5 ms·

Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

28 points by weepinbell 1y ago

reverendsteveii 1y ago
I have to be reading this wrong. Is it just tracking the value of the S&P 500 vs the value of an average house? Does it assume that unless you buy a house you have no housing costs?
- recursive 1y ago
  Yes, you're reading it wrong. It is not just tracking S&P 500 vs the average house value. It does not assume that would ever have no housing costs. The calculators in question model housing costs, rental costs, mortgage rates, and all the rest of it.
- reactordev 1y ago
  It says it’s based on buying: mortgage, taxes, and income from selling the appreciated asset after XX years / renting: rent, and income from taking the difference from rent vs buy and putting it in the markets.
- centra_minded 1y ago
  > "For those unfamiliar, these rent/buy calculators attempt to estimate the cash flow over XX years for renting vs buying a home. For buying, this is the down payment, mortgage, taxes, etc, and then crucially selling the appreciated home after XX years. For renting, this is mostly rent, but also crucially investment income from investing the money that would have gone into the mortgage/down payment. When I recalculate these numbers, all I'm doing is saying that the default home appreciation rate and the investment appreciation rate should be updated in the tool, and showing the result of that." When you buy a home, you pay a down payment you counterfactually could have invested (and any difference in rent vs. mortgage can be invested). The article is just saying the calculators skew towards buying by underestimating investment growth and overestimating housing appreciation.
ivape 1y ago
Is there any country where housing is not considered a primary asset?
- brian_spiering 1y ago
  In Japan, houses are presumed to have a limited lifespan and depreciate in value over time.
OgsyedIE 1y ago
This whole argument assumes that the 1977-2024 period is a good basis for predicting the future, but that period is the height of globalization, a long stretch of stocks (almost) always beating commodities and land. Looking at much longer timescales however, the USA has periodic flips between commodity bear times and commodity boom times that line up with changes in DC's willingness to support the global trade of intermediate goods and services.
- AnimalMuppet 1y ago
  > the USA has periodic flips between commodity bear times and commodity boom times that line up with changes in DC's willingness to support the global trade of intermediate goods and services. Could you explain a bit more here? What counts as a change in DC's willingness? And, out of boom or bust, which aligns with which kind of DC policy?
AlexandrB 1y ago
One very important thing to keep in mind with these kinds of comparisons: are you actually going to be investing the money you save by renting? I think for most people the answer is no, and that money will just be spent on stuff. In that sense, homeownership is more of a "life hack" that forces you to save rather than a superior investment.
- bottlerock 1y ago
  I was always a little puzzled by this concept and I think it gets more silly every decade. How can someone routinely spend money on goods given how insanely cheap goods have become? There's maybe a small percentage of the population addicted to buying brands beyond what they could possibly use, but most people run out of the ability to buy a significant amount of stuff every year. I.e. even a thousand a month habit is insane to maintain and nothing compared to bad housing choices.
  - AlexandrB 1y ago
    Maybe I should have used a word other than stuff, but it's easy to spend a lot of money on travel, pets, entertainment, etc. Some of these categories have infinite sinks - e.g. gambling or gatcha games for entertainment.
  - rich_sasha 1y ago
    There's services too. Schools, universities, theatres and cinemas, going out to restaurants bars and clubs. Also some goods are not at all cheap. Cars, clothes, shoes, hardware - you can spend as much as you like on these.
asherlc 1y ago
One thing this seems to ignore -- a mortgage gives you _leverage_ for an investment. Is any bank going to loan you hundreds of thousands of dollars to invest in the S&P?
- AlexandrB 1y ago
  Usually these kinds of calculations take that into account. E.g. the up front investment in the stock market == the downpayment on the house. But remember that you're paying for that leverage with interest, which further eats into your gains on the house.
- weepinbell 1y ago
  The NYTimes/NerdWallet calculators implicitly account for that in their logic - they track money you gain/lose from down payment/mortgage/interest/taxes, then selling the house at the end. On the renting side, they only assume investing the money that isn't going to down payment/monthly mortgage payments, not investing the full value of the house. My blog post here is just giving an argument that 2 of their parameters should be updated, then showing the result of that update.
