We live small but satisfying lives and never bothered climbing “the property ladder”, preferring to save instead.
ReplyDeleteI think we could do far more for ourselves by slamming the door on mass immigration, deporting the human trash that has been dumped into our countries… and looking after the people we have.
Filthie is right, invaders, legal and illegal, are a huge part of the affordability problem. The increase house prices, and depress wages.
DeleteYou don't have to live in an expensive house in an expensive area.
ReplyDeleteIn fact, it's best not too: not only is that "keeping up with the Jones", it is also an area that will draw more crime and attention when things get bad. In addition, property values and property taxes will fluctuate and that neighborhood will be used as a piggy bank by your local government.
Instead, find someplace practical, comfortable, and middle of the road.
Don't forget that the national house prices you hear about average lots of homes over lots of markets - what matters is the homes you want in the area that fits you. It is better to focus on what is relevant to you instead of what the talking heads focus on.
Jonathan
P.S. I wouldn't get a 7 year mortgage - I'd get a 15 and pay it down early so I have a buffer in case I run into big problems. My boss hates debt and just paid off his house in 9 years.
Back in 87, we bought our first house and got a 15 year mortgage. We had money-smart friends that said to get a mortgage you can make extra principal payments on without penalty. The initial payments were almost all interest; call it $500 interest and $1 principal. Pay $1 extra towards principal and save $500 in interest. Once the principal amounts got large and the interest was small, we kinda slacked off, but paid it off in 11 years.
DeleteWe are still in that house... About 1400 sq ft.
This is the way ☝️
DeleteWife and I are on our 2nd home. One of the absolute hardest factors, both times, was the flood of terrible advice from concerned relatives trying to tell us to buy way more house than we felt we could afford. For various reasons they seemed to feel it was some sort of failure to buy a starter sized house and not go straight into a 2.5k or larger house in a nice neighborhood. Houses they couldn't have afforded until 20 years post college.
ReplyDeleteThe advice here, I think, is you just figurr out your family budget (without reference to gifts or offers or help or "help" or raises) and then stick to fit come what may. If a relative offers, once you're moved in to help pay some mortgage, great! But do not add a dollar to your mortgage in anticipation of this.
If the help is contingent on spending more, it is not help.
House "prices" adjust to whatever level makes a monthly payment buyers can handle. Mandate 7 year mortgages, and house prices adjust down until the market clears. If home ownership is good for society, cheaper houses are good for society.
ReplyDeleteThe biggest 'thing' is to stay within what you can actually afford...
ReplyDeleteThe housing market and by extension mortgages are no longer a stable industry because they are being manipulated. Houses are for many middle class people the only means to "get rich"....or at least stay ahead of inflation monetarily. And for big companies like Blackrock they are a means to wealth and more importantly societal control. Any time a commodity/market is being manipulated it is no longer a simple task to describe it.
ReplyDeleteYou want to pick a house in a a neighborhood that has barriers/boundries and has an economic engine in the middle of it. My pick 40 years ago for my first house had a large private shool in the middle and would bounded by a cemetary, subway line, expressway and industrial area. (everyone's industrial property had barbed wire topped fences that forced people to walk down a street and afforded no hiding. When you shop, pick three neighborhoods and look at everything that comes up for sale. You will be able to recognize a bargan. Roger
ReplyDeletesometimes we pay for the address as well as the brick and wood. for 30 years I lived in a detroit suburb called oak park. I lived in an area that had Huntington Woods 2 blocks east and berkley was a few blocks north. My house would have cost at least one and a half times more in Berkley and twice as much in Huntington woods and my kids still went to Berkley schools. Dont know how things are there now but when I was raising my kids in the 80's and 90's it was ok. I now live in Midland, its a very nice community with a lot of moderately priced houses, or you can buy an expensive one if you want.
ReplyDeleteHopefully you haven't been suckered into the " you are nobody without a degree" BS and have !00K student debt. I'm not against education, actually have a degree or three but I did all my college with Air Force tuition assistance and the GI bill. Sorry about the detour but it seems that a lot of the young folks I know are owned by their student debt.
I can still remember an uncle and father-in-law walking away and muttering to each other "they"ll never pay that off". We paid it early with extra payments against the Principle(it was in the contract that we could do so) so we scrimped and saved (LIKE we were taught as kids) I think it was free and clear in 12 years.
ReplyDeleteWe bought our dream property and built our dream home with a 15 yr mortgage paid off in 12 yrs. It was brutal financially, no new cars, no vacations but I’d do it all over again.
ReplyDeleteERJ, I like the way you think! We did the 15 year mortgage and paid extra toward principal to reduce interest expense. I am encouraging our kids to do the same.
ReplyDeleteLive modestly and enjoy your days for we do not know their number. For us, that meant (and means) used cars, a modest home, no extravagant trips, meals at home, and raising some of our own food. It is a good life and very fulfilling.