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I don’t get articles like this. It’s arguably a better financial decision to NOT buy a home, and park your downpayment in a broad based index fund. I get that

I don’t get articles like this. It’s arguably a better financial decision to NOT buy a home, and park your downpayment in a broad based index fund. I get that there are arguments for or against, but there doesn’t seem to be a clear financial advantage to home ownership. So, what’s the big fuss about? Just pay rent and carry on? Surely, there are better things to focus on?

MisterBastahrd 2y ago
Every person should be able to have a right to say "This is me. This is where I live. I belong here." It's all fun and games until you've lived in one place for 15 years and your landlord decides to sell the place out from under your feet because a developer wants to build a high rise.
- IAmGraydon 2y ago
  >Every person should be able to have a right to say "This is me. This is where I live. I belong here." Why do you think every person should have an “right” to own property? It’s a nice utopian idea, but that’s not how a capitalist economy works.
  - MisterBastahrd 2y ago
    Why do you think we need capitalist economies? It's almost as if you've just decided that the other thing must necessarily exist.
- jandrewrogers 2y ago
  Same thing happens to homeowners with eminent domain. No one has unlimited entitlement to where they live.
- pompino 2y ago
  Convince enough people that this should be a right, and its automatically a right. Rights are just made-up constructs that only exist in our head.
jb1991 2y ago
It's not as simple as that. Home ownership can be a lucrative investment long-term, it depends on many factors. When property values appreciate a lot, as they have been recently, home owners have done very well.
- IAmGraydon 2y ago
  The recent rate of appreciation is not typical. Homes generally appreciate at 3-4% per year. Subtract from that taxes, insurance and upkeep. They’re a terrible investment unless you own rental property, at which point your tenants are paying down the loan.
  - Carrok 2y ago
    So, the alternative to buying, which is a terrible investment according to you, is renting, where you pay down the loan of the landlord. That’s better, how?
    - IAmGraydon 2y ago
      I didn’t say you shouldn’t buy if you need a place to live. I said they’re a terrible investment. Also keep in mind that while you may be paying down the landlord’s loan when renting, you are also paying a massive amount of interest when buying. At today’s rates, you’ll give the bank $565,000 in pure interest over 30 years to borrow $400,000, making your total outlay $965,000. Either way, a large amount of money is going up in smoke.
      - listenallyall 2y ago
        This opinion doesn't take into account the optionality of the mortgage and the opportunities provided to the borrower. American mortgages generally allow prepayments - if the value of your house increases rapidly, you can sell, pay off the mortgage, and pocket the profit. You can pay additional principal at any time to reduce interest payments. If rates fall, you can refinance. If the economy is great, you're borrowing at 7 percent while your investments are earning 10+.
nradov 2y ago
Home ownership isn't a good financial option for everyone, but for most consumers who aren't accredited investors it's the only way to make highly leveraged trades. You can't buy an index fund with 20:1 leverage. Of course this occasionally blows up, but even then the downside is limited. Even if ownership doesn't make sense from a financial standpoint it's still somewhat essential for parents of school age children. Renters can be forced to move on short notice if the landlord declines to renew the lease, like if they're planning to sell or redevelop the property. This instability has a cost that goes beyond financial concerns.
- spacemark 2y ago
  People always talk about how buying a home is the only way for the common person to obtain leverage. Please excuse my ignorance, but how does the common person use that leverage, exactly?
  - baobabKoodaa 2y ago
    Example: House costs $100k You buy house with $20k savings and $80k debt In this example that $80k of debt is called "leverage". Is this what you mean with your question or did you mean to ask something else?
    - spacemark 2y ago
      Right, my question is more about how the average person can actually use that leverage. So you've got $80k in leverage, it grows (presumably), but how do you actually use it? You have to sell the house, right? So you can only cash in on that leverage when you reverse mortgage or otherwise downsize, right?
      - baobabKoodaa 2y ago
        Correct. Just like any leveraged investment, you realize the gains (or losses) after you sell. (And yes you are also correct it's possible to realize the gains without selling by taking a reverse mortgage.)
deergomoo 2y ago
No-one can kick you out of your own home because they want to rent to someone they can charge more. No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog. Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.
- JumpCrisscross 2y ago
  > No-one can kick you out of your own home because they want to rent to someone they can charge more Property tax isn’t voluntary and as exogenous as a landlord. (Also eminent domain, to say nothing of most peoples’ mortgages.) > Not everything is a purely financial decision Making the largest leveraged purchase of your life for an emotional comfort object is irrational. That doesn’t make it wrong. But it ceases to be a policy concern. (I might feel secure having a Fabergé egg in my possession, that doesn’t mean the public needs to give a shit about it.) The reason home ownership is a public priority is various and I agree with it as a goal. But it’s a bad financial decision for many people, and there is legitimacy to questioning if we can duplicate the forced-saving and civic engagement benefits more simply.
  - intended 2y ago
    You are mixing up a few things somewhere. Wants are infinite. Home ownership is effectively enshrined as a value in most economies. The emotion is part of society’s design. Conforming to this incentive or belief is not unusually irrational,
    - JumpCrisscross 2y ago