  - asherlc 1y ago
    i stand corrected!
adiabatichottub 1y ago
Okay, somebody help me out here. Maybe I'm missing something, but the basic equation is that you as tenant are paying the landlords costs plus their profit. How can renting ever be cheaper than buying?
- izacus 1y ago
  And mortgage costs are somehow free? :)
  - adiabatichottub 1y ago
    The are not free, they are paid by the tenant.
    - AlexandrB 1y ago
      I don't think this is always true. 1. Many small landlords are not very financially sophisticated and won't factor in all costs when setting rent prices. For example, maintenance costs are often treated as one-time events ("the water heater broke") and not something to build into the cost of owning the home. I have relatives like this, and they generally view the appreciation on the property as their profit. 2. It's not uncommon for "landlords" to be renting out part of the house they're still living in. In these cases the rent can be somewhat arbitrarily related to the cost of the mortgage. 3. More sophisticated landlords often still have to compete with rents set by (1) and (2). At least in some markets.
  - AnimalMuppet 1y ago
    No, but the landlord has those too. Or at least, some landlords have them. So, you have the landlord having mortgage costs, maintenance costs, insurance costs, and still wanting a profit. And you have the homeowner, having mortgage costs, maintenance costs, insurance costs, but getting to keep what would have been the landlord's profit. So the GP still has a valid point.
- rich_sasha 1y ago
  I suppose depends on the ownership structure of housing stock. If it is mostly repaid mortgages, eg. inherited housing or investment stock, then the rental need not be tied to mortgage costs, but rather investment yield, which may be lower.
Atreiden 1y ago
I'd point out that the data for homes is averaged nationally. Historically, there have been Good Places and Bad Places to buy a home. Home price growth in in-demand coastal areas is very different than in rural areas. In the US, "Flyover states" I'm sure skew this number heavily. Part of this is captured by the Volatility Index mentioned > Individual houses are 4x the volatility of a housing index, close to the same volatility as the stock market. But it bears calling out explicitly. Economically depressed areas will have very poor growth relative to inflation. Economically prosperous, desirable, growing areas will, by definition, have an increasing population and a finite area to accommodate that population. NIMBYism exacerbates this effect by reducing supply of new homes. If you pick a good location, buying a home is a fantastic purchase. It ties up that investment money in an asset that you can actually USE. You can improve it, make modifications and tweaks to your liking, which renters cannot. And often times these improvements result in positive net positive return. You'll never get forced out because your landlord wants to sell. You'll never have to deal with toxic landlords at all. You'll get to deduct all that mortgage interest from your taxes (if you itemize). And in California, your monthly payments will never rise YoY more than $MONTHLY_TAX * .02
- readthenotes1 1y ago
  "You'll never get forced out because your landlord wants to sell." Where I live, the highest source of inflation for me has been property taxes. It's almost as if my landlord wants me to sell.
  - derekp7 1y ago
    I had the double whammy of property taxes AND insurance increases on my last house. Budget was a bit tight, but that almost sent me over the edge. I learned my lesson on my next house purchase, and made sure there was a ton of leg room in the budget, along with things I could very quickly drop from the budget if needed.
  - sorcerer-mar 1y ago
    Hot take: that’s actually desirable. Sell and let someone who can make better use of it (i.e. more readily stomach the property tax) take possession. Calcified landed gentry just sitting on dirt that appreciates due to the efforts and investments of everyone around them is Bad, Actually.
CodingJeebus 1y ago
A major aspect of successful real estate investing involves understanding your particular market and doing the legwork to find value. You completely lose that signal when you assess the entire market in aggregate like this. I’m paying far less on my mortgage than I would on rent in my nice neighborhood, based partly on luck, partly on finding a good opportunity, and partly on locking in my housing costs while the rent around me steadily increases. Aggregate analyses aside, I have a hard time believing that a mortgage will generally be worse as an investment than renting in an era where algorithms are deployed to push rents as high as possible, as often as possible.
