Home Ownership!! What to do, What to do? The American Dream?

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  1. tsmog profile image84
    tsmogposted 4 months ago

    American dream of owning a home is dead, majority of renters say

    Note: All of the referenced have plenty of graphics for a skim.

    by The Guardian (Mar 12, 2024)
    https://www.theguardian.com/society/202 … GTUS_email

    "The American dream of owning your own home is dead, according to the majority of renters surveyed in a new poll shared exclusively with the Guardian, and the areas they live in have become so unaffordable they are “barely livable”."

    What say you?

    What's it like in your neck of the woods?

    Is it regional?

    Who do we blame?

    How long has it been going on?

    What would you advise a Gen Z or Millennial? How about the soon to arrive Gen Alpha?

    The Poll is Real Estate Survey / The Status of Real Estate in 2024:The Harris Poll Thought Leadership Practice
    https://theharrispoll.com/wp-content/up … h-2024.pdf

    State of the Nations Housing 2023
    https://www.jchs.harvard.edu/sites/defa … g_2023.pdf

    1. wilderness profile image96
      wildernessposted 4 months agoin reply to this

      I bought my home at the height of the recession in the 80's. - my mortgage was over 10% and the seller was getting out from under a veteran's mortgage of nearly 12%.   My grandson (21 years old) bought a home last year.

      Home ownership is not dead, just temporarily harder to come by.  It will change, and if it doesn't perhaps we will go back to the 1000 sq ft houses from the 80's.  It is absolutely that localized markets can be extremely difficult (my own is one such), but it is not impossible, particularly with the higher wages being paid today (another 16 year old grandson just got a job at MacDonalds paying $15 - Idaho minimum wage is still $7.25).

      1. tsmog profile image84
        tsmogposted 4 months agoin reply to this

        Thanks for the input. Yup, perhaps a matter of perspective. Us matured seniors have the luxury of lived life experience to have optimism, perhaps.

        I know in my neck of the woods, here in San Diego County in the news weekly is three things:

        ** Affordable housing shortage
        ** People more so seniors becoming homeless because of housing
        ** Lack of areas to develop within the metro San Diego city area that can utilize mass transit

        1. wilderness profile image96
          wildernessposted 4 months agoin reply to this

          As population has increased, so has the cost of land, while the availability of land has gone way down.

          The only real solution is to live further away, and hope that one day you can buy into that favored position in town.

      2. Kathleen Cochran profile image75
        Kathleen Cochranposted 3 months agoin reply to this

        Wilderness: I bought a house in 1983 in my thirties for $60K (household income about $40K/year) with a 13% mortgage. Kept it three years and made $10K on it.

        These things fluctuate. My children are in their 40s, all make more than $100K/year and own homes worth $400K-$700K.  Times change The American Dream of owning a home took a major hit when the housing market crashed through good intentions turning to greed and stupidity. But it is still there.

  2. Ken Burgess profile image74
    Ken Burgessposted 4 months ago

    32 Years of Housing Data
    https://www.huduser.gov/datasets/ahs/ahs_taskc.pdf

    Tracking the American Dream. 50 Years of Housing History
    https://www.huduser.gov/portal/Publicat … D-7775.pdf

    Average Rent by Year [1940-2024 ]: Historical Rental Rates
    https://ipropertymanagement.com/researc … nt-by-year

    Personal Opinion:

    Prior to the increase in interest rates that began in earnest is 2022.  It was never easier to get a home in the State of Florida.  Each State is different.  The programs set up during the previous 6-8 years prior to 2022 made is very easy for any first-time buyer to purchase a home that had a steady, provable, income (not self-employed).

    Doubly so if they were a "first responder" or teacher.

    I am sure in places like San Francisco, Los Angeles, NYC and their immediate suburban areas, the cost of owning a home is out of reach for many.

    Those who have an adventurous spirit and are willing to work hard and travel to areas where housing is affordable and jobs are available probably will have little trouble.

    I look at something like this:
    Number of renter occupied homes in the U.S. 1975-2022
    https://www.statista.com/statistics/187 … ince-1975/

    And it looks normal to me... as population increases, one would expect the number of people renting to increase as well.

    I think what has changed is the belief by many that they are owed a House, Car, along with their cellphone, internet, food, etc.  the concept of having to bust your arse to get those things, to do what is necessary to achieve those things has been lost in more people than still have that drive and understanding that you can't get something for nothing.

    My grandfather built the house that I visited as a child, my father built the first two homes I lived in as a child.  From a plot of land, to pouring the foundation, to framing, wiring, roofing, etc. they did it all (with help from friends).

    They worked their jobs, and during their off time they built their homes.

    My grandfather was a French Canuck he came to America with nothing, my father grew up in what today would be called 'projects'. 

