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The article clearly says that it is for the US but I still can not think of a reason why that would be valid for US and not Europe for example. I'm not an econ

by cowl 3y ago

The article clearly says that it is for the US but I still can not think of a reason why that would be valid for US and not Europe for example. I'm not an economist but my math is simple. I compare the Mortgage rates with Rent rates and the fact is that Paying rent for 30 years is money sent down the drain. For an average difference of 10% you would be the owner of the house after 30 years instead of just wasting all your money on rent without anything to show for it. The whole discussion that this is a bet that your property will still hold or improve the value is meaningless, because even if it loses value (very improbable in most cases) it's still better than 0 that you are left with after paying 30 years of rent. Now all of my math is not valid anymore if you taking a mortgage as an investement and not for your first Home and maybe that is what the article is about but still the Mortgage is very helpful for many people and just because it doesnt make sense as an investment does not make it toxic.

resolutebat 3y ago
One big difference is that in many other countries, fixed rate mortgages are not available.
irrational 3y ago
We purchased a nearly 4,000 sf home on an acre 2 years ago. There are apartments within walking distance of our house that have rents higher than our mortgage payment. And not even that nice of apartments.
- richardw 3y ago
  In Sydney. We’re renting a house for 35% of the mortgage price. And the rental is pretty crazy, so mortgage is ludicrous. Some places are just irrational.
ozr 3y ago
The NYT Rent v Buy calculator is pretty out of date at this point, but it's definitely not as straightforward as rent being throwing away money and a mortgage building equity. Upkeep is a non-trivial expense, opportunity costs of money put down, money still being not turned into equity via, e.g., property taxes and insurance (higher than renters), etc. Add in the bigger intangible of the flexibility you gain from renting, and it's going to be a very individual decision.
zer8k 3y ago
Yes the article seems to be written with the undertone that mortgages are somehow exploitative. It even goes all the way back to the GFC to point out the weird edge case where NINJAs were lent out like hotcakes. The reason that become toxic is because brokers were getting insane commissions signing people up for them. Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting. If the value goes to 0 somehow you still have a roof over your head. That is, assuming that the government doesnt take your property away. Which shockingly they can. Different discussion though. There is a remark that's important here though. The math both you and I agree on assumes that the property is not an investment. The reality is all property is effectively an investment because even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places. No one would make such a leap without being guaranteed something back. The calculus changes at that point. Even for first time homeowners.
- pjc50 3y ago
  > Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting Yes. One of the smartest finance guys I know says the simple model of taking the landlord's (imputed) mortgage yield and adding four percent nearly always predicts the rental level. > even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places. But the causality of this is surprising: that's because interest rates have come down. So the repayment monthly cost has remained constant, but the deposit and salary ratio have shot up. Now that rates are on the way back up one of two things has to happen to maintain the ratio: - house prices drop - inflation increases nominal-income rapidly past house prices The use of 30-year mortgages hugely slows down those effects, though.
- chii 3y ago
  > If the value goes to 0 somehow you still have a roof over your head. you got the cause and effect wrong here. As long as you have the roof over your head, the value of the property isn't zero. If you can no longer use the property as a roof over your head, it's value drops to zero. For example, the place is completely flooded, or destroyed in an earthquake (assuming no insurance etc). > Any mortgage at almost any fixed interest rate ... will always beat renting only true if you put enough constraints on the condition under which you consider this to be "amenable". In realistic situations, renting or mortgages could either be better or worse, depending on the circumstances. On average, it costs "the same" to live somewhere with rent, or via a mortgage - otherwise, there'd be an arbitrage opportunity!
poisonborz 3y ago
Except owning a house costs way more than the mortgage itself, that renters dont pay. Taxes, maintenance and improvement costs, which are massive considering most people can only afford houses built in the 60-80s, and governments like Germany has strict regulations. Couple this with the risk of suddenly not be able to pay - you can sell, like if you want to break out of the inflexibility of living in one place, but then see your maintainer investments flow in most cases.
- rwmj 3y ago