      > Conforming to this incentive or belief is not unusually irrational Agree. But if that feeling of security is all it’s about, it’s still irrational. Even if it’s conditioned and thus common. If you’re buying a home to feel good about yourself, you’re making a financially ruinous decision.
  - dahart 2y ago
    You pay property tax either way, it just might be rolled into your rent. You probably have years to pay missing property taxes, while landlords will wait nowhere near that long. Eminent domain is only exercised rarely, and doesn’t even compare to how often rents are increased, or how often people are evicted.
Carrok 2y ago
I have rented for the past 20 years, the vast majority of my adult life. We are buying soon. Could I make more in an index fund? Sure, probably. But I can’t make a rental into what I want it to be, you are often not even allowed to paint the walls. I can’t plant a garden in an index fund.
onion2k 2y ago
That definitely wasn't the case in the 1990s through to about 2020. House prices doubled about every 10 years in some areas while interest rates were about 2% on average. Housing has been by far the best small investment open to most people. The problem now is that property buying at scale for the long term is a model private funds are trying, interest rates are going up, and housing supply at the lower end of the scale is constricted because there's no profit building those houses. All of which means people who want to buy a house rather than pay a landlord are basically screwed.
- listenallyall 2y ago
  Not disagreeing with the general assessment however let's stick with facts... mortgage rates decreased during much of that period but were still above 6 through most of the 90s and even at the lowest, didn't get all the way down to 2.0% https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
  - onion2k 2y ago
    I didn't say mortgage rates. I wasn't saying it was cheap to buy a house. I was saying that buying a house was a better investment compared to interest rates eg putting the money in the bank. I could have made that clearer.
Tiktaalik 2y ago
Even aside from the many places where there has been a clear financial advantage to home ownership, a core value that drives desire of home ownership is stability of tenure. The control over ones destiny and the nigh impossibility that one could be forced to move has strong value.
- baobabKoodaa 2y ago
  That "control" is mostly a fantasy. I own an appartment and when I found mold damage I wasn't able to just fix it, I had to take the housing association to court and fought with them for 2 years. It's now fixed and I'm trying to sell the appartment and nobody wants to buy it. Then I read articles like this and it just makes me laugh at the absurdity of it.
  - gwbrooks 2y ago
    In the U.S., only about 30% of homeowners are subject to housing associations. I get how that seems odd if you live in a big city, a multifamily building, etc. -- associations and their problems are ubiquitous there. But it's not the experience of most American homeowners.
  - madmask 2y ago
    Independent house is the way
  - carlosjobim 2y ago
    > nobody wants to buy it. Of course there are tons of people who want to buy it, but not for the price you are demanding. You are unrealistic about price.
    - baobabKoodaa 2y ago
      Great! Why don't you tell me what I should price it at, then?
      - carlosjobim 2y ago
dahart 2y ago
I’ve heard this argument a lot on HN, and yes it can be argued, there are valid points, but personally I think it ignores some realities. First, the article is pointing out that housing prices are high enough that a growing number of people can’t afford the down payment. Second, for people who barely have the down payment, it takes a lot of discipline (and faith) to park all your money in the stock market and not spend it. It’s one thing when you invest disposable income, and another entirely to gamble your life savings. Plus index funds aren’t always outperforming real-estate, so you can’t base the argument on only the last 5 years. Usually this argument has come in the form of suggesting that the best stock market returns out there exceed real estate inflation, and so you have to be a savvy investor and stay on top of your stocks day-to-day, which is a very tall order for the bottom half of the population. Okay on top of all that, a down payment is 20% of the cost of a house. Buying the house is perhaps a little more like a leveraged loan. If the stock market and real-estate were to both inflate by the same amount, your investment in a house gets you 5x the return that your down payment investment makes. In the mean time, all the money you pay in rent goes down the drain, whereas all the money you pay into the house above the down payment comes back to you when you sell the house. From my point of view, a house seems like a far better investment, when you factor in the rent you lose. And historically home ownership has been the single most important wealth-building tool for the average US citizen. It is legitimately concerning that the median house price is so high, and the trend is continuing upwards. Some of the fuss is concern over the future potential of a crashing economy, and yes that certainly will give us bigger things to worry about.
arp242 2y ago
People just want a house to live in. That's it. They don't want a "broad based index fund" or investments or anything else. They just want a house to live in. With all the stability that comes with it. And then spend their free time doing more useful things. Also it doesn't scale; we can't all be investing all the time. This kind of reductionism where everything boils down to financials is exactly how we ended up in this mess to start with. Maybe we shouldn't have structured everything around that because ... people just want a house to live in.
- tossandthrow 2y ago
  Parent commenter is talking about a financial decision. You can have a place to live without buying. Your comment is malplaced.
  - CRConrad 2y ago
    And GP told GGP why buying a house isn't just a financial decision. As many others also told GGP, you cannot have a place you're certain to live in on your own terms without buying. So yeah, someone's comment was malplaced, all right... But it wasn't the GP.
alex_duf 2y ago
Surely you can see the difference between giving away a significant portion of your income to your landlord, or paying towards your mortgage. In one case you can sell your property and get your money back, so you can decide to do whatever you want with it (like index fund if you so chose). And in the other it's your landlord who's either paying their mortgage with your money, or placing it in said index fund...
