Leverage however increases the variance of the random walk of prices. You hope/pray the RW has a + drift that exceeds your cost of debt (ie, value grows X% > Y% on your pmt). If you are forced to sell (say, divorce or to relocate) you are going to bear more of the brunt of interim Vol. Over the long run (if you run out 30 years) your just facing the pricing/cost of capital issue.
TLDR Mortages are from a time long gone, where people lived in houses their whole working lives, from 22-52, with the same job, a wife and kids, etc. Then it made much more sense then today, when you need 1-200k to down-pay a 1-2m house (age 32 to 62?) and move/change jobs every X years, divorce is 50% liklihood, etc.
>You shouldn't have a change in liability after taking out a mortgage
By this I meant the mortgage level should not increase.
>Mortages are from a time long gone, where people lived in houses their whole working lives, from 22-52, with the same job, a wife and kids, etc.
I disagree that the idea of a family residence is from a time long gone. Nearly all my friends fall into this category.
I agree that having to move frequently means you should not purchase. But if you reverse that and decide to not move frequently, it changes the aspect a lot.
I disagree that the idea of a family residence is from a time long gone
Agree, but Nobody is arguing/describing this. My point was if you are overconsuming (buying too much house), you are delaying ownership and extending payment, such that you never really get clear of the debt. A 30 year mortgage taken on at 35 needs you working at the same job until 65. But careers are no longer so stable, in this regards at all, or so it seems lookinga around the West. It also leaves precious minimum left to pay for college. In the example of 22-52, you had 13 years free to pay/save/recover from your housing expenditure to pay for schooling of your kids. This would require taking out a 15 year mortgage at 35, and that would be smarter. But many people could not then afford the payments....
This is part of the reason people have overbid for housing. The other reasons are social/signalling, etc. But that is as old as forever...think of all the nobles in europe living with massive debts, etc...
== To be clear, mortgage is a debt. debt is a liability.
So, if you borrow to buy a house:
Before:
Asset: $10 Liab: $0 Net: +$10
After:
Asset: 100 (purch, 10% down) Liability: 90 (mortgage) Net: +$10
So there is no change in asset value.
Leverage however increases the variance of the random walk of prices. You hope/pray the RW has a + drift that exceeds your cost of debt (ie, value grows X% > Y% on your pmt). If you are forced to sell (say, divorce or to relocate) you are going to bear more of the brunt of interim Vol. Over the long run (if you run out 30 years) your just facing the pricing/cost of capital issue.
TLDR Mortages are from a time long gone, where people lived in houses their whole working lives, from 22-52, with the same job, a wife and kids, etc. Then it made much more sense then today, when you need 1-200k to down-pay a 1-2m house (age 32 to 62?) and move/change jobs every X years, divorce is 50% liklihood, etc.