4 ms·

This argument isn’t as solid as it sounds, mainly because you have to live somewhere. So you’re going to need to pay rent and you need to subtract that off the

This argument isn’t as solid as it sounds, mainly because you have to live somewhere. So you’re going to need to pay rent and you need to subtract that off the profits from S&P investments. You also generally can’t borrow 5x your income and invest it, but you can do that on a house, so if you think house prices will rise, even a tiny bit, then you’re missing out on a chance for major leverage you won’t get elsewhere. Hint: house prices don’t really go down much, because everyone is leveraged and literally can’t afford to sell below a certain point. Finally there’s something to be said for the security and ability to make a house your own. Not being dependent on a landlord’s whims and decisions can be of huge value.

fastball 6y ago
Yeah, in the climate since 2008 I know a fair few people that are paying less in mortgage payments than they'd be paying in rent for an equivalent property.
- albertgoeswoof 6y ago
  That’s the case in most capital markets in general. You’ll almost always pay less to rent money and invest it than rent the item directly.
dcolkitt 6y ago
> You also generally can’t borrow 5x your income You can easily access 3X levered ETFs. Also, while you start out at 5X leverage, you pay down the principal over time. Over the lifetime of a 30-year mortgage, your average leverage is closer to 2X.
- gomox 6y ago
  3x the collateral, not 3x your yearly income.
- davio 6y ago
  Mortgage leverage is more like 20x for first time buyers VA loans have even higher leverage
  - anthony_r 6y ago
    Mortgages are so f* insane when you do the basic maths, such as 1/downpayment to get the leverage. If you just presented the numbers differently nobody would have ever signed up for one except people like Victor Niederhoffer. And on top of that most of the underwriting is on central government balance sheet via frankenstein constructs like fnma. Sheesh..
    - izend 6y ago
      Also in Canada the capital gains on your "primary residency" is tax free. I know "lucky" Vancouver couples who bought the right property at the right time and it is equivalent to winning the lottery. i.e. $600K capital gains in just 2 years. The inequality created by having huge winners in "hot housing markets" acquiring enormous wealth vs others in flat or down housing market receiving absolutely nothing (not even mortgage interest deduction which isn't available in Canada) is insanity in my mind.
williamstein 6y ago
Moreover, if you use leverage to make an investment in stock (say) and the stock market temporarily goes down enough, you can get hit by a margin call and go broke. With a house, when the housing market goes down, it is an inconvenience (e.g., it can be harder to get a home equity line of credit or refinance your mortgage), but there's NO automatic "margin call" as long as you can pay your monthly payments. For people with limited capital, a leveraged investment without any possibility of a margin call is very valuable. I'm glad I put my money into buying a house.
CydeWeys 6y ago
> Hint: house prices don’t really go down much, because everyone is leveraged and literally can’t afford to sell below a certain point. Until something like a 2008 happens, and it doesn't matter how much people can afford to sell a house for, they're gonna lose it regardless if they can't make those ballooning payments.
- fastball 6y ago
  I think the idea of a house + mortgage being not-too-risky is obviously predicated on having a fixed-rate mortgage.
- albertgoeswoof 6y ago
  Right but that won’t affect a sensible buyer who has one property, accessible savings covering a year of repayments, a stable job, a fixed rate etc. You can just wait for the market to rebound. Or even better, provided you’re not in negative equity and have some cash in the bank, move up to a bigger house when the market crashes.
- vonmoltke 6y ago
  > they're gonna lose it regardless if they can't make those ballooning payments That's a reason to never touch an ARM, not to avoid buying a house.
izend 6y ago
I wholeheartedly agree with all your points. My family is currently renting the top floor of a regular suburb North Vancouver house and we were hoping to buy the last 2 years to be settled & stable as my daughter started kindergarten this year. If our landowner decides to sell we would only have 3 months to find a new place and could definitely cause us to have to move my daughter to a new school. The lack of stability and the unknown future in our housing situation is causing a lot of stress our relationship too.
jere 6y ago
>You also generally can’t borrow 5x your income and invest it, but you can do that on a house, so if you think house prices will rise then you’re missing out on a change for major leverage you won’t get elsewhere. I've been struggling with this part. I just moved to Austin, looked at the market from 2012-2020, and what do you know almost every house I look at has doubled in value in 8 years. That's a 9% annual return! Shouldn't I get the biggest house I can afford since the city is growing so fast? Well not so fast. I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. Not to mention HOAs, PMI, insurance, etc. I might end up making 2% annually compared to 7% in the stock market and that's only if I see the same returns as the most cherry picked period I could possibly find. Anything less and I'm absolutely losing. I agree on the you have to live somewhere part, but treating it like an investment seems like a bad bet.
- NovemberWhiskey 6y ago
  >I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. ... but then you'll also probably (if you're like the average HN poster who isn't taking the standard deduction) deduct your mortgage interest and your property taxes, and you'll be exempt from up to $500,000 in capital gain if married, filing jointly, and using the home as your principle residence. So ... complicated.
- vonmoltke 6y ago
  > I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. You need to subtract those anyway, as they are baked in to your rent payment, though the interest will depend on the landlord's circumstances. A note on property tax, though, which will complicate the comparison even more than my sibling commenter already has: Home values are reassessed in Texas every three years, not annually. This means your taxable value is locked in for three years, and the only way your bill can go up or down is if a taxing authority changes their rate. Additionally, in this period, a house appreciating at an average of 9% per year will appreciate at an average of 29.5% per assessment period. Texas homestead protection, which you can get and your landlord can't, limits the increase in taxable value per assessment to 10%. So, if you were renting that same property you would be eating a larger increase in rent every three years than the increase in property tax if you owned it yourself.

