9 ms·

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it inste

by jedberg 5mo ago

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or owner move ins or any of that other stuff that renters deal with. And if you have kids, they get a sense of home and place. But don't do it for financial reasons.

strongpigeon 5mo ago
> You don't have to worry about rent increases I'd also argue there are financial advantages (on top of the psychological ones) to the price stability as you don't have to hedge against your housing cost shooting up as much.
- hdgvhicv 5mo ago
  And it’s not just psychological ones, the cost of moving is expensive, so if you landlord decides to get rid of you then you’re on the hook. You’re also vulnerable to local price increases - of the area you live in increases in value because the school Gets better, prices increase, and you have to move and your kids have to move school.
- ThrustVectoring 5mo ago
  Owning the asset is an advantage in a bull market and a disadvantage in a bear market. If a dominant employer or industry in an area has mass layoffs, that can cascade into the housing market, driving your property underwater at the same time your job vanishes. This happened to a large number of autoworkers in Detroit in 2008.
- asdff 5mo ago
  Depends where you live. CA has prop 13 but other places you are reassessed regularly and plenty of homeowners are surprised to get priced out of their homes.
- danny_codes 5mo ago
  Depends where you live. Any sensible municipality will tax land at it's value, so your costs should rise according to value. Of course most municipalities are failures when it comes to taxation, so probably it's a better deal to own land in those places.
vikingerik 5mo ago
Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent. There are tax advantages that favor owning (in the US), for a primary resident and not an arbitrageur - mortgage interest and capital gains when you sell are not taxed, while capital gains in a non-retirement account are. You can gain by appreciation and leverage, of course - but you can just as easily not, you don't know if your city is going to be the next high-flying Austin or Boulder, or run-down Detroit. My own house has been flat in estimated value for four years in an area that I thought would continue to rise.
- ThrustVectoring 5mo ago
  There's significant personal financial benefits to renting, too, in that many local areas are dominated by one firm or industry as a major employer, so your employment prospects can be highly correlated with the local housing market. You do not want your investments to be correlated with your employment if at all reasonable. Detroit in particular was hard hit by this in the '08 financial crisis, iirc - the automotive industry had huge layoffs and a simultaneous residential real estate market collapse, and many newly laid-off workers were underwater on their home and practically unable to sell to move for better job prospects.
  - smithza 5mo ago
    This is something that is hard for people to factor in when decision making. Optimism will blind us from considering such a tragedy since not only was there buy-in on the home, there was buy-in on the future trajectory of the company you decided to work for.
- rwmj 5mo ago
  But the same argument applies to landlords too. Why are they willingly losing money?
bloomca 5mo ago
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. You'd actually end up in a much better place historically, homes were never a particularly good investment in the US, but there are very few people who can pull it off and actually invest the difference and not just spend it.
sdellis 5mo ago
I don't think that's good advice. I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. It's way more tangible for people than trusting some index fund with their savings, especially if they can maintain the home, improve it, and do repairs mostly themselves. And bonus... when you sell, you don't have to wait until you're 60 years old to spend it!
- jedberg 5mo ago
  My advice was to not delude yourself into thinking you're buying as an investment, and instead convince yourself to buy for psychological reasons. That seems in line with what you said.
- Paracompact 5mo ago
  > I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. https://www.macrotrends.net/3072/us-house-price-index https://www.macrotrends.net/3072/us-house-price-index (~3x in the past 30 years, about 3.7% return per year) https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat... (~15x in the past 30 years, about 9.3% return per year) This is in line with conventional wisdom on return rates for these asset classes: https://awealthofcommonsense.com/2024/01/what-is-the-historical-rate-of-return-on-housing/ https://awealthofcommonsense.com/2024/01/what-is-the-histori... Unless you are comparing retrospectively hot-shot real estate with retrospectively mediocre stocks, then stock market investment has always won out substantially over real estate investment in terms of raw return rate. This makes sense, given that if the opposite were really true, then it would make no sense to invest in productive businesses as opposed to holding companies that just hoarded empty houses indefinitely.
  - jstanley 5mo ago
    You're missing that most people are able to buy houses on borrowed money, so their housing investment is effectively levered up 10x or more, at least at the beginning. It's not a choice between $1m in housing appreciating at 3% and $1m in stocks appreciating at 9%. It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.
inanutshellus 5mo ago
Neighbors of owned-properties: - care about the long-term effects of their actions - care about the plan of their surroundings - plan to stick around This is a HUGE part of the psychological benefit you refer to of buying. Notably this is equally applicable to any occupant-owned property (e.g. condos > apartments).
- gib444 5mo ago
  Can attest to this, living on a street which each year sees houses sold off to landlords, and now there are very few of us occupying-owners left. The renters all have rubbish in their front and back yard, have more pets that they let bark and poo everywhere, smoke weed etc.
  - bombcar 5mo ago
    This has more to do with how the neighborhood is going (literally “to the dogs”) than it does with renting - you’d be surprised at the houses that look owner occupied but are actually rentals.
- huhkerrf 5mo ago
  Yeah, but it's also one of the downsides. "Care about the plan of their surroundings" can just as easily turn into the HOA drama that many prefer to avoid.
  - deleted 5mo ago
    [deleted]
  - y1n0 5mo ago
    HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed. As much as I hate many stupid rules and seemingly unfair application of them, I do like that it mitigates against people that just don't give a shit about their property or the impact of their life choices on others.
DanielHB 5mo ago