  > Except owning a house costs way more than the mortgage itself. You must have had incredibly unlucky house purchases.
  - poisonborz 3y ago
    Every house has maintenance costs and this is the experience of all my homeowner friends. Betting on rising property costs may reap this back, but seeng what you can get for the average european family with 2 kids (up to 450k) prepare some parts of your home to be a construction site for a good part of the next 10 years.
    - rwmj 3y ago
      I've never heard of home maintenance budgets being more than, say, 10% of the cost of a mortgage, and usually you're advised to budget only a few percent. Obviously there are outliers like when you buy a run-down old ruin and have to do a complete period-correct refurbishment, but hopefully people know what they're getting into in those rare cases.
      - poisonborz 3y ago
        Just replacing the heating (very common, eg lots of oil heating in Western parts) costs near 10%.
        rwmj 3y ago
MikeTheRocker 3y ago
On timescales less than a decade or so, this idea that rent is "money sent down the drain" is often inaccurate in certain VHCOL markets like the San Francisco Bay Area. Rent typically costs much less than a mortgage payment, and the numbers work out that investing what you save by renting puts you ahead. This is a major reason I've stayed a renter even though I think my quality of life would be higher as a homeowner.
- rottencupcakes 3y ago
  Curious, where does rent cost much less than mortgage payments in the SF Bay Area?
  - refurb 3y ago
    San Francisco. A house that costs $8,000 per month in rent might cost $2M to buy. At $2M that's $9,500 in mortgage payment at 6% for 30 years, about $2,800 in property taxes, another $300 in insurance, and maybe assume $500 per month maintenance (over the long haul). That's ~$13,000 per month when rent is $8,000. You can knock the $1,500 per month off the mortgage payment that is paying off principle, but you'd also need to account for the opportunity cost of a $400,000 down payment at some modest return of say 4% which is ~$1,300, so it's about breakeven. The you need to account for transactions costs - all the closing fees and the 5-6% realtor fee when you sell. All in, if you rent in SF, but invest the savings from owning, you're not really far behind someone who buys, but of course it all depends on price appreciation and over what time period. That's not to say you can't get lucky and buy right before some massive price appreciation then sell and lock in the gains. But unless you have a crystal ball, you can't time that sort of stuff.
    - rottencupcakes 3y ago
      Thanks so much for clarifying. I hadn't adjusted my mental models for the new interest rates, I was still thinking 2%-3%.
  - modeless 3y ago
    Pretty much everywhere at current mortgage rates. Prices have barely budged as rates skyrocketed. My rent is less than half of the mortgage payment needed to buy my current house at its current zestimate price on a 6.7% 30 year fixed mortgage. And that's not even counting property tax and insurance and maintenance and the opportunity cost of the 20% down payment. You'd have to be insane to buy at these prices right now.
rwmj 3y ago
Back when I had a mortgage in the UK I would have given some vital part of my body for a mortgage which was stable over 30 years (and allowed me to repay it at any time). Long, fixed-term mortgages are quite rare outside the US. Over here you get a 2, 3 or 5 year fix and after that it jumps to a much higher variable rate, which means in practice you have to remortgage. A load of expense, hassle and uncertainty every 2-5 years.
- automatic6131 3y ago
  >I would have given some vital part of my body for a mortgage which was stable over 30 years The entire point of the blog post is that achieving this for everyone carries vicious negative externalities.
  - phicoh 3y ago
    In The Netherlands, long term mortgages (mine is 20 years fix interest at the moment) come and go. If interest rates are likely to go up, it typically doesn't make sense to have a long fix interest period. It will cost a huge premium if offered at all. If interest rates are going down or are stable, it does make sense for banks to offer them. Or course it can be tricky to decide if a long fixed interest period is smart of not. Banks do impose a fine if you try to refinance a mortgage during a fixed interest period and the current market interest is lower. I don't see negative externalities in this system. But maybe I missed something.
    - yuppie_scum 3y ago
      In the USA there’s a fee for refinancing as well, but it is usually a fraction of the loan principle and it is often rolled into the loan - so at the end of the day, the net effect is a lower monthly payment for the homeowner and that’s all they really care about.
      - phicoh 3y ago
        That is fine. You can't really call it an externality if there is a fine for refinancing at a lower interest rate. All that matters is that the original lender collects a suitable fine when the mortgage is terminated.
Gibbon1 3y ago
