5 ms·

> Which, in practical terms, means losing money. By definition no. In reality not either as you have to live somewhere - it might feel like your "investment" h

by rr888 4y ago

> Which, in practical terms, means losing money. By definition no. In reality not either as you have to live somewhere - it might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either so is actually good for the average person. Of course if you have a large mortgage the investment is small anyway.

loeg 4y ago
Are you forgetting about the 10% of sale price haircut that accompanies real estate transactions? Agent fees, taxes, title insurance, blah blah. If you sell your house for what you bought it for in the US, you end up with ~90% of what you started with.
- rr888 4y ago
  Yes I did forget but I'd suggest the transaction costs aren't significant when you hold 10+ years and are just another cost of living. If you rent you have to pay fewer transaction costs but you have rent rising so that has its own problems.
  - JumpCrisscross 4y ago
    > you have rent rising so that has its own problems Rising rents amid flat home prices are necessarily temporary absent price controls.
    - giaour 4y ago
      Yes, assuming the rental market has sufficient competition and can take advantage of existing homes. Local rental property monopolies or regulation (either governmental or from private organizations like HOAs) that prevents the excess homes from being rented can cause a rise in rents that is not related to underlying housing prices.
  - ahtihn 4y ago
    There's no reason for rent to be rising if property values aren't rising. Rent rising would push property prices up.
- milesvp 4y ago
  Yeah, and what the above is forgetting that most of the payment is interest. So it may have been no different than paying a landlord. My experience renting houses in the 2000’s was that my rent was about the same as my mortgage payment + taxes would have been for the same house. Add in maintenance and it was several hundred per month cheaper to rent. Even the house I live in now I rented prior to buying and my rent was 12% less than my monthly mortgage payment. It really only made sense for me to buy because my city was seeing 10% yoy rent increases that I expected for several more years, which meant locking in a price with a 30 fixed gave me and expected monthly savings.
  - bombcar 4y ago
    The "old rule of thumb" was it took 5-7 years for the break-even on buying - if you were going to stay in the house less than 7 years renting would probably win, if you were staying more than buying would win. Of course appreciation and other factors change this; if houses are appreciating quickly buying will be better, if they're stagnate or dropping rental may be better (but then you can get rental inversions where the cost of renting goes way below or way above the cost of buying). At some point buying is basically arbitrage between the mortgage rate and the inflation rate.
    - JumpCrisscross 4y ago
      > buying is basically arbitrage between the mortgage rate and the inflation rate It's a play on rental yield, i.e. rent versus price. Inflation is relevant, but more precisely considered as the cost of capital (opportunity cost of your down payment plus lost/gained yield on the difference between ownership costs and rent). Everything else is adjustments. Whether it's financed with a mortgage or cash is important, but the fundamental analysis still holds.
JumpCrisscross 4y ago
> might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either Unless inflation is zero, this won’t be true. Commodities will have gone up. Labor will have gone up. That fundamentally raises construction costs for new homes. For existing home prices to remain flat that requires land values to fall. Add in real-estate transaction costs and maintenance (which are also fundamentally exposed to inflation), and yes, one will lose purchasing power in a flat housing market. Intrinsically. And relative to someone owning productive assets. (I say this as a homeowner.)
- giaour 4y ago
  You should also factor in "imputed rent," which is what you would have spent on housing had you not owned a home. Subtract your property taxes, mortgage interest (+ PMI if you had it), and upkeep costs from how much it would have cost in monthly rent to live in your home. Generally, even if you lose money from inflation, property taxes, transaction costs, and maintenance, imputed rent will put you ahead in the end.
  - bombcar 4y ago
    It can be quite instructive to "excel pretend" that you're buying your house and renting it to yourself. Buy a few landlording books and read through them, and then vigorously track everything that would be a "rental expense" if it were a rental property in your spreadsheet, then at anytime you can "back out" what you would have had to pay in rent assuming some % profit. Add that to rental comparables from your area and you can get quite a good idea as to the true cost of home ownership (and renting). Or you can do a simple version of it by calculating what the IRS would allow you to deduct as depreciation and assume that's roughly the maintenance cost.

