4 ms·

You don't need to purchase a home - but historically - if you did - you've been much better off financially. It's the same as saying you don't NEED to go to co

You don't need to purchase a home - but historically - if you did - you've been much better off financially. It's the same as saying you don't NEED to go to college. No, you don't. You don't need much of anything... But if you did go to college - whether through correlation or causation - statistically you are much better off. So if college and housing get out of reach for most people - then maybe they will be worse off. Who knows? Maybe it is all correlation and no causation.

chii 4y ago
> You don't need to purchase a home - but historically - if you did - you've been much better off financially. it's not the purchase of the home that made you better off financially, but the ability to purchase a home. If you had that ability, investing in another asset at the same leverage level (such as shares) would net you even more financial income (obviously, its higher risk).
- onlyrealcuzzo 4y ago
  False - investing in shares on margin would get you margin called and bankrupt in many time-scales. A house can't be margin called (if you can't afford the debt service, you can still end up bankrupt).
- TimPC 4y ago
  Depends where you're talking about in Canada from 2001 to present day the average return of housing has beat the stock market. There is also a question of what amounts you're investing. Paying down a mortgage is sort of like having ever declining rent, but if you're investing in the market instead you face ever increasing rent so the amount of the investment is different between the two scenarios. For instance, after paying off a mortgage entirely, my housing costs will be effectively repairs, property tax and utilities. That's a tiny fraction of rent. Meanwhile over 25 years property prices have more than tripled so it's likely the renter's rent would have gone from $1500/month to $4500/month or so. If you have $7000/month for both cost of living and savings then putting $5500/month into whatever assets you choose now that your home is paid off is going to generate much better returns than putting $2500/month into whatever asset you choose after paying off your inflated rent. Alternatively, you can buy the home purely as an investment rather than a place to live. In this case, you have rental costs either way but you don't just make the capital gains on the home you also make rental income from renting it out. Typically rental income can be around 6% of property value. If you add that to the 7.5% returns to property YoY since 2001 you get 13.5% returns. You will have some expenses to deduct from that so your net returns might end up around 11%. That's still demolishing the stock market returns.
  - chii 4y ago
    > For instance, after paying off a mortgage entirely, my housing costs will be effectively repairs, property tax and utilities. That's a tiny fraction of rent. no, if you paid off the mortgage, then the cost of your "rent" is just the cost of the capital sitting in the house (plus those maintenance costs you mentioned). There's no such thing as free living. it is possible that rent is more expensive - but over time, this ought to normalize, as expensive rent will incentivize build-to-rent and arbitrage the difference to make a profit.
    - TimPC 4y ago
      In a world of zoning and NIMBYs I very much doubt the market adjusts in any way that resembles an efficient market. At most the portion of the rent I get from my capital is the difference between deploying the capital in the market and the return to housing. Since housing has historically beat the market that suggests a zero or negative rent for investing in housing.
      - chii 4y ago
        > Since housing has historically beat the market this is not true unless you only start counting from the past 10-20 years, and only include regions that _did_ beat the market, rather than globally. see https://www.youtube.com/watch?v=7rvY2rIxdsA https://www.youtube.com/watch?v=7rvY2rIxdsA
        TimPC 4y ago
