It’s thing like this that are making me seriously consider selling. Relocating across country, and am exploring renting out the house or selling. This news gives me pause, and makes me seriously think that selling now (the house is up some 15-20% on paper since we bought it last winter) might be the way to go. Then we rent for a few years.
We live in an area where the housing market is still very hot. Our home has nearly doubled in value over the last 9 years if you believe the Zillow estimate. We hope to sell in about 3 years. I am worried that the bottom’s going to fall out before then.
In my neighborhood, where houses are in demand, the Zillow and Redfin estimates seem crazy. They tell me my house is worth just under 500k, when the majority of houses that are identical to mine sell in the 430k range (with an outlier around 450k). I’m not saying their estimates are wrong everywhere, but in my area they seem highly suspect.
As to whether or not the bottom of the market will fall out, it depends on a ton of things, both national and local, but if you’re really worried about it, you could sell now and rent. Home ownership isn’t the “slam dunk win” that a lot of people think it is (though like all housing-related statements, that greatly depends on what location you’re talking about).
Can’t really. The GF’s daughter is a senior in high school this year and selling would be too disruptive. We also don’t want to sell the house out from under her while she’s in her first year in college because the expectation is she will be home for the summer. I wouldn’t be surprised if the kid ends up not returning home after her sophomore year – she’s very independent-minded – so selling and getting a two bedroom apartment will work then.
I am all for downsizing and having more freedom. The only real benefit to owning I see is that it’s an investment. Currently, we have been lucky to see our house go up in value so much. We are just in a desirable area.
Fun fact: if you make a single extra payment at the start of a 30yr fixed, it will reduce the length of the mortgage by about 7 years.
Sorry, meant one per year.
That’s simply not true at all… What?
I need more details.
As it is, I’ve talked to two banks so far, but I need to talk to a bank that works with the PA housing. They have a couple of loans available to first time buyers.
It does mean taking a series online course, but that is probably a good thing anyway.
More like 3-4 months. Nothing to sneeze at, but no way in hell is it a seven year difference.
Sorry, I meant one per year. That may sound like a challenge, but the number of payments it saves you in the long run is staggering.
A loan that started now would end in March 2042 instead of June 2048, so it is closer to 6 years. Still, it is a net reduction of over 50 payments (even accounting for the money put in)
The math on that depends to a decent degree on the interest rate. In the 4-4.5% range, you’d be looking at a 4-4.5 year reduction in term. Kick the rate up to about 6.5% and you’re into 6 year early payoff range.
So the rate you’d be getting is a key factor in this, since it impacts your baseline monthly payment, which means the higher the interest rate is, the more of a dent in the principal an extra yearly payment would make.
Ah, ok. That’s probably why I remembered it being 7 years (the rate was higher when I learned about that).
At any rate, as a rule of thumb, if you can make even a single extra payment a year, it can shorten your mortgage dramatically, and is probably a better investment than anything else you could do as a homeowner.
Yeah, absolutely. The sooner you start hacking away at the principal balance with extra payments, the greater the benefit in the end.
Making an extra mortgage payment is the same as investing that money with a rate of return equal to the interest rate, with the investment locked in until the mortgage is paid off.
So if your interest rate is 4%, it’s the same as investing that money and getting 4% return. If you itemize your mortgage interest when you pay income tax, then it’s actually worse than that, probably under 3%. So, is an illiquid investment vehicle that earns less than 3% really the best you can do? Probably not.
if you have a great financial advisor or very confident in what you are doing? Sure. But in uncertain times and talk of a market bubble, having a guaranteed rate of return has its merits, especially considering what stuff like CDs were paying last I checked.
This is only true if the rate you’re paying on the mortgage is higher than the (risk adjusted) return you could get investing the payment elsewhere. If you’re only paying 4%, you’re most likely better off keeping the cash and putting it in the stock market or a pension fund.
Edit: I guess magnet beat me to it.
The tax break for the mortgage payment shouldn’t be ignored. Assuming it continues to exist…
Volatility is not so important when you are locked in for 30 years. If you put your money in the S&P 500 and leave it there for 30 years, you will almost certainly get better results regardless of what calamities may occur.
Looking back to 1928 (as far as my data goes) the 30 year annualized return has never fallen below 7% despite all the recessions, crashes, and wars of the past 100 years.
There are too many unused lampposts.
This is true as far as it goes, but the problem is it isn’t true for shorter periods of time, and you can’t pick what you get in the last 5-10 years of your 30-year plan.
I think Piketty has pretty well established that the long-term rate of return on capital is nearly always around 4%. That’s what I’d plan for.
After 41 posts seemingly unrelated to: ‘Failing Trump administration. Sad!’, I declare:
