Re:Renting is Throwing Money Away, Right? (2015)
by nilsbunger on Monday April 23, 2018 @11:47AM
(#16904441)
One other key difference that makes leverage in stocks scarier: once you hit zero, you’re wiped out.
In your example, a 20% decline in stocks would wipe you out.
In principle, the same thing can happen to a home. But there are two reasons it isn’t as bad : 1) as long as you keep up the payments, the lender won’t foreclose you. 2) there’s a dampening effect in home sales - when demand softens, volume collapses. So a 20% decline doesn’t happen as often.
I owned a house in Redwood City during the 2008 collapse and ended up under-water in it for a while (negative equity). I just held on and it recovered nicely, and I sold it for a great profit in 2014. My stock broker would’ve never let me do that.
More broadly, buying is also an “option” to stay in the area long term. In a place like the SF Bay Area, where you just can’t tell what will happen next to house prices, that should be factored in as part of the value.
In your example, a 20% decline in stocks would wipe you out.
In principle, the same thing can happen to a home. But there are two reasons it isn’t as bad : 1) as long as you keep up the payments, the lender won’t foreclose you. 2) there’s a dampening effect in home sales - when demand softens, volume collapses. So a 20% decline doesn’t happen as often.
I owned a house in Redwood City during the 2008 collapse and ended up under-water in it for a while (negative equity). I just held on and it recovered nicely, and I sold it for a great profit in 2014. My stock broker would’ve never let me do that.
More broadly, buying is also an “option” to stay in the area long term. In a place like the SF Bay Area, where you just can’t tell what will happen next to house prices, that should be factored in as part of the value.