        If you measure the capital returns of housing as buying a property and letting it sit empty it doesn't beat the market. But renting a property returns roughly 6% of capital in most markets, and Canada-wide housing prices have gone up 7.5% a year over the last 20 years. Even if it costs you 2.5% of the home price to rent the property (this is a high estimate) that suggests making 11%/year over the last 20 years. If you go back longer, the capital curve for housing gets slightly lower and you might eventually get only 9% returns counting capital income and rental income. But markets still haven't returned 9%/year.
- jandrese 4y ago
  > If you had that ability, investing in another asset at the same leverage level (such as shares) would net you even more financial income (obviously, its higher risk). This sounds like Reddit "live in your Mom's basement to save on rent" type financial advice. It doesn't work if you have to use that money to pay rent. Rents tend to be about the same or more than a mortgage. If you happen to live in an area where rents are considerably lower than a mortgage than this is an outside possibility, but this also depends on your rents not skyrocketing over the course of 30 years. One of the great things about 30 year fixed loans is that they allow you to ride out market insanity. This is the dirty little secret of these housing bubbles. It's mostly the poor who get seriously burned, because people with money have mortgages. They don't have to find a way to pay a rent that increased 40% this year. In fact many of the people are the landlords who are enjoying a massive windfall thanks to the housing crisis. They have an incentive to make sure it continues.
nradov 4y ago
That's a non sequitur. Investing in real estate can be a good financial option for many people, but it's irrelevant to the CPI. The Federal Reserve publishes reports on household wealth and the home ownership rate if that's what you want. Current home ownership rate is 65%, so obviously it's within reach for most people. College enrollment levels are also near record highs, so while expensive it's not out of reach either.
throw0101a 4y ago
> You don't need to purchase a home - but historically - if you did - you've been much better off financially. [citation needed] Per the The Credit Suisse Global Investment Returns Yearbook 2018, the global return for real estate from 1900 to 2017 was 1.3%, while stocks returns 5.2%: * https://www.credit-suisse.com/media/assets/corporate/docs/about-us/media/media-release/2018/02/giry-summary-2018.pdf https://www.credit-suisse.com/media/assets/corporate/docs/ab... Rent is often cheaper than mortgage payments, and is very more often cheaper than mortgage payments plus the cost of maintaining a home. If you take the difference and investment you can have just as must equity in a few decades. Preet Banerjee goes over the math in this ten minute video: * https://www.youtube.com/watch?v=KAMeI4uHAFE https://www.youtube.com/watch?v=KAMeI4uHAFE He rents: * https://www.speakers.ca/2013/10/preet-banerjee-sold-his-house-and-rents-why-he-couldnt-be-happier/ https://www.speakers.ca/2013/10/preet-banerjee-sold-his-hous... If you want to know when it makes financial sense, the "5% Rule" by Ben Felix is a decent place to start: * https://www.youtube.com/watch?v=q9Golcxjpi8 https://www.youtube.com/watch?v=q9Golcxjpi8 * https://www.youtube.com/watch?v=Uwl3-jBNEd4 https://www.youtube.com/watch?v=Uwl3-jBNEd4 Until recently he was a renter, but purchased a house 1-2 years ago. Not exactly happy with the decision though: * https://www.youtube.com/shorts/L5SAF0SHD1w https://www.youtube.com/shorts/L5SAF0SHD1w
- onlyrealcuzzo 4y ago
  Real estate is leveraged - often times in the US 33:1. Stocks aren't. You also have to factor in that it's a hedge against inflation on rent, and that part of your rent payment is going to principal, and that your mortgage interest is tax deductible. If you think the average return for the S&P 500 unleveraged beats owning a PRIMARY RESIDENCE on 5:1 leverage, when your marginal tax rate is 45%, and interest rates are 2.7% on a 30-year fixed... I guess time will tell, but it is INCREDIBLY unlikely.
  - throw0101a 4y ago
    > Real estate is leveraged […]. Stocks aren't. Leveraging in stocks: * https://www.investopedia.com/terms/m/marginaccount.asp https://www.investopedia.com/terms/m/marginaccount.asp

