Don't take this the wrong way, but we're gonna have to agree to disagree for the baseline reason of socio-economic status and risk taking. My head's not with me right now, so this is gonna be choppy, but here's what I got. Something like that works for you on your income. Something like that would not and could not work for someone like me on my income. From where I stand, every dollar I'm in debt, that's a dollar plus accumulating interest I have to pay off until I'm free. Every dollar I owe is one less dollar I have to be flexible with, whether it's paying for something else or squirreling away for winter. Let's say for example my mortgage is $500 a month. If one day I get in an accident outside of work and have a medical bill of $12,000 that I have to pay off, that's two years worth of mortgages right there. Now, the hospital might be willing to let me make installments, and that's great, but there's gonna be interest involved, driving that bill up. My expenses have increased unexpectedly and if we stick to the maxim that your mortage shouldn't exceed 25% of your income, that means 50% of my income is now going to the bank and the hospital. It just so happens that this year was the year I was planning for a new car, which now I can't afford, so I'm throwing good money after bad trying to keep a clunker running. Since I can't afford a fancy house, chances are I'm gonna get a clunker house too, so what happens when the plumbing freezes over in the winter and the basement floods? All of these things add up and the more money I owe and the more people I owe it to, the quicker I get burried into debt and the harder it is to get myself dug out. That's the risk of home ownership for someone like me. It's not "Well I'm afraid of the market crashing and my house suddenly being worth $20,000 less than what I paid for" because hopefully my mortgage is a fixed cost and I'm okay with a hit like that. The risk of home ownership is "If something goes bad and I'm buried in debt, I can't cancel my mortgage like some kind of lease and go couch surfing until I save up some cash." I'm locked into that debt, my hands are tied. Somewhere else, kleinbl00 talked about how his health insurance doubled with Obamacare. Something like that alone is enough to make it almost impossible for someone to pay rent or mortgage or car payments. From another angle, there's a lot of risk in "owning" (you don't own shit until everything is paid off and you have the deed in hand) two places and leasing one. The person you're leasing to might be a bad renter. The place you're leasing might be a money pit and that rent doesn't cover it. There are laws that must be followed, legal liabilities that put you at risk, and on and on and on. Staying on top of all of that requires money, knowledge, commitment, and the ability to take on risks. Those people who are 2.5 paychecks away from living on the street? Stereotypically speaking, they're that way cause of debt. They're that way because of low incomes. Realistically speaking, that's a bit of a skewed statistic because from what I understand, people who have an ass-ton of money, tied up in bonds and 401ks and shit, and their liquid savings is small compared to their income. On paper though, they're 2.5 paychecks away from living on the streets. To turn your analogy sideways, debt isn't water or leverage. Debt is a pile of rocks. If you have the right tools and knowledge, you can build a wall out of it. If you don't, it's something that can bury you. Sometimes though, there's a disaster, and one minute you're standing on the wall and the next minute you're underneath it.
goobster is arguing the equation. You're arguing the variables. I read a book about telecom - as in, how to build a phone system from "pile of wire" to "neighborhood filled with telephony." I mention this because one of the maxims put forth in the book is that in telecom, there's only one product but several different billing models. I think this is more profound and more applicable than the author intended: for much of life, there's one thing to buy, many different ways to pay for it. In this case, you're buying "shelter." If you buy shelter in installments with no equity built and no maintenance to pay, you gain the ability to change shelter with short-term notice. If you buy shelter with the intention to sell it later or pass it on to your heirs, you gain the capture of appreciation but give up the ability to change your situation with little notice. Back to inputs and equations: I have no doubt that you have evaluated the situation and have determined that there are no peril-free values you can plug into the equation. You are not alone. That does not mean that goobster's wrong: as the adage goes, it takes money to make money and the current political and socioeconomic climate punishes the working class at the expense of the upper middle and upper classes. But don't let that blind you. In goobster's example, you take your debt in order to increase your income. Put it another way: instead of buying a $500 mortgage for a condo, put $500 a month into an REIT. That REIT goes up in value and if you run into trouble, you stop contributing. Shit, you pull all your equity out and cover your medical debt. Granted, you won't capture as much appreciation in a REIT as you will owning the property yourself but once again, there's one thing for sale and many ways to buy it. The real trap of homeownership is it reduces your mobility. If you get laid off you can't find a job somewhere else easily until you've sold your property (or taken a massive loss by walking away). The eroding job security amongst the working class magnifies this peril. But make no mistake: tax law and social mores in the United States are tilted towards home ownership - multiple ownership even. The economics may not work out for you right now. That's a legitimate beef to take up with your congresscritter. But that doesn't mean the economics don't work.
I think one of the crazy things is, there's a huge risk in the cost of housing whether you rent or buy. Part of the scary thing about renting is, yeah, you're tied to a place either month to month or year to year, and you can scoot out whenever, but rent increases and often dizzyingly fast too. At least with a mortgage, even though you're tied to a 15-30 year contract and hustling to buy yourself out of it sooner if you're smart, your monthly housing cost is much more predictable. The big risk is that so much changes in a year, let alone 30.
No doubt. Risk management is very much a variable in the equation, and I think we can both agree that getting a positive number out of that equation has gotten harder and harder for those without a whole lotta scratch. But once you're on the other side of the inflection point, things get much nicer. Try this on for size: you and goobster were bandying about $500/mo mortgages. Our rent on the birth center is over $2500 a month and we've got a $350k buildout we have to pay off. That's $350k worth of work we did on someone else's property, by the way. We don't own it. We've got a 5-year lease and two 5-year extensions. So we're tying up ridiculous sums of money in this thing... but that gives us an opportunity to run sixteen women a month through the place at somewhere between $2k and $5k each. The hard part is when you don't have sixteen women. Life's a risk. Society, for much-debated reasons, has made it more of a risk for those without a shit-ton of money. But if you can make it over the hump, it gets less risky. That's pretty much what we're both saying.
There is another nuance to consider here. When you own a home, you are much more "interesting" to everyone else. The entire economy is hinged on the idea that you own a home. So it behooves EVERYONE up and down the line to make sure you STAY in that home, and keep making payments. Even if the payments have to be lowered. Or suspended for a while. Or an extra line of credit approved. Renters are a liability. Homeowners are the foundation of the local economy. So once you own a home, there are suddenly a huge number of people involved with making sure you stay in that home, and sustain through the hard times. (Especially after the whole housing market crash, recently! Nobody wants empty houses in their inventory! They want people living there, paying at least SOME money.... and protecting the property from vandalism, and keeping the lawn mowed, and blah blah blah...) I think one of the crazy things is, there's a huge risk in the cost of housing whether you rent or buy.
I beg to differ, but there's a scary NDA between me and the rant about the Great Foreclosure Fuckup of 2008-2011 that I really want to write here. Perhaps _refugee_ has less scary paperwork, if it wasn't before her time.Especially after the whole housing market crash, recently! Nobody wants empty houses in their inventory! They want people living there, paying at least SOME money.... and protecting the property from vandalism, and keeping the lawn mowed, and blah blah blah...
Yeah, the pyramid scheme of sub-prime mortgages failed, because of decreased banking regulation. However, take away the fanciful valuations and silly-money games, and there is still land with a house on it at the end of the trail. And that inventory has an undeniable value, even today. The financial games are a distraction. At the end, every community needs occupied houses, if it is going to survive. So there is motivation from many different angles to keep people in homes, even if exceptions need to be made to keep them there.