A house is a terrible investment (2013) | Hacker News Reader

A house is a terrible investment (2013)

jlcollinsnh.com

20 pointskaues17 comments

I realise a stock market index fund will perform better than real estate over the long term, but not all real estate is the same.

Surely, buying a property in a vibrant city that is growing and is a nice place to live will likely mean your property value will greatly outpace inflation in the long term?

We bought a house over 10 years ago for $361k spending $50k of our own money.

We sold it last year for $900k.

I don't think it was a terrible investment...

Could we have got similar returns by investing $50k in the stock market instead? Remember, the cost to pay off the mortgage is mostly offset by the fact you would otherwise have to pay rent.

The stock market wouldn't have kept you warm and dry for 10 years as well!

That's a very good profit even when accounting for interest (~$144k), taxes (~$29k) and maintenance (not sure, maybe $10k a year?). Definitely better than 2.5x your $50k with an index fund tied to S&P 500.

Even better, I live in New Zealand - we have no capital gains tax here!

The author doesn't really take into account that many people seek stability, not maximum profit. The article is out of scope for most who consider a house in favor of renting.

True. When this topic comes up in /r/personalfinance or /r/financialindependence it's usually from the point of view that an investment is purely a means to make money given some up-front. It specifically excludes things that people want or need outside of the investment itself.

Then usually the conversation follows into your point. There are plenty of other reasons to buy a house. Buying a house with only the intent on making money is the point they're discussing.

> Buying a house with only the intent on making money is the point they're discussing.

Even from that perspective the article manages to miss a critically important point. Nobody buys a house as an investment and leaves it empty until they sell it. They buy it and rent it out, so any analysis that leaves out rental income is a bit of a joke.

That makes sense a lot of sense and I agree.

I don't specifically have any reason to try and defend the point of the article, but it sounds kind of fun anyway. Really I think the article is taking aim at the notion that buying a home and holding it will mean the owner makes money, though it doesn't specifically say this.

I believe if you were to ask somebody who was looking to buy a house 20 years ago they would actually be convinced it was a good way to invest. At least I've had multiple people of older generations tell me this. Why though? I believe that was because of the increase in value of homes in the coastal USA post-WW2 [1]. Home values grew quite substantially between the 1950-2000. I believe that since people were forced to consistently pay into a mortgage to own the home, it forced people to put money into a fixed asset consistently. I suspect it was billed as some kind of weird saving or investment strategy because of that.

So yeah, you're absolutely right. But I do think that's what this article and conversations around this point generally are aiming at but forget to mention.

[1]: https://www.census.gov/hhes/www/housing/census/historic/valu...

Stability really helps humans focus on other ways to generate revenue and profit.

And the "rent" declines over time. 12 years ago my mortgage of $1700 seemed expensive. Currently comparable rents in my area are over $2500. It gets better the longer one owns

That's assumed by saying houses are terrible investments. In many countries, stability is probably the number one reason why buying a house is ideal. In others, you can safely rent knowing you won't get kicked out thanks to strong tenants rights - in these countries, many are happy to rent as they get the stability they need without the hassle of investing.

I disagree that the statement is implying that. That statement is often used colloquially to mean that buying a house is a bad financial decision, specifically aimed at people looking for a place to live.

Knowing you have the largest factor of your cost of living fixed for the next 15 or 30 years is powerful for budgeting and planning. I've lived places where the increasing rent has pushed me out of my apartment home.

A house is the only highly leveraged long term asset not subject to margin calls. In a normal fixed interest mortgage, you can be forced to liquidate based on inability to service the debt, but not because of depreciation of the asset. This is neglected in most analyses of relative return.

Housing markets can dip, but they won't dip like the stock market dips. Housing is a lot more stable.

Houses can also return more than inflation, if the local market is favorable.

Another aspect I’ve observed is that housing inventory of for sale houses is of higher quality than rental houses.

Discussed in 2018: https://news.ycombinator.com/item?id=16899376

Url changed from https