bostonbubble.com

[JCK]

[Boston ITer]

[GenXer]

JCK: My argument is that it all depends on your financial situation. Otheriwe it would be too easy and everybody would make the right decision

Just because its not an easy decision doesn't mean we have to make the wrong one. Lets not throw our hands up saying everything is random, so we are forced to decide. It doesn't matter what ELSE is random, but this is the biggest financial decision we'll make, probably ever. So, knowing that we can not rely on house prices is actually a good thing. This makes us more prudent with our money, if anything.

I think it is an individual decision - whether to buy or not. It depends on how well you are off financially, and of course, you have to make some sort of projections of your income into the future. But knowning that nothing is certain MUST play a role in your decision. This is why if anything, 3x income is a must. Yes, renting may not be as comfortable, but it is better to lack in comfort than to lack in means. We are a creature of the present, and nothing I am saying here will convince some people, but others may actually listen and take this into account.

[JCK]

[Boston ITer]

GenX, I'm completely on the same page as you, concerning buying vs renting.

Where I depart, a little, is that I don't believe that only hindsight is 20/20, sometimes one's foresight could be just as good. For one, the different between equities/ETF, bonds, currencies, etc and let's say real estate is that of middle class carry costs.

Aside from futures contracts, the regular stock trader seldom carries more than a 2 to 1 margin on any position and likewise, even leveraged options are simply premium costs, kinda like a value-added transaction fee. Houses, however, are 5 times an annual income, something which for the average person, is hard to get a grasp on... basically decades of one's savings.

So with the above in mind, homeownership is more than just a mere risk but a systemic one. I think I'd much rather have $10K worth of options expire worthless, at the end of a year, than $100K upside down on my mortgage. At least those $10K worth of failed options trades gives me a chance to live to fight another day.

[balor123]

Obama is right - debt is the oil in our economic engine. The problem with debt is not only does it allow the engine to continue to run but it can also act as the source of energy for this engine. I don't think we need 5x income to keep the engine moving. We need maybe 1-2x income for that purpose (cost of construction, something in virtually infinite supply). Anything more than that primarily just transfers wealth from buyers to sellers. Another analogy would be sports. You can give one athelete steroids and that person will perform well but if you give them to all competitiors no one really benefits.

[GenXer]

[eyablon]

[admin]

[GenXer]

eyablon: Just because stocks returned 10% in the past doesn't mean they will in the future. In fact, because there is no way to predict what that return will be, you can not assume that stocks or any other investment will beat inflation and will make you more money than the mortgage rate. This is why it is sometimes better to pay in cash, especially if you can afford it, again provided that you already have a decent size portfolio. This is not to say that you shouldn't invest in stocks and bonds to try to beat inflation. You may be able to beat the mortgage rates, but using it as a given while borrowing money and investnig the rest may lead to a financial disaster. This is what people used to do, but if the stocks and real estate crashes at the same time (which is what has happened), and people start losing jobs, you can see what that can lead to - somebody who seemed to have been prudent with their money can lose everything (leverage + not very intelligent stock investing + loss of job = total financial disaster).

[balor123]

You can be confident about the behavior of some investments. You know that i-bonds will beat or match inflation for example, though it depends on your inflation definition.

[admin]

[balor123]

I agree I was just pointing out that it's return is known. Your suggestion of sticking to cash equivalents is a good one. The mortgage arbitrage is interesting because the time scale is so long. I wish I could at least lock in a rate now.