daft_pink 1y ago
I think the downside of your analysis is you don’t consider the impact of leverage on rate of return. The amount of equity you actually put in is very small so even though the overall return is low, the actual return on investment is much higher than your analysis shows. Or put simply no one would buy stocks with a very small down payment and an enormous amount of leverage the way that they buy real estate and that’s what you’re missing
stopping 1y ago
I've done the math on this many times, and it still puzzles me how anybody would choose to buy a house in the Bay Area today versus renting an equivalent one. When mortgages are over 2x rent, the calculation skews tremendously in favor of renting and investing the difference in an index fund. This considers all possible factors and even chooses favorable conditions for homeowners (high appreciation, low stock market returns, high rent increases y/y). The permanent costs of owning a home (property tax, insurance, HOA, maintenance) are typically around 40% of rent, but can be even higher for certain types of property. My conclusion every time I've done this exercise is that you should only buy a house in the Bay if you have way more money than you know what to do with. The difference in opportunity cost is absolutely massive, on the order of half a million today-dollars or more for a 3-bedroom SFH. That's a huge price to pay for the "privileges" of homeownership.
- dekhn 1y ago
  This is my conclusion (and the path I've taken - basically max our index and retirement accounts). I've explained this to people and been told I'm stupid and irrational. Another thing I saw was families moving from the. midwest to the bay area (to work for FAANG) and getting tons of pressure from their back-home families to buy a house, and then spend a miserable decade living in a Sunnyvale housing complex. Our plan is to wait for kids to leave home, retire somewhat early and buy a modest house in an area with lower costs and a political climate I can tolerate.
- burnt-resistor 1y ago
  I would need to make $550k/year to afford to buy a home where I grew up in San Jose. The conflagration of Prop 13 and an unregulated influx of rich people from all over the US and the world ultra-gentrified the Bay Area beyond the small crust of billionaires and marginal millionaires and a sea of middle class-ish people. There were no meaningful, comprehensive supply or demand protections post Prop 13.
- archagon 1y ago
  If you're in a place with good tenant protections (rent control), then yes. And it's true that large swaths of the Bay Area fall in this category. But otherwise, the threat of arbitrary rent increases and/or eviction can be overwhelming if you're looking for long-term stability.
robocat 1y ago
> crucially selling the appreciated home after XX years Selling depends on demographics, the economy, and immigration. I'm in New Zealand where a lot of workers emigrate, and NZ patches that issue up with immigration. I read about €1 houses in Italy and ¥1 houses in Japan and then watch "South Korea is over" https://m.youtube.com/watch?v=Ufmu1WD2TSk https://m.youtube.com/watch?v=Ufmu1WD2TSk Modelling risks is the hardest part of any investment calculation. Edit: the future value matters, and we get highly misled by looking at our experiences of historical results (especially don't expect to get the same results as your parent's generation). Personally, thinking of your house purely as an investment is undesirable. You want to live there joyfully and not have to worry about pleasing the next investors. The non financial upsides and downsides of your own home are more important than the investment. There are significant upsides and massive downsides: they are hard to balance. I've rented a lot so I know that too has its advantages and disadvantages. There are large financial upsides and downsides of your own home too. Geared lending is fantastic and dangerous, domicile taxation issues, regulations, yearly government fees that can screw your retirement. You don't really own your home, you have a license that you can sell. A home is really just a glorified longterm tenancy with two bigger landlords (the bank and your government).
- msgodel 1y ago
  In general unless you're married and likely to have kids you certainly shouldn't buy a home and probably should try to just live with your parents.
dlcarrier 1y ago
