2018 Home Buying and Selling Notes 1: Is it still worthwhile to buy a house in the US with a mortgage now?

Note: This is for record-keeping and discussion only, and is not a rigorous calculation. Feel free to leave a comment for discussion.

With loan interest rates rising steadily, I suddenly had the urge to do the math today.

First, let's look at the costs required to buy a house with a loan:

1. Loan interest rates are currently around 4% for a 30-year fixed term and 3.8% for a 7-year ARM (fixed for 7 years, then floating). Let's use 4% as the base rate.
2. Tax rates vary from year to year; here it's 1%, so we'll use that as an estimate.
3. Regarding depreciation and maintenance costs, as everyone knows, houses in the United States are private property. If the roof is damaged, or windows or doors are broken, you have to pay for repairs yourself. I looked it up online, and most sources say it's 1%. Maintenance costs, such as tree trimming and lawn mowing, can vary in size, so we'll ignore them for now (although they can add up to a lot each year).

Based on this, let's calculate the annual expenses if we buy a house for 0,000 (with a 0,000 mortgage):

300,000 * 4% + 350,000 * 1% + 500,000 * 3% = 30,500

Of the total, 300,000 is the loan amount, and 350,000 is the government's assessed value (the government collects taxes based on the land value; although the house is worth 500,000, the land is worth approximately 350,000 to 400,000).

Calculations show that for a house with a loan of 300,000 yuan out of 500,000 yuan, the annual cost is approximately 30,000 yuan. However, the loan repayment amount will decrease as you make more payments (300,000 yuan in the first year, 290,000 yuan in the second year, and so on), so the cost will decrease slightly each year.

And because your property will appreciate in value, and due to currency inflation, some of the costs are implicitly offset, such as:

Houses appreciate in value by about 3% annually, while the US inflation rate is around 2%. Therefore, our hidden costs each year are:

500,000 * 3% + 300,000 * 2% = 21,000

Using the previous calculation of 30,500 - 21,000, we get 9,500. This means that if you take out a 300,000 loan to buy a 500,000 house, your annual payment will be approximately 10,000, which is roughly equivalent to 850 per month. In comparison, renting an apartment typically costs around 1,800, while renting a 500,000 house would cost around 2,500. Therefore, it is indeed more cost-effective. However, this calculation does not include community fees, utilities, insurance, etc., which would amount to approximately 300-400 more per month than renting an apartment. Even so, it still makes sense in the end.

Owning your own house brings a lot of peace of mind, and a mortgage essentially means exchanging 200,000 for 500,000 in value, implicitly offsetting some inflation (300,000 borrowed now is not the same as 300,000 in 30 years). However, owning a house also adds many expenses, such as lawn maintenance, house repairs, and the cost of hiring someone to fix broken equipment, but overall it is still acceptable.

However, owning a house is a sign of stability for young people; after all, it's a place to settle down. Moving away from your home requires a lot of effort, such as repairs, agent fees (3%), and the house being vacant for about six months (while you still need to make monthly mortgage payments). In this situation, renting is actually more cost-effective.

However, overall, if the future is certain, compared to the 2000 yuan rent, the monthly expenses of around 1000 yuan (including additional community utilities) will still save a considerable amount of money. Of course, if you buy in full, you can save even more.

Interest rates are rising steadily. I remember three years ago it was only 2.7-3%, now it's reached 4%, and the Federal Reserve shows no signs of stopping rate hikes. From conversations with friends, I think rates might even reach 5% or 6%. So, what interest rate would make a mortgage mathematically unprofitable? The answer is around 13%. This seems almost impossible, but since this is just a rough estimate, many variables can change, so you can calculate it yourself based on your specific circumstances. Furthermore, for those who are certain about their future, buying a house is always a priority. However, for younger people, owning a house might be more of a self-imposed limitation.