3 ms·

To simplify the grand-parent said "all flowers are white", I said "no, some are yellow" and you said "isn't it true that most of them are white?" Your statement

To simplify the grand-parent said "all flowers are white", I said "no, some are yellow" and you said "isn't it true that most of them are white?" Your statement is probably true but is not related to my point that the grand-parent comment is overly simplistic and needs to be qualified. > I was talking about the sale price of a house (getting your money back) compared to paying rent (not getting your money back). This is biased framing that favors owning. In both cases you sign up for ongoing sunk costs and for an investment. You sell your investment then subtract the sunk costs, that is what we are comparing. > You want evidence that most housing sales aren't normally 0 and a total loss for the owner, is that what you mean? Even this is a bit biased. If you simply look at home sales you will miss all of the people who are not selling because their house value is too low for them. So they sit there making all kinds of sacrifices to avoid selling. > It's fairly easy to Google average house return rates, I guess, but I honestly don't think my statement that housing returns aren't normally 0 needs any numbers to back it up. It doesn't seem that easy and I think the fact that you don't think they need backing up tips your hand. > "Average annual returns in long-term real estate investing vary by the area of concentration in the sector. Average 20-year returns in the commercial real estate slightly outperform the S&P 500 Index, running at around 9.5%. Residential and diversified real estate investments do a bit better, averaging 10.6%. Real estate investment trusts (REITS) perform best, with an average annual return of 11.8%." I don't buy these un-sourced numbers for a second. For starters, averages are completely useless here. A few booming places can hide thousands of cities that are underwater. Zillow [1] has median data for the entire country for the last 10 years and it shows prices went from 170k to 230k. That is 3% yoy. And you can even lie with this number because it doesn't capture variance. 3% could be 6% in half the country and 0% in the other half. Unlike with the stock market you cannot fractionally diversify unless you are mega rich. This 3% is also not purely profit as it is missing local property taxes and other sunk costs. Also let's not forget inflation is 2-3% yoy... In terms of renters taking on the owners costs, sure renting is more freeing so the renters pay a premium for a short contract and no down-payment and such. Sometimes that is done as a choice and not because its the only option. And some fees like repairs are amortized by landlords as they own many units. It's not the same as you hiring a third party to fix something in your house, it will cost more for you. And, again, to my point, this varies by locality and living situation. That calculator is a great starting point to get you to realize all of the factors that go into making the decision. It's actually still missing a lot of them. Any diligent investor should make their own in spreadsheets before making that big decision. [1] https://www.zillow.com/home-values/ https://www.zillow.com/home-values/

dahart 8y ago
We're being a bit sloppy about whether we're comparing rent to buy directly or rent+invest to buy. There are great reasons to rent, you've mentioned some, but comparing them directly, not talking about external investments, buying has to be cheaper than renting for one simple reason: when I rent, I'm paying a buyer. The overall costs are the same either way, they have to be. To rent is to pay extra to not have to pay a lump sum, not have to fix things, and be able to stop anytime. Renters pay for maintenance and improvements one way or another. Inflation and real-estate prices affect renters and buyers equally in the long run. Renting must cost more than buying, on average. The rent system cannot work unless that's true. So for me, the only remaining question is whether a down payment invested elsewhere can yield a return that offsets rent reliably, and how. > In both cases you sign up for ongoing sunk costs and for an investment. That's a suggestive symmetry, but not comparing renting to buying directly, it's assuming an unspecified optional investment only for the renter. And rent is a known, fixed, high ongoing sunk cost. Buying might not be, considering the future sale. Whether costs are sunk when buying depends on many things. In my case, I put tens of thousands into a house, and it all came back when I sold. > It doesn't seem that easy and I think the fact that you don't think they need backing up tips your hand. Not sure what you mean, but I can see multiple sites saying the underwater mortgage rate is ~10% nationally, and an article about Chicago being highest in the nation at ~15%. So is it fair to say at least 85% of people are not under water? Foreclosure rate was just under 0.5% in the US in 2018. That's the number of people who experienced a total loss of a partially paid mortgage. I stand by my claim for now. > If you simply look at home sales you will miss all of the people who are not selling I don't think that's true. Today's home sales includes all the people who waited until now, and tomorrow's home sales will include the people who are waiting today. Anyway, I ran with the assumption made by the calculator you linked to, and that most people experience: that you sell your house after some time for a moderate positive return against the purchase price of the house. > A few booming places can hide thousands of cities that are underwater. Underwater means the house is, at some instant in time, worth less than the principal, not that you lose everything, right? And yes, sure, many people definitely hang on to avoid being underwater, perhaps sometimes just as unreasonably as they avoid investing in the stock market. Underwater is different than rent, which is always sunk. Underwater might be a total -20% return post sale for some number of people, where rent is always a -100% return for all renters.

dahart 8y ago

We're being a bit sloppy about whether we're comparing rent to buy directly or rent+invest to buy. There are great reasons to rent, you've mentioned some, but comparing them directly, not talking about external investments, buying has to be cheaper than renting for one simple reason: when I rent, I'm paying a buyer. The overall costs are the same either way, they have to be. To rent is to pay extra to not have to pay a lump sum, not have to fix things, and be able to stop anytime. Renters pay for maintenance and improvements one way or another. Inflation and real-estate prices affect renters and buyers equally in the long run. Renting must cost more than buying, on average. The rent system cannot work unless that's true. So for me, the only remaining question is whether a down payment invested elsewhere can yield a return that offsets rent reliably, and how. > In both cases you sign up for ongoing sunk costs and for an investment. That's a suggestive symmetry, but not comparing renting to buying directly, it's assuming an unspecified optional investment only for the renter. And rent is a known, fixed, high ongoing sunk cost. Buying might not be, considering the future sale. Whether costs are sunk when buying depends on many things. In my case, I put tens of thousands into a house, and it all came back when I sold. > It doesn't seem that easy and I think the fact that you don't think they need backing up tips your hand. Not sure what you mean, but I can see multiple sites saying the underwater mortgage rate is ~10% nationally, and an article about Chicago being highest in the nation at ~15%. So is it fair to say at least 85% of people are not under water? Foreclosure rate was just under 0.5% in the US in 2018. That's the number of people who experienced a total loss of a partially paid mortgage. I stand by my claim for now. > If you simply look at home sales you will miss all of the people who are not selling I don't think that's true. Today's home sales includes all the people who waited until now, and tomorrow's home sales will include the people who are waiting today. Anyway, I ran with the assumption made by the calculator you linked to, and that most people experience: that you sell your house after some time for a moderate positive return against the purchase price of the house. > A few booming places can hide thousands of cities that are underwater. Underwater means the house is, at some instant in time, worth less than the principal, not that you lose everything, right? And yes, sure, many people definitely hang on to avoid being underwater, perhaps sometimes just as unreasonably as they avoid investing in the stock market. Underwater is different than rent, which is always sunk. Underwater might be a total -20% return post sale for some number of people, where rent is always a -100% return for all renters.