They both also default to much lower increases in rent than the US average, so it's off on both ends of the equation. Over the last few decades, inflation-adjusted rent has increased by several percent per year: https://nowbam.com/rent-prices-vs-inflation-and-income-growth https://nowbam.com/rent-prices-vs-inflation-and-income-growt.... The calculators are useless if the data going into them is useless, but even if it perfectly reflected past national averages, that doesn't make it a great predictor of future local results. If you're buying a bunch of properties spread throughout the country and over time, it could be useful, but for individual choices it's probably not. Here's a great read on the uselessness of comparing a bunch of averages to individuals: https://www.goodreads.com/book/show/24186666-the-end-of-average https://www.goodreads.com/book/show/24186666-the-end-of-aver... From a broad perspective, most investors don't rent property out at a loss, so in general it's going to be more expensive to rent, unless you own a property for a short enough amount of time that closing costs play a significant role. Even then, occupancy rates aren't 100%, so average rent needs to make up for that. On the other hand, the margins aren't super wide, so rent is still in the general ballpark of the price of ownership. In the end, if you want to rent then rent, and if you want to own than own. The pricing difference isn't enough to make an uncomfortable living situation worthwhile. Do you prefer the control and long-term stability of owning your property over the effort it takes to manage it yourself? Then buy! Do you prefer the freedom of moving often and the convenience of someone else managing and maintaining your property over the ability to live somewhere indefinitely or chose how your residence is remodeled? Then rent!
- bryanlarsen 1y ago
  > most investors don't rent property out at a loss I was under the impression that this was actually fairly common in places with rapid house price appreciation. Which includes a good portion of the places where people want to rent. The main source of profit for the landlord is the capital appreciation rather than the rent, so they're willing to rent at levels that wouldn't be profitable if they weren't also planning on profiting from the rising prices.
  - dlcarrier 1y ago
ljsocal 1y ago
I have both owned and rented. Having done this buy vs rent calculation many times and renting generally wins. Three factors not usually considered in the buy equation: 1) the house you’re willing to rent is less expensive than the one your willing to buy. 2) the value of the time you spend maintaining a home should be included in your return calculation 3) putting a lot of $ in any one investment asset (i.e. a single family residence) is riskier than a diversified portfolio of assets.
Henchman21 1y ago
This reads like an Elon Musk wetdream.. Don’t own property, rent it from me or my pals.
burnt-resistor 1y ago
Sweeping generalization with bias toward the side of perpetual renting. It depends where and the ratio of housing:income. There are plenty of terrible housing economic choices, but these are all individual and required nuanced, personalized calculations from an unbiased, helpful source to determine if and where renting vs. owning makes sense. That would be a better than triumphantly declaring "owning is bad."
nothercastle 1y ago
Nobody is going to challenge you on a 7.9% asset growth assumption in the SpY? That’s an incredibly ambitious assumption by any measure. You essentially have to assume you will see another couple decades of record growth in the us that will significantly outpace any global growth.
RijilV 1y ago
It feels really market by market. Where I live, the house I’ve been in is 50-75% mortgage cost vs rent on a comparable property. That mortgage is a bit over 10 years old, and has been below rent rates for nearly the whole time. Sure, I have upkeep, but I also get to make whatever modifications I want (and that’s a thing that’s appealing to me). And yes, I live in a major west coast city. These broad numbers games feels like rationalizing a decision today. Maybe it’s true for a particular locale (I don’t live in the Bay Area), but these articles feel like they’re painting with too broad of a brush given I can’t maths out a negative for my situation.
CommenterPerson 1y ago
Central NJ was a great place to buy, at least until Covid. A great way to build wealth here has been: start at a young-ish age at a low end. Over time, sell / rent that out and keep moving up slowly using a mortgage for your primary residence. Over the decades one can own their own residence and have one or more rental properties. Those bring in steady retirement income, which does not depend on daily stock market gyrations. These rent vs. buy calculators all end up in paralysis by analysis. Everything depends on assumptions. Yes, in the Bay area the calculations may work one way. But there are so many ways around that. A remote job. Starting with a rental property 100 miles away.