fastball 6y ago

Yeah, in the climate since 2008 I know a fair few people that are paying less in mortgage payments than they'd be paying in rent for an equivalent property.

albertgoeswoof 6y ago
That’s the case in most capital markets in general. You’ll almost always pay less to rent money and invest it than rent the item directly.

dcolkitt 6y ago

> You also generally can’t borrow 5x your income You can easily access 3X levered ETFs. Also, while you start out at 5X leverage, you pay down the principal over time. Over the lifetime of a 30-year mortgage, your average leverage is closer to 2X.

gomox 6y ago
3x the collateral, not 3x your yearly income.
davio 6y ago
Mortgage leverage is more like 20x for first time buyers VA loans have even higher leverage
- anthony_r 6y ago
  Mortgages are so f* insane when you do the basic maths, such as 1/downpayment to get the leverage. If you just presented the numbers differently nobody would have ever signed up for one except people like Victor Niederhoffer. And on top of that most of the underwriting is on central government balance sheet via frankenstein constructs like fnma. Sheesh..
  - izend 6y ago
    Also in Canada the capital gains on your "primary residency" is tax free. I know "lucky" Vancouver couples who bought the right property at the right time and it is equivalent to winning the lottery. i.e. $600K capital gains in just 2 years. The inequality created by having huge winners in "hot housing markets" acquiring enormous wealth vs others in flat or down housing market receiving absolutely nothing (not even mortgage interest deduction which isn't available in Canada) is insanity in my mind.

williamstein 6y ago

Moreover, if you use leverage to make an investment in stock (say) and the stock market temporarily goes down enough, you can get hit by a margin call and go broke. With a house, when the housing market goes down, it is an inconvenience (e.g., it can be harder to get a home equity line of credit or refinance your mortgage), but there's NO automatic "margin call" as long as you can pay your monthly payments. For people with limited capital, a leveraged investment without any possibility of a margin call is very valuable. I'm glad I put my money into buying a house.

CydeWeys 6y ago

> Hint: house prices don’t really go down much, because everyone is leveraged and literally can’t afford to sell below a certain point. Until something like a 2008 happens, and it doesn't matter how much people can afford to sell a house for, they're gonna lose it regardless if they can't make those ballooning payments.

fastball 6y ago
I think the idea of a house + mortgage being not-too-risky is obviously predicated on having a fixed-rate mortgage.
albertgoeswoof 6y ago
Right but that won’t affect a sensible buyer who has one property, accessible savings covering a year of repayments, a stable job, a fixed rate etc. You can just wait for the market to rebound. Or even better, provided you’re not in negative equity and have some cash in the bank, move up to a bigger house when the market crashes.
vonmoltke 6y ago
> they're gonna lose it regardless if they can't make those ballooning payments That's a reason to never touch an ARM, not to avoid buying a house.

izend 6y ago

I wholeheartedly agree with all your points. My family is currently renting the top floor of a regular suburb North Vancouver house and we were hoping to buy the last 2 years to be settled & stable as my daughter started kindergarten this year. If our landowner decides to sell we would only have 3 months to find a new place and could definitely cause us to have to move my daughter to a new school. The lack of stability and the unknown future in our housing situation is causing a lot of stress our relationship too.

jere 6y ago

>You also generally can’t borrow 5x your income and invest it, but you can do that on a house, so if you think house prices will rise then you’re missing out on a change for major leverage you won’t get elsewhere. I've been struggling with this part. I just moved to Austin, looked at the market from 2012-2020, and what do you know almost every house I look at has doubled in value in 8 years. That's a 9% annual return! Shouldn't I get the biggest house I can afford since the city is growing so fast? Well not so fast. I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. Not to mention HOAs, PMI, insurance, etc. I might end up making 2% annually compared to 7% in the stock market and that's only if I see the same returns as the most cherry picked period I could possibly find. Anything less and I'm absolutely losing. I agree on the you have to live somewhere part, but treating it like an investment seems like a bad bet.

NovemberWhiskey 6y ago
>I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. ... but then you'll also probably (if you're like the average HN poster who isn't taking the standard deduction) deduct your mortgage interest and your property taxes, and you'll be exempt from up to $500,000 in capital gain if married, filing jointly, and using the home as your principle residence. So ... complicated.
vonmoltke 6y ago
> I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. You need to subtract those anyway, as they are baked in to your rent payment, though the interest will depend on the landlord's circumstances. A note on property tax, though, which will complicate the comparison even more than my sibling commenter already has: Home values are reassessed in Texas every three years, not annually. This means your taxable value is locked in for three years, and the only way your bill can go up or down is if a taxing authority changes their rate. Additionally, in this period, a house appreciating at an average of 9% per year will appreciate at an average of 29.5% per assessment period. Texas homestead protection, which you can get and your landlord can't, limits the increase in taxable value per assessment to 10%. So, if you were renting that same property you would be eating a larger increase in rent every three years than the increase in property tax if you owned it yourself.