Skeeziest thing a friend did when rates were low during the pandemic is mortgage his house and use the money to buy a commercial property. The rents on the commercial property cover the mortgage on his house. But you are correct. You shouldn't treat an owner occupied house as an ordinary real estate investment. The flimsy type of analysis that poo poos buying a house always assumes you'll live in a large cardboard box somewhere.
- unmole 3y ago
  > always assumes you'll live in a large cardboard box somewhere. It assumes you'll rent a comparable place.
  - Gibbon1 3y ago
    Makes a lot of textbook assumptions. In my case interest minus tax breaks plus property tax is 40% of current rent for a similar place.
- yuppie_scum 3y ago
  Why is that skeezy? It’s no worse than using your credit card to buy something. In fact, maybe better since it’s backed by a real asset.
whobre 3y ago
That’s the narrative that real estate agents have been selling for decades. In reality, it depends on the location: in some places it makes sense to buy; in others, it turns out that the total cost of owning a home is so much higher than renting that it makes sense to rent and invest the difference. In any case, do your math for your specific situation and ignore blanket advice.
bbbobbb 3y ago
Your math is too simple. Consider alternative scenario where you invest your down payment and what you save on mortgage (generally slightly more expensive), invest what you save on extra repairs / maintenance. After those 30 years it's entirely possible that as a renter I have: - been able to take advantage of moving freely for personal or economic reasons - been able to move to a newer completely renovated apartment number of time for no costs other than moving my stuff instead of either paying for it or living in a house with a 20 years old kitchen - been able to live without stress about all the responsibilities that come with owning a house, being in debt and tied down - come out with enough money from my S&P500 that I started 30 years ago to decide to settle down somewhere and buy the house or continue as is with bunch of money saved up I am not saying that this is what will always happen or that owning a house is strictly worse but the "rent is money down the drain, mortgage payments is money you keep in the end" angle is way too naive.
- jacquesm 3y ago
  You must be a much better investor than I am. On property I have to date never lost a dime, and made pretty good money every time I bought something and held on to it for at least five years. But on other investments the returns have been all over the place, from tripling my money to losing it all and everything in between. If you don't have a home that you own yet and your only options are mortgage or renting I'd pick the mortgage any time, but I'd always make sure to buy in a market that is active.
  - lukas099 3y ago
    A house is a lot of eggs in one basket though.
  - bbbobbb 3y ago
    It sounds like I might be in this case. We're talking decades. You are talking about various investments and even making sure to time the mortgage to beat the market. I am talking about putting the money in S&P 500 and similar without trying to time, beat or track anything.
  - orwin 3y ago
BiteCode_dev 3y ago
If you take a 3% loan over 30 years for a $300000 home and a 20% down payment, you will eventually pay $124265.89 in interest. This doesn't take into account any work you have to do on the house, the notary and agency fees, and any taxes on the way. Your $300k worth of investment may very well cost you around $500K. If it's worth $800k later on, you earned $300k buy selling it 30 years later. We can also add the cost of opportunity, since you can't move easily when you have a home to get a new, get closer to your children, follow you the love you just found, discover a foreign country... And that's in the best case scenario where: - You found a cheap good home. - You actually end up liking leaving here. - Nothing changes to the point you have to flea the place. - No accident, no fire, no water pipe breaking, etc. - You can ensure you can comfortably pay the mortgage for three decades. That's... a lot to consider. To give you an idea, here is what happen if you take the same down payment, and invest $100 a month and interests into the S&P 500 index for the 30 last years: You end up with $11 159 316. With no lock in. And no worries. I think it's fair to say there is a difference of at least $100 between your rent and mortgage payment.
- cowl 3y ago
  I really don't know how S&P500 indexes work in the US but that seems a lot. so let me get it straight you are saying that by investing 60k (and then another 36k over 30years) (and by investing you mean put it in an index and forget it) you get 11 Million out? So a return of 103218.96% even if yuod have invested all of that from the start and not over the years? That is surely something wrong in that math or you just happened to be lucky with some ballooning stock. The S&P average return rate over 30 years is 7.5%. Assuming you invest all 100k from the start you would have 800k after 30years and that's assuming having a consistent index over 30 years something that is less guaranteed than the Property market.
  - BiteCode_dev 3y ago
    You are right, the calculator I used included buying SPX with apple in it on the cheap very early, so the results are skewd. Plus DCA often produce better return the long run. You will usually not be as lucky. $800k is still likely more than the house, with less worry, less locking, and less work though.