28 points by weepinbell 1y ago

I have to be reading this wrong. Is it just tracking the value of the S&P 500 vs the value of an average house? Does it assume that unless you buy a house you have no housing costs?

recursive 1y ago
Yes, you're reading it wrong. It is not just tracking S&P 500 vs the average house value. It does not assume that would ever have no housing costs. The calculators in question model housing costs, rental costs, mortgage rates, and all the rest of it.
reactordev 1y ago
It says it’s based on buying: mortgage, taxes, and income from selling the appreciated asset after XX years / renting: rent, and income from taking the difference from rent vs buy and putting it in the markets.
centra_minded 1y ago
> "For those unfamiliar, these rent/buy calculators attempt to estimate the cash flow over XX years for renting vs buying a home. For buying, this is the down payment, mortgage, taxes, etc, and then crucially selling the appreciated home after XX years. For renting, this is mostly rent, but also crucially investment income from investing the money that would have gone into the mortgage/down payment. When I recalculate these numbers, all I'm doing is saying that the default home appreciation rate and the investment appreciation rate should be updated in the tool, and showing the result of that." When you buy a home, you pay a down payment you counterfactually could have invested (and any difference in rent vs. mortgage can be invested). The article is just saying the calculators skew towards buying by underestimating investment growth and overestimating housing appreciation.

ivape 1y ago

Is there any country where housing is not considered a primary asset?

brian_spiering 1y ago
In Japan, houses are presumed to have a limited lifespan and depreciate in value over time.

OgsyedIE 1y ago

This whole argument assumes that the 1977-2024 period is a good basis for predicting the future, but that period is the height of globalization, a long stretch of stocks (almost) always beating commodities and land. Looking at much longer timescales however, the USA has periodic flips between commodity bear times and commodity boom times that line up with changes in DC's willingness to support the global trade of intermediate goods and services.

AnimalMuppet 1y ago
> the USA has periodic flips between commodity bear times and commodity boom times that line up with changes in DC's willingness to support the global trade of intermediate goods and services. Could you explain a bit more here? What counts as a change in DC's willingness? And, out of boom or bust, which aligns with which kind of DC policy?

AlexandrB 1y ago

One very important thing to keep in mind with these kinds of comparisons: are you actually going to be investing the money you save by renting? I think for most people the answer is no, and that money will just be spent on stuff. In that sense, homeownership is more of a "life hack" that forces you to save rather than a superior investment.

bottlerock 1y ago
I was always a little puzzled by this concept and I think it gets more silly every decade. How can someone routinely spend money on goods given how insanely cheap goods have become? There's maybe a small percentage of the population addicted to buying brands beyond what they could possibly use, but most people run out of the ability to buy a significant amount of stuff every year. I.e. even a thousand a month habit is insane to maintain and nothing compared to bad housing choices.
- AlexandrB 1y ago
  Maybe I should have used a word other than stuff, but it's easy to spend a lot of money on travel, pets, entertainment, etc. Some of these categories have infinite sinks - e.g. gambling or gatcha games for entertainment.
- rich_sasha 1y ago
  There's services too. Schools, universities, theatres and cinemas, going out to restaurants bars and clubs. Also some goods are not at all cheap. Cars, clothes, shoes, hardware - you can spend as much as you like on these.

asherlc 1y ago

One thing this seems to ignore -- a mortgage gives you _leverage_ for an investment. Is any bank going to loan you hundreds of thousands of dollars to invest in the S&P?

