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Your analysis leaves out a very important factor: rents. If you don't buy a home, you have to rent. If your mortgage payment is below the going rents (not too

Your analysis leaves out a very important factor: rents. If you don't buy a home, you have to rent. If your mortgage payment is below the going rents (not too difficult to achieve if you factor in the tax write-off), then one way you can look at that is you give an $X down payment now for a free house in 30 years. If you look at it that way, slow growth doesn't look quite so bad -- the house only needs to be worth about $8X the down payment in constant dollars 30 years from now. Assuming 20% down, that's only appreciating 60% in 30 years, which is only assuming about 1.5% growth in home value per year. Inflation should probably also factor into your analysis, for those who believe that inflation is likely in the long term. Buying a home also offers a lot of stability on your long-term housing costs. Even if you buy and sell every few years anyway[1], the fact that you are both buying and selling at the same time leads to a fairly even end result. With renting, you are always purchasing on the spot market[2]. Avoiding risk and having control over when you move both have a value. [1] Of course, buying and selling every few years is very costly, but it doesn't affect the stability argument. [2] And it's not just luck when you happen to be moving around. If you are buying into an area because of a new employer, there's a good chance that the employer is hiring, and that a lot of people want that same apartment.

byrneseyeview 15y ago
Since the tax-deductible nature of mortgages also applies to your landlord, that factor nets to zero. Inflation also nets out to zero, since both the borrower and the lender (and the landlord and the renter) are using the same currency. Unless you argue that home buyers are systematically better at accounting for inflation than bankers, of course. The way I would look at it is that I buy housing the way I buy groceries, clothes, and pretty much everything else: I buy it when I need it. I mean, sure, if I bought an orchard I could get apples for "Free" after I'd paid the mortgage, but that's just bad accounting. The problem with buying a house is that it's a massive bet on your local labor market. Your job (your biggest asset, in terms of net present value), is also a bet on the same market. You're levering up massively in order to bet on one of the biggest un-controllable risks you face, and you're paying 7% transaction costs on the purchase and the sale in order to do so. A cheaper way to make this bet is to borrow several times your annual income, and bet on your being laid off (i.e. you make money if you don't get fired, and you do make money if you do get fired). That would be a terrible decision.
- walkon 15y ago
  Inflation plays a huge role with regard to timing and compared to the average mortgage rates of other owners/landlords. If you start a 4% fixed rate mortgage today and do not move anywhere in 10 years, you don't have to cover the cost of credit for whatever the interest rate at that time is (probably higher) because you don't have to reset/move.
- function_seven 15y ago
  > Since the tax-deductible nature of mortgages also applies to your landlord Not usually true. Investment properties are not subject to mortgage interest tax deductions. http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction#United_States http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio...
  - cma 15y ago
    They are deductible by another means (business expense). But you pay rent in after tax dollars. Imagine having a neighbor with and identical house--you both agree to swap and rent to each other. You would be worse off than sticking with your mortgage (if you rent to each other for $0, it works out the same as the homeowner deduction).
- Estragon 15y ago
  Why don't you ask someone who bought their house in 2006 about price stability? And then look at how far about historical norm prices still are. http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/ http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-c...
  - Estragon 15y ago
    Oops, I meant that as a reply to one comment higher.
    - jeffdavis 15y ago
      Someone who bought their house in 2006 still has the same mortgage payment (actually, perhaps lower if they were able to refinance). Buying things for the future (whether housing or cattle futures) does offer price stability and insulation from market fluctuations. It doesn't automatically make it a good investment; but stability is good, and it's perfectly rational to assign some positive value to it. I was just trying to put things in perspective. There are perfectly rational reasons to buy a house. When the rents are higher than what a mortgage payment would be, it's a pretty reasonable thing to do for a lot of people, based on some pretty reasonable projections. You can still disagree, of course. You can say that 1.5% growth per year in home value is too much to ask. You can say that rents will fall, therefore making your mortgage payment higher than rent. Or you can say that a 7% return is not good enough for you. Or maybe my analysis was wrong, in which case you can point that out.

byrneseyeview 15y ago

Since the tax-deductible nature of mortgages also applies to your landlord, that factor nets to zero. Inflation also nets out to zero, since both the borrower and the lender (and the landlord and the renter) are using the same currency. Unless you argue that home buyers are systematically better at accounting for inflation than bankers, of course. The way I would look at it is that I buy housing the way I buy groceries, clothes, and pretty much everything else: I buy it when I need it. I mean, sure, if I bought an orchard I could get apples for "Free" after I'd paid the mortgage, but that's just bad accounting. The problem with buying a house is that it's a massive bet on your local labor market. Your job (your biggest asset, in terms of net present value), is also a bet on the same market. You're levering up massively in order to bet on one of the biggest un-controllable risks you face, and you're paying 7% transaction costs on the purchase and the sale in order to do so. A cheaper way to make this bet is to borrow several times your annual income, and bet on your being laid off (i.e. you make money if you don't get fired, and you do make money if you do get fired). That would be a terrible decision.

walkon 15y ago
Inflation plays a huge role with regard to timing and compared to the average mortgage rates of other owners/landlords. If you start a 4% fixed rate mortgage today and do not move anywhere in 10 years, you don't have to cover the cost of credit for whatever the interest rate at that time is (probably higher) because you don't have to reset/move.
function_seven 15y ago
> Since the tax-deductible nature of mortgages also applies to your landlord Not usually true. Investment properties are not subject to mortgage interest tax deductions. http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction#United_States http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio...
- cma 15y ago
  They are deductible by another means (business expense). But you pay rent in after tax dollars. Imagine having a neighbor with and identical house--you both agree to swap and rent to each other. You would be worse off than sticking with your mortgage (if you rent to each other for $0, it works out the same as the homeowner deduction).
Estragon 15y ago
Why don't you ask someone who bought their house in 2006 about price stability? And then look at how far about historical norm prices still are. http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/ http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-c...
- Estragon 15y ago
  Oops, I meant that as a reply to one comment higher.
  - jeffdavis 15y ago
    Someone who bought their house in 2006 still has the same mortgage payment (actually, perhaps lower if they were able to refinance). Buying things for the future (whether housing or cattle futures) does offer price stability and insulation from market fluctuations. It doesn't automatically make it a good investment; but stability is good, and it's perfectly rational to assign some positive value to it. I was just trying to put things in perspective. There are perfectly rational reasons to buy a house. When the rents are higher than what a mortgage payment would be, it's a pretty reasonable thing to do for a lot of people, based on some pretty reasonable projections. You can still disagree, of course. You can say that 1.5% growth per year in home value is too much to ask. You can say that rents will fall, therefore making your mortgage payment higher than rent. Or you can say that a 7% return is not good enough for you. Or maybe my analysis was wrong, in which case you can point that out.