Hacker News Reader

Comment by dangrossman | Hacker News Reader

> Also, the median home price where we live is $500-600K (depending on the city/neighborhood). 30% of that is quite a down-payment.

You're talking about being entrusted with half a million dollars of someone else's money. That's a huge bet to make on you; it goes both ways. If you can't afford the down payment, then you can't afford to live in that neighborhood.

30% isn't an unusual downpayment, especially if you don't have perfect credit. With a smaller downpayment, the bank is in a position where you could default on the mortgage, they repossess the house, and because it's depreciated in value at all, get less money when they sell it than they paid the person who sold the house to "you" (to the bank, really) after foreclosure and closing costs.

View on HN

Why is the house "depreciated in value at all" ? I don't understand that part.

You just lived through a recession in which tens of millions of homes depreciated in value during the terms of their loans. Depreciated means it lost value; the house is worth less than before. That, combined with a small downpayment, can result in a bank holding a foreclosed home which is worth less than the value of the mortgage on it.

Ah, I see. I thought your explanation was more general, not specific to the current economic situation. And since I learned as a kid that a house normally only get more value over time (I live in western europe) that was confusing me. Thanks for the clarification.

> I learned as a kid that a house normally only get more value over time

I think this is one of the reasons we got into this mess. People bought more house than they could afford thinking they would be able to sell it if they needed to and at least break even. Nobody was prepared for underwater mortgages because we all assumed houses only appreciate.

all structures depreciate, eventually it will fall down. It requires maintenance to keep the same value. This is one reason most people will tell you to never buy a condo. Land is finite and does not depreciate.

> Land is finite and does not depreciate.

The value of land can definitely depreciate. Perhaps not in [sub]urban areas so much, but in rural areas the value of land can be tied to things like timber, water, or mining. If I buy some acreage and extract timber/sand/gravel/etc, that land is going to have a lower resale value.

Or maybe I buy prime farmland and then crop the soil until it is dead.

Or instead of extracting stuff, I leave bad stuff behind (persistent pollution -- lead, mercury, etc).

For something more [sub]urban, consider the case where a new highway is built to route traffic around a city instead of through it, and a previously viable commercial location becomes worthless because the traffic count drops to near-zero.

Reply on news.ycombinator.com