psychothumbsDeflation Never Happens, Except Right Now
people put off buying homes and other big purchases because they know it will be cheaper later
What absolute drivel. This myth was obviously formulated by some wealthy economist who had only ever worries about purchasing vacation homes.
People put off buying homes UNTIL THEY CAN AFFORD IT. How many people does the author think are currently in the streets or renting for years just so they can save a bit on their mortgage? Completely garbage.
With the interest rates what they are, it makes sense to wait on buying a home, even if you can technically “afford” it. My mortgage would be 60% higher if I bought today vs. 2 years ago when interest rates were a lot lower.
glomagI'm sorry to be pedantic but this is a pet peeve of mine. If you bought a house you would not have any mortgage payment. You (and everyone else usually) are talking about financing a house.
Maybe I'm the crazy one but when I buy something I like to look at the total amount that I'm paying for it.
If I wanted a house listed for $300,000 5-years ago and I wanted to finance it, the rate might have been 3% so the total amount I would be paying would be $455,332.36 over 30yrs. Therefore I would only finance if I thought ~`$450,000 was a fair price. If I thought the house was only worth $300,000 then I would need to pay in cash.
Today rates are at 7% so a house listed at $300,000 actually costs $718,526.69 when financed. Do I think the houses I see listed for $300,000 are worth over $700,000? No. Do I have more than $300,000 needed to afford to pay in cash? Also no. Therefore, I'm not buying.
*These calculations are ignoring the down payment but the principle is still valid.
I’ll up your pedantry with even more pedantry, colloquially “bought a house” is understood to mean “closed a deal on a house with financing” - “bought a house outright” would be for a full cash purchase.
I don’t mind unnecessary pedantry where appropriate, but you’re incorrect in this context.
And, technically speaking, when you buy a house (mortgage or not) you become the owner of that house - you’re just also receiving a loan with your house as collateral. So, if you fully paid off your house and then applied for a loan to start a business would you consider your house no longer owned by you?
If we really dig down here your pedantry about buying a house becomes quite meaningless because the loan using your house as collateral doesn’t mean you’re any less an owner of your house - you own it, fully and completely, you just also have an outrageously large loan using it as collateral (granted it’s a pretty special loan for a number of good social reasons).
It is extremely good to acknowledge how much that loan interest rate is effectively increasing the price of your house though, far too few people realize how much actual money they end up paying.