modeless 3y ago
> it's still better than 0 that you are left with after paying 30 years of rent. You're not left with 0 if you're smart. You take the money you didn't spend on a down payment and also the difference between rent and mortgage (plus insurance, maintenance, and property tax) every month and you invest it. These investments can be diversified and thus far safer than an investment in a single house. You also retain a lot more flexibility to move, which can increase your earnings potential among other benefits. After thirty years of earning and investing you may very well be ahead. The "throwing money away" narrative is misleading at best.
- cowl 3y ago
  This is all from an investor point of view. Most people dont have the time or knowledge to dedicate to research for good investments. The reality is that most working class people do not invest their money or at least not in the real investment sense. They might put it into an investment portfoglio that is handled for them by the bank or another investment institution, most of the time in the low-risk portofoglios but in no way that downpayment can generate any meaningful income. But I see now that things must be really different in the US because many people keep repeating (insurance, maintanance, property tx etc). Where i live in europe the the difference between rent and mortgage price is insignificant. let say for example 600Eur/mont rent vs 700Eur/month Mortgage. Insurance, property tax, maintencance are insignificant in comparison to the yearly cost of either rent or Mortgage.
  - modeless 3y ago
    > The reality is that most working class people do not invest their money To the extent that this is true, it's not a good reason to subsidize mortgages. It would be much better policy to encourage people to invest in diversified and productive ways, rather than leverage themselves to the hilt and sacrifice their mobility for a risky bet on endless property appreciation in their local neighborhood. > But I see now that things must be really different in the US Well yes, the whole article is about the problems of the subsidized 30-year fixed mortgage. Europe doesn't subsidize 30-year fixed mortgages in the same way, so things are clearly quite different.
mellosouls 3y ago
The article clearly says that it is for the US but I still can not think of a reason why that would be valid for US and not Europe for example You misread the jokey intro I think, which goes on to say it applies essentially everywhere in secondary effects; it makes no claim about the direct value of long term mortgages elsewhere except by implication that in similar systems generally they are a bad idea.
ActorNightly 3y ago
Given the total amount you are going to spend on living, whether its a mortgage or rent, and given the total market of houses and rent prices, there is a clear line on whether you should rent or buy. Over the course of 30 years, you will necessarily lose money to interest, money that you will never get back. At current rates of ~6%, you will pay more than the house is worth when you buy it. Add to this maintenance, property taxes, insurance, and HOE fees, and thats money that you will also never get back. Lets do some rough math: - 330k house, 6% rate. Total amount you will pay over 30 years is $712,266 - Yearly fees: HOA = 3000. Tax = 2500, Insurance= $1,820. Total over 30 years: $138600 Combined total: 850866. Net loss assuming house value stayed the same is ~520k An area comparable. $1400 rent a month over 30 years is $504k. Difference in monthly payment is about $1000. Assuming a conservative 2% growth with safe investment, that $12000 per year put into those instead of mortgage over 30 year nets you about $500000. So you are better off renting. Of course things change, and house prices can appreciate quicker than you accumulate interest, at which point you sell the house early, which is what most people are banking on. But that is never a guarantee. In the end, you can do the math for you particular situation and figure out if its right to buy or rent. But owning a house is certainly just as much "throwing money away" as renting.
- readthenotes1 3y ago
  You didn't even include the $9k this year to pay for a new roof (hail damage, deductible, depreciation) that I replaced just 6 years ago (hail damage), the hot water heater that leaks and I really should replace (but will wait until I recover from the roof), the AC a few years ago, etc.) Owning a house is expensive.
- egman_ekki 3y ago
  Isn’t the rent going to go up over 30 years? My guess at least inflation adjusted?
  - ActorNightly 3y ago
    Yes, but the difference is going to not be as much as you are loosing on the house.
mihoda 3y ago
The math is simple. In the East Bay right now the cash flow (mortgage + prop tax + maintenance) alone for home ownership is 2.5x my rent for an identical property. It comes down to 2.2x when factoring in mortgage interest deduction and rises back to 2.3x when considering opportunity cost of capital. I did a broader analysis and came up with 1.75-2.25x for other homes. For a rational actor to buy a home right now, it implies a 5-6% expected return on the home price every year for an average of 10 years.