by rr888 4y ago

loeg 4y ago

Are you forgetting about the 10% of sale price haircut that accompanies real estate transactions? Agent fees, taxes, title insurance, blah blah. If you sell your house for what you bought it for in the US, you end up with ~90% of what you started with.

rr888 4y ago
Yes I did forget but I'd suggest the transaction costs aren't significant when you hold 10+ years and are just another cost of living. If you rent you have to pay fewer transaction costs but you have rent rising so that has its own problems.
- JumpCrisscross 4y ago
  > you have rent rising so that has its own problems Rising rents amid flat home prices are necessarily temporary absent price controls.
  - giaour 4y ago
    Yes, assuming the rental market has sufficient competition and can take advantage of existing homes. Local rental property monopolies or regulation (either governmental or from private organizations like HOAs) that prevents the excess homes from being rented can cause a rise in rents that is not related to underlying housing prices.
- ahtihn 4y ago
  There's no reason for rent to be rising if property values aren't rising. Rent rising would push property prices up.
milesvp 4y ago
Yeah, and what the above is forgetting that most of the payment is interest. So it may have been no different than paying a landlord. My experience renting houses in the 2000’s was that my rent was about the same as my mortgage payment + taxes would have been for the same house. Add in maintenance and it was several hundred per month cheaper to rent. Even the house I live in now I rented prior to buying and my rent was 12% less than my monthly mortgage payment. It really only made sense for me to buy because my city was seeing 10% yoy rent increases that I expected for several more years, which meant locking in a price with a 30 fixed gave me and expected monthly savings.
- bombcar 4y ago
  The "old rule of thumb" was it took 5-7 years for the break-even on buying - if you were going to stay in the house less than 7 years renting would probably win, if you were staying more than buying would win. Of course appreciation and other factors change this; if houses are appreciating quickly buying will be better, if they're stagnate or dropping rental may be better (but then you can get rental inversions where the cost of renting goes way below or way above the cost of buying). At some point buying is basically arbitrage between the mortgage rate and the inflation rate.
  - JumpCrisscross 4y ago
    > buying is basically arbitrage between the mortgage rate and the inflation rate It's a play on rental yield, i.e. rent versus price. Inflation is relevant, but more precisely considered as the cost of capital (opportunity cost of your down payment plus lost/gained yield on the difference between ownership costs and rent). Everything else is adjustments. Whether it's financed with a mortgage or cash is important, but the fundamental analysis still holds.

JumpCrisscross 4y ago

> might feel like your "investment" hasn't kept up with inflation but your next house hasn't gone up either Unless inflation is zero, this won’t be true. Commodities will have gone up. Labor will have gone up. That fundamentally raises construction costs for new homes. For existing home prices to remain flat that requires land values to fall. Add in real-estate transaction costs and maintenance (which are also fundamentally exposed to inflation), and yes, one will lose purchasing power in a flat housing market. Intrinsically. And relative to someone owning productive assets. (I say this as a homeowner.)

giaour 4y ago
You should also factor in "imputed rent," which is what you would have spent on housing had you not owned a home. Subtract your property taxes, mortgage interest (+ PMI if you had it), and upkeep costs from how much it would have cost in monthly rent to live in your home. Generally, even if you lose money from inflation, property taxes, transaction costs, and maintenance, imputed rent will put you ahead in the end.
- bombcar 4y ago
  It can be quite instructive to "excel pretend" that you're buying your house and renting it to yourself. Buy a few landlording books and read through them, and then vigorously track everything that would be a "rental expense" if it were a rental property in your spreadsheet, then at anytime you can "back out" what you would have had to pay in rent assuming some % profit. Add that to rental comparables from your area and you can get quite a good idea as to the true cost of home ownership (and renting). Or you can do a simple version of it by calculating what the IRS would allow you to deduct as depreciation and assume that's roughly the maintenance cost.