The Terrifying Reality of Long-Term Unemployment

Re:The Terrifying Reality of Long-Term Unemployment by dredmorbius on Monday April 15, 2013 @06:23PM (#5554834)

What leverages up can (and will) leverage down. The problem with the housing collapse was that people with low or zero down-payment mortgages found that the property value fell, wiping out their entire stake (if they had any at all). More skin in the game should (though there's some research suggesting otherwise) make the market more stable by reducing the ability to speculate. This is a lesson that goes back to the crash of 1929 and the Dutch tulip bubble.

The mortgage deduction is priced into your home (as are low interest rates). Absent the deduction, real estate prices will fall. As interest rates rise, housing prices will also tend to soften.

What inflation giveth, it also taketh away: your mortgage costs are reduced, but so is the appreciation of your house.

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Re:The Terrifying Reality of Long-Term Unemployment by rdtsc on Monday April 15, 2013 @11:09PM (#5555977)

Each of those is an contribution to risk and and potential reward, I guess it still comes down to whether people think their house will appreciate or not faster than inflation.

There is also:

* Closing costs. 5k to 10k can easily go to that only. So just buying and selling constantly could end wasted eaten "transaction costs"

* Chance of moving. Are you likely to move? If so think twice about a house. This is offset in the software world by working from home.

* You effectively get a 4% loan and pay it off in 30 years. That could be hundreds of thousands of dollars over the cost of your house you end up paying to the bank in 30 years. That completely escapes many people. Now there is inflation and the opportunity cost to do something else with the money but:

* You have to figure is your salary going to keep up with the inflation? You hope so right...right?

* Opportunity cost. Could you make more by buying some stock, and sell it after 30 years?

* Do you think housing is going to go up again or is the stock market going to go up faster. Same compounding for interest rate goes for reinvesting stock dividends.

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Re:The Terrifying Reality of Long-Term Unemployment by dredmorbius on Tuesday April 16, 2013 @06:22PM (#5561336)

Add to the "chance of moving" cost: your opportunity cost in lost income (or additional expenses) by being unable to sell your house in the course of a move. Either you lose out on the income opportunity (which is what this subthread started with), or you're left with the higher costs of renting out your home (likely not covering mortgage) while renting at the new location.

We saw this last situation for a new hire who last year was unable to sell his underwater midwest home while finding rents in a markedly hotter housing market much higher, especially when proximity to good schools and low crime rates were factored in.

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Re:The Terrifying Reality of Long-Term Unemployment by aidenn0 on Tuesday April 16, 2013 @12:49AM (#5556312)

I recently sold a condo where I paid closing costs for the buyer. Total costs that didn't go to me were in excess of $30k.

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Re:The Terrifying Reality of Long-Term Unemployment by sneak on Tuesday April 16, 2013 @03:15AM (#5556723)

> More skin in the game should (though there's some research suggesting otherwise) make the market more stable by reducing the ability to speculate. This is a lesson that goes back to the crash of 1929 and the Dutch tulip bubble.

True, but that's not what we have in the market today. You are confusing "should" with "is".

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Re:The Terrifying Reality of Long-Term Unemployment by dredmorbius on Tuesday April 16, 2013 @06:19PM (#5561317)

Sorry? Your comment's not clear.

Are you saying that today we have more skin in the game and it's not helping, or that today we don't have more skin in the game (with market stability left AFAICT uncommented on)?

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