by cowl 3y ago

resolutebat 3y ago

One big difference is that in many other countries, fixed rate mortgages are not available.

irrational 3y ago

We purchased a nearly 4,000 sf home on an acre 2 years ago. There are apartments within walking distance of our house that have rents higher than our mortgage payment. And not even that nice of apartments.

richardw 3y ago
In Sydney. We’re renting a house for 35% of the mortgage price. And the rental is pretty crazy, so mortgage is ludicrous. Some places are just irrational.

ozr 3y ago

The NYT Rent v Buy calculator is pretty out of date at this point, but it's definitely not as straightforward as rent being throwing away money and a mortgage building equity. Upkeep is a non-trivial expense, opportunity costs of money put down, money still being not turned into equity via, e.g., property taxes and insurance (higher than renters), etc. Add in the bigger intangible of the flexibility you gain from renting, and it's going to be a very individual decision.

zer8k 3y ago

Yes the article seems to be written with the undertone that mortgages are somehow exploitative. It even goes all the way back to the GFC to point out the weird edge case where NINJAs were lent out like hotcakes. The reason that become toxic is because brokers were getting insane commissions signing people up for them. Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting. If the value goes to 0 somehow you still have a roof over your head. That is, assuming that the government doesnt take your property away. Which shockingly they can. Different discussion though. There is a remark that's important here though. The math both you and I agree on assumes that the property is not an investment. The reality is all property is effectively an investment because even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places. No one would make such a leap without being guaranteed something back. The calculus changes at that point. Even for first time homeowners.

pjc50 3y ago
> Any mortgage at almost any fixed interest rate, assuming a market amenable to the local prevailing median income, will always beat renting Yes. One of the smartest finance guys I know says the simple model of taking the landlord's (imputed) mortgage yield and adding four percent nearly always predicts the rental level. > even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places. But the causality of this is surprising: that's because interest rates have come down. So the repayment monthly cost has remained constant, but the deposit and salary ratio have shot up. Now that rates are on the way back up one of two things has to happen to maintain the ratio: - house prices drop - inflation increases nominal-income rapidly past house prices The use of 30-year mortgages hugely slows down those effects, though.
chii 3y ago
> If the value goes to 0 somehow you still have a roof over your head. you got the cause and effect wrong here. As long as you have the roof over your head, the value of the property isn't zero. If you can no longer use the property as a roof over your head, it's value drops to zero. For example, the place is completely flooded, or destroyed in an earthquake (assuming no insurance etc). > Any mortgage at almost any fixed interest rate ... will always beat renting only true if you put enough constraints on the condition under which you consider this to be "amenable". In realistic situations, renting or mortgages could either be better or worse, depending on the circumstances. On average, it costs "the same" to live somewhere with rent, or via a mortgage - otherwise, there'd be an arbitrage opportunity!

poisonborz 3y ago

Except owning a house costs way more than the mortgage itself, that renters dont pay. Taxes, maintenance and improvement costs, which are massive considering most people can only afford houses built in the 60-80s, and governments like Germany has strict regulations. Couple this with the risk of suddenly not be able to pay - you can sell, like if you want to break out of the inflexibility of living in one place, but then see your maintainer investments flow in most cases.

rwmj 3y ago
> Except owning a house costs way more than the mortgage itself. You must have had incredibly unlucky house purchases.
- poisonborz 3y ago
  Every house has maintenance costs and this is the experience of all my homeowner friends. Betting on rising property costs may reap this back, but seeng what you can get for the average european family with 2 kids (up to 450k) prepare some parts of your home to be a construction site for a good part of the next 10 years.
  - rwmj 3y ago
    I've never heard of home maintenance budgets being more than, say, 10% of the cost of a mortgage, and usually you're advised to budget only a few percent. Obviously there are outliers like when you buy a run-down old ruin and have to do a complete period-correct refurbishment, but hopefully people know what they're getting into in those rare cases.
    - poisonborz 3y ago
      Just replacing the heating (very common, eg lots of oil heating in Western parts) costs near 10%.
      - rwmj 3y ago