This isn't really true in many HCOL areas, a mortgage payment + amortization can be cheaper than renting an equivalent property. On top of that the amortization of your loan doesn't incur capital gains tax. Even if your property doesn't appreciate more than inflation you can still profit massively from owning just through the loan amortization. Only being forced to sell during a market crash could realistically cause a big downside, but the upside is substantial compared to the risk. It is also the safest leverage investment most people can do and the cheapest way to diversify away from stock market. In fact paying off your mortgage is usually better risk/profit calculation than buying bonds as mortgage interest is usually higher than bond interests[1]. If you hold any significant amount on bonds you are better off using that money for a downpayment. Everyone here is doing the cold hard math on 100% stocks when every financial advisor says you should diversify to reduce risks. Of course if you go 100% stocks and assume average returns will keep going forever (and not, you know, go full 90s Japan) the math will say stocks. But if you add any sort of risk lowering diversification a mortgage is usually the best one you can get. [1]: I live in Sweden where almost everyone has floating interest rates for mortgages, I know US people can lock in their interest at low or high rates for decades which can skew the calculations
- thfuran 5mo ago
  In the US, there's a pretty significant capital gains tax exclusion on the sale of primary residence too.
  - DanielHB 5mo ago
    In Sweden 30% of interest payments on mortgages is tax deductible. When I sold my old flat and even though it only appreciated like 10% over 4 years (about the same as inflation) I still got a lot of money when I got the loan settled. 4 years of amortization at 2% per year is 8% of the original value of the apartment, tax free. And my mortgage+HOA fee was actually lower than my rent was before even before the interest tax deduction. So after sales fees (also tax deductible), moving costs, capital gains, etc I think I saved around 15% after-tax of the total value of the apartment compared to renting over a span of 4 years. Given my downpayment was 15% I roughly doubled my downpayment money in 4 years. That is a return of ~22.5% compounding per year _after tax_, which is much better than the average stock market returns. Of course I got there is some luck involved (my apartment didn't go down in value, I didn't need to do any renovations, etc), but I could potentially have profited even more if it had appreciated more. And that is on top of the real estate risk diversification benefits compared to stocks.
Imustaskforhelp 5mo ago
Yes the benefit is psychological but I think there's more to it as well. Firstly within investing, I am assuming that a person has safety net amount of money before properly investing. This is something that I have heard some people don't exactly do. As such, what happens is that, they might lose a job and have to pay rent and might have to sell the stocks or any index fund/investments that they had within the market (which depends on if the market is doing good or bad too) and overall snatches opportunity for money to actually grow for years. I recommend having a safety net but I must admit that there is still some psychological stress overall due to multitude of factors, as such, if possible, buying a house feels like it might be overall decent choice and the differences might not be so much. that being said, I do think that it depends upon the land prices and many other things overall too. Also, this is tangential but I used to be a boglehead, still am but with recent cases of Nasdaq[0] & I think S&P bending towards SpaceX and AI IPO's by literally bending rules, it does feel like the investment markets might be more shaky given other factors (Not a financial advice at all) but I recommend looking towards dimensional index funds which do just a very bit more than index funds if the addition of floaty investments like SpaceX and other IPO's make you fear similar to me. But the thing is that the downstream effects of it will still be visible, for example, just imagining if SpaceX gets added to IPO and then quickly added to Nasdaq/S&P and then it falls substantially for any reason. The thing is that the market itself would be spooked and other funds would be impacted too. I have belied in the market efficiency hypothesis but a lot of it feels like private equity trying to raise evaluations to then push it to index funds (by in this case, asking nasdaq to bend the rules to force passive investors to buy and hold the bags basically impacting retirement accounts too and perhaps even govt bailouts but basically it becomes privatization of gains and socialization of losses and becoming too big to fail. I must say that it feels a bit of blatant corruption in some instances like the one for SpaceX and this removes my confidence within markets. I do recommend overall diversification for world stocks and also housing if affordable. I wish to still invest in markets but with a bit more caution rather than blind optimism. Also no, active investing doesn't quite work either reading john bogle books and other resources and passive investing is still superior to active investing overall but just with more caution. That's all. [0]: https://www.thestreet.com/latest-news/new-nasdaq-rules-open-door-for-spacex-other-tech-giants-to-join-passive-index-funds-immediately-after-ipo https://www.thestreet.com/latest-news/new-nasdaq-rules-open-...
pdonis 5mo ago
The control benefit isn't just psychological; it can have real financial consequences. If you own your home, you can't be told by a landlord that their pet policy has changed and you will have to move out. You also can't have your landlord sell the place where you're living out from underneath you and inform you that the buyer doesn't want to rent the place out any more and you will have to move out. Both of those things have happened to me, and at pretty short notice (about a month to find a new place and move both times), and they were significant costs that I did not expect to have to pay.
Aurornis 5mo ago
One term for this is "price-to-rent ratio" which is as simple as it sounds. The ratio has a wide range from city to city. Full financial analysis gets complicated quickly because you have to consider mortgage rates, inflation, opportunity cost of the invested money, and how long you're keeping the house. It's possible to pick the more financially optimal decision using today's numbers and then have your perfect plan clobbered by a collapsing housing market, extreme swings in interest rates, or being forced to move early.
srinathkrishna 5mo ago
This! As someone who moved 6 times in 8 years (admittedly, some of those were for work), and every time, I relied on moving things myself/with friends, I was just tired any more! For the last move, I hired movers since I was already married by then and our stuff tripled (yes, mine was a very small portion). The fact that I don't have to move for a while now gives me a lot of peace!
ChuckMcM 5mo ago