AlexandrB 1y ago
Usually these kinds of calculations take that into account. E.g. the up front investment in the stock market == the downpayment on the house. But remember that you're paying for that leverage with interest, which further eats into your gains on the house.
weepinbell 1y ago
The NYTimes/NerdWallet calculators implicitly account for that in their logic - they track money you gain/lose from down payment/mortgage/interest/taxes, then selling the house at the end. On the renting side, they only assume investing the money that isn't going to down payment/monthly mortgage payments, not investing the full value of the house. My blog post here is just giving an argument that 2 of their parameters should be updated, then showing the result of that update.
- asherlc 1y ago
  i stand corrected!

adiabatichottub 1y ago

Okay, somebody help me out here. Maybe I'm missing something, but the basic equation is that you as tenant are paying the landlords costs plus their profit. How can renting ever be cheaper than buying?

izacus 1y ago
And mortgage costs are somehow free? :)
- adiabatichottub 1y ago
  The are not free, they are paid by the tenant.
  - AlexandrB 1y ago
    I don't think this is always true. 1. Many small landlords are not very financially sophisticated and won't factor in all costs when setting rent prices. For example, maintenance costs are often treated as one-time events ("the water heater broke") and not something to build into the cost of owning the home. I have relatives like this, and they generally view the appreciation on the property as their profit. 2. It's not uncommon for "landlords" to be renting out part of the house they're still living in. In these cases the rent can be somewhat arbitrarily related to the cost of the mortgage. 3. More sophisticated landlords often still have to compete with rents set by (1) and (2). At least in some markets.
- AnimalMuppet 1y ago
  No, but the landlord has those too. Or at least, some landlords have them. So, you have the landlord having mortgage costs, maintenance costs, insurance costs, and still wanting a profit. And you have the homeowner, having mortgage costs, maintenance costs, insurance costs, but getting to keep what would have been the landlord's profit. So the GP still has a valid point.
rich_sasha 1y ago
I suppose depends on the ownership structure of housing stock. If it is mostly repaid mortgages, eg. inherited housing or investment stock, then the rental need not be tied to mortgage costs, but rather investment yield, which may be lower.

Atreiden 1y ago

I'd point out that the data for homes is averaged nationally. Historically, there have been Good Places and Bad Places to buy a home. Home price growth in in-demand coastal areas is very different than in rural areas. In the US, "Flyover states" I'm sure skew this number heavily. Part of this is captured by the Volatility Index mentioned > Individual houses are 4x the volatility of a housing index, close to the same volatility as the stock market. But it bears calling out explicitly. Economically depressed areas will have very poor growth relative to inflation. Economically prosperous, desirable, growing areas will, by definition, have an increasing population and a finite area to accommodate that population. NIMBYism exacerbates this effect by reducing supply of new homes. If you pick a good location, buying a home is a fantastic purchase. It ties up that investment money in an asset that you can actually USE. You can improve it, make modifications and tweaks to your liking, which renters cannot. And often times these improvements result in positive net positive return. You'll never get forced out because your landlord wants to sell. You'll never have to deal with toxic landlords at all. You'll get to deduct all that mortgage interest from your taxes (if you itemize). And in California, your monthly payments will never rise YoY more than $MONTHLY_TAX * .02

readthenotes1 1y ago
"You'll never get forced out because your landlord wants to sell." Where I live, the highest source of inflation for me has been property taxes. It's almost as if my landlord wants me to sell.
- derekp7 1y ago
  I had the double whammy of property taxes AND insurance increases on my last house. Budget was a bit tight, but that almost sent me over the edge. I learned my lesson on my next house purchase, and made sure there was a ton of leg room in the budget, along with things I could very quickly drop from the budget if needed.
- sorcerer-mar 1y ago
  Hot take: that’s actually desirable. Sell and let someone who can make better use of it (i.e. more readily stomach the property tax) take possession. Calcified landed gentry just sitting on dirt that appreciates due to the efforts and investments of everyone around them is Bad, Actually.

