Re:The High Cost of a Home Is Turning American Millennials i...
by erroneousfunk on Tuesday February 07, 2017 @12:19AM
(#13587256)
You're missing the part where not everyone can pay for the down payment or qualify for a mortgage (or buy the house outright, for that matter). Even if you can, it's a nail-biting month or so of crap just to go through the process. And even THEN, you're basically forced to stay in one place for the foreseeable future, or you risk losing a lot of money, and going through a ton of stress all over again. This creates an economic inequality that tilts in favor of the people who are able and willing to buy a house.
I mean, you can sit there all day and say "well, it doesn't make sense that people would buy instead of rent if it were economically disadvantageous, so the market must be relatively balanced." But that's simply not the case. You can look at actual numbers to show you this.
so a house just sits there, generating money. This means that it has an investment value. That value is "determined" by the cost of comparable investments because of arbitrage. If I have some money invested making less than 1 rent/month (minus expenses and so forth), then I will happily buy the house for that money. Likewise if there is some cheaper investment which will give me the same return on my investment, I will sell the house and switch, pocketing the difference.
One example of such an investment is the mortgage itself. as a bank, by signing a mortgage with someone, I am extracting the interest rate on the value of that house every month (plus some portion of the principle).