- jandrewrogers 2y ago
  At least in many parts of the US, the financial loss of renting is currently less than the financial loss of a mortgage, after subtracting contribution to principal. In Seattle there are places where renting is $2k+/month cheaper than the non-principal carrying costs of the same place. Buying it instead of renting it would literally be lighting $2k/month on fire that you don't need to. A renter can invest that extra $2k/month, so they come out ahead. The cost structure of landlords is often very different than the cost structure of new homeowners. They can make a tidy profit charging rent that is significantly lower than your mortgage payment.
- xur17 2y ago
  While true (the landlord is obviously making money, otherwise they wouldn't be doing it), there are other variables worth considering. If you decide to move, you pay 6% in real estate fees (extortion) to sell / buy. If you rent, the house never changes hands, and hence this fee isn't paid.
baobabKoodaa 2y ago
I had the exact same thoughts as you when reading the article. It seems that many people are irrationaly fixated on home ownership as some kind of magical pathway for wealth. When you ask these people to put some numbers on paper, that magic goes POOF pretty fast.
cm2187 2y ago
Depends when. A home is a leveraged investment, plus often exempt from capital gain taxes. If you bought it at the beginning of a large real estate bull market you probably did better than an unleveraged investment in the S&P.
- tossandthrow 2y ago
  Then you pay property tax instead. I My calculations (for Denmark) the property taxes are roughly equivalent to kapital gains tax.
LouisSayers 2y ago
I have this feeling too and recently started making a calculator which I intend to add a comparison for (housecalculator.co.nz) Of course reality is nuanced - a friend of mine for example is building out essentially his own apartment in his garage and having his sister pay rent for his house. I'm still not sure how best to add a "compare buying to renting" feature for the calculator, so any ideas are most welcome!
djbusby 2y ago
My favorite features of mortgage vs rent is that mortgage is constant. So, in 10/yr I'm still paying $2000/mo while rents have moved to $3200/mo
- sunshowers 2y ago
  This is a creation of the US federal government — a 30 year fixed makes no sense without government intervention, since that is an absurd level of interest rate risk the bank would need to take. I don't know of any other country with 30 year fixed mortgages — most have something similar to the 5/1 ARM as the main option. edit: Seems like Germany has fixed mortgages but makes it hard to refinance.
  - Panzer04 2y ago
    The fixed prepayment is what makes them insane. Fixed interest instruments are common, at least at the institutional level, but no penalty prepayment option is the crazy part, because it exposes the lender to all the downside if rates go up and none of the upside if they go down.
    - sunshowers 2y ago
      That makes sense. Refinancing is essentially that.
  - MEMORYC_RRUPTED 2y ago
    Belgium and The Netherlands have it too, though it's optional. Most mortgages have a 30 year runtime with a 10 year fixed rate. The longer your fixed rate, the higher the rate becomes. For the Netherlands: While it differs per bank, legally you're allowed to pay up to 10% of your mortgage extra per year (some banks offer higher rates, I can do 20% for example) without extra costs. When the rate changes (due to going from fixed to variable, or variable with a large change in a year) you're allowed to pay back as much as you want, without extra costs. If you want to pay back more/faster, the bank calculates a fee ("loss of income due to lost interest payments") that you have to pay, which is still cheaper than just doing your regular payments. The above statement also applies if you want to refinance if, for example, your home went up in value. They can and will drop your rate but you have to pay a fine. That being said, in the past, when rate drops were really large, you could go to a different bank, have them take over your mortgage pay the fine for you just so they can get you to come to them (though I'm assuming they're no longer so keen on that).
rpigab 2y ago
If it was a universally better financial decision to not buy a home, then who would you rent a home from? Someone who made a bad financial decision? If this was the case, then there would be more and more renters, and less and less tenants, so rent would increase, and make homeowning a better financial decision. There's a stable equilibrium there, even taking into account the various taxes involved.
superkuh 2y ago
The issue is that you are approaching this from a financialization perspective. The point of homes is not to be an investment. The point of homes is to provide shelter and a place to live.
Sohcahtoa82 2y ago
It really depends what the rent-to-mortgage ratio is, which apparently varies a lot by area. Where I live, rents are often about equivalent to the mortgage + property taxes, plus a little more. In other words, in the house I live in right now, my mortgage + property tax is about $2,500/month. If I were to rent it out, I could likely get $2,600/month for it, possibly up to $3,000. In this scenario, if you plan on living somewhere permanently, there's not a single way to do the math that it works out that renting ends up being the better choice. Not only do you pay more now, but rent nearly always goes up. > but there doesn’t seem to be a clear financial advantage to home ownership Just the simple fact that money paid to rent goes into a black hole whereas money paid towards a mortgage that builds equity should be a clear financial advantage to home ownership. Opting to rent is insanely short-sighted. Like, even if I could rent the house I'm in right now for $2,000/month ($500 less than the monthly cost of buying), over the next 10+ years, rent will very likely go up over time. And again, that money is just being burnt. When you buy, eventually, you don't have a mortgage anymore. I think the only way renting ends up working out better is if you live in some crazy place where a mortage+tax is double the monthly cost of renting.

