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Re: House Flipper Lending Hits 13-Year High: What Can Possibly Go Wrong?

By: Decomposed in POPE 5 | Recommend this post (0)
Mon, 30 Sep 19 5:14 PM | 77 view(s)
Boardmark this board | Pope 5 		Msg. 41056 of 62138
(This msg. is a reply to 41029 by capt_nemo)
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Nemo:

Re: "House Flipper Lending Hits 13-Year High: What Can Possibly Go Wrong?"It's more complicated than you might think.

I bought a home in 1990 and took out a 30 year mortgage at 9.25%. Today that sounds ridiculous, but if you look at the chart below, you'll understand why I actually thought at the time that it was a great rate.


Today, a buyer can take out an FHA loan at only 3.36%. That low rate makes an enormous difference in what he can afford. If he buys a $300,000 home with it, his payment will be $1,324 per month. Back in 1990, that same $1,324 payment would have limited him to a $161,000 purchase. Sure, a $161,000 house then was better than a $300,000 house today, but I don't want to get into that. (I said this was complicated.)

Next, consider household incomes. In 2017, the average household income was $61,564. In 1990 (and I'm eyeballing this from the chart below), the average household income was about $35,000. So, in a period where $1,324 per month went from buying you a $161,000 house to a somewhat worse house valued at $300,000, average household incomes rose 75 percent.

Do you see now why it's not so straight-forward?

I've come to think that even though houses are expensive today, they're actually a pretty good deal. Everything is relative, after all, and the low interest rates coupled with increased incomes more than compensate for the higher home prices. Without question, housing is still affordable... probably more so than it was in 1990. And, by the way, my 1990 house did lose value - about ten percent - over the next five years. Fortunately, I held it longer than that and eventually made quite a bit.




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The above is a reply to the following message:
House Flipper Lending Hits 13-Year High: What Can Possibly Go Wrong?
By: capt_nemo in POPE 5
Mon, 30 Sep 19 6:24 AM 		Msg. 41029 of 62138

http://moneymaven.io/mishtalk/economics/house-flipper-lending-hits-13-year-high-what-can-possibly-go-wrong-jXvGQ8sKfUmnRNr-RZZF1w/

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