CodingJeebus 1y ago

A major aspect of successful real estate investing involves understanding your particular market and doing the legwork to find value. You completely lose that signal when you assess the entire market in aggregate like this. I’m paying far less on my mortgage than I would on rent in my nice neighborhood, based partly on luck, partly on finding a good opportunity, and partly on locking in my housing costs while the rent around me steadily increases. Aggregate analyses aside, I have a hard time believing that a mortgage will generally be worse as an investment than renting in an era where algorithms are deployed to push rents as high as possible, as often as possible.

daft_pink 1y ago

I think the downside of your analysis is you don’t consider the impact of leverage on rate of return. The amount of equity you actually put in is very small so even though the overall return is low, the actual return on investment is much higher than your analysis shows. Or put simply no one would buy stocks with a very small down payment and an enormous amount of leverage the way that they buy real estate and that’s what you’re missing

stopping 1y ago

I've done the math on this many times, and it still puzzles me how anybody would choose to buy a house in the Bay Area today versus renting an equivalent one. When mortgages are over 2x rent, the calculation skews tremendously in favor of renting and investing the difference in an index fund. This considers all possible factors and even chooses favorable conditions for homeowners (high appreciation, low stock market returns, high rent increases y/y). The permanent costs of owning a home (property tax, insurance, HOA, maintenance) are typically around 40% of rent, but can be even higher for certain types of property. My conclusion every time I've done this exercise is that you should only buy a house in the Bay if you have way more money than you know what to do with. The difference in opportunity cost is absolutely massive, on the order of half a million today-dollars or more for a 3-bedroom SFH. That's a huge price to pay for the "privileges" of homeownership.

dekhn 1y ago
This is my conclusion (and the path I've taken - basically max our index and retirement accounts). I've explained this to people and been told I'm stupid and irrational. Another thing I saw was families moving from the. midwest to the bay area (to work for FAANG) and getting tons of pressure from their back-home families to buy a house, and then spend a miserable decade living in a Sunnyvale housing complex. Our plan is to wait for kids to leave home, retire somewhat early and buy a modest house in an area with lower costs and a political climate I can tolerate.
burnt-resistor 1y ago
I would need to make $550k/year to afford to buy a home where I grew up in San Jose. The conflagration of Prop 13 and an unregulated influx of rich people from all over the US and the world ultra-gentrified the Bay Area beyond the small crust of billionaires and marginal millionaires and a sea of middle class-ish people. There were no meaningful, comprehensive supply or demand protections post Prop 13.
archagon 1y ago
If you're in a place with good tenant protections (rent control), then yes. And it's true that large swaths of the Bay Area fall in this category. But otherwise, the threat of arbitrary rent increases and/or eviction can be overwhelming if you're looking for long-term stability.

robocat 1y ago

> crucially selling the appreciated home after XX years Selling depends on demographics, the economy, and immigration. I'm in New Zealand where a lot of workers emigrate, and NZ patches that issue up with immigration. I read about €1 houses in Italy and ¥1 houses in Japan and then watch "South Korea is over" https://m.youtube.com/watch?v=Ufmu1WD2TSk https://m.youtube.com/watch?v=Ufmu1WD2TSk Modelling risks is the hardest part of any investment calculation. Edit: the future value matters, and we get highly misled by looking at our experiences of historical results (especially don't expect to get the same results as your parent's generation). Personally, thinking of your house purely as an investment is undesirable. You want to live there joyfully and not have to worry about pleasing the next investors. The non financial upsides and downsides of your own home are more important than the investment. There are significant upsides and massive downsides: they are hard to balance. I've rented a lot so I know that too has its advantages and disadvantages. There are large financial upsides and downsides of your own home too. Geared lending is fantastic and dangerous, domicile taxation issues, regulations, yearly government fees that can screw your retirement. You don't really own your home, you have a license that you can sell. A home is really just a glorified longterm tenancy with two bigger landlords (the bank and your government).

msgodel 1y ago
In general unless you're married and likely to have kids you certainly shouldn't buy a home and probably should try to just live with your parents.