MikeTheRocker 3y ago

On timescales less than a decade or so, this idea that rent is "money sent down the drain" is often inaccurate in certain VHCOL markets like the San Francisco Bay Area. Rent typically costs much less than a mortgage payment, and the numbers work out that investing what you save by renting puts you ahead. This is a major reason I've stayed a renter even though I think my quality of life would be higher as a homeowner.

rottencupcakes 3y ago
Curious, where does rent cost much less than mortgage payments in the SF Bay Area?
- refurb 3y ago
  San Francisco. A house that costs $8,000 per month in rent might cost $2M to buy. At $2M that's $9,500 in mortgage payment at 6% for 30 years, about $2,800 in property taxes, another $300 in insurance, and maybe assume $500 per month maintenance (over the long haul). That's ~$13,000 per month when rent is $8,000. You can knock the $1,500 per month off the mortgage payment that is paying off principle, but you'd also need to account for the opportunity cost of a $400,000 down payment at some modest return of say 4% which is ~$1,300, so it's about breakeven. The you need to account for transactions costs - all the closing fees and the 5-6% realtor fee when you sell. All in, if you rent in SF, but invest the savings from owning, you're not really far behind someone who buys, but of course it all depends on price appreciation and over what time period. That's not to say you can't get lucky and buy right before some massive price appreciation then sell and lock in the gains. But unless you have a crystal ball, you can't time that sort of stuff.
  - rottencupcakes 3y ago
    Thanks so much for clarifying. I hadn't adjusted my mental models for the new interest rates, I was still thinking 2%-3%.
- modeless 3y ago
  Pretty much everywhere at current mortgage rates. Prices have barely budged as rates skyrocketed. My rent is less than half of the mortgage payment needed to buy my current house at its current zestimate price on a 6.7% 30 year fixed mortgage. And that's not even counting property tax and insurance and maintenance and the opportunity cost of the 20% down payment. You'd have to be insane to buy at these prices right now.

rwmj 3y ago

Back when I had a mortgage in the UK I would have given some vital part of my body for a mortgage which was stable over 30 years (and allowed me to repay it at any time). Long, fixed-term mortgages are quite rare outside the US. Over here you get a 2, 3 or 5 year fix and after that it jumps to a much higher variable rate, which means in practice you have to remortgage. A load of expense, hassle and uncertainty every 2-5 years.

automatic6131 3y ago
>I would have given some vital part of my body for a mortgage which was stable over 30 years The entire point of the blog post is that achieving this for everyone carries vicious negative externalities.
- phicoh 3y ago
  In The Netherlands, long term mortgages (mine is 20 years fix interest at the moment) come and go. If interest rates are likely to go up, it typically doesn't make sense to have a long fix interest period. It will cost a huge premium if offered at all. If interest rates are going down or are stable, it does make sense for banks to offer them. Or course it can be tricky to decide if a long fixed interest period is smart of not. Banks do impose a fine if you try to refinance a mortgage during a fixed interest period and the current market interest is lower. I don't see negative externalities in this system. But maybe I missed something.
  - yuppie_scum 3y ago
    In the USA there’s a fee for refinancing as well, but it is usually a fraction of the loan principle and it is often rolled into the loan - so at the end of the day, the net effect is a lower monthly payment for the homeowner and that’s all they really care about.
    - phicoh 3y ago
      That is fine. You can't really call it an externality if there is a fine for refinancing at a lower interest rate. All that matters is that the original lender collects a suitable fine when the mortgage is terminated.

Gibbon1 3y ago

Skeeziest thing a friend did when rates were low during the pandemic is mortgage his house and use the money to buy a commercial property. The rents on the commercial property cover the mortgage on his house. But you are correct. You shouldn't treat an owner occupied house as an ordinary real estate investment. The flimsy type of analysis that poo poos buying a house always assumes you'll live in a large cardboard box somewhere.

unmole 3y ago
> always assumes you'll live in a large cardboard box somewhere. It assumes you'll rent a comparable place.
- Gibbon1 3y ago
  Makes a lot of textbook assumptions. In my case interest minus tax breaks plus property tax is 40% of current rent for a similar place.
yuppie_scum 3y ago
Why is that skeezy? It’s no worse than using your credit card to buy something. In fact, maybe better since it’s backed by a real asset.

whobre 3y ago

That’s the narrative that real estate agents have been selling for decades. In reality, it depends on the location: in some places it makes sense to buy; in others, it turns out that the total cost of owning a home is so much higher than renting that it makes sense to rent and invest the difference. In any case, do your math for your specific situation and ignore blanket advice.

bbbobbb 3y ago

Your math is too simple. Consider alternative scenario where you invest your down payment and what you save on mortgage (generally slightly more expensive), invest what you save on extra repairs / maintenance. After those 30 years it's entirely possible that as a renter I have: - been able to take advantage of moving freely for personal or economic reasons - been able to move to a newer completely renovated apartment number of time for no costs other than moving my stuff instead of either paying for it or living in a house with a 20 years old kitchen - been able to live without stress about all the responsibilities that come with owning a house, being in debt and tied down - come out with enough money from my S&P500 that I started 30 years ago to decide to settle down somewhere and buy the house or continue as is with bunch of money saved up I am not saying that this is what will always happen or that owning a house is strictly worse but the "rent is money down the drain, mortgage payments is money you keep in the end" angle is way too naive.

jacquesm 3y ago
You must be a much better investor than I am. On property I have to date never lost a dime, and made pretty good money every time I bought something and held on to it for at least five years. But on other investments the returns have been all over the place, from tripling my money to losing it all and everything in between. If you don't have a home that you own yet and your only options are mortgage or renting I'd pick the mortgage any time, but I'd always make sure to buy in a market that is active.
- lukas099 3y ago
  A house is a lot of eggs in one basket though.
- bbbobbb 3y ago
  It sounds like I might be in this case. We're talking decades. You are talking about various investments and even making sure to time the mortgage to beat the market. I am talking about putting the money in S&P 500 and similar without trying to time, beat or track anything.
- orwin 3y ago

BiteCode_dev 3y ago

If you take a 3% loan over 30 years for a $300000 home and a 20% down payment, you will eventually pay $124265.89 in interest. This doesn't take into account any work you have to do on the house, the notary and agency fees, and any taxes on the way. Your $300k worth of investment may very well cost you around $500K. If it's worth $800k later on, you earned $300k buy selling it 30 years later. We can also add the cost of opportunity, since you can't move easily when you have a home to get a new, get closer to your children, follow you the love you just found, discover a foreign country... And that's in the best case scenario where: - You found a cheap good home. - You actually end up liking leaving here. - Nothing changes to the point you have to flea the place. - No accident, no fire, no water pipe breaking, etc. - You can ensure you can comfortably pay the mortgage for three decades. That's... a lot to consider. To give you an idea, here is what happen if you take the same down payment, and invest $100 a month and interests into the S&P 500 index for the 30 last years: You end up with $11 159 316. With no lock in. And no worries. I think it's fair to say there is a difference of at least $100 between your rent and mortgage payment.

cowl 3y ago
I really don't know how S&P500 indexes work in the US but that seems a lot. so let me get it straight you are saying that by investing 60k (and then another 36k over 30years) (and by investing you mean put it in an index and forget it) you get 11 Million out? So a return of 103218.96% even if yuod have invested all of that from the start and not over the years? That is surely something wrong in that math or you just happened to be lucky with some ballooning stock. The S&P average return rate over 30 years is 7.5%. Assuming you invest all 100k from the start you would have 800k after 30years and that's assuming having a consistent index over 30 years something that is less guaranteed than the Property market.
- BiteCode_dev 3y ago
  You are right, the calculator I used included buying SPX with apple in it on the cheap very early, so the results are skewd. Plus DCA often produce better return the long run. You will usually not be as lucky. $800k is still likely more than the house, with less worry, less locking, and less work though.

modeless 3y ago

> it's still better than 0 that you are left with after paying 30 years of rent. You're not left with 0 if you're smart. You take the money you didn't spend on a down payment and also the difference between rent and mortgage (plus insurance, maintenance, and property tax) every month and you invest it. These investments can be diversified and thus far safer than an investment in a single house. You also retain a lot more flexibility to move, which can increase your earnings potential among other benefits. After thirty years of earning and investing you may very well be ahead. The "throwing money away" narrative is misleading at best.

cowl 3y ago
This is all from an investor point of view. Most people dont have the time or knowledge to dedicate to research for good investments. The reality is that most working class people do not invest their money or at least not in the real investment sense. They might put it into an investment portfoglio that is handled for them by the bank or another investment institution, most of the time in the low-risk portofoglios but in no way that downpayment can generate any meaningful income. But I see now that things must be really different in the US because many people keep repeating (insurance, maintanance, property tx etc). Where i live in europe the the difference between rent and mortgage price is insignificant. let say for example 600Eur/mont rent vs 700Eur/month Mortgage. Insurance, property tax, maintencance are insignificant in comparison to the yearly cost of either rent or Mortgage.
- modeless 3y ago
  > The reality is that most working class people do not invest their money To the extent that this is true, it's not a good reason to subsidize mortgages. It would be much better policy to encourage people to invest in diversified and productive ways, rather than leverage themselves to the hilt and sacrifice their mobility for a risky bet on endless property appreciation in their local neighborhood. > But I see now that things must be really different in the US Well yes, the whole article is about the problems of the subsidized 30-year fixed mortgage. Europe doesn't subsidize 30-year fixed mortgages in the same way, so things are clearly quite different.

mellosouls 3y ago

The article clearly says that it is for the US but I still can not think of a reason why that would be valid for US and not Europe for example You misread the jokey intro I think, which goes on to say it applies essentially everywhere in secondary effects; it makes no claim about the direct value of long term mortgages elsewhere except by implication that in similar systems generally they are a bad idea.

ActorNightly 3y ago

Given the total amount you are going to spend on living, whether its a mortgage or rent, and given the total market of houses and rent prices, there is a clear line on whether you should rent or buy. Over the course of 30 years, you will necessarily lose money to interest, money that you will never get back. At current rates of ~6%, you will pay more than the house is worth when you buy it. Add to this maintenance, property taxes, insurance, and HOE fees, and thats money that you will also never get back. Lets do some rough math: - 330k house, 6% rate. Total amount you will pay over 30 years is $712,266 - Yearly fees: HOA = 3000. Tax = 2500, Insurance= $1,820. Total over 30 years: $138600 Combined total: 850866. Net loss assuming house value stayed the same is ~520k An area comparable. $1400 rent a month over 30 years is $504k. Difference in monthly payment is about $1000. Assuming a conservative 2% growth with safe investment, that $12000 per year put into those instead of mortgage over 30 year nets you about $500000. So you are better off renting. Of course things change, and house prices can appreciate quicker than you accumulate interest, at which point you sell the house early, which is what most people are banking on. But that is never a guarantee. In the end, you can do the math for you particular situation and figure out if its right to buy or rent. But owning a house is certainly just as much "throwing money away" as renting.

readthenotes1 3y ago
You didn't even include the $9k this year to pay for a new roof (hail damage, deductible, depreciation) that I replaced just 6 years ago (hail damage), the hot water heater that leaks and I really should replace (but will wait until I recover from the roof), the AC a few years ago, etc.) Owning a house is expensive.
egman_ekki 3y ago
Isn’t the rent going to go up over 30 years? My guess at least inflation adjusted?
- ActorNightly 3y ago
  Yes, but the difference is going to not be as much as you are loosing on the house.

mihoda 3y ago

The math is simple. In the East Bay right now the cash flow (mortgage + prop tax + maintenance) alone for home ownership is 2.5x my rent for an identical property. It comes down to 2.2x when factoring in mortgage interest deduction and rises back to 2.3x when considering opportunity cost of capital. I did a broader analysis and came up with 1.75-2.25x for other homes. For a rational actor to buy a home right now, it implies a 5-6% expected return on the home price every year for an average of 10 years.