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Comment by hueving | Hacker News Reader

It's interesting how perspectives change. If you talk to older folks they will point out that even 20% down was 'low'. I think my father had to have something like half to get a mortgage (late 1960s).

I can't help but wonder if we would have much more affordable housing if it wasn't so easy to get such massive loans relative to their down-payments.

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I don't think that's in question; The simple fact is money for housing is cheap right now, which means it requires more of it to convince owners to part with their assets as most of them still need to buy elsewhere after they sell a house.

If money was hard to come by, houses would be cheaper, but then you would also have more difficulty getting that money to start with. I'm not sure the affordability would improve, it's hard to say what other impacts a higher interest rate (or even more so, a higher % down requirement) market would create.

The only exception to all this are new houses and condo builds, but in those markets the reason they're more affordable comes down to a combination of location and risk, risk that the property may not actually be worth its selling price, so you get it at a 'discount' to the market if it were in a more established area.

> ... most of them still need to buy elsewhere after they sell a house.

This is one reason that I never understood people treating their first house as an investment. Yay, it went up 50%... And so did the house you'll buy after you sell it. You need to live somewhere. Your first house is covering a short position, not an investment.

It is a mistake to treat housing as an investment but that doesn't mean it can't be for the right circumstances, e.g., many who bought homes in Silicon Valley 20+ years ago have seen their home prices double or triple and they can easily go to other parts of the country where they can buy a replacement home of comparable quality for less than half the sales proceeds of their current home, pocketing the difference. This is most certainly an anomaly in the context of the broader housing market. But it is a huge benefit for those who do happen to benefit in this way.

20+ years ago? Probably more like 10x.

edit: in nominal terms.

Couldn't you apply that for anywhere in the market? Eg. my money is in index funds, but if the market collapses, the value of my index funds gets wiped out and I can't exactly buy a house on the cheap ...

If the market collapses, you're screwed anyway, but at least your index fund is diversified (I hope) and liquid, whereas your house is the most undiverse and illiquid asset you can buy.

I'm not quite sure what you mean. My point is that you need somewhere to live. It's like being short a stock and you need to cover. Covering a short is closing an investment position, not opening one. If you sell the house, now you're short again and need to cover. Once you buy your second property you are actually investing.

For a great many people, it's a forced savings mechanism; where the accumulated equity is, in fact, invested in property.

Taxes. It's hard to save that amount of money without paying a lot in taxes.

It also is highly leveraged. If you start at 20% down with a 3% interest rate, you won't have 50% equity until around year 14-15. Since most people move by then, you are spending most of the time with 2-5x leverage on the gains.

But where you had to scrape together 20% of your first house at (say) 100k, you then made payments for 10 years and now have $50k left on the loan for a house you can sell for $150k.

If your second house was originally $150k, now $225k, you now have a 44% down payment.

Do you know if there's a good calculator for this to determine what growth you need to make this work assuming moving within the same general area with similar market growth? Having trouble following your logic through to an actual model.

Any growth will yield this "amplification". The given numbers represent about 4% continual growth. This is basically the "forced savings" line of thought, but with numbers attached. The trick is that you are realizing the gains on the entire value of the house, even though you only actually own part of it. Of course, this works against you if the prices fall, as you also realize all the losses. Which is something many people found out the hard way when their mortgages went underwater in the 2000's.

EDIT: Here's the numbers with -4% growth instead. That $100k house is now worth $67k. You still paid $50k over 10 years, so you walk away with $17k. That $150k house is now $100.5k. So your down payment went from 20% to 17%.

To compare, if we simply had invested $20k into a -4% stock, buying $250 more a month ($30k / 120 months), we end up with ~$19.6k instead of $17k, so that extra $2.6k hit was the "whole amount" penalty paid.

A house is an investment. It isn't a liquid investment which is something to consider.

A house as an investment only pays off after a long term: if you live in the house for 30 years (doesn't have to be the same house, though trading will change the time), you have your mortgage paid off. Suddenly your monthly rent goes to near zero (only taxes and maintenance to pay) Better yet, odds are you are nearing a different phase of life (kids living on their own) and you don't need as much house so you can downsize and apply the difference to your retirement plans. (or if you decide the house is where you want to live for life a reverse mortgage might make sense - though this area is full of scams)

Note that real estate is very much about location location location. There are places and times where the difference between rent and a house payment is significant and it isn't always in favor of either one.

Also comparing renting and buying is NEVER an apples to apples comparison: owning vs renting nearly forces different life styles. Renting typically means you get a much smaller place for less money which means you have less room to have fun at home, but more money to enjoy the time on the town. Buying typically means a larger place to fill with the type of things you like to do with your small family. This lifestyle factor is very important, and not one that you can put a monetary value on

> A house is an investment.

As a rental, sure. As a home? yeah, i'm pretty skeptical of that idea. There's no rate of return.

Some people buy a big house to raise a family, and then downsize when the kids move out. I can kinda sorta see that as an investment, because you've got a planned future exit, and the value you extract from the extra space is more than the 1-2% rate of return.

Your cheap place to live is just a cheap place to live. Sure, in the long run, it's a good deal, but there's no rate of return. Is McDonalds for lunch is an investment, because it's cheaper that a fancier place?

Owning a home is functionally equivalent to renting from yourself. So if a rental property is an investment, then so is owning your own home.

I also don't understand how you can claim there's no rate of return. Home values have historically trended upward reliably. Does the stock market also have no rate of return?

> Renting typically means you get a much smaller place for less money

Sure, if you are choosing units at random, rentals are smaller (since there are, in most place, lots more small rental apartments, and not as many small places for sale), but people choosing own vs. rent aren't choosing to either rent a random available rental or buy a random property off the sale market, they are looking to meet their housing needs, and comparing rental vs. purchase options meeting those needs.

I'm pretty sure most people do indeed rent less than they buy. It's easy to justify buying larger. You might be thinking about starting a family. You're definitely thinking about being there for a long time. Renting, on the other hand, can feel temporary. If you outgrow it, it's easy to move. Dumping extra money into a home you own also feels a bit more like investing, because the additional square footage will appreciate even if you don't need it. Meanwhile buying a rental bigger than you need mostly feels like wasted money.

I'd be interested in seeing stats, but I bet the claim that renters choose smaller spaces (even after adjusting for income) holds up.

If you're looking to compare, then just use a calculator:

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...

You are invested in your community. Moving to avoid a problem is more expensive and potentially unaffordable when you own.

Because it is an investment.

If you live in one house and buy a second to rent out, the second house is clearly an investment. If you rent an apartment to live in and buy a house to rent out, that house is also an investment property for all the same reasons as the second house in the first scenario. If you mortgage a house and live in it, this is actually the same as the second scenario. You just happen to be renting from yourself.

I also fail to see how your first house could at all be considered covering a short. Buying a house is a bet that the value will go up. If you want to short the housing market, you rent.

I've always thought if it as:

Renting, 0 houses owned = short

Normal homeowner, 1 house owned = neutral

Investor, >1 house owned = long

You gotta live somewhere!

Fair enough. If you think that the housing market is flat, it can still make sense to buy, so that could be considered neutral.

It sort of makes sense, if you choose to leave an expensive area and move to a cheaper one. But even then, other financial products could have helped you save that way.

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