    That is the American way... working your ass off and earning what you have... or it was... these generations coming up don't see it that way.

    1. tsmog profile image84
      tsmogposted 4 months agoin reply to this

      Thanks for the input, links, and perspective.

      The first link caused curiosity more than anything as the data appeared to be through 2005. That was almost twenty years ago.

      For instance, "Between 1973 and 2005, median monthly housing costs for renters increased from $133 to $694, an average annual increase of over 5 percent."

      Though I am sure it is relational, today average rent here in San Diego County is $2,997. To purchase a median priced home supposedly you need an income of $206K. Realizing of course, to me, that is sticker shock. Medium income is approximately $99K. So definitely two incomes are needed, right?

      Looking at the third link the years 2021 - 2023 makes a statement regard inflation and Biden. No matter, the younger generation are stuck with it.

      I couldn't look at Statista as they put in behind a paywall for me because I have used them too much this year. Rule, rules, rules ha-ha

    2. Sharlee01 profile image90
      Sharlee01posted 4 months agoin reply to this

      "That is the American way... working your ass off and earning what you have... or it was... these generations coming up don't see it that way."

      Ken, I concur that evolution continues its progression, and it appears that certain individuals are content with minimal accomplishments.

      Nonetheless, there are those who possess an indefinable quality, which I refer to as "it." They not only persevere but excel, unhindered by obstacles. Conversely, those lacking in distinct attributes tend to assimilate and make do with less. The dichotomy between the haves and the have-nots remains a perpetual reality.

      The American dream is alive and well, but many don't hold the same values as those that do as you say "work their ass off".

  3. Nathanville profile image91
    Nathanvilleposted 4 months ago

    It’s not a dissimilar picture in Britain; but it’s been going on a lot longer.  When I got married it was easy to buy a house, even for people on low income; but all that changed with ‘Thatcher’s Britain’, when house prices sky rocketed from just 3 times the annual salary to 7 times the annual salary and more.

    On the more positive side – In the late 1980s Margaret Thatcher did introduce laws giving renters of Council Houses (local government owned social housing) the ‘right to buy’ (with generous discounts e.g. the market value of the ‘home’ less all the rent paid to local government over the years.

    Since then the ‘right to buy’ scheme has been extended by all governments, and other schemes introduced over the past 10 years to make it easier for first time buyers; such as the ‘Life Time’ ISA introduced by the Conservative Government in 2017.  An ISA is a tax free savings account introduced by the Labour Government in 1999.  A Life Time ISA is a tax free savings account introduced by the Conservative Government in 2017 whereby your savings are locked until you either use it for a deposit on a house or when you retire – At which point, whether it’s for a mortgage or retirement, the Government gives you a ‘grant’ of 25% of whatever savings you have in your Life Time ISA to a maximum of £1,000 per year e.g. you save £4,000 a year for 10 years towards a mortgage (£40,000); the Government will give you £10,000 ($12,800).

    Another scheme introduced by the Conservative Government in 2021 is called the ‘First Home Scheme’; whereby the Government will pay ‘first time buyers’ up to 50% of the cost of their first home, provided it's a new build.

    First Home Scheme Explained https://youtu.be/tQwgtxIt53Q

    1. tsmog profile image84
      tsmogposted 4 months agoin reply to this

      Thanks for the input. I like that there are programs for first time buyers. There are some here too, though different in how they are structured from the 'First Home Scheme'. They are more centered on financing tools. The biggie for many is the amount for a down payment.

      That was my hurdle. Saving for a down payment meant not putting money in a retirement financial tool. Cognitive dissonance between the two values. I chose retirement and lived within my means if not lower. Of course, one consideration, was not married comes in to play as in two income family unit.

      1. Nathanville profile image91
        Nathanvilleposted 4 months agoin reply to this

        I didn’t have your problem because (unlike now), when we were buying our first home back in the late 1970s, house prices were still cheap and affordable, so raising the money for a deposit on a mortgage was easy – even for people on low income.

        And of course I didn’t have to save for my retirement because both my works pension and State Pension would give me a liveable, and comfortable, income in my retirement.

        Of course, things are a lot different now, where housing is very expensive and unaffordable for a lot of people; but certainly, one of the hurdles in getting on the property ladder is, as you highlighted; “Saving for a down payment”.  In that respect, in the UK, there’s the Life Time ISA, as mentioned in my previous post; but also, introduced in April 2021 by the UK Conservative Government is the new Government backed ‘Mortgage Guarantee Scheme’ which (subject to the usual credit checks) guarantees the buyer a 5% deposit mortgage – which makes mortgages more obtainable for first time buyers, especially those on lower incomes.