Yeah this. But some additional flavor to emphasize the 'don't do it for financial reasons' aspect. In the late 90's I, like a number of my married friends, 'owned' a house in the Bay Area. Dot coms were going crazy, the economy was insane, and people who got big equity payouts were buying places with their stock. At the height of all that, my Sun stock holdings were enough to pay off the remainder of my mortgage but I got the "opportunity cost" talk from my financial advisor about how tech stocks were returning 15 to 20% and more, so what I should really do, is refinance, and put my equity into tech stock! I didn't do that but at least two people I knew did. And when the crash came, the friends that had refinanced ended up selling their houses an moving out of the area, and I was left with the dread associated of being an "older" engineer when tech jobs were on the way out. But I still had a mortgage and kids to support. Had I paid the house off I would be in a position to take a job with much lower pay than my last job and still stay in my house (with just the tax,insurance,utilities and maintenance costs). The psychological cost of 'uncertainty' is especially burdensome on me (which, I suppose, is why I make a good operations person). I told my wife that if I ever had a chance to pay off the mortgage again (prior to paying it off the old fashioned way of making payments for 30 years :-)) I would. In California, you are required by law to be able to make a payment larger than you requested payment and any excess goes toward the principal. So we started making bigger payments, and between that and some bonuses and stock recovery we managed to pay it off. I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that. Now that story works because I knew that I wanted to stay in the Bay Area, there were jobs that I would be interested in (even if they didn't pay what I would prefer) and that was important to me. A relative who was more management in retail (started at Sears) found owning was a problem because it made relocation harder. As a result, even though they owned now and then, they lost money during the mortgage crisis (needed to move with their house underwater) and didn't get the advantage of just staying in one place. My wife's parents simply rented out their place and moved to a new place and bought a new house there. They ended up collecting a few properties which were their retirement plan, being sold off over time to pay for expenses when they could no longer work. That was more 'investment like' in my mind. But it was also a lot of accounting work with property managers etc. Buying a home works really well if you are married and you both have salaries (and initially no kids). The US tax system is set up to 'reward' that behavior with a better rate for married filing jointly and a mortgage deduction for owning a house. It cuts out a lot of uncertainty. But it also means moving is a bigger deal. In today's market, if you bought a house with an < 6% mortgage and are looking at buying with on >9% then they feel a bit locked in.
IshKebab 5mo ago
Well, not historically because for a lot of the last few decades, house prices have gone up dramatically more than average investments. But it does seem like that is coming to and end and of course you can't make decisions based on the future. Even so, there's still a benefit to owning which is that you aren't paying the agency fees, elevated maintenance fees, and landlord profit, which are all non-zero.
Galanwe 5mo ago
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. That is not the right way to see it. If you have the cash to buy upfront, then yes, real estate is not that good an investment, unless you have a loaded portfolio already and want to diversify a bit, get some high inflation hedge, etc. The real value of buying a home is leverage. That is, most people cannot go to a bank and borrow $500k. The bank will just not make a blank loan like that without any idea of what you're going to do with it. Buying a home though is well understood and borrowing is made relatively easy. For most people, buying a home is the only way they have to actually get significant leverage from borrowing.
- funksta 5mo ago
  Leverage is great when prices are increasing, but not when prices are moving in the opposite direction. The recent 40-year trend of decreasing interest rates lulled a lot of people into the belief that real estate leverage is an unalloyed good.
  - brabel 5mo ago
    > I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k. Well yeah, in the last 20 to 30 years in most countries the story has been the same. My parents bought a house in Brazil in the early 90's for 30k and we're now selling it for 400k. My relatives in Australia bought a house in Adelaide for 400k around 5 years ago. Prices exploded there and it's now around 700k. They got 300k dollars in a few years while actually earning less than that in salaries over the same period. On the other hand, me, in Europe, managed to lose money on a house I bought 10 years ago because I overpaid (at the time it was really hard to buy as competition was huge) and after COVID, prices in my region fell 20% and never recovered... Also, I invested too much on a new building in the property which people in this country don't actually value a lot, so the investment did not pay off. But before that I had made 60k on an apartment in just 2 years. So, while I know too well that the housing market can be unpredictable, I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.
monegator 5mo ago
Yeah, no. Fuck renting. It may be ok for 5 maybe 10 years, while you're figuring yourself out, but after that it's just wasted money. If you buy property it will be yours, forever. You will pass it down, you will be forever part of the community, and your children, and so on. Both my parents come from big farmer families, and lots of poverty. When my grandparents managed to end serfdom in the late 50's and their rented farm became their it was a huge deal: that became the family home. Like our own castle of sorts. But i guess it's a different culture, my country has the higher percentage of home owners in europe for a reason, whereas most of northern europe housing marked is dominated by speculation and renting agencies, among the worst sort of leeches that have ever lived.
- jedberg 5mo ago
  I probably should have put a big caveat in my comment: In the USA. Other countries are a whole other puzzle.
- ocdtrekkie 5mo ago
  Passing it down to your kids is huge. Unfortunately what I've learned is most people are incredibly selfish and do not actually care what happens to their family when they pass. Renting and owning may not be all that financially different to you with a mortgage of 30+ years, but it will definitely be financially different to your heirs.
  - fragmede 5mo ago
    Yes it will - you can split stocks/financial portfolio way easier than you can real estate. If your heirs don't get along, leaving them to split the house, especially if they're not well off, is a recipe for giving money to lawyers. Forcing your kids to sell their childhood home in a time of grief just seems cruel. Passing down a financial portfolio with specific shares/dollar amounts is much more straightforwards.
    - ocdtrekkie 5mo ago
      Again the difference is though that if you are renting that money is not going into your net worth. The principal from your mortgage is. Concern about difficulty with handling it is resolved by having a good will that makes preferences on how it should be handled clear.
rurp 5mo ago
Totally agree with all of this. When I was younger I'd heard that owning a home was financially a no-brainer so many times I took it as fact. Boy was I in for a surprise when the reality of actually owning a home kicked in. It's not just the less obvious overall costs that add up, it's also the variance. At any point you can be hit with a sudden expenditure of thousands or tens of thousands of dollars for a major repair. Owning does give you a lot more control over your life in certain ways, which some will find a lot of value in. If you're someone who likes doing home improvements then buying a house makes a lot of sense. Whether or not you plan to stay in the area for a while is probably the biggest factor. Buying a house makes it a lot harder to move in the future, but it also means you can't be forced to move. I had a horrible rental experience where I suddenly found out I had to move on short notice. It happened right after starting a stressful new job. Combining those two stressors made for some rough months. I know a lot of other folks with similar stories of having to scramble out of a property on short notice. Maybe the rent gets jacked up to an unaffordable level, or maybe the landlord who said they were renewing the lease suddenly changes their mind.
esalman 5mo ago
This. Our household income is 300k, and I took a big risk purchasing a home in Socal where mortgage is 50% of our take home income. In a space of 1 year or so, we went from saving two out of four paychecks each month, to sinking two into mortgage each month. For me, we have one kid and we plan to stay put for at least 10 years. It's a good school district. The quality of life is excellent considering the weather, outdoors, cultural diversity, things to do, and proximity to international airport. We have friends and family here. But to me what mattered most is that I am 40, our income is going to plateau. Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy. On the other hand, I can refinance now and bring my mortgage down to what I was paying for rent previously, and in 10-15 years be mortgage free at a place with all the benefits I mentioned above.
- onecommentman 5mo ago
  Maintaining your own home is a great hobby for guys 40 years old and older. The house may age, but your engagement and knowledge of your house steadily grows. Even contracting out the work has its interesting elements. Keeps you active as you age, both mentally and physically. The key for older homeowners is finding your querencia, the place of your heart. If where you live is your querencia, then countless options open up for you. Simply living in your home and community becomes a joy. Your community becomes an extension of your home and your heart and you become a vital part of that community. In your golden years, that community provides deep meaning and grounding when your work life quickly fades. Building that connection takes time and energy…plopping yourself somewhere else in your 60s, you may not find it. Building it now and in your 50s guarantees it’s there when you want it.
- markvdb 5mo ago
  > Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy. You don't know if you will get priced out. You don't know how housing prices will evolve in your area. They could as well go flat or fall. That uncertainty about local affordability can suffice as an argument for buying. Just don't confuse it with certainty about your future ability to afford the local area.
deleted 5mo ago
[deleted]
pixelatedindex 5mo ago
> But don't do it for financial reasons. I think I disagree on this front, but that’s probably because I ended up buying a home due to a mix of FOMO, bad landlords and rent not being too far from mortgage. Plus from a psychological perspective it’s hard to say don’t do it for financial reasons when anyone who bought a home in the last 10 years (forget 20+) has seen insane appreciation. I’m jealous of everyone who got practically free money (2-3% mortgages) on an asset that has increased at least 50%. Life probably doesn’t get better than that and makes me wish for such nice things. At least my “rent” is “set” for the next 29 years (I just bought last year) so hopefully at some point my mortgage would be something to be envious of.
hn1986 5mo ago
most of these articles neglect to mention families. so I downvote for simple lack of completeness.
sanderjd 5mo ago
Yep, it sucks to be at a landlord's mercy to determine how nice the place you live remains over time. Things will wear out. If you own the place, yes, it's expensive to fix that stuff up. But if you don't own the place, you may very well just be stuck with it. From time to time I drive by the place I rented for quite a few years almost a decade ago now. All the visible stuff that needed maintenance when I lived there is still just as it was when I moved out. Maybe they've fixed up the (worse) interior issues, but probably not.
kccqzy 5mo ago
There are plenty of psychological drawbacks as well. Consider for example that the fence between your house and your neighbor has become dilapidated. But your neighbor thinks it is fine and will not pay for a replacement. What do you do? Replace the fence without cost sharing? Argue with your neighbor on the condition of the fence? Or even after your neighbor has agreed, the act of selecting a mutually acceptable contractor to carry out the work? A lot of this feels like being a project manager, and if your day job is a project manager or even a senior engineer who sometimes wears the hat of a project manager, this could feel like a second part-time job.
- rahkiin 5mo ago
  Instead you rent, and your landlord agrees that it is fine. So now you look at a shitty fence. Which you could have done when owning the house too
  - kccqzy 5mo ago
    Well no. If you have home insurance, your insurance provider can deny you coverage based on the dilapidated appearance of the house. If you have renter’s insurance, it only covers your own belongings and won’t be affected. And as a renter you can use it as a tool to negotiate for a lower rent; good luck negotiating a lower mortgage payment or property tax. Furthermore if neighbor relations deteriorate you can always move; as a homeowner you are still stuck with an expensive asset with large transaction costs after you move.
notepad0x90 5mo ago
Even psychologically, i don't get it. you're still renting, except insurance and property taxes replace your rent, even if you pay it off fully.
- strix_varius 5mo ago
  Insurance and property taxes will never decide to occupy the house and force you to move from your home despite being willing and able to pay.
  - notepad0x90 5mo ago
    they can and do, if you're past eviction notice.
    - strix_varius 5mo ago
      Maybe read the whole sentence?
      - notepad0x90 5mo ago
        apologies for misunderstanding, I think you were being sarcastic and agreeing with me?
XCSme 5mo ago
In some countries with good pro-tenant laws, renting might be "safer", as you have more protection if anything goes wrong. If you can pay the rent, they can't really legally kick you out. It something goes wrong with the apt., the landlord usually has to sort it out (both repairs, but also in case of long-term unavilability of the flat)
drcode 5mo ago
[dead]
danny_codes 5mo ago
On the other hand, buying a home reduces mobility since selling is difficult. Always pros and cons
dennis_jeeves2 5mo ago
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. You won't - you got to account for real inflation which is about 7% in US and taxes. Note that in both cases investing (simple investing like S&P500) vs owning a house you loose. It's just that overall loses will generally be lesser if you purchase and then sell a house. I will need you to to show me figures on yearly basis if you want to tell me otherwise.
modo_mario 5mo ago
> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. Everywhere here rent has rapidly outpaced the mortgage payments and the down payment also pushed down my monthly payments significantly so it's not like nothing comes out of that. To top it off my home is far more spacious. Maybe it could work out if you went for the cheapest rent and invested the difference and happened to be that rare case that avoids a market crash. But then you'd also be living in a small appartment for at least 2 decades.

