kombat said:
do you really think that same "no frills" dwelling will be worth $11M in 30 years?
Oh hell yeah.
OK, I'm 90% certain I'm being trolled here, but just in case the OP actually takes this crazy advice, I'll respond.
honobob, if a "no-frills" house will be worth $11,000,000 in 30 years, what will the
nice houses cost? If a nice house in San Francisco currently sells for $1,000,000, then you by your math (11%/year), it will be worth just under $23 million in 30 years.
Working professionals in San Francisco can currently (barely) afford these $750,000 - $1 million homes, even though they may be 5-10x their household income.
However, in 30 years, assuming wages match inflation at 3%/year, those same couples would be applying for mortgages at
30-60x their income. Do you seriously think that's how things will be in 30 years? What bank is going to approve mortgages at 30 times someone's annual income? Do you really not see how ridiculous that sounds?
Your only defense in this absurd prediction seems to be "that's what's happened in the past, so there's no reason it can't keep happening." But this ignores the nature of exponential growth. In the past, that $25,000 house you mentioned might've been 2 times that family's annual income. Now, maybe it's worth $1 million. A family buying it today would probably have a household income of $150,000 - $200,000. The mortgage would still only be 5 times their income.
However, if you continue this trend outwards at its current rate, then the math is undeniable. A family earning $200,000/year today is equivalent to a family earning $485,452/year 30 years from now. That $1 million home is currently 5 times their income, but in 30 years (at 11%), that same home will sell for $23 million, by your math.
If families are only earning $485,000/year, how would they ever get approved for a $23 million mortgage? That's 47 times their annual income! That's a BIG difference from the current 5 times their income.
That family would have to devote their entire income solely to the mortgage, with absolutely nothing left over for groceries, transportation, or taxes, for
half a century, assuming a 0% interest mortgage, before they'd pay off that house! How can you possibly believe this will be the norm in 30 years?
The information is out there and in this age with the internet there is no excuse for ignorance.
Oh don't mistake me, I'm not denying that real estate has experienced such growth in the
past. I'm simply saying that it's clearly impossible for similar growth to persist so far into the future, because
the income-to-mortgage ratio gets ridiculously out of whack. No bank will ever approve a personal mortgage for 47 times someone's annual income. How do you explain that? How do you predict people earning $485,000/year will be able to afford $23 million starter homes?
I don't have to - time will do it for me.