        UK Government Mortgage guarantee scheme explained: https://youtu.be/f3h1q6Frb-o

        Yes, not just being married, but civil partners, and friends living together (joint ownership of property) does help to spread the ‘cost of living’.  Although it can have its funny sides at times e.g. in our family I pay the household bills and my wife covers the cost of shopping – so for a while, when the UK (under EU law) was transitioning from the old incandescent or halogen light bulbs to low energy lightbulbs; at the time the new low energy lightbulbs was a lot more expensive to buy, but saved a lot money on the electricity bill:  I think you can guess the rest e.g. my wife would buy the cheaper lightbulbs (to save on her shopping bill), which meant I was paying far more on electricity bill than I would have liked because we weren’t at that time using the low energy bulbs.

        1. tsmog profile image84
          tsmogposted 4 months agoin reply to this

          Thanks for the input, Arthur!

          From observation, at least as of today in the UK, there is more opportunity to be a home owner in contrast to the US as far as I know. I am only familiar with the various financing tools, and not an expert. I do know the GI Bill for veterans gives decent benefits for home ownership.

          Way back when there was opportunity for 'no down' to get into homes. I don't know much about that. And, there were variable rate mortgages.

          From Bank of America comes:

          "Adjustable-rate mortgages (ARMs), also known as variable-rate mortgages, have an interest rate that may change periodically depending on changes in a corresponding financial index that's associated with the loan. Generally speaking, your monthly payment will increase or decrease if the index rate goes up or down."

          With an adjustable-rate mortgage, your interest rate may change periodically by Bank of America
          https://www.bankofamerica.com/mortgage/ … gage-loans

          I thought about that route, though I found the risk unacceptable when it came to bottom line. I considered factors such as:

          ** Saving for a down payment rather than retirement
          ** How much could I save without a mortgage
          ** What happens if the mortgage rate goes up cutting into my retirement savings
          ** Yes, the equity would increase, however when retirement comes when I need the money for retirement, and I sell, what would the expenditure be to house myself after selling.

          Today, a down payment, conventionally varies by state of course. Take a peek at the article next for what is expected if curious or anyone else.

          Mapped: The Median Down Payment for a House, by U.S. State
          https://www.visualcapitalist.com/cp/med … -by-state/

          The high is 28.6%
          The low is 9.2%

          For that to make sense analytically one has to consider the state and the employment opportunities. By state I include tax structure, i.e. income tax, sales tax, property tax.

          The only people I speculate that can take advantage of that is remote workers. To me, without research, regard trade/profession wages/salary will be proportional.

          1. wilderness profile image96
            wildernessposted 4 months agoin reply to this

            Looking at median down payment amounts for first time home buyers is a little misleading.  Typically, down payments for a conventional loan run about 3%, and some loans have no down payment at all.

            But there are ways to get that down payment if one is needed.  Our first home was a mobile home in a trailer park; 8 years later we sold it for enough to put a down payment on a regular house.  As you mention, the GI bill can be a great help.  My parents bought several (near) shacks and remodeled them while living in them; eventually they paid cash for the home they lived in the rest of their lives.  I followed, kind of, by finishing off basements and making other improvements in every house I've owned.

            Only once did I consider (and use) an ARM loan.  Our first real house was purchased at the height of the 80's inflation bubble, at 10.5%.  Two years later I refinanced with an ARM that could change 2% per year, limited to being between 3% (it's starting rate) and 9%.  Savings the first year paid for closing costs and I plowed that back in.  Second and third years were pure gravy (at 5 and 7%), and it could never get back to the 10.5% I had already been paying.  A real winner.

            1. tsmog profile image84
              tsmogposted 4 months agoin reply to this

              Hooray! I mean that sincerely. Your success story is what the youth needs to hear and your children are fortunate to be able to hear it. Wisdom!

              What, perhaps, is ominous is that many of our youth are doing just what I did and shared through research on the web. Perhaps, they aren't aware of a 3% down or what that means. Their responsibility.

              Wise financial counseling should be an elective class both in high school and college I feel and think. Matter of fact toss in Home Economics. I took that my senior year of high school. It had its advantages.

              First, it was co-ed meaning half pretty much were football players and then, of course, girls. Many lessons learned, besides academic.

              Second, that class introduced me to economics financially speaking as we leaned about microeconomics.

              1. wilderness profile image96
                wildernessposted 4 months agoin reply to this

                Thanks.

                One of the problems, perhaps, is that our school system (K-12) is aimed at producing college bound students rather than trade school.  As a result our kids are coming out not knowing how to just get by in today's world.  We need required "trade school" type classes in how to live, including budgeting day to day expenses at a realistic wage for beginning workers.

                1. tsmog profile image84
                  tsmogposted 4 months agoin reply to this

                  Agreed emphatically while adding some life experience. Although I was not a business owner per se, where I worked I had the liberty to exercise my entrepreneurial spirit with changes in job description to the extend of creating a job for myself, my last one for 14 years.