dlcarrier 1y ago

They both also default to much lower increases in rent than the US average, so it's off on both ends of the equation. Over the last few decades, inflation-adjusted rent has increased by several percent per year: https://nowbam.com/rent-prices-vs-inflation-and-income-growth https://nowbam.com/rent-prices-vs-inflation-and-income-growt.... The calculators are useless if the data going into them is useless, but even if it perfectly reflected past national averages, that doesn't make it a great predictor of future local results. If you're buying a bunch of properties spread throughout the country and over time, it could be useful, but for individual choices it's probably not. Here's a great read on the uselessness of comparing a bunch of averages to individuals: https://www.goodreads.com/book/show/24186666-the-end-of-average https://www.goodreads.com/book/show/24186666-the-end-of-aver... From a broad perspective, most investors don't rent property out at a loss, so in general it's going to be more expensive to rent, unless you own a property for a short enough amount of time that closing costs play a significant role. Even then, occupancy rates aren't 100%, so average rent needs to make up for that. On the other hand, the margins aren't super wide, so rent is still in the general ballpark of the price of ownership. In the end, if you want to rent then rent, and if you want to own than own. The pricing difference isn't enough to make an uncomfortable living situation worthwhile. Do you prefer the control and long-term stability of owning your property over the effort it takes to manage it yourself? Then buy! Do you prefer the freedom of moving often and the convenience of someone else managing and maintaining your property over the ability to live somewhere indefinitely or chose how your residence is remodeled? Then rent!

bryanlarsen 1y ago
> most investors don't rent property out at a loss I was under the impression that this was actually fairly common in places with rapid house price appreciation. Which includes a good portion of the places where people want to rent. The main source of profit for the landlord is the capital appreciation rather than the rent, so they're willing to rent at levels that wouldn't be profitable if they weren't also planning on profiting from the rising prices.
- dlcarrier 1y ago

ljsocal 1y ago

I have both owned and rented. Having done this buy vs rent calculation many times and renting generally wins. Three factors not usually considered in the buy equation: 1) the house you’re willing to rent is less expensive than the one your willing to buy. 2) the value of the time you spend maintaining a home should be included in your return calculation 3) putting a lot of $ in any one investment asset (i.e. a single family residence) is riskier than a diversified portfolio of assets.

Henchman21 1y ago

This reads like an Elon Musk wetdream.. Don’t own property, rent it from me or my pals.

burnt-resistor 1y ago

Sweeping generalization with bias toward the side of perpetual renting. It depends where and the ratio of housing:income. There are plenty of terrible housing economic choices, but these are all individual and required nuanced, personalized calculations from an unbiased, helpful source to determine if and where renting vs. owning makes sense. That would be a better than triumphantly declaring "owning is bad."

nothercastle 1y ago

Nobody is going to challenge you on a 7.9% asset growth assumption in the SpY? That’s an incredibly ambitious assumption by any measure. You essentially have to assume you will see another couple decades of record growth in the us that will significantly outpace any global growth.

RijilV 1y ago

It feels really market by market. Where I live, the house I’ve been in is 50-75% mortgage cost vs rent on a comparable property. That mortgage is a bit over 10 years old, and has been below rent rates for nearly the whole time. Sure, I have upkeep, but I also get to make whatever modifications I want (and that’s a thing that’s appealing to me). And yes, I live in a major west coast city. These broad numbers games feels like rationalizing a decision today. Maybe it’s true for a particular locale (I don’t live in the Bay Area), but these articles feel like they’re painting with too broad of a brush given I can’t maths out a negative for my situation.

CommenterPerson 1y ago

Central NJ was a great place to buy, at least until Covid. A great way to build wealth here has been: start at a young-ish age at a low end. Over time, sell / rent that out and keep moving up slowly using a mortgage for your primary residence. Over the decades one can own their own residence and have one or more rental properties. Those bring in steady retirement income, which does not depend on daily stock market gyrations. These rent vs. buy calculators all end up in paralysis by analysis. Everything depends on assumptions. Yes, in the Bay area the calculations may work one way. But there are so many ways around that. A remote job. Starting with a rental property 100 miles away.