the most common leveraged purchase

Picciotto, Sol s.picciotto at lancaster.ac.uk
Sun Oct 4 07:53:55 PDT 1998


Why is it so difficult to accept that all commodities have both use-value and exchange-value? Once you take that step, you can see that it is important to understand the use-value aspects of a particular commodity or asset in order to fully grasp how its exchange value is likely to perform. That is why I pointed out on this list that for most people the use-value aspects of a house are primary, which explains why house prices rarely go down.

cheers

sol


> -----Original Message-----
> From: Jeffrey Levin [SMTP:jlevin at pacbell.net]
> Sent: Saturday, October 03, 1998 8:46 AM
> To: lbo-talk
> Subject: Re: the most common leveraged purchase
>
>
>
> -----Original Message-----
> From: W. Kiernan <WKiernan at concentric.net>
> To: lbo-talk at lists.panix.com <lbo-talk at lists.panix.com>
> Date: Friday, October 02, 1998 7:54 AM
> Subject: Re: the most common leveraged purchase
>
>
>
> >There's something wrong with the idea of the average house owner
> >thinking of his house as an investment, leveraged or no. This is a
> >mistake I see repeatedly; comparing a working-class house owner to a
> >rich fellow idly gambling with investments.
> >
>
>
> Working class house owners see housing as an investment, too. First, even
> if the house does not gain in value, over time the repayment of the loan
> means they have a siginificant equity interest. That can serve as
> collateral for other loans (wise or unwise). More importantly, at the end
> of the mortgage term, your housing costs fall significantly. If you buy a
> house at age 35, at age 65 you own it free and clear and can retire with
> lower living costs. People make this calculation all the time.
>
> If values do go up, the owner gets a leveraged return when the house is
> sold. This gives homeowners far more cash than they had when they bought
> the house. Owners (correctly in most cases) see this as a way of to "move
> up" to a larger or better house.
>
>
> >Primarily, a house is not an investment! Not in any social class I've
> >ever belonged to, anyway; I can't speak for the folks on the hill. A
> >house is something to live in; you have to live somewhere. The
> >alternative to a low down payment house for low income folks is to
> >rent. When you rent, of course, your payments just go up in smoke.
> >Certainly I'd rather buy a house with a slightly higher-than-usual
> >effective interest rate than rent a house.
> >
>
>
> The idea that rental payments "just go up in smoke," but mortgage payments
> don't, implies that one is treating the house as an investment item as well
> as a consumption item.
>



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