by jedberg 5mo ago

strongpigeon 5mo ago

> You don't have to worry about rent increases I'd also argue there are financial advantages (on top of the psychological ones) to the price stability as you don't have to hedge against your housing cost shooting up as much.

hdgvhicv 5mo ago
And it’s not just psychological ones, the cost of moving is expensive, so if you landlord decides to get rid of you then you’re on the hook. You’re also vulnerable to local price increases - of the area you live in increases in value because the school Gets better, prices increase, and you have to move and your kids have to move school.
ThrustVectoring 5mo ago
Owning the asset is an advantage in a bull market and a disadvantage in a bear market. If a dominant employer or industry in an area has mass layoffs, that can cascade into the housing market, driving your property underwater at the same time your job vanishes. This happened to a large number of autoworkers in Detroit in 2008.
asdff 5mo ago
Depends where you live. CA has prop 13 but other places you are reassessed regularly and plenty of homeowners are surprised to get priced out of their homes.
danny_codes 5mo ago
Depends where you live. Any sensible municipality will tax land at it's value, so your costs should rise according to value. Of course most municipalities are failures when it comes to taxation, so probably it's a better deal to own land in those places.

vikingerik 5mo ago

Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent. There are tax advantages that favor owning (in the US), for a primary resident and not an arbitrageur - mortgage interest and capital gains when you sell are not taxed, while capital gains in a non-retirement account are. You can gain by appreciation and leverage, of course - but you can just as easily not, you don't know if your city is going to be the next high-flying Austin or Boulder, or run-down Detroit. My own house has been flat in estimated value for four years in an area that I thought would continue to rise.

ThrustVectoring 5mo ago
There's significant personal financial benefits to renting, too, in that many local areas are dominated by one firm or industry as a major employer, so your employment prospects can be highly correlated with the local housing market. You do not want your investments to be correlated with your employment if at all reasonable. Detroit in particular was hard hit by this in the '08 financial crisis, iirc - the automotive industry had huge layoffs and a simultaneous residential real estate market collapse, and many newly laid-off workers were underwater on their home and practically unable to sell to move for better job prospects.
- smithza 5mo ago
  This is something that is hard for people to factor in when decision making. Optimism will blind us from considering such a tragedy since not only was there buy-in on the home, there was buy-in on the future trajectory of the company you decided to work for.
rwmj 5mo ago
But the same argument applies to landlords too. Why are they willingly losing money?

bloomca 5mo ago

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. You'd actually end up in a much better place historically, homes were never a particularly good investment in the US, but there are very few people who can pull it off and actually invest the difference and not just spend it.

sdellis 5mo ago

I don't think that's good advice. I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. It's way more tangible for people than trusting some index fund with their savings, especially if they can maintain the home, improve it, and do repairs mostly themselves. And bonus... when you sell, you don't have to wait until you're 60 years old to spend it!

jedberg 5mo ago
My advice was to not delude yourself into thinking you're buying as an investment, and instead convince yourself to buy for psychological reasons. That seems in line with what you said.
Paracompact 5mo ago
> I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. https://www.macrotrends.net/3072/us-house-price-index https://www.macrotrends.net/3072/us-house-price-index (~3x in the past 30 years, about 3.7% return per year) https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat... (~15x in the past 30 years, about 9.3% return per year) This is in line with conventional wisdom on return rates for these asset classes: https://awealthofcommonsense.com/2024/01/what-is-the-historical-rate-of-return-on-housing/ https://awealthofcommonsense.com/2024/01/what-is-the-histori... Unless you are comparing retrospectively hot-shot real estate with retrospectively mediocre stocks, then stock market investment has always won out substantially over real estate investment in terms of raw return rate. This makes sense, given that if the opposite were really true, then it would make no sense to invest in productive businesses as opposed to holding companies that just hoarded empty houses indefinitely.
- jstanley 5mo ago
  You're missing that most people are able to buy houses on borrowed money, so their housing investment is effectively levered up 10x or more, at least at the beginning. It's not a choice between $1m in housing appreciating at 3% and $1m in stocks appreciating at 9%. It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.

inanutshellus 5mo ago

Neighbors of owned-properties: - care about the long-term effects of their actions - care about the plan of their surroundings - plan to stick around This is a HUGE part of the psychological benefit you refer to of buying. Notably this is equally applicable to any occupant-owned property (e.g. condos > apartments).

gib444 5mo ago
Can attest to this, living on a street which each year sees houses sold off to landlords, and now there are very few of us occupying-owners left. The renters all have rubbish in their front and back yard, have more pets that they let bark and poo everywhere, smoke weed etc.
- bombcar 5mo ago
  This has more to do with how the neighborhood is going (literally “to the dogs”) than it does with renting - you’d be surprised at the houses that look owner occupied but are actually rentals.
huhkerrf 5mo ago
Yeah, but it's also one of the downsides. "Care about the plan of their surroundings" can just as easily turn into the HOA drama that many prefer to avoid.
- deleted 5mo ago
  [deleted]
- y1n0 5mo ago
  HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed. As much as I hate many stupid rules and seemingly unfair application of them, I do like that it mitigates against people that just don't give a shit about their property or the impact of their life choices on others.

