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It doesn't. But the discussion of the common sense idea does, because otherwise the conversation becomes unwieldy getting mired in aspects that aren't all that

It doesn't. But the discussion of the common sense idea does, because otherwise the conversation becomes unwieldy getting mired in aspects that aren't all that significant, in general. For example...interest payments will not eat 100% like rent so the fact that interest payments could be higher is nearly irreverent. You can pay $400/year for maintenance protection for your home so the maintenance costs are nearly negligible. This is the most significant factor you mentioned: The middlemen payments amount to less than 5% of the purchase price (for the purchaser). This can be a problem if someone needs to buy and sell relatively frequently but as long as it doesn't add up to the difference between rent and the amount of equity stored in the time that the person owns the home it is still better to buy. But, you are correct, this is a significant risk. Keep in mind, we are not talking about owning a home as an investment. We are talking about owning a home compared to renting. As long as you are not taking a a full loss and then some it is still superior to renting which is a guaranteed 100% loss.

mikeash 13y ago
Maybe things are different where you live, but around here, the realtors take 3% each (buyer's and seller's), and then there's taxes, title company, appraisals, etc. It's not 5%, it's more like 8%. Yes, if the amount you save by buying outweighs what you spend on buying, then you're better off buying. That is actually "common sense". But the problem I have with your supposed "common sense" scenario is that it completely ignores this by claiming that having a small amount of equity after a year is a win. Buying a house loses money up front. The only reason it's worthwhile is if the long-term tradeoff is worth it. That long-term gain almost never happens after a single year. It's typically 5-10 years before you break even. So no, $10 in equity is not better than the $0 you'd bank if you rented, because you're ignoring the tens of thousands of dollars you paid out up front.

mikeash 13y ago

Maybe things are different where you live, but around here, the realtors take 3% each (buyer's and seller's), and then there's taxes, title company, appraisals, etc. It's not 5%, it's more like 8%. Yes, if the amount you save by buying outweighs what you spend on buying, then you're better off buying. That is actually "common sense". But the problem I have with your supposed "common sense" scenario is that it completely ignores this by claiming that having a small amount of equity after a year is a win. Buying a house loses money up front. The only reason it's worthwhile is if the long-term tradeoff is worth it. That long-term gain almost never happens after a single year. It's typically 5-10 years before you break even. So no, $10 in equity is not better than the $0 you'd bank if you rented, because you're ignoring the tens of thousands of dollars you paid out up front.