MisterBastahrd 2y ago

Every person should be able to have a right to say "This is me. This is where I live. I belong here." It's all fun and games until you've lived in one place for 15 years and your landlord decides to sell the place out from under your feet because a developer wants to build a high rise.

IAmGraydon 2y ago
>Every person should be able to have a right to say "This is me. This is where I live. I belong here." Why do you think every person should have an “right” to own property? It’s a nice utopian idea, but that’s not how a capitalist economy works.
- MisterBastahrd 2y ago
  Why do you think we need capitalist economies? It's almost as if you've just decided that the other thing must necessarily exist.
jandrewrogers 2y ago
Same thing happens to homeowners with eminent domain. No one has unlimited entitlement to where they live.
pompino 2y ago
Convince enough people that this should be a right, and its automatically a right. Rights are just made-up constructs that only exist in our head.

jb1991 2y ago

It's not as simple as that. Home ownership can be a lucrative investment long-term, it depends on many factors. When property values appreciate a lot, as they have been recently, home owners have done very well.

IAmGraydon 2y ago
The recent rate of appreciation is not typical. Homes generally appreciate at 3-4% per year. Subtract from that taxes, insurance and upkeep. They’re a terrible investment unless you own rental property, at which point your tenants are paying down the loan.
- Carrok 2y ago
  So, the alternative to buying, which is a terrible investment according to you, is renting, where you pay down the loan of the landlord. That’s better, how?
  - IAmGraydon 2y ago
    I didn’t say you shouldn’t buy if you need a place to live. I said they’re a terrible investment. Also keep in mind that while you may be paying down the landlord’s loan when renting, you are also paying a massive amount of interest when buying. At today’s rates, you’ll give the bank $565,000 in pure interest over 30 years to borrow $400,000, making your total outlay $965,000. Either way, a large amount of money is going up in smoke.
    - listenallyall 2y ago
      This opinion doesn't take into account the optionality of the mortgage and the opportunities provided to the borrower. American mortgages generally allow prepayments - if the value of your house increases rapidly, you can sell, pay off the mortgage, and pocket the profit. You can pay additional principal at any time to reduce interest payments. If rates fall, you can refinance. If the economy is great, you're borrowing at 7 percent while your investments are earning 10+.