DanielHB 5mo ago

This isn't really true in many HCOL areas, a mortgage payment + amortization can be cheaper than renting an equivalent property. On top of that the amortization of your loan doesn't incur capital gains tax. Even if your property doesn't appreciate more than inflation you can still profit massively from owning just through the loan amortization. Only being forced to sell during a market crash could realistically cause a big downside, but the upside is substantial compared to the risk. It is also the safest leverage investment most people can do and the cheapest way to diversify away from stock market. In fact paying off your mortgage is usually better risk/profit calculation than buying bonds as mortgage interest is usually higher than bond interests[1]. If you hold any significant amount on bonds you are better off using that money for a downpayment. Everyone here is doing the cold hard math on 100% stocks when every financial advisor says you should diversify to reduce risks. Of course if you go 100% stocks and assume average returns will keep going forever (and not, you know, go full 90s Japan) the math will say stocks. But if you add any sort of risk lowering diversification a mortgage is usually the best one you can get. [1]: I live in Sweden where almost everyone has floating interest rates for mortgages, I know US people can lock in their interest at low or high rates for decades which can skew the calculations

thfuran 5mo ago
In the US, there's a pretty significant capital gains tax exclusion on the sale of primary residence too.
- DanielHB 5mo ago
  In Sweden 30% of interest payments on mortgages is tax deductible. When I sold my old flat and even though it only appreciated like 10% over 4 years (about the same as inflation) I still got a lot of money when I got the loan settled. 4 years of amortization at 2% per year is 8% of the original value of the apartment, tax free. And my mortgage+HOA fee was actually lower than my rent was before even before the interest tax deduction. So after sales fees (also tax deductible), moving costs, capital gains, etc I think I saved around 15% after-tax of the total value of the apartment compared to renting over a span of 4 years. Given my downpayment was 15% I roughly doubled my downpayment money in 4 years. That is a return of ~22.5% compounding per year _after tax_, which is much better than the average stock market returns. Of course I got there is some luck involved (my apartment didn't go down in value, I didn't need to do any renovations, etc), but I could potentially have profited even more if it had appreciated more. And that is on top of the real estate risk diversification benefits compared to stocks.

Imustaskforhelp 5mo ago

Yes the benefit is psychological but I think there's more to it as well. Firstly within investing, I am assuming that a person has safety net amount of money before properly investing. This is something that I have heard some people don't exactly do. As such, what happens is that, they might lose a job and have to pay rent and might have to sell the stocks or any index fund/investments that they had within the market (which depends on if the market is doing good or bad too) and overall snatches opportunity for money to actually grow for years. I recommend having a safety net but I must admit that there is still some psychological stress overall due to multitude of factors, as such, if possible, buying a house feels like it might be overall decent choice and the differences might not be so much. that being said, I do think that it depends upon the land prices and many other things overall too. Also, this is tangential but I used to be a boglehead, still am but with recent cases of Nasdaq[0] & I think S&P bending towards SpaceX and AI IPO's by literally bending rules, it does feel like the investment markets might be more shaky given other factors (Not a financial advice at all) but I recommend looking towards dimensional index funds which do just a very bit more than index funds if the addition of floaty investments like SpaceX and other IPO's make you fear similar to me. But the thing is that the downstream effects of it will still be visible, for example, just imagining if SpaceX gets added to IPO and then quickly added to Nasdaq/S&P and then it falls substantially for any reason. The thing is that the market itself would be spooked and other funds would be impacted too. I have belied in the market efficiency hypothesis but a lot of it feels like private equity trying to raise evaluations to then push it to index funds (by in this case, asking nasdaq to bend the rules to force passive investors to buy and hold the bags basically impacting retirement accounts too and perhaps even govt bailouts but basically it becomes privatization of gains and socialization of losses and becoming too big to fail. I must say that it feels a bit of blatant corruption in some instances like the one for SpaceX and this removes my confidence within markets. I do recommend overall diversification for world stocks and also housing if affordable. I wish to still invest in markets but with a bit more caution rather than blind optimism. Also no, active investing doesn't quite work either reading john bogle books and other resources and passive investing is still superior to active investing overall but just with more caution. That's all. [0]: https://www.thestreet.com/latest-news/new-nasdaq-rules-open-door-for-spacex-other-tech-giants-to-join-passive-index-funds-immediately-after-ipo https://www.thestreet.com/latest-news/new-nasdaq-rules-open-...

pdonis 5mo ago

The control benefit isn't just psychological; it can have real financial consequences. If you own your home, you can't be told by a landlord that their pet policy has changed and you will have to move out. You also can't have your landlord sell the place where you're living out from underneath you and inform you that the buyer doesn't want to rent the place out any more and you will have to move out. Both of those things have happened to me, and at pretty short notice (about a month to find a new place and move both times), and they were significant costs that I did not expect to have to pay.

Aurornis 5mo ago

One term for this is "price-to-rent ratio" which is as simple as it sounds. The ratio has a wide range from city to city. Full financial analysis gets complicated quickly because you have to consider mortgage rates, inflation, opportunity cost of the invested money, and how long you're keeping the house. It's possible to pick the more financially optimal decision using today's numbers and then have your perfect plan clobbered by a collapsing housing market, extreme swings in interest rates, or being forced to move early.

srinathkrishna 5mo ago

This! As someone who moved 6 times in 8 years (admittedly, some of those were for work), and every time, I relied on moving things myself/with friends, I was just tired any more! For the last move, I hired movers since I was already married by then and our stuff tripled (yes, mine was a very small portion). The fact that I don't have to move for a while now gives me a lot of peace!