chii 4y ago

> You don't need to purchase a home - but historically - if you did - you've been much better off financially. it's not the purchase of the home that made you better off financially, but the ability to purchase a home. If you had that ability, investing in another asset at the same leverage level (such as shares) would net you even more financial income (obviously, its higher risk).

onlyrealcuzzo 4y ago
False - investing in shares on margin would get you margin called and bankrupt in many time-scales. A house can't be margin called (if you can't afford the debt service, you can still end up bankrupt).
TimPC 4y ago
Depends where you're talking about in Canada from 2001 to present day the average return of housing has beat the stock market. There is also a question of what amounts you're investing. Paying down a mortgage is sort of like having ever declining rent, but if you're investing in the market instead you face ever increasing rent so the amount of the investment is different between the two scenarios. For instance, after paying off a mortgage entirely, my housing costs will be effectively repairs, property tax and utilities. That's a tiny fraction of rent. Meanwhile over 25 years property prices have more than tripled so it's likely the renter's rent would have gone from $1500/month to $4500/month or so. If you have $7000/month for both cost of living and savings then putting $5500/month into whatever assets you choose now that your home is paid off is going to generate much better returns than putting $2500/month into whatever asset you choose after paying off your inflated rent. Alternatively, you can buy the home purely as an investment rather than a place to live. In this case, you have rental costs either way but you don't just make the capital gains on the home you also make rental income from renting it out. Typically rental income can be around 6% of property value. If you add that to the 7.5% returns to property YoY since 2001 you get 13.5% returns. You will have some expenses to deduct from that so your net returns might end up around 11%. That's still demolishing the stock market returns.
- chii 4y ago
  > For instance, after paying off a mortgage entirely, my housing costs will be effectively repairs, property tax and utilities. That's a tiny fraction of rent. no, if you paid off the mortgage, then the cost of your "rent" is just the cost of the capital sitting in the house (plus those maintenance costs you mentioned). There's no such thing as free living. it is possible that rent is more expensive - but over time, this ought to normalize, as expensive rent will incentivize build-to-rent and arbitrage the difference to make a profit.
  - TimPC 4y ago
    In a world of zoning and NIMBYs I very much doubt the market adjusts in any way that resembles an efficient market. At most the portion of the rent I get from my capital is the difference between deploying the capital in the market and the return to housing. Since housing has historically beat the market that suggests a zero or negative rent for investing in housing.
    - chii 4y ago
      > Since housing has historically beat the market this is not true unless you only start counting from the past 10-20 years, and only include regions that _did_ beat the market, rather than globally. see https://www.youtube.com/watch?v=7rvY2rIxdsA https://www.youtube.com/watch?v=7rvY2rIxdsA
      - TimPC 4y ago
        If you measure the capital returns of housing as buying a property and letting it sit empty it doesn't beat the market. But renting a property returns roughly 6% of capital in most markets, and Canada-wide housing prices have gone up 7.5% a year over the last 20 years. Even if it costs you 2.5% of the home price to rent the property (this is a high estimate) that suggests making 11%/year over the last 20 years. If you go back longer, the capital curve for housing gets slightly lower and you might eventually get only 9% returns counting capital income and rental income. But markets still haven't returned 9%/year.
jandrese 4y ago
> If you had that ability, investing in another asset at the same leverage level (such as shares) would net you even more financial income (obviously, its higher risk). This sounds like Reddit "live in your Mom's basement to save on rent" type financial advice. It doesn't work if you have to use that money to pay rent. Rents tend to be about the same or more than a mortgage. If you happen to live in an area where rents are considerably lower than a mortgage than this is an outside possibility, but this also depends on your rents not skyrocketing over the course of 30 years. One of the great things about 30 year fixed loans is that they allow you to ride out market insanity. This is the dirty little secret of these housing bubbles. It's mostly the poor who get seriously burned, because people with money have mortgages. They don't have to find a way to pay a rent that increased 40% this year. In fact many of the people are the landlords who are enjoying a massive windfall thanks to the housing crisis. They have an incentive to make sure it continues.

nradov 4y ago

That's a non sequitur. Investing in real estate can be a good financial option for many people, but it's irrelevant to the CPI. The Federal Reserve publishes reports on household wealth and the home ownership rate if that's what you want. Current home ownership rate is 65%, so obviously it's within reach for most people. College enrollment levels are also near record highs, so while expensive it's not out of reach either.

throw0101a 4y ago

> You don't need to purchase a home - but historically - if you did - you've been much better off financially. [citation needed] Per the The Credit Suisse Global Investment Returns Yearbook 2018, the global return for real estate from 1900 to 2017 was 1.3%, while stocks returns 5.2%: * https://www.credit-suisse.com/media/assets/corporate/docs/about-us/media/media-release/2018/02/giry-summary-2018.pdf https://www.credit-suisse.com/media/assets/corporate/docs/ab... Rent is often cheaper than mortgage payments, and is very more often cheaper than mortgage payments plus the cost of maintaining a home. If you take the difference and investment you can have just as must equity in a few decades. Preet Banerjee goes over the math in this ten minute video: * https://www.youtube.com/watch?v=KAMeI4uHAFE https://www.youtube.com/watch?v=KAMeI4uHAFE He rents: * https://www.speakers.ca/2013/10/preet-banerjee-sold-his-house-and-rents-why-he-couldnt-be-happier/ https://www.speakers.ca/2013/10/preet-banerjee-sold-his-hous... If you want to know when it makes financial sense, the "5% Rule" by Ben Felix is a decent place to start: * https://www.youtube.com/watch?v=q9Golcxjpi8 https://www.youtube.com/watch?v=q9Golcxjpi8 * https://www.youtube.com/watch?v=Uwl3-jBNEd4 https://www.youtube.com/watch?v=Uwl3-jBNEd4 Until recently he was a renter, but purchased a house 1-2 years ago. Not exactly happy with the decision though: * https://www.youtube.com/shorts/L5SAF0SHD1w https://www.youtube.com/shorts/L5SAF0SHD1w

onlyrealcuzzo 4y ago
Real estate is leveraged - often times in the US 33:1. Stocks aren't. You also have to factor in that it's a hedge against inflation on rent, and that part of your rent payment is going to principal, and that your mortgage interest is tax deductible. If you think the average return for the S&P 500 unleveraged beats owning a PRIMARY RESIDENCE on 5:1 leverage, when your marginal tax rate is 45%, and interest rates are 2.7% on a 30-year fixed... I guess time will tell, but it is INCREDIBLY unlikely.
- throw0101a 4y ago
  > Real estate is leveraged […]. Stocks aren't. Leveraging in stocks: * https://www.investopedia.com/terms/m/marginaccount.asp https://www.investopedia.com/terms/m/marginaccount.asp