nradov 2y ago

Home ownership isn't a good financial option for everyone, but for most consumers who aren't accredited investors it's the only way to make highly leveraged trades. You can't buy an index fund with 20:1 leverage. Of course this occasionally blows up, but even then the downside is limited. Even if ownership doesn't make sense from a financial standpoint it's still somewhat essential for parents of school age children. Renters can be forced to move on short notice if the landlord declines to renew the lease, like if they're planning to sell or redevelop the property. This instability has a cost that goes beyond financial concerns.

spacemark 2y ago
People always talk about how buying a home is the only way for the common person to obtain leverage. Please excuse my ignorance, but how does the common person use that leverage, exactly?
- baobabKoodaa 2y ago
  Example: House costs $100k You buy house with $20k savings and $80k debt In this example that $80k of debt is called "leverage". Is this what you mean with your question or did you mean to ask something else?
  - spacemark 2y ago
    Right, my question is more about how the average person can actually use that leverage. So you've got $80k in leverage, it grows (presumably), but how do you actually use it? You have to sell the house, right? So you can only cash in on that leverage when you reverse mortgage or otherwise downsize, right?
    - baobabKoodaa 2y ago
      Correct. Just like any leveraged investment, you realize the gains (or losses) after you sell. (And yes you are also correct it's possible to realize the gains without selling by taking a reverse mortgage.)

deergomoo 2y ago

No-one can kick you out of your own home because they want to rent to someone they can charge more. No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog. Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.

JumpCrisscross 2y ago
> No-one can kick you out of your own home because they want to rent to someone they can charge more Property tax isn’t voluntary and as exogenous as a landlord. (Also eminent domain, to say nothing of most peoples’ mortgages.) > Not everything is a purely financial decision Making the largest leveraged purchase of your life for an emotional comfort object is irrational. That doesn’t make it wrong. But it ceases to be a policy concern. (I might feel secure having a Fabergé egg in my possession, that doesn’t mean the public needs to give a shit about it.) The reason home ownership is a public priority is various and I agree with it as a goal. But it’s a bad financial decision for many people, and there is legitimacy to questioning if we can duplicate the forced-saving and civic engagement benefits more simply.
- intended 2y ago
  You are mixing up a few things somewhere. Wants are infinite. Home ownership is effectively enshrined as a value in most economies. The emotion is part of society’s design. Conforming to this incentive or belief is not unusually irrational,
  - JumpCrisscross 2y ago
    > Conforming to this incentive or belief is not unusually irrational Agree. But if that feeling of security is all it’s about, it’s still irrational. Even if it’s conditioned and thus common. If you’re buying a home to feel good about yourself, you’re making a financially ruinous decision.
- dahart 2y ago
  You pay property tax either way, it just might be rolled into your rent. You probably have years to pay missing property taxes, while landlords will wait nowhere near that long. Eminent domain is only exercised rarely, and doesn’t even compare to how often rents are increased, or how often people are evicted.

Carrok 2y ago

I have rented for the past 20 years, the vast majority of my adult life. We are buying soon. Could I make more in an index fund? Sure, probably. But I can’t make a rental into what I want it to be, you are often not even allowed to paint the walls. I can’t plant a garden in an index fund.

onion2k 2y ago

That definitely wasn't the case in the 1990s through to about 2020. House prices doubled about every 10 years in some areas while interest rates were about 2% on average. Housing has been by far the best small investment open to most people. The problem now is that property buying at scale for the long term is a model private funds are trying, interest rates are going up, and housing supply at the lower end of the scale is constricted because there's no profit building those houses. All of which means people who want to buy a house rather than pay a landlord are basically screwed.

listenallyall 2y ago
Not disagreeing with the general assessment however let's stick with facts... mortgage rates decreased during much of that period but were still above 6 through most of the 90s and even at the lowest, didn't get all the way down to 2.0% https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
- onion2k 2y ago
  I didn't say mortgage rates. I wasn't saying it was cheap to buy a house. I was saying that buying a house was a better investment compared to interest rates eg putting the money in the bank. I could have made that clearer.