ChuckMcM 5mo ago

Yeah this. But some additional flavor to emphasize the 'don't do it for financial reasons' aspect. In the late 90's I, like a number of my married friends, 'owned' a house in the Bay Area. Dot coms were going crazy, the economy was insane, and people who got big equity payouts were buying places with their stock. At the height of all that, my Sun stock holdings were enough to pay off the remainder of my mortgage but I got the "opportunity cost" talk from my financial advisor about how tech stocks were returning 15 to 20% and more, so what I should really do, is refinance, and put my equity into tech stock! I didn't do that but at least two people I knew did. And when the crash came, the friends that had refinanced ended up selling their houses an moving out of the area, and I was left with the dread associated of being an "older" engineer when tech jobs were on the way out. But I still had a mortgage and kids to support. Had I paid the house off I would be in a position to take a job with much lower pay than my last job and still stay in my house (with just the tax,insurance,utilities and maintenance costs). The psychological cost of 'uncertainty' is especially burdensome on me (which, I suppose, is why I make a good operations person). I told my wife that if I ever had a chance to pay off the mortgage again (prior to paying it off the old fashioned way of making payments for 30 years :-)) I would. In California, you are required by law to be able to make a payment larger than you requested payment and any excess goes toward the principal. So we started making bigger payments, and between that and some bonuses and stock recovery we managed to pay it off. I still got complaints from my financial advisor that she could get us a better return than that, but I didn't care. I wanted more certainty than that. Now that story works because I knew that I wanted to stay in the Bay Area, there were jobs that I would be interested in (even if they didn't pay what I would prefer) and that was important to me. A relative who was more management in retail (started at Sears) found owning was a problem because it made relocation harder. As a result, even though they owned now and then, they lost money during the mortgage crisis (needed to move with their house underwater) and didn't get the advantage of just staying in one place. My wife's parents simply rented out their place and moved to a new place and bought a new house there. They ended up collecting a few properties which were their retirement plan, being sold off over time to pay for expenses when they could no longer work. That was more 'investment like' in my mind. But it was also a lot of accounting work with property managers etc. Buying a home works really well if you are married and you both have salaries (and initially no kids). The US tax system is set up to 'reward' that behavior with a better rate for married filing jointly and a mortgage deduction for owning a house. It cuts out a lot of uncertainty. But it also means moving is a bigger deal. In today's market, if you bought a house with an < 6% mortgage and are looking at buying with on >9% then they feel a bit locked in.

IshKebab 5mo ago

Well, not historically because for a lot of the last few decades, house prices have gone up dramatically more than average investments. But it does seem like that is coming to and end and of course you can't make decisions based on the future. Even so, there's still a benefit to owning which is that you aren't paying the agency fees, elevated maintenance fees, and landlord profit, which are all non-zero.

Galanwe 5mo ago

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. That is not the right way to see it. If you have the cash to buy upfront, then yes, real estate is not that good an investment, unless you have a loaded portfolio already and want to diversify a bit, get some high inflation hedge, etc. The real value of buying a home is leverage. That is, most people cannot go to a bank and borrow $500k. The bank will just not make a blank loan like that without any idea of what you're going to do with it. Buying a home though is well understood and borrowing is made relatively easy. For most people, buying a home is the only way they have to actually get significant leverage from borrowing.

funksta 5mo ago
Leverage is great when prices are increasing, but not when prices are moving in the opposite direction. The recent 40-year trend of decreasing interest rates lulled a lot of people into the belief that real estate leverage is an unalloyed good.
- brabel 5mo ago
  > I bought my current home in 2011 for $420k, and the Zillow currently estimates its value at $757k. Well yeah, in the last 20 to 30 years in most countries the story has been the same. My parents bought a house in Brazil in the early 90's for 30k and we're now selling it for 400k. My relatives in Australia bought a house in Adelaide for 400k around 5 years ago. Prices exploded there and it's now around 700k. They got 300k dollars in a few years while actually earning less than that in salaries over the same period. On the other hand, me, in Europe, managed to lose money on a house I bought 10 years ago because I overpaid (at the time it was really hard to buy as competition was huge) and after COVID, prices in my region fell 20% and never recovered... Also, I invested too much on a new building in the property which people in this country don't actually value a lot, so the investment did not pay off. But before that I had made 60k on an apartment in just 2 years. So, while I know too well that the housing market can be unpredictable, I would continue to bet on it going up in most markets since the conditions which made prices increase have not changed.

monegator 5mo ago

Yeah, no. Fuck renting. It may be ok for 5 maybe 10 years, while you're figuring yourself out, but after that it's just wasted money. If you buy property it will be yours, forever. You will pass it down, you will be forever part of the community, and your children, and so on. Both my parents come from big farmer families, and lots of poverty. When my grandparents managed to end serfdom in the late 50's and their rented farm became their it was a huge deal: that became the family home. Like our own castle of sorts. But i guess it's a different culture, my country has the higher percentage of home owners in europe for a reason, whereas most of northern europe housing marked is dominated by speculation and renting agencies, among the worst sort of leeches that have ever lived.

jedberg 5mo ago
I probably should have put a big caveat in my comment: In the USA. Other countries are a whole other puzzle.
ocdtrekkie 5mo ago
Passing it down to your kids is huge. Unfortunately what I've learned is most people are incredibly selfish and do not actually care what happens to their family when they pass. Renting and owning may not be all that financially different to you with a mortgage of 30+ years, but it will definitely be financially different to your heirs.
- fragmede 5mo ago
  Yes it will - you can split stocks/financial portfolio way easier than you can real estate. If your heirs don't get along, leaving them to split the house, especially if they're not well off, is a recipe for giving money to lawyers. Forcing your kids to sell their childhood home in a time of grief just seems cruel. Passing down a financial portfolio with specific shares/dollar amounts is much more straightforwards.
  - ocdtrekkie 5mo ago
    Again the difference is though that if you are renting that money is not going into your net worth. The principal from your mortgage is. Concern about difficulty with handling it is resolved by having a good will that makes preferences on how it should be handled clear.

rurp 5mo ago

Totally agree with all of this. When I was younger I'd heard that owning a home was financially a no-brainer so many times I took it as fact. Boy was I in for a surprise when the reality of actually owning a home kicked in. It's not just the less obvious overall costs that add up, it's also the variance. At any point you can be hit with a sudden expenditure of thousands or tens of thousands of dollars for a major repair. Owning does give you a lot more control over your life in certain ways, which some will find a lot of value in. If you're someone who likes doing home improvements then buying a house makes a lot of sense. Whether or not you plan to stay in the area for a while is probably the biggest factor. Buying a house makes it a lot harder to move in the future, but it also means you can't be forced to move. I had a horrible rental experience where I suddenly found out I had to move on short notice. It happened right after starting a stressful new job. Combining those two stressors made for some rough months. I know a lot of other folks with similar stories of having to scramble out of a property on short notice. Maybe the rent gets jacked up to an unaffordable level, or maybe the landlord who said they were renewing the lease suddenly changes their mind.

