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The rest of the article explains it more detail, but the sentence is obviously correct. Stocks and bonds remain "affordable" because the minimum purchase size

by elyobo 7y ago

The rest of the article explains it more detail, but the sentence is obviously correct. Stocks and bonds remain "affordable" because the minimum purchase size is small; the same cannot be said for housing.

snowwrestler 7y ago
I know this is counterintuitive but the sentence is wrong in several ways. a) Your home does not have to offer you a real profit in order to be a good investment; preserving capital and hedging inflation are benefits and legitimate goals for an investment. b) The leverage and tax benefits of buying a home with a mortgage can create returns exceeding other investments even if the home merely keeps up with inflation. For example, you can keep capital gains from your home tax-free up to $250,000... a stock with taxable capital gains would have to deliver a real return of 15% over the same time frame just to match this. c) The minimum purchase size is not the total value of the house, it's the down payment, which can be 0% for some people. I paid 5% as a down payment. (edit: and closing costs)
- elyobo 7y ago
  OK, some fair points, with caveats. I think that property growth matching the general rate of inflation inevitably tends towards unaffordability because of the high base cost and that's why I don't entirely agree with your argument. On the first, even if housing keeps up with inflation it's becoming significantly more unaffordable due to the high base price - ideally housing should not keep up with the general rate of inflation, so if it's a "good investment" in the sense that it successfully hedges against inflation... then it's inconsistent with being affordable. On the second point, this depends on the location. In Australia, gains on your primary residence would be tax free, uncapped, and gains on investment properties would be reduced by 50% before calculating tax if you'd held it for more than 12 months (which is exactly the same tax as is applied to stocks). Note the point above about inflation though; if housing is keeping up with inflation then it's becoming progressively more unaffordable. On the third point, this again depends on location. In Australia you _can_ buy with low deposits (almost impossible to do 0%) but you will be hit with additional up front costs that get loaded on to your mortgage (Lenders Mortgage Insurance, ~1-4% of the property value depending on lender and the exact percent deposit that you have) if you have less than 20%, you will have access to a much smaller pool of lenders and products so will almost certainly be paying a significantly worse interest rate, and you will likely have to pay stamp duty (varies by state, generally about 5% of the property value, some discounts / waivers available for first home buyers depending on state and property value). Ideally in Australia, you're normally going to be looking at a 20% deposit, plus a 5% stamp duty, so you need to have 25% of the purchase price in cash. You might get away with 10% deposit, and on a first home purchase in some states pay no stamp duty, but that's still a substantial burden when median prices are ~$800k Melbourne or $1m Sydney.

by elyobo 7y ago

snowwrestler 7y ago

I know this is counterintuitive but the sentence is wrong in several ways. a) Your home does not have to offer you a real profit in order to be a good investment; preserving capital and hedging inflation are benefits and legitimate goals for an investment. b) The leverage and tax benefits of buying a home with a mortgage can create returns exceeding other investments even if the home merely keeps up with inflation. For example, you can keep capital gains from your home tax-free up to $250,000... a stock with taxable capital gains would have to deliver a real return of 15% over the same time frame just to match this. c) The minimum purchase size is not the total value of the house, it's the down payment, which can be 0% for some people. I paid 5% as a down payment. (edit: and closing costs)

elyobo 7y ago
OK, some fair points, with caveats. I think that property growth matching the general rate of inflation inevitably tends towards unaffordability because of the high base cost and that's why I don't entirely agree with your argument. On the first, even if housing keeps up with inflation it's becoming significantly more unaffordable due to the high base price - ideally housing should not keep up with the general rate of inflation, so if it's a "good investment" in the sense that it successfully hedges against inflation... then it's inconsistent with being affordable. On the second point, this depends on the location. In Australia, gains on your primary residence would be tax free, uncapped, and gains on investment properties would be reduced by 50% before calculating tax if you'd held it for more than 12 months (which is exactly the same tax as is applied to stocks). Note the point above about inflation though; if housing is keeping up with inflation then it's becoming progressively more unaffordable. On the third point, this again depends on location. In Australia you _can_ buy with low deposits (almost impossible to do 0%) but you will be hit with additional up front costs that get loaded on to your mortgage (Lenders Mortgage Insurance, ~1-4% of the property value depending on lender and the exact percent deposit that you have) if you have less than 20%, you will have access to a much smaller pool of lenders and products so will almost certainly be paying a significantly worse interest rate, and you will likely have to pay stamp duty (varies by state, generally about 5% of the property value, some discounts / waivers available for first home buyers depending on state and property value). Ideally in Australia, you're normally going to be looking at a 20% deposit, plus a 5% stamp duty, so you need to have 25% of the purchase price in cash. You might get away with 10% deposit, and on a first home purchase in some states pay no stamp duty, but that's still a substantial burden when median prices are ~$800k Melbourne or $1m Sydney.