Tiktaalik 2y ago

Even aside from the many places where there has been a clear financial advantage to home ownership, a core value that drives desire of home ownership is stability of tenure. The control over ones destiny and the nigh impossibility that one could be forced to move has strong value.

baobabKoodaa 2y ago
That "control" is mostly a fantasy. I own an appartment and when I found mold damage I wasn't able to just fix it, I had to take the housing association to court and fought with them for 2 years. It's now fixed and I'm trying to sell the appartment and nobody wants to buy it. Then I read articles like this and it just makes me laugh at the absurdity of it.
- gwbrooks 2y ago
  In the U.S., only about 30% of homeowners are subject to housing associations. I get how that seems odd if you live in a big city, a multifamily building, etc. -- associations and their problems are ubiquitous there. But it's not the experience of most American homeowners.
- madmask 2y ago
  Independent house is the way
- carlosjobim 2y ago
  > nobody wants to buy it. Of course there are tons of people who want to buy it, but not for the price you are demanding. You are unrealistic about price.
  - baobabKoodaa 2y ago
    Great! Why don't you tell me what I should price it at, then?
    - carlosjobim 2y ago

dahart 2y ago

I’ve heard this argument a lot on HN, and yes it can be argued, there are valid points, but personally I think it ignores some realities. First, the article is pointing out that housing prices are high enough that a growing number of people can’t afford the down payment. Second, for people who barely have the down payment, it takes a lot of discipline (and faith) to park all your money in the stock market and not spend it. It’s one thing when you invest disposable income, and another entirely to gamble your life savings. Plus index funds aren’t always outperforming real-estate, so you can’t base the argument on only the last 5 years. Usually this argument has come in the form of suggesting that the best stock market returns out there exceed real estate inflation, and so you have to be a savvy investor and stay on top of your stocks day-to-day, which is a very tall order for the bottom half of the population. Okay on top of all that, a down payment is 20% of the cost of a house. Buying the house is perhaps a little more like a leveraged loan. If the stock market and real-estate were to both inflate by the same amount, your investment in a house gets you 5x the return that your down payment investment makes. In the mean time, all the money you pay in rent goes down the drain, whereas all the money you pay into the house above the down payment comes back to you when you sell the house. From my point of view, a house seems like a far better investment, when you factor in the rent you lose. And historically home ownership has been the single most important wealth-building tool for the average US citizen. It is legitimately concerning that the median house price is so high, and the trend is continuing upwards. Some of the fuss is concern over the future potential of a crashing economy, and yes that certainly will give us bigger things to worry about.

arp242 2y ago

People just want a house to live in. That's it. They don't want a "broad based index fund" or investments or anything else. They just want a house to live in. With all the stability that comes with it. And then spend their free time doing more useful things. Also it doesn't scale; we can't all be investing all the time. This kind of reductionism where everything boils down to financials is exactly how we ended up in this mess to start with. Maybe we shouldn't have structured everything around that because ... people just want a house to live in.

tossandthrow 2y ago
Parent commenter is talking about a financial decision. You can have a place to live without buying. Your comment is malplaced.
- CRConrad 2y ago
  And GP told GGP why buying a house isn't just a financial decision. As many others also told GGP, you cannot have a place you're certain to live in on your own terms without buying. So yeah, someone's comment was malplaced, all right... But it wasn't the GP.

alex_duf 2y ago

Surely you can see the difference between giving away a significant portion of your income to your landlord, or paying towards your mortgage. In one case you can sell your property and get your money back, so you can decide to do whatever you want with it (like index fund if you so chose). And in the other it's your landlord who's either paying their mortgage with your money, or placing it in said index fund...

jandrewrogers 2y ago
At least in many parts of the US, the financial loss of renting is currently less than the financial loss of a mortgage, after subtracting contribution to principal. In Seattle there are places where renting is $2k+/month cheaper than the non-principal carrying costs of the same place. Buying it instead of renting it would literally be lighting $2k/month on fire that you don't need to. A renter can invest that extra $2k/month, so they come out ahead. The cost structure of landlords is often very different than the cost structure of new homeowners. They can make a tidy profit charging rent that is significantly lower than your mortgage payment.
xur17 2y ago
While true (the landlord is obviously making money, otherwise they wouldn't be doing it), there are other variables worth considering. If you decide to move, you pay 6% in real estate fees (extortion) to sell / buy. If you rent, the house never changes hands, and hence this fee isn't paid.

baobabKoodaa 2y ago

I had the exact same thoughts as you when reading the article. It seems that many people are irrationaly fixated on home ownership as some kind of magical pathway for wealth. When you ask these people to put some numbers on paper, that magic goes POOF pretty fast.

cm2187 2y ago

Depends when. A home is a leveraged investment, plus often exempt from capital gain taxes. If you bought it at the beginning of a large real estate bull market you probably did better than an unleveraged investment in the S&P.

tossandthrow 2y ago
Then you pay property tax instead. I My calculations (for Denmark) the property taxes are roughly equivalent to kapital gains tax.

