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I'm no better than a tinfoil hat economist, but is the house investment thesis really true? As a homeowner I'll just say in my experience owning a house is ver

I'm no better than a tinfoil hat economist, but is the house investment thesis really true? As a homeowner I'll just say in my experience owning a house is very expensive. Renovations, improvements, maintenance, etc.. cost a lot on top of interest, taxes, and insurance. It's very true if you are lucky (or smart, depending on who you ask) with the location it can be an incredible investment. But there are many neighborhoods where houses barely increase or even decrease in value as well (relative to inflation). If you compare it to the S&P 500 over the past 2 decades as well it probably fares far worse.

ChefboyOG 5y ago
I think in this situation, comparing housing to stocks isn't quite apples-to-apples. One of the appeals of owning a house is the money you no longer spend on rent.
svachalek 5y ago
My house has more than doubled in value over the past 8 years. If you consider a 20% downpayment, it's nearly a 1000% return on the non-borrowed part of the investment, on something I needed to live in anyway. I can't say I'm unhappy about this, and yet it's also totally insane. And I agree with the GP, this is all thanks to city councils blocking market dynamics.
arcticbull 5y ago
On average it tracks inflation, in metros it far outpaces it due to artificial supply constraints. Because you only make a 20% downpayment on the property, youre actually making a 5X leveraged bet on real estate at the outset. The S&P goes up what 7% geometrically on an annualized basis but due to the leverage inherent in your mortgage, your house only has to appreciate (at the start) 1.4% to achieve the same return on your equity.
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- nightski 5y ago
  Like all leveraged bets, if it doesn't beat inflation you get destroyed by interest. If we have a crisis like 2008 the leverage works against you. I understand in certain markets if one is diligent they can be quite profitable as a real estate investor. That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second. But huge congrats to those living in areas which have seen incredible growth! Just understand it's not the norm. Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds.
  - arcticbull 5y ago
    > Like all leveraged bets, if it doesn't beat inflation you get destroyed by interest. If we have a crisis like 2008 the leverage works against you. This isn't actually relevant because mortgage interest, minus tax credits, is well below inflation. The base case on a 30 year fixed is that you end up ahead just by having the loan. > That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second. I'm not sure there is a "median US home" because it's super multi-modal. There's an urban homes, suburban homes and exurban/rural homes. Each will have a different risk/reward profile. > Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds. Indeed. By the way, all this is to say, I also do not think that buying a home a guaranteed win by any stretch. You have maintenance/upkeep costs, insurance costs, potentially HOA dues. You lose a lot of flexibility. And potentially most importantly, you lose out on the opportunity cost associated with your down payment. Plus, you have a lot more risk if the market moves against you. Returns are never guaranteed even if you're in a historically appreciating market. There's some great calculators that cover all this to tell you if you should rent or own - and in my early 20s, the calculator rightly said I should not own, even though I was in an appreciating area. [1] [1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

ChefboyOG 5y ago

I think in this situation, comparing housing to stocks isn't quite apples-to-apples. One of the appeals of owning a house is the money you no longer spend on rent.

svachalek 5y ago

My house has more than doubled in value over the past 8 years. If you consider a 20% downpayment, it's nearly a 1000% return on the non-borrowed part of the investment, on something I needed to live in anyway. I can't say I'm unhappy about this, and yet it's also totally insane. And I agree with the GP, this is all thanks to city councils blocking market dynamics.

arcticbull 5y ago

On average it tracks inflation, in metros it far outpaces it due to artificial supply constraints. Because you only make a 20% downpayment on the property, youre actually making a 5X leveraged bet on real estate at the outset. The S&P goes up what 7% geometrically on an annualized basis but due to the leverage inherent in your mortgage, your house only has to appreciate (at the start) 1.4% to achieve the same return on your equity.

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nightski 5y ago
Like all leveraged bets, if it doesn't beat inflation you get destroyed by interest. If we have a crisis like 2008 the leverage works against you. I understand in certain markets if one is diligent they can be quite profitable as a real estate investor. That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second. But huge congrats to those living in areas which have seen incredible growth! Just understand it's not the norm. Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds.
- arcticbull 5y ago
  > Like all leveraged bets, if it doesn't beat inflation you get destroyed by interest. If we have a crisis like 2008 the leverage works against you. This isn't actually relevant because mortgage interest, minus tax credits, is well below inflation. The base case on a 30 year fixed is that you end up ahead just by having the loan. > That is not what I am talking about - I mean the median U.S. home. That's not quite as strong of a case for investment. I'd suggest most buy a home for lifestyle first, and maybe at best a forced savings account second. I'm not sure there is a "median US home" because it's super multi-modal. There's an urban homes, suburban homes and exurban/rural homes. Each will have a different risk/reward profile. > Now what happened this past year is rather peculiar and it's going to be interesting to see how that unfolds. Indeed. By the way, all this is to say, I also do not think that buying a home a guaranteed win by any stretch. You have maintenance/upkeep costs, insurance costs, potentially HOA dues. You lose a lot of flexibility. And potentially most importantly, you lose out on the opportunity cost associated with your down payment. Plus, you have a lot more risk if the market moves against you. Returns are never guaranteed even if you're in a historically appreciating market. There's some great calculators that cover all this to tell you if you should rent or own - and in my early 20s, the calculator rightly said I should not own, even though I was in an appreciating area. [1] [1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...