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Sure, but you can't live in your Index Fund. Housing is already a sunk cost for everybody. You're either paying rent and getting nothing out of it or getting a

Sure, but you can't live in your Index Fund. Housing is already a sunk cost for everybody. You're either paying rent and getting nothing out of it or getting a mortgage and at the end of it you have an actual owned asset.

jogjayr 9y ago
I was referring to the relative accessibility. You need $50k (or $25k if we're going for 10% down) to even start living in the median house. Even a $100k house would require you to save up $10-20k. $2.5k is a far lower bar to start building wealth.
- rosser 9y ago
  As true as all that is, you still have to have somewhere to live. You can put some of that money back in your own pocket, or you can put all of it in someone else's.
  - jpetso 9y ago
    Alternatively, you can calculate how much you'd pay and save/invest in particular scenarios after taking into account ROI, rent, maintenance, mortgage interest, property taxes, closing costs incl. risk of wanting to move earlier than expected, and personal discipline to save when not compelled by a mortgage. Phrases such as "put it into your own pocket or someone else's" are a vast oversimplification that has more to do with faith and indoctrination than actual fiscal outcomes. It's true some of the time, but you should never make a decision based on a blanket statement like this one. It's not that hard to make an individual analysis for your very own situation, so make yourself some data points rather than listen to biased generalizations.
fennecfoxen 9y ago
You can't live in your index fund like your house. But if you invest the value of your down payment in an index fund, and rent a property, the fund may grow to be large enough to purchase a house, in about the same amount of time. (It depends on your local housing market, of course. The index fund may not keep up with a boom-town like Silicon Valley of the past few decades, but it is unlikely to turn into Detroit, either. Choose your risks wisely.) And if you put a down payment into a fancier house instead of in a simpler house, most of the gains you'll get from doing so are delivered in the form of immediate consumption of "nice house" over time, not in the form of something you can reinvest (indeed, maintenance costs will be higher as well.) And you've committed to this much house for a long time. That said, the huge thing that houses have going for them in the US today is special tax treatment - if you're in a higher tax bracket, even more so. You get both mortgage interest deductions and some special capital gains treatment, I do believe. You're the darling of the US tax code. Consequentially, this special treatment in our tax policy distorts the incentives to invest, encouraging people obsess about the housing market instead of other forms of more-diversified investments, and thus contributes to damaging asset bubbles. It also generally impairs social mobility by incentivizing homeowners to support land use policies that drive up housing prices (directly harming the poor, lower middle class, and any other non-homeowners like the youth), and while the policy overall is pitched to the middle class, many of the biggest winners are the rich, as their tax brackets are higher and their houses more expensive. Huh. Who could have seen any of that coming? cougheveryeconomistevercough

jogjayr 9y ago

I was referring to the relative accessibility. You need $50k (or $25k if we're going for 10% down) to even start living in the median house. Even a $100k house would require you to save up $10-20k. $2.5k is a far lower bar to start building wealth.

rosser 9y ago
As true as all that is, you still have to have somewhere to live. You can put some of that money back in your own pocket, or you can put all of it in someone else's.
- jpetso 9y ago
  Alternatively, you can calculate how much you'd pay and save/invest in particular scenarios after taking into account ROI, rent, maintenance, mortgage interest, property taxes, closing costs incl. risk of wanting to move earlier than expected, and personal discipline to save when not compelled by a mortgage. Phrases such as "put it into your own pocket or someone else's" are a vast oversimplification that has more to do with faith and indoctrination than actual fiscal outcomes. It's true some of the time, but you should never make a decision based on a blanket statement like this one. It's not that hard to make an individual analysis for your very own situation, so make yourself some data points rather than listen to biased generalizations.

fennecfoxen 9y ago

You can't live in your index fund like your house. But if you invest the value of your down payment in an index fund, and rent a property, the fund may grow to be large enough to purchase a house, in about the same amount of time. (It depends on your local housing market, of course. The index fund may not keep up with a boom-town like Silicon Valley of the past few decades, but it is unlikely to turn into Detroit, either. Choose your risks wisely.) And if you put a down payment into a fancier house instead of in a simpler house, most of the gains you'll get from doing so are delivered in the form of immediate consumption of "nice house" over time, not in the form of something you can reinvest (indeed, maintenance costs will be higher as well.) And you've committed to this much house for a long time. That said, the huge thing that houses have going for them in the US today is special tax treatment - if you're in a higher tax bracket, even more so. You get both mortgage interest deductions and some special capital gains treatment, I do believe. You're the darling of the US tax code. Consequentially, this special treatment in our tax policy distorts the incentives to invest, encouraging people obsess about the housing market instead of other forms of more-diversified investments, and thus contributes to damaging asset bubbles. It also generally impairs social mobility by incentivizing homeowners to support land use policies that drive up housing prices (directly harming the poor, lower middle class, and any other non-homeowners like the youth), and while the policy overall is pitched to the middle class, many of the biggest winners are the rich, as their tax brackets are higher and their houses more expensive. Huh. Who could have seen any of that coming? cougheveryeconomistevercough