esalman 5mo ago

This. Our household income is 300k, and I took a big risk purchasing a home in Socal where mortgage is 50% of our take home income. In a space of 1 year or so, we went from saving two out of four paychecks each month, to sinking two into mortgage each month. For me, we have one kid and we plan to stay put for at least 10 years. It's a good school district. The quality of life is excellent considering the weather, outdoors, cultural diversity, things to do, and proximity to international airport. We have friends and family here. But to me what mattered most is that I am 40, our income is going to plateau. Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy. On the other hand, I can refinance now and bring my mortgage down to what I was paying for rent previously, and in 10-15 years be mortgage free at a place with all the benefits I mentioned above.

onecommentman 5mo ago
Maintaining your own home is a great hobby for guys 40 years old and older. The house may age, but your engagement and knowledge of your house steadily grows. Even contracting out the work has its interesting elements. Keeps you active as you age, both mentally and physically. The key for older homeowners is finding your querencia, the place of your heart. If where you live is your querencia, then countless options open up for you. Simply living in your home and community becomes a joy. Your community becomes an extension of your home and your heart and you become a vital part of that community. In your golden years, that community provides deep meaning and grounding when your work life quickly fades. Building that connection takes time and energy…plopping yourself somewhere else in your 60s, you may not find it. Building it now and in your 50s guarantees it’s there when you want it.
markvdb 5mo ago
> Renting is good advice, but in 5-10 years, we won't be able to afford rent here, let alone buy. You don't know if you will get priced out. You don't know how housing prices will evolve in your area. They could as well go flat or fall. That uncertainty about local affordability can suffice as an argument for buying. Just don't confuse it with certainty about your future ability to afford the local area.

deleted 5mo ago

[deleted]

pixelatedindex 5mo ago

> But don't do it for financial reasons. I think I disagree on this front, but that’s probably because I ended up buying a home due to a mix of FOMO, bad landlords and rent not being too far from mortgage. Plus from a psychological perspective it’s hard to say don’t do it for financial reasons when anyone who bought a home in the last 10 years (forget 20+) has seen insane appreciation. I’m jealous of everyone who got practically free money (2-3% mortgages) on an asset that has increased at least 50%. Life probably doesn’t get better than that and makes me wish for such nice things. At least my “rent” is “set” for the next 29 years (I just bought last year) so hopefully at some point my mortgage would be something to be envious of.

hn1986 5mo ago

most of these articles neglect to mention families. so I downvote for simple lack of completeness.

sanderjd 5mo ago

Yep, it sucks to be at a landlord's mercy to determine how nice the place you live remains over time. Things will wear out. If you own the place, yes, it's expensive to fix that stuff up. But if you don't own the place, you may very well just be stuck with it. From time to time I drive by the place I rented for quite a few years almost a decade ago now. All the visible stuff that needed maintenance when I lived there is still just as it was when I moved out. Maybe they've fixed up the (worse) interior issues, but probably not.

kccqzy 5mo ago

There are plenty of psychological drawbacks as well. Consider for example that the fence between your house and your neighbor has become dilapidated. But your neighbor thinks it is fine and will not pay for a replacement. What do you do? Replace the fence without cost sharing? Argue with your neighbor on the condition of the fence? Or even after your neighbor has agreed, the act of selecting a mutually acceptable contractor to carry out the work? A lot of this feels like being a project manager, and if your day job is a project manager or even a senior engineer who sometimes wears the hat of a project manager, this could feel like a second part-time job.

rahkiin 5mo ago
Instead you rent, and your landlord agrees that it is fine. So now you look at a shitty fence. Which you could have done when owning the house too
- kccqzy 5mo ago
  Well no. If you have home insurance, your insurance provider can deny you coverage based on the dilapidated appearance of the house. If you have renter’s insurance, it only covers your own belongings and won’t be affected. And as a renter you can use it as a tool to negotiate for a lower rent; good luck negotiating a lower mortgage payment or property tax. Furthermore if neighbor relations deteriorate you can always move; as a homeowner you are still stuck with an expensive asset with large transaction costs after you move.

notepad0x90 5mo ago

Even psychologically, i don't get it. you're still renting, except insurance and property taxes replace your rent, even if you pay it off fully.

strix_varius 5mo ago
Insurance and property taxes will never decide to occupy the house and force you to move from your home despite being willing and able to pay.
- notepad0x90 5mo ago
  they can and do, if you're past eviction notice.
  - strix_varius 5mo ago
    Maybe read the whole sentence?
    - notepad0x90 5mo ago
      apologies for misunderstanding, I think you were being sarcastic and agreeing with me?

XCSme 5mo ago

In some countries with good pro-tenant laws, renting might be "safer", as you have more protection if anything goes wrong. If you can pay the rent, they can't really legally kick you out. It something goes wrong with the apt., the landlord usually has to sort it out (both repairs, but also in case of long-term unavilability of the flat)

drcode 5mo ago

[dead]

danny_codes 5mo ago

On the other hand, buying a home reduces mobility since selling is difficult. Always pros and cons

dennis_jeeves2 5mo ago

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. You won't - you got to account for real inflation which is about 7% in US and taxes. Note that in both cases investing (simple investing like S&P500) vs owning a house you loose. It's just that overall loses will generally be lesser if you purchase and then sell a house. I will need you to to show me figures on yearly basis if you want to tell me otherwise.

modo_mario 5mo ago

> If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. Everywhere here rent has rapidly outpaced the mortgage payments and the down payment also pushed down my monthly payments significantly so it's not like nothing comes out of that. To top it off my home is far more spacious. Maybe it could work out if you went for the cheapest rent and invested the difference and happened to be that rare case that avoids a market crash. But then you'd also be living in a small appartment for at least 2 decades.