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> But if you live in the house, then just considering appreciation and expenses leaves out a huge benefit: you have a place to live without spending any other m

> But if you live in the house, then just considering appreciation and expenses leaves out a huge benefit: you have a place to live without spending any other money. What matters at the end of the day are the irrecoverable costs. When renting, it is just the rent. When owning, it is certainly not free: you're paying other irrecoverable costs (e.g. out of PITI+HOA, everything but P is irrecoverable; add on separate costs for when you must pay for repairs and it gets steeper). Sure, you have stability and can write off mortgage interest when you own (although the latter is an extremely unfair policy), but unless one is absolutely sure that one can stay in the home for close to ~7 years (the rough time it took for many HCOL cities in the US to recover their nominal prices from the GFC peak), it can be considered to be a risky time to make such a big financial commitment. Ben Felix has some videos on this concept of "irrecoverable costs" which I find helpful to illustrate this, such as this one [0]. Although I disagree with his idea that leasing cars is a good idea (expressed in some of his podcasts), I find his ideas on renting vs. buying to be quite sound. Personally speaking, I just doubled my compensation by moving from one HCOL city to another in the US because I was renting and not "locked in" to a mortgage. So many colleagues at my former place could not afford to come to the closing table with cash to close out their mortgage at a loss to move (the company I went to basically wanted to hire my whole team, but I was the only one who could manage because I wasn't committed to a mortgage). Eventually I do want to own a home myself, but it was eye-opening how poor of a choice it was for my former colleagues (although my choice to go to grad school during most of the QE decade probably more than compensates for this one win...). [0] https://www.youtube.com/watch?v=q9Golcxjpi8 https://www.youtube.com/watch?v=q9Golcxjpi8

pdonis 3y ago
> What matters at the end of the day are the irrecoverable costs. No, what matters at the end of the day are overall costs vs. overall benefits. Many of both are not monetary, so any analysis that only takes monetary costs into account is obviously not going to be a complete or valid analysis. And different people will evaluate the non-monetary costs and benefits differently: for example, some people value the freedom and independence that comes with ownership of the place you live in much more than others. > unless one is absolutely sure that one can stay in the home for close to ~7 years Many people live in the same home for much longer than that.
jjav 3y ago
> When renting, it is just the rent. When owning, it is certainly not free: you're paying other irrecoverable costs (e.g. out of PITI+HOA[...] What is too often overlooked is that the rent also includes all those PITI+HOA+maintenance costs, plus a slice of profit for the landlord. If you own it you still pay the same PITI+HOA(hopefully not)+maintenance, but you cut out the middleman which saves you some money. The ease of moving is a factor, but not always easier. If you can have a month-to-month rent then yes, it's certainly easier. In many places though, you're locked into a year lease. Most of time as a renter my leases were year-to-year. Which made moving difficult unless I could time it perfectly to coincide with the yearly lease renewal.
- _huayra_ 3y ago
  > What is too often overlooked is that the rent also includes all those PITI+HOA+maintenance costs, plus a slice of profit for the landlord. If you own it you still pay the same PITI+HOA(hopefully not)+maintenance, but you cut out the middleman which saves you some money. The rental market is decoupled from the ownership market. This hasn't been an issue for a while because multi-family had not been built up enough (i.e. there had always been an apartment shortage, especially after the GFC), but given that the US is building these more than ever [0], this is going to become clear in the very near future. There is a carrying cost to an empty unit, and price will likely reduce to get someone into a unit. Unless there are significant job losses that push people out of their ~3% mortgages and into the rental market, this may persist for quite a while. Anecdotally, in my VHCOL city that built out these ugly 5-over-1s like crazy in the past couple of years, most are offering multiple months of free rent just to get units to be occupied. Also, while it is true that these irrecoverable costs are "included" in the rent, what is not included in the rent is the time machine to go back in time to purchase a property before the pandemic. This means one's landlord can cover these irrecoverable costs with the rent, plus the mortgage (if any), and still make a profit, all while having the total rent be less than the total irrecoverable cost if one were to buy the same thing today. Anecdotally, this is the exact dynamic I've observed in colleagues and friends who have bought houses in the usual VHCOL tech cities (Seattle, Austin, Bay Area); it's possible to rent a similar house for vastly less money per month. But yes, as a renter, one always has to be ready to make good on the "threat" to move out at the end of a lease, which is difficult to time and tiring to have to execute upon :( [0] https://fred.stlouisfed.org/series/UNDCON5MUSA https://fred.stlouisfed.org/series/UNDCON5MUSA

pdonis 3y ago

> What matters at the end of the day are the irrecoverable costs. No, what matters at the end of the day are overall costs vs. overall benefits. Many of both are not monetary, so any analysis that only takes monetary costs into account is obviously not going to be a complete or valid analysis. And different people will evaluate the non-monetary costs and benefits differently: for example, some people value the freedom and independence that comes with ownership of the place you live in much more than others. > unless one is absolutely sure that one can stay in the home for close to ~7 years Many people live in the same home for much longer than that.

jjav 3y ago

> When renting, it is just the rent. When owning, it is certainly not free: you're paying other irrecoverable costs (e.g. out of PITI+HOA[...] What is too often overlooked is that the rent also includes all those PITI+HOA+maintenance costs, plus a slice of profit for the landlord. If you own it you still pay the same PITI+HOA(hopefully not)+maintenance, but you cut out the middleman which saves you some money. The ease of moving is a factor, but not always easier. If you can have a month-to-month rent then yes, it's certainly easier. In many places though, you're locked into a year lease. Most of time as a renter my leases were year-to-year. Which made moving difficult unless I could time it perfectly to coincide with the yearly lease renewal.

_huayra_ 3y ago
> What is too often overlooked is that the rent also includes all those PITI+HOA+maintenance costs, plus a slice of profit for the landlord. If you own it you still pay the same PITI+HOA(hopefully not)+maintenance, but you cut out the middleman which saves you some money. The rental market is decoupled from the ownership market. This hasn't been an issue for a while because multi-family had not been built up enough (i.e. there had always been an apartment shortage, especially after the GFC), but given that the US is building these more than ever [0], this is going to become clear in the very near future. There is a carrying cost to an empty unit, and price will likely reduce to get someone into a unit. Unless there are significant job losses that push people out of their ~3% mortgages and into the rental market, this may persist for quite a while. Anecdotally, in my VHCOL city that built out these ugly 5-over-1s like crazy in the past couple of years, most are offering multiple months of free rent just to get units to be occupied. Also, while it is true that these irrecoverable costs are "included" in the rent, what is not included in the rent is the time machine to go back in time to purchase a property before the pandemic. This means one's landlord can cover these irrecoverable costs with the rent, plus the mortgage (if any), and still make a profit, all while having the total rent be less than the total irrecoverable cost if one were to buy the same thing today. Anecdotally, this is the exact dynamic I've observed in colleagues and friends who have bought houses in the usual VHCOL tech cities (Seattle, Austin, Bay Area); it's possible to rent a similar house for vastly less money per month. But yes, as a renter, one always has to be ready to make good on the "threat" to move out at the end of a lease, which is difficult to time and tiring to have to execute upon :( [0] https://fred.stlouisfed.org/series/UNDCON5MUSA https://fred.stlouisfed.org/series/UNDCON5MUSA