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The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. 1. The alternative

The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. 1. The alternative to buying a home is renting. If the net cost of home ownership is lower than renting, you do not need to make a net profit on the sale of your home for it to be a good decision. The right way to make this decision is to look at all net cash flows, discounted to their present value, such as is done by the New York times rent vs. buy calculator. 2. The article ignores the fact that mortgages, which most people use, amplify the gains of inflation. 3. The inflation hedging properties of a home make for a good way to protect your future self and retired self from cost of living changes in a way that alternative investments cannot. Many people outside of VHCOL San Francisco have found housing that is both affordable and a good investment.

baybal2 8y ago
1. No: housing bubble crashes, and the 10+ years of your life crashes and burns with it. That's your good investment decision 2. True.., but the era of net negative rate mortgages, a minutes hike in rate will trigger a wave of defaults 3. That's only thanks that in the west that "unique inflation hedging property" is a result of decades old self fulfilling prophecy Housing market in US is, I believe, the best examples of "ECON 101" vs common sense and reality.
hoaw 8y ago
> The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. What part of the article is that? Because that certainly wasn't my take away. The article is about whether housing can be affordable and a good financial investment, giving large returns, at the same time. Housing as an "investment" in your life, family or security isn't what is meant.
- krn 8y ago
  Just an example: the average price per square meter in Berlin has increased up to 4x between 2007-2018[1], and it was possible to buy a 42 m² apartment for 25k EUR in 2006[2]. [1] https://guthmann-estate.com/marketreport/real-estate-report/ https://guthmann-estate.com/marketreport/real-estate-report/ [2] https://www.toytowngermany.com/forum/topic/48094-advice-on-buying-an-apartment-in-berlin/#comment-703490 https://www.toytowngermany.com/forum/topic/48094-advice-on-b...
  - Retric 8y ago
    That’s a single data point. Extend that rate of growth relative to inflation for the next 10,000 years and you reach absurdity.
candu 8y ago
Here's the core argument of the article, rephrased slightly: housing cannot both outpace inflation and remain affordable indefinitely. This is not incompatible with some people being able to find affordable housing that is a good investment. All it means is that in the long term - especially when real wages remain relatively constant [1] - these two policy aims are mathematically at odds. [1] https://en.wikipedia.org/wiki/Real_wages https://en.wikipedia.org/wiki/Real_wages
- CompelTechnic 8y ago
  I agree with your rephrasing that housing cannot both outpace inflation and remain affordable indefinitely, but I disagree that it is identical in content to the article's core argument. Now I'm just picking nits I suppose.
alangpierce 8y ago
For others not in the loop, VHCOL seems to mean "very high cost of living".
A2017U1 8y ago
> If the net cost of home ownership is lower than renting How do you know the net cost on a 30 year loan? If you can confidently predict decades of interest rates there's far more profitable investment classes for your money.
- acjacobson 8y ago
  Fixed interest loan?
- chewbacha 8y ago
  I thought that with most mortgages you end up paying for the house twice. Once in principle and once in interest. This will vary a lot by the rate you get but I think it’s in the ball park. https://budgeting.thenest.com/end-up-paying-house-once-paid-off-27847.html https://budgeting.thenest.com/end-up-paying-house-once-paid-...
- DrJosiah 8y ago
  Most homes are bought with fixed interest rates. If you are buying with a variable rate, 99% chance your credit is shit, and you shouldn't be buying a home, because the bank will own it soon.
  - chemicalnovae 8y ago
    Maybe that's true in the US (I don't know), but it's certainly not true elsewhere in the world; such as Australia for example where most home loans are have a variable rate.
    - DrJosiah 8y ago
      Good point, US-centrism bit me. How often do the rates change? Anything crazy like 2-3% swings? Doesn't that make budgeting tough?
      - chemicalnovae 8y ago
        No, never massive swings in the short term (GFC caused a 4% drop (7% to 3%) in 2009 for example). I think that even when the cash rate is moving quickly rates don't change more than a percent or two per year. Re budgeting, I think the relatively slow rate of change makes it mostly a non-issue though I think people at the upper end of their borrowing power struggle with rate rises.

baybal2 8y ago

1. No: housing bubble crashes, and the 10+ years of your life crashes and burns with it. That's your good investment decision 2. True.., but the era of net negative rate mortgages, a minutes hike in rate will trigger a wave of defaults 3. That's only thanks that in the west that "unique inflation hedging property" is a result of decades old self fulfilling prophecy Housing market in US is, I believe, the best examples of "ECON 101" vs common sense and reality.

hoaw 8y ago

> The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest. What part of the article is that? Because that certainly wasn't my take away. The article is about whether housing can be affordable and a good financial investment, giving large returns, at the same time. Housing as an "investment" in your life, family or security isn't what is meant.

krn 8y ago
Just an example: the average price per square meter in Berlin has increased up to 4x between 2007-2018[1], and it was possible to buy a 42 m² apartment for 25k EUR in 2006[2]. [1] https://guthmann-estate.com/marketreport/real-estate-report/ https://guthmann-estate.com/marketreport/real-estate-report/ [2] https://www.toytowngermany.com/forum/topic/48094-advice-on-buying-an-apartment-in-berlin/#comment-703490 https://www.toytowngermany.com/forum/topic/48094-advice-on-b...
- Retric 8y ago
  That’s a single data point. Extend that rate of growth relative to inflation for the next 10,000 years and you reach absurdity.

candu 8y ago

Here's the core argument of the article, rephrased slightly: housing cannot both outpace inflation and remain affordable indefinitely. This is not incompatible with some people being able to find affordable housing that is a good investment. All it means is that in the long term - especially when real wages remain relatively constant [1] - these two policy aims are mathematically at odds. [1] https://en.wikipedia.org/wiki/Real_wages https://en.wikipedia.org/wiki/Real_wages

CompelTechnic 8y ago
I agree with your rephrasing that housing cannot both outpace inflation and remain affordable indefinitely, but I disagree that it is identical in content to the article's core argument. Now I'm just picking nits I suppose.

alangpierce 8y ago

For others not in the loop, VHCOL seems to mean "very high cost of living".

A2017U1 8y ago

> If the net cost of home ownership is lower than renting How do you know the net cost on a 30 year loan? If you can confidently predict decades of interest rates there's far more profitable investment classes for your money.

acjacobson 8y ago
Fixed interest loan?
chewbacha 8y ago
I thought that with most mortgages you end up paying for the house twice. Once in principle and once in interest. This will vary a lot by the rate you get but I think it’s in the ball park. https://budgeting.thenest.com/end-up-paying-house-once-paid-off-27847.html https://budgeting.thenest.com/end-up-paying-house-once-paid-...
DrJosiah 8y ago
Most homes are bought with fixed interest rates. If you are buying with a variable rate, 99% chance your credit is shit, and you shouldn't be buying a home, because the bank will own it soon.
- chemicalnovae 8y ago
  Maybe that's true in the US (I don't know), but it's certainly not true elsewhere in the world; such as Australia for example where most home loans are have a variable rate.
  - DrJosiah 8y ago
    Good point, US-centrism bit me. How often do the rates change? Anything crazy like 2-3% swings? Doesn't that make budgeting tough?
    - chemicalnovae 8y ago
      No, never massive swings in the short term (GFC caused a 4% drop (7% to 3%) in 2009 for example). I think that even when the cash rate is moving quickly rates don't change more than a percent or two per year. Re budgeting, I think the relatively slow rate of change makes it mostly a non-issue though I think people at the upper end of their borrowing power struggle with rate rises.