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housing transition trap?
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jimbog said:
Counteracted by ‘hidden inflation’ that will depreciate that money sitting in the bank?grumpy_codger said:docrob900 said:No, nothing like that. If I sell, and don't have a new place to buy quickly, I still need to live somewhere. That costs money, and reduces the amount I then have to buy a new place when one becomes available. That gap may be months or years, eroding the money I get from selling the house. That's the trap and the dilemma.If you spend your cash on a house and own it, you in fact pay a hidden 'rent' - in form of the interest that you could have earned if you had that cash in a savings account.I deliberately over-simplified this.Yes, you are right, but it depends. In this particular context it's housing prices inflation that matters, not inflation in general. Housing market crashes aren't unknown and when they happen cash in a savings account is better than an owned house.And ATM*, it's not a crash, but, as I said above, savings noticeably outperform house prices growth.*At The Moment0 -
Very confusing if you use "ATM" in the middle of discussions about finances!1
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No, you don't use the capital to pay rent but instead redirect the money that would have gone to mortgage, insurance, house repairs etc. If you had a low LTV mortgage balance, then the monthly mortgage payment may be on the lower side compared to rent, but then it contains a capital repayment too which you woudn't be making when renting, so usually balances out. If not, then rent a smaller place if its meant to be temporary.docrob900 said:No, nothing like that. If I sell, and don't have a new place to buy quickly, I still need to live somewhere. That costs money, and reduces the amount I then have to buy a new place when one becomes available. That gap may be months or years, eroding the money I get from selling the house. That's the trap and the dilemma.
There is a slight cost from having an extra move, but that's part of the frictional costs of house moving.0
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