LouisSayers 2y ago

I have this feeling too and recently started making a calculator which I intend to add a comparison for (housecalculator.co.nz) Of course reality is nuanced - a friend of mine for example is building out essentially his own apartment in his garage and having his sister pay rent for his house. I'm still not sure how best to add a "compare buying to renting" feature for the calculator, so any ideas are most welcome!

djbusby 2y ago

My favorite features of mortgage vs rent is that mortgage is constant. So, in 10/yr I'm still paying $2000/mo while rents have moved to $3200/mo

sunshowers 2y ago
This is a creation of the US federal government — a 30 year fixed makes no sense without government intervention, since that is an absurd level of interest rate risk the bank would need to take. I don't know of any other country with 30 year fixed mortgages — most have something similar to the 5/1 ARM as the main option. edit: Seems like Germany has fixed mortgages but makes it hard to refinance.
- Panzer04 2y ago
  The fixed prepayment is what makes them insane. Fixed interest instruments are common, at least at the institutional level, but no penalty prepayment option is the crazy part, because it exposes the lender to all the downside if rates go up and none of the upside if they go down.
  - sunshowers 2y ago
    That makes sense. Refinancing is essentially that.
- MEMORYC_RRUPTED 2y ago
  Belgium and The Netherlands have it too, though it's optional. Most mortgages have a 30 year runtime with a 10 year fixed rate. The longer your fixed rate, the higher the rate becomes. For the Netherlands: While it differs per bank, legally you're allowed to pay up to 10% of your mortgage extra per year (some banks offer higher rates, I can do 20% for example) without extra costs. When the rate changes (due to going from fixed to variable, or variable with a large change in a year) you're allowed to pay back as much as you want, without extra costs. If you want to pay back more/faster, the bank calculates a fee ("loss of income due to lost interest payments") that you have to pay, which is still cheaper than just doing your regular payments. The above statement also applies if you want to refinance if, for example, your home went up in value. They can and will drop your rate but you have to pay a fine. That being said, in the past, when rate drops were really large, you could go to a different bank, have them take over your mortgage pay the fine for you just so they can get you to come to them (though I'm assuming they're no longer so keen on that).

rpigab 2y ago

If it was a universally better financial decision to not buy a home, then who would you rent a home from? Someone who made a bad financial decision? If this was the case, then there would be more and more renters, and less and less tenants, so rent would increase, and make homeowning a better financial decision. There's a stable equilibrium there, even taking into account the various taxes involved.

superkuh 2y ago

The issue is that you are approaching this from a financialization perspective. The point of homes is not to be an investment. The point of homes is to provide shelter and a place to live.

Sohcahtoa82 2y ago

It really depends what the rent-to-mortgage ratio is, which apparently varies a lot by area. Where I live, rents are often about equivalent to the mortgage + property taxes, plus a little more. In other words, in the house I live in right now, my mortgage + property tax is about $2,500/month. If I were to rent it out, I could likely get $2,600/month for it, possibly up to $3,000. In this scenario, if you plan on living somewhere permanently, there's not a single way to do the math that it works out that renting ends up being the better choice. Not only do you pay more now, but rent nearly always goes up. > but there doesn’t seem to be a clear financial advantage to home ownership Just the simple fact that money paid to rent goes into a black hole whereas money paid towards a mortgage that builds equity should be a clear financial advantage to home ownership. Opting to rent is insanely short-sighted. Like, even if I could rent the house I'm in right now for $2,000/month ($500 less than the monthly cost of buying), over the next 10+ years, rent will very likely go up over time. And again, that money is just being burnt. When you buy, eventually, you don't have a mortgage anymore. I think the only way renting ends up working out better is if you live in some crazy place where a mortage+tax is double the monthly cost of renting.