                  A long way around with some bragging tossed in to say, one of my mentors was from SCORE (Service Corps of Retired Executives) for a quarter of a century. I think organizations such as that one along with the old fraternal orders like the Elks and Rotary Club members are needed to counsel our youth. Maybe they do? I would like to see them making themselves available to high school students. I know some had high school shoot offs they sponsored. Maybe they still do?

                  Get Free Business Advice from a SCORE Mentor
                  https://www.score.org/find-mentor?gad_s … gLLBvD_BwE

                  Note: Maybe I should get off my butt and make myself available to SCORE?

                  1. wilderness profile image96
                    wildernessposted 4 months agoin reply to this

                    This seems like it could do no harm and likely do a great deal of good.

                    Yes, perhaps you should!  These kids need some help.

          2. Nathanville profile image91
            Nathanvilleposted 4 months agoin reply to this

            Your first point is a good question; It would seem to suggest so (from our conversation in this forum) e.g. that "there is more opportunity to be a home owner in the UK, in contrast to the US"  - I don't know if that is the case, but I guess comparing the percentage of Americans with Britain's who own their own home might be a good indicator of any differences or similarities in this respect.

            To this end, for England and Wales; currently (2023) 63% of households own their own home, and 32.8% of households own their own home outright e.g. no mortgage, or mortgage paid off.

            How does this compare with the USA?

            Yes, we also have VRM (variable rate mortgages); and the other popular mortgage in the UK is the FRM (Fixed Rate Mortgage).  Fixed Rate Mortgages in the UK are typically 2 & 5 years fixed term e.g. the interest rate is fixed for 2 or 5 years regardless to what happens in the market.

            So when people are buying homes at a time when interest rates are low, or it looks as if interest rates are likely to rise, then people will tend to opt for a 5 year fixed term loan; then 5 years later (depending on market conditions) they can choose on whether to take out another fixed 2 or 5 year term, or just switch to the simple variable rate mortgage.

            When we bought our homes, we just went for a simple variable rate mortgage and stuck with it until we paid off the mortgage – there were some tough years e.g. the inflation bubble in the 1980’s (as mentioned by wilderness in a recent post above), but there was also some good years after that, where our mortgage repayments was very low.

            Thanks for the link on ‘down payments’; I scanned through that, in conjunction with comments made by wilderness above – It certainly seems complex, and I haven’t got my head around all the points wilderness makes e.g. “conventional loan run about 3%” etc. 

            I assume that what wilderness means by a “conventional loan” is a ‘bank loan’, rather than a mortgage – or am I missing something in translation?

            Anyway, in the UK you could get a bank loan, and even an unsecure bank loan if your credit rating is good, for a deposit on a house; but the sums required to buy the house (excluding the deposit) would require a mortgage –

            Currently in the UK:

            •    The average interest rate for a 2 year fixed rate mortgage = 5.22%
            •    The average interest rate for a 5 year fixed rate mortgage = 4.84%

            For clarity, a 5 year fixed rate mortgage doesn’t mean that it’s a loan that you pay off in 5 years; it means that every 5 years you renegotiate the interest terms with your mortgage lender for a typical 25 year or 30 year mortgage.

            1. tsmog profile image84
              tsmogposted 4 months agoin reply to this

              Thanks for the reply!

              Quite frankly, having never purchased a home through a financial tool, thus gaining an education of the ins-n-outs a lot of what you shared went over my head. Swoosh! In other words, no need to educate myself on home purchasing as it wasn't in the cards.

              I know my two brothers and their wives, e.g. home purchasers, are well versed with it. One brother/wife have capitalized on it with the purchase of a vacation home on a lake. Their home has its own pier for their motorized boat. We have our family July 4th celebration there.

              Me, I paid cash for my mobile home back in 2006. No mortgage! It has doubled in value or a little more since then. However, to capitalize on that and sell means I would have to have new housing.

              Alas, rent in my area is about $2,300 (£1,804). My space rent is about a quarter of that. Who knows what the purchase of a new home or condo mortgage would be. Seems to me, prudence dictates to sit still where I am at.

              Median home price in my area is approximately $1 million (£784,130)
              Median condo price in my area is approximately $700K (£548,891)

              Recently, on the local news they have had a couple stories about how long it would take the average person or family unit to save for a down payment of 20% (Traditional it seems). Perhaps, the 3% down Wilderness shared is available. Again, the financial tools for financing a home, well, 'Swoosh'.

              Anyway, peek at the article next;
              It takes 50+ years for a single person to afford a San Diego starter home by Axios San Diego (Mar 13, 2024)
              https://www.axios.com/local/san-diego/2 … years-save

              Perhaps, that means one should get the hell out of the area/state! Alas, well, common sense dictates what that entails. Firstly, an income that essentially is greater than what they leave relational to cost of living and etc. to capitalize on purchasing while saving enough for the down payment. Certainly a puzzle to be solved seeking a solution set.

              Family support, might be key with many . . .

              1. Nathanville profile image91
                Nathanvilleposted 4 months agoin reply to this

                Thanks for the link and info:

                Wow, 50+ years for a single person in USA to raise enough for a deposit on a starter home; that’s frightening.  Checking on housing market websites in the UK, it takes on average 13.5 years for a single person to save enough money for a deposit on a house.

                For comparison (out of curiosity) I checked the latest rent & house prices for Bristol and for the UK (excluding London); as follows:

                RENT UK (data updated daily)
                •    Average Rent in Bristol = £1,859 ($2,367) per month
                •    Median Rent in Bristol = £1,600 ($2,037) per month
                •    Average UK rent (excluding London) = £1,220 ($1,553) per month

                Interestingly, the rent in your area is almost identical to the rent in Bristol.

                MORTGAGE UK
                Currently, the average monthly mortgage payment in the UK is £1,441 ($1,835) per month e.g. a little cheaper than renting in large southern cities like Bristol.

                HOUSE PRICES UK (Based on latest sales figures)
                •    Flats (Apartments) average price in Bristol = £276,433 ($351,927)
                •    Terrace House average price in Bristol = £381,136 ($485,224)
                •    Semi-detached average price in Bristol = £411,432 ($523,794)
                •    Current value of my house (3-bedroom semi-detached) = £180,000 ($229,158) e.g. stigma of being an ex-council house!
                •    UK Average house price (excluding London) = £284,691 ($362,440)

                1. tsmog profile image84
                  tsmogposted 4 months agoin reply to this

                  Thanks for the reply, Arthur!

                  What stood out for me is pricing of homes for the UK while considering it will vary by region I would speculate. San Diego County, where I live, is one of the highest housing markets for the nation and there is a high demand.

                  One of the big pushes is to build affordable housing. New housing developments be they apartment type buildings or stand alone home neighborhood development are to have a percentage be affordable.

                  Housing prices across the US most definitely varies. For some exploring peek at the link next. There is a history of median home prices for the US in table format. There is an interactive map for  the states. That is revealing.

                  Average House Price by State in 2023 by the Ascenty (a Motley Fool service) Published date Feb 28, 2024
                  https://www.fool.com/the-ascent/researc … ice-state/

                  To give some perspective with you, Wilderness, and myself we discover:

                  UK Average house price (Excluding London = £284,691 ($362,440)
                  Wilderness lives in Idaho = $431,787 (£339,162)
                  Myself (California) = $737,677 (£579,433)
                  Myself specific to San Diego County = $949,000 (£754,424)

                  Median income Single earner (Apr 1 - May 14, 2023) by the Census Bureau
                  https://www.justice.gov/ust/eo/bapcpa/2 … _table.htm

                  UK (I'll leave that up to you)
                  Idaho = $62,738 (£49,279) / Alternative source = $76,918 (£60,417)
                  California = $75,235 (£59,096) / (Alternative source = $81,575 (£64,075)

                  An alternative source is Median Household Income by State Note: Key stated is household. by Wisevoter
                  https://wisevoter.com/state-rankings/me … -by-state/

                  I did some poking about for a 3% down.
                  3 percent down mortgages: A guide to your options by Bankrate (Jan 10, 2024)
                  https://www.bankrate.com/mortgages/3-pe … age-guide/

                  "Mortgages that only require a 3 percent down payment are often part of a special program, and they’re open to anyone who meets the program requirements. Typically, you must be a first-time homebuyer or not have owned a home over the past few years to qualify; generally, you must also meet the program’s income limits."

                  The ins-and-outs of the various programs are shared. Not a terribly long read while a skim is worth it.

                  1. Nathanville profile image91
                    Nathanvilleposted 4 months agoin reply to this

                    Thanks for the links; and yep, it’s very similar pattern to the UK, including the recent dip in house prices since 2022 e.g. as you speculated, house prices do vary by region; London being the most expensive, and housing getting cheaper the further you get from London – The South East (outside of London) being the 2nd most expensive housing, the South West (where I live) being the 3rd, and the North East being the cheapest housing. 

                    Wages and cost of living follows the same general pattern e.g. London with highest cost of living, and highest wages; and the North East of England with the lowest wages and lowest cost of living.

                    House prices also vary across cities e.g. East London is cheaper than West London; East Bristol (where I live) is cheaper housing than West Bristol etc.

                    Likewise, in the UK, there is a big push to build ‘affordable housing’ (social housing); it’s been part of the Conservative’s Election Manifestos since 2010, but the Conservative Government has consistently fallen far short of their targets – which come the General Election later this year will lose them some votes for ‘broken promises’.

                    However, when developers apply for planning permission for residential development, local governments will always stipulate that the planning applications must include x% ‘social housing’ (affordable housing).

                    Thanks for providing the American median income figures for comparison:

                    *  The UK average median wage for a single earner is £34,963 ($44,511);
                    *  In the Bristol area (where I live) the median wage is £33,450 ($42,585); and
                    *  The median wage in London is £44,370 ($56,487).

                    This compares with the figures you gave for America, copied below:-

                    *  Idaho = $62,738 (£49,279) / Alternative source = $76,918 (£60,417)
                    *  California = $75,235 (£59,096) / (Alternative source = $81,575 (£64,075)

                    As clearly shown above, average wages in the UK are significantly less than what the average American earns, but then again Britain is a Nanny State (which irks wilderness) so (although things are much smaller in Britain, the houses, road, cars etc.) we don’t need such a high income to enjoy a similar standard of living as Americans, and to be able to afford holidays (vacations) and splash out on expensive luxury items.

                    For example, we’re planning to go on a week’s holiday (vacation) in Cornwall in June, and a 2nd week’s holiday, in Wales in July.  And when we get back from our summer holidays we intend to replace our existing cast-iron bath with a manufactured in Britain P-shaped whirlpool bath shower with LED lights; the cost alone, without the installation (labour) costs will be around $3,000; and then you can easily add another $2,000 for labour costs for installation, including the pluming and electrics.

                    The first short video shows all the typical features of a whirlpool bath, including LED lighting: https://youtu.be/8NUIkghrFo4

                    The second short video shows a typical P-shaped bath shower (identical to a whirlpool bath but without the jets e.g. I couldn’t find a P-shaped whirlpool bath shower on YouTube) – but viewing the two videos together should give you an idea of what we intend to splash out on later this summer: https://youtu.be/AMgJo4yl3-k

            2. wilderness profile image96
              wildernessposted 4 months agoin reply to this

              Sorry about that; our "conventional loan" is what you would call a FRM, although 30 years is the normal term.  Shorter terms are available, but most opt for that 30 year.  These loans typically require about 3% down, although that is variable as well.

              Our FRM never changes the interest until paid off.  It can be paid off early, taking out a new mortgage as desired, but if left alone it never changes.

              Of course, your FRM is what we call a variable rate as it must be redone every 2-5 years.  Our ARM (adjustable rate mortgage) adjusts every 1-5 years, normally every year or possibly 2, but the "adjustments" to be made are based on certain benchmarks and are not renegotiated.  They just happen according to the original agreement and whatever those benchmarks do.

              1. Nathanville profile image91
                Nathanvilleposted 4 months agoin reply to this

                Thanks for the clarity – most informative. 

                Yeah, I can see some fundamental differences with FRM and ARM, and how they are applied, between the UK & USA.

                •    The difference with the FRM between USA & UK, as you described.  Wow – a FRM for the full 30 years without changing; that’s quite impressive.

                •    The difference with the ARM between USA & UK, is that in the UK the interest rate paid on the ARM is closely linked to the Bank of England’s ‘Base Rate’ e.g. every time the Bank of England raises or lowers the Interest rate (base rate) then the interest paid on ARM mortgages changes accordingly, to keep in line with the Bank of England’s ‘base rate’. 

                While the UK Government has control of fiscal policy, the Bank of England is responsible for keeping inflation at 2%, and controls ‘monetary policy’ as a tool to do so:  Therefore, generally, when inflation is too high the Bank of England will be inclined to raise interest rates, so that mortgages will go up (sucking money out of the economy to reduce ‘demand’, to bring it back in line with ‘supply’) – classic economics.  Conversely, when inflation and economic growth are low the Bank of England will be inclined to lower interest rates to put money into the pockets of home owners paying mortgages as a way of stimulating economic growth e.g. encourage people to spend, to increase ‘demand’, which in turn stimulates an increase in supply’ (economic growth, leading to greater employment and less unemployment etc.).

                Mortgage lengths in Britain are similar e.g. typically 25 years or 30 years; or optionally, as we did when we bought our first home – 35 years; although it’s 5% not 3% that’s the lowest ‘down payment’ (deposit) for a mortgage in the UK, regardless to whether it’s FRM or ARM.

    2. wilderness profile image96
      wildernessposted 4 months agoin reply to this

      It always fascinates me (and makes me shudder) to hear just how much of one's earnings are taken away to give to someone else in your country.  It is not something I would ever be happy with.

      1. Nathanville profile image91
        Nathanvilleposted 4 months agoin reply to this

        I guess you think it’s a “rob from the rich to give to the poor” (redistribution of wealth); but it’s not quite like that in the UK, especially under a Conservative Government.

        It’s more of a case of “spread the cost – spread the risk”; not dissimilar to how insurance works.

        Besides, in the UK, it’s not just the poor who benefits from the Government handouts; the wealthy benefit as well e.g. in the UK there are numerous government benefits that are not means tested, such as the NHS, child benefit, disability benefit, free education until the age of 19, State Pension etc., and in 2020 the Conservative Government replaced the old style ‘Employment and Support Allowance’ (ESA) which was introduced by Labour in 2008, and which was means tested with a ‘New Style Employment and Support Allowance’ which is now NOT means tested (so that wealthy people don’t need to touch their savings to pay their bills) – ESA is a benefit which you can claim if “You’ve lost your job and you’re too sick to work, and you need help with living costs e.g. rent.”

        Over and above the above mentioned; in Britain everyone (regardless to how wealthy they are) benefits from Government support at various times throughout their lives; a recent example being the winter before last (during the energy crises, just after the start of the Ukrainian war) – that winter the Government gave every single household (regardless to their wealth) £400 ($512) payment to help towards the cost of their winter fuel bills – so millionaires and billionaires got the same $512 grant that winter from the UK Government as an unemployed person.

        Also, under economic theories, such a methodology is largely self-financing e.g. the trickle-up economic theory; whereby in the government giving the less well-off more ‘disposable income’, they will spend that extra money in the shops, which in turn increases the sales and profits of the shop owners, who then pay more in taxes because of increased profit, and employ more people because of increased demand for their goods; which equates to more people in employment paying taxes, and fewer unemployed that have to be supported by the Government.

        The political philosophy in Britain leans heavily in striving towards an equitable society, rather than ‘survival of the fittest’ – different cultural and social values than in the USA.

        1. wilderness profile image96
          wildernessposted 4 months agoin reply to this

          You misunderstood; I was referring only to the schemes to give money to those buying a house.

          But your "trickle up" concept is indicative of the thinking.  Take money from a shop owner and give it to the poor.  They will spend it at the shop, giving the owner back what was taken...minus the cost of goods sold, minus taxes, minus labor costs, minus, minus minus. He may get 3 cents on the dollar.

          The winner is not the shop owner with more business, the winner is the poor person that was given what the shop owner had earned.

          1. Nathanville profile image91
            Nathanvilleposted 4 months agoin reply to this

            “….the schemes to give money to those buying a house.” – That includes the ‘Life Time ISA’ introduced by the Conservative Government in 2017.  An ISA is a tax free savings account e.g. you don't pay any tax on the interest; ISA's were introduced by Labour in 1999, and apart from the Life Time ISA, which is limited to a maximum of saving £4,000 a year (for obvious reasons); the maximum you can save in all other ISA's per year is £20,000.

            FYI, the Life Time ISA benefits the middle class more than it benefits the working class in that if your working class you’d be struggling to save £100 a month in the ISA, and therefore the 25% tax free bonus you get from the Government for a deposit on a house is going to be significantly less than someone in the middle class who can afford to save the £400 per month (maximum allowed savings on this particular ISA), therefore the eventually 25% tax free bonus from the Government for the middle class is going to be 4 times greater in monitory terms.

            In fact ISA's benefit wealthier people more that poorer people in that wealthier people are able to save more money, and thus take greater advantage of the 'tax free' (no tax on the interest); especially if you are wealthy enough to be able to put £20,000 ($25,500) in savings each year. 

            You completely misunderstand the economic theories; it doesn’t work like you describe; if it did then your scenario would quickly lead to recession, not economic growth.

            Money in the economy isn’t a fixed physical sum that can only be increased or decreased by taxes and printing more money etc.  Money in the economy is like a ‘balloon’ that inflates and deflates in line with an expanding or contracting economy e.g. stimulate economic growth through fiscal policy (such as tax cuts or by increasing government benefits etc.) and you stimulate the growth of money circulating in the economy.  The timing and targeting is critical – governments using fiscal policy in this way at the wrong time and targeting the wrong section of the economy can have the reverse effect to intended e.g. government hands out (through either tax cuts or increasing benefits) at a time of high inflation can fuel inflation and make the situation worse – Also, doing it too much too quickly, can also fuel inflation and make things worse (disrupting the balance between supply and demand).  In economics, changes in fiscal policy should be ‘slow and steady’ to give time for ‘supply and demand’ to balance out, while at the same time stimulating economic growth without high inflation.

            I don’t follow your logic, it’s not in accordance with well establish economic theories e.g. If a shop owner sales increase by 50% because people have more money in their pockets to spend, then that is more profit for the shop owner – and if his business increases dramatically, because more people have disposable income, then it will make good business sense to higher extra staff to expand his business.

            Regardless to how it’s done, stimulating economic growth is a win-win for all.  Albeit, there are two opposing economic theories on the subject; trickle up (favoured by left-wing governments), and trickle down (favoured by right-wing governments) – both of these economic theories can in theory work in their own way, if the economic conditions are right (and as long that they are not just done for political gain rather than economic benefit); albeit, there are political arguments for and against each of the two opposing theories.

            This short (2 minutes, 30 seconds) video explains trickle-up vs trickle-down economics:  https://youtu.be/mybOUF6DOyo

            1. wilderness profile image96
              wildernessposted 4 months agoin reply to this

              You did not follow the shop owner example at all.

              Given: a shop with 10,000/month in sales and a 300 profit (3%).  Take 200 from the shop owner and give it to someone else to buy products with - that owner now has only 100 to spend on himself.

              They spend the 200 in the same store that it came from, buying 200 worth of products.  This results in a profit for the store of 6.  The store owner is still out 194.

              You simply cannot produce wealth by taking it away from people; all you can do is redistribute what is there.

              1. Nathanville profile image91
                Nathanvilleposted 4 months agoin reply to this

                After carefully reading your comment; I can see where the error in your assumptions is:

                Working with your example scenario, FYI the Government does NOT “Take $200 from the shop owner and give it to someone else to buy products with….”

                In practice, the Government finds the money “to give someone else to buy products with” from within the existing Government Budget without raising taxes.  An example of that was Boris Johnson’s (then Prime Minister) “Eat Out to Help Out” scheme during the pandemic e.g. after several months of lockdown in the UK (Government forcing non-essential businesses such as restaurants to close their doors), in an attempt to revive the restaurant business, for the month of August 2020 the UK Government (many would say foolishly, for various reasons) paid for 50% of the cost of a meal in a restaurant (up to maximum of £10 per person) for anyone willing to eat out in a restaurant that month!!!  - In this case, as with many Government initiatives to try to stimulate economic growth through Government Injection of Cash; the UK Government did NOT raise taxes to pay for the scheme.

                In the end, in August 2020, the UK Government paid up to 50% of the cost of 160 million meals to those willing to take up the offer, at a cost of £849 million ($1 billion) to the Government – but the Government did not raise that money by raising taxes.

                https://en.wikipedia.org/wiki/Eat_Out_to_Help_Out

                Moving onto your last point; in fact, in economics (not just theory, but well established) is that when Governments ‘inject cash’ into the economy, if it’s correctly targeted, it doesn’t just ‘redistribute what is there’ – it does actually ‘produce wealth’, typically a 10 fold increase over 18 months to two years e.g. the Government injects $5 billion into the economy (as a handout to the low paid), over the next 2 years, as that money circulates it will typically create around $50 billion in wealth; and being taxed at every key stage during its circulation, can generate anything up to $10 billion in taxes.

                Banks create money and wealth, and make their profits using the exact same above principle, as described in this short video:  How Banks Create Money https://youtu.be/O5DaC1Ujrrg

                SCENARIO
                Now to the nitty-gritty of your example:
                Yeah, 3% is also typical in the UK for the large supermarket shops, although for the small ‘local shops’ (who have a higher market and lower turnover) (hence their food is far more expensive that the supermarket), typically their net profit is generally around 5% in the UK.

                Using your example would work because, in your example the show owner makes just £3,600 profit a year, and therefore as its way below the ‘tax threshold’ (the point at which a business starts paying taxes) the shop owner wouldn’t pay any taxes anyway.

                So, let’s try using some more realistic figures that match the real world e.g. typically a corner shop (small local shop) in the UK will average between £60,000 & £70,000 profit per year.

                Let’s take the £70,000 as the base line; the tax the shop owner will pay on that £70,000 profit will be:-

                •    19% less the ‘tax threshold’ of £12,570 = paying 19% tax on £57,430 = £10,911 paid in tax:  Which leaves the shop owner with £59,088 net profit per year, after tax.

                Now moving on:  The point that you are missing is that when a Government gives a handout to the lower paid as an economic stimulus to boost economic growth, it doesn’t increase the tax rates; it works within its existing budget; so when lower paid people end up with a bit of extra cash in their pocket, they will spend it in the shops, boosting the shop owners turnover and profits – and that money will continue circulating in the economy for the next 18 months to two years, generating money and wealth, all of which are taxed at key points, which generates additional Revenue for the Government:-

                This short 2 minute video explains ‘The Velocity of Money’ (which is the point I’ve been trying to make):  https://youtu.be/g7TftRQrnIA

                This short 1 minute video also covers the topic (and puts forward both opposing sides of the economic argument):  https://youtu.be/4hjsRN6Mw8U

 
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