Whether or not such makes sense to an individual is, of course, highly subjective.

Lets try an example, and we can plug in numbers to see what we will find okay?

First, lets look at any asset, house, bonds or whatever material(originally) asset?

It is a rule of economics that rarely fails. When home mortgage interest increases (all other variables constant) then house prices tend to decrease. And inversely as in the present housing bubble, as mortgage interest decreases, house prices increase. There will always be small cycles of inflationary asset values but this summary is usually correct.

Here is one explanation (only SFR houses as shelter assets): People live in houses, usually for their own comfort. And people require a steady INCOME at least so that a periodic PITI payment can be made every 30 days, rain or shine. In the absence of a firestorm of inflation, average family income changes slowly over time.

For the purposes of this discussion, I am omly considering California law. In California, most buyers are really borrowing or renting money to pay a mortagge. They don’t REALLY own the hosue. I invite you to look at any county recorders office where each title is listed as a Deed of Trust. In California, house owners (mortgage debtors) are only renting money to pay the mortgage grantor! When a house “owner” in California walks, and they have no second or third deeds of trust or no HELOC, and there has not been any evidence of fraud. They can walk walk and walk ANYTIME they want. Under federal and state law, the ONLY recourse the first, second grantors have or lien holders have is to TAKE POSSESSION of the property. They don’t even send a bill for fair use. So when bubbles perc house values upward, few “owners” will walk, most sell and take some kind of benefit: flush, small debt, or profit depending on the “Lien” to “sold” value sum.

First of all:

1) I AM NOT AGAINST BUYING REAL ESTATE for shelter.
2) I am NOT against estate agents.

I am against cheating, lying (lies of Omission as well as Commission) and chicanery

+ When 95% of people TODAY buy a single family residence, they do it using a mortgage! Agree?

++ When mortgage interest (time period of loan) is spread over many years (30 or so), the monthly house payments are smaller. The inverse is also true. A shorter loan time period requires higher monthly payments. I think we agree so far.

+++ Lets look at a typical loan period. Most are 20-30 years. There are very few exceptions where some buyers will START with a 10-15 year mortgage. I think we agree here!

++++ Lets sum the POTENTIAL average increase of two equities? A) Equity because of inflation and B) equity because of speculative equity.

The other two equities—> C) down payment principal + D) accrued monthly principal is fixed once the contract is signed and the buyer-debtor pays the monthly debts ON TIME.

When the sum of the A) and B) equities on an annualized basis, average greater than the annualized mortgage interest rate, the result is a potential increase in value of the house and potential of PROFIT (less Loan fees, points, Realtor commissions, closing costs, proeprty taxes etc).

When the summ of Equity A and Equity B is LESS than the mortgage rate, you have a NET LOSS!

Example: New first time home buyers, Mr and Mrs Jones put down 20% on a 200k detached tract house. That is a principal payment of $40k cash down payment. They get a 30 year fixed rate mortgage at 5% because of their excellent credit scores and high paying jobs. THIS IS A VERY UNUSUAL SITUATION today and is quite unusual. This couple has the greatest potential of netting a profit on sale compared to ALT-A’s, FHA’s and subprime GSE backed loans.

If the annual average mortgage interest rate is less than the inflationary and speculative equity rate they CAN make a profit. HOW OFTEN DO THIS HAPPEN TODAY?

FROM THE VERY second that the conventional loan contract is signed, this couple is IN DEBT. They are in debt when they get promoted, and they are in debt when they get fired, demoted, furloughed or layed off. THEY PROMISED TO PAY THE DEBT…and are forever in debt until the debt is paid off.

Lets look what happens to people in the normal course of humanity? The Realtors FIVE D’s of Real Estate.

Death-
It could happen—auto accidents, crime, illnesses.

Disease-
Heart disease, cancer, diabetes don’t care if you have a mortgage neither do mortgage companies. They want the DEBT PAID OFF — NO EXCUSES.

Divorce-
Yes it won’t happen to me? >50% of all first marriages end in divorce. Mortgage payments must be paid!

Disaster-
Fires, earthquakes, floods, are only a few. How many home insurance companies honor their contractual obligation to pay for repairs? NOT MANY! and YOU as a buyer MUST MAKE PAYMENTS EVERY MONTH, whether you can live in the house or not. Home insurance claims from the Oakland, CA over 15 years ago have not been paid. The Northridge earthquake of 1994, claims not paid. How about Hurricane Katrina? Thats a national joke. HOUSE DAMAGES NOT PAID.

I think you get the point? Why do you think so many post Katrina houses caught on fire by themselves? Perhaps the owners thought that a totaly destroyed house would have to receive something?

THERE IS A SOLUTION THAT MOST OF US can use to buy the house we want and afford to pay for it! I will last that on the next POST.

Mst Realtors hate my solution, the same with mortgage officers. They HATE what I recommend! Because if even only 5% of all buyers in any year follow my advice, house prices will drop making the houses REALLY more affordable and giving control back to the buyer. NO MORE WAGE SLAVES. NO MORE FEAR OF LOAN companys.