Would you trade price appreciation for a chunk of your down payment?

[wiggin]

Not got time to see the video but I'd be curious to see the working out and especially if they've included capital repayments as a cost in home ownership.

I know my mortgage is ~£340 per month with interest of about £100 in that, but to rent my house would cost ~£700!

You spend $460/month on housing? Damn.

As for price-to-rent ratios, there are fairly sophisticated models that take the total cost of homeownership (including taxes, maintenance, mortgage, etc.) and compare it to the cost of a rental, minus the forced savings caused by paying down principal. Obviously the numbers are variable, especially because of the mortgage interest deduction that varies with your tax bracket and unknown property appreciation and inflation, but given reasonable assumptions quite a number of cities in the US have unfavorable price-to-rent ratios. The longer you hold onto your home, the better chance you have of coming out ahead, but in many models you always end up behind no matter how long you hold it.

I'd be leery. What if the home doesn't appreciate but loses value? You'd still be on the hook for paying back that initial 10%, plus the mortgage, even if it's underwater. And I wonder if a bank would be eager to approve a large mortgage, if the down payment comes with a lien like that?

It's a shame that "the utter dearth of affordable housing" leads to financial schemes like this....instead of more affordable housing.

They share in the loss as well - they get 25% appreciation, but subtract 25% of any depreciation from the initial 10%.

Oddly enough, I actually agree with your last point. I think that addressing financing is a bandaid for the real problem, which is constrained supply. I think that the relatively wealthy members of my community should work on lobbying the local government to ease planning restrictions.




Tonight, I went to a session some people organized with a rep from Landed. It was a fascinating crowd - about a third of the crowd was my friends, all professionals in their 20s and 30s who are essentially hopeless about the chance of buying in our neighborhood. The other two thirds was an older crowd, mostly people I knew who were much more established and interested in this as an investment (as well as a community initiative to make it easier for people like me to buy). The funny thing, though, was that all of the young crowd ran the numbers and realized that even with 10% 'free', we still wouldn't be able to buy. There was some discussion of upping it to 20% - i.e. the fund puts in 20%, we put in 10%, and we take out a mortgage on 70%. But if we're talking about a million dollar mortgage (on a $1.5 million home, which is probably a smallish 3 BR here), then adding up property taxes and the like and you're talking nearly $8k/month. That's simply unworkable when you factor in that most of us are paying tuition for 1-3 kids (figure $25k/year/child), are saving for retirement (figure minimum $36k/year), and actually need to pay our taxes and insurance premiums and grocery bills. Figure a family of 4 would be easily clearing 30k a month in spending/taxes. That means you'd need a minimum of $360k annual household income, which while feasible for two professionals is awfully hard to swing for most people. If you cut that mortgage down to a $4k rental in a 3BR, you'd suddenly have a bit more breathing room - not much, but at least some.

Long story short: it's not really the downpayment that's the problem - that just delays the purchase. It's the mortgage that can't be carried.