Wall Street Journal says home buying math no longer good. Bull!

Today’s WSJ has their most petulant hate-buying-a home-you-idiots article yet. Nicole Friedman? No. Gina Heeb. Who she? I dunno. A bigger home investment hater than Nicole, for sure.

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The article title conveys the message, “Home-Buying Math No Longer Adds Up.” The first paragraph says buying a home has become a “pipe dream” for more than a few years ago.

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Another, paragraph says a couple of years ago, a monthly housing budget of $2,000 could have bought a $400,000 house; today, only a $295,000 house.

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So buy a $295,000 house.

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As with Nicole, 7% mortgages make it impossible to buy a home. When I bought my first duplex in 1969, the rate was 7.25%. It never got lower than that until 2001. I bought something like 118 housing units when the rates were ABOVE 7%. I only bought ONE when they were lower in 2021.

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Now geniuses like Nicole and Gina tell me what I did was impossible. Where were they when I needed them? Fortunately, not yet born.

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It is now less “affordable” than in recent history Gina tells readers. “Affordable” is a BS Realtor® word used to pressure Congress to subsidize home purchases so they can make more commissions. When they announced their new affordability index decades ago, I instantly denounced it as BS.

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If you want to know what home you can afford, go online. They will ask your income and expenses and savings and tell you what home you can afford. It is what it is. If you do not like that, tough.

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But my advice is buy a home with a mortgage. Now? Sure. Why not now?

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I recently got a RAM mortgage after I did a sensitivity analysis. That is a spread sheet where you do a long-term projection then change one or more of the key variables to see how it affects your return on investment.

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I put the inflation rate in square A-1 of the spread sheet and then put $A$1’s in each year’s projection to see how it affected the real (after inflation adjustment) value of the property and the real value of the mortgage balance.

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The upshot was as long as the inflation rate was 3% or higher, the mortgage made us better off. At 2% or less, we were about the same or worse off.

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And we were not using much leverage. Leverage is the loan-to-value ratio. In real estate, especially homes, you can easily get extremely high loan-to-value ratios in the 90% to 100% range. That much leverage multiplies your return.

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Even 20% down gets you a multiplier of five. If you pay $1,000,000 with a $200,000 down payment, and the value of the house rises just 3%, your return on equity is 3% x $1,000,000 = $30,000 ÷ $200,000 = 15% return. With just 10% down, the equation is $30,000 ÷ $100,000 = 30% return.

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Is there ANY time to not buy a home? Yes. If you expect a depression a.k.a. deflation. Deflation is caused by the Fed “printing” too little money. When is the last time that happened? Before WW II.

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Gina tells us that usually, when rates go up, prices fall. Really, Gina? Are you planning on telling us when that happened? I’m 77. That never happened in my life time.

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The only time home prices ever fell in the US since 1965 was the Subprime crisis 2007-2009. Rates did NOT go up then. They DROPPED from about 6% to about 5% .

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And Gina is forced to admit that prices have not fallen recently. They hit the highest median price ever recently: $392,000.

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Gina tells us that the cumulative interest paid over the life of the mortgage is huge. Yeah. Yeah. We all know that. Irrelevant. The big picture is what happens to your real equity over the course of the mortgage. And with leverage and even low level appreciation, your real equity increases notwithstanding the massive amount of interest all home mortgage borrowers pay over the life of the loan.

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If Gina really believes that massive amount of interest collected over the life of the mortgage is unattractive to buyer/borrowers, she should invest in home mortgage bonds. That would put her on the receiving end of the massive cumulative pile of interest income.

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I predict she is not going to buy mortgage bonds.

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Gina says, “First-time and young would be home buyers are still stuck sitting on the sidelines.” That is false. Recent interest rate increases shrink the amount they can pay for a home. So buy a smaller home. Gina is claiming everyone has to act like a spoiled child with regard to interest rates—refuse to buy a home until rates go back down to 3%.

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This talk is mindless. You would think no one can sell a home because of the interest rates. In fact, they ARE selling and selling for more than a year ago. What about all the people Gina and Nicole say are “sitting on the sidelines?” The sellers don’t need them. They only need one buyer and they got that one at a higher price than last year.

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You as a home investor need not worry about all this affordability and young buyers, etc. Just put the house on the market and accept the highest qualified bid. It is infinitely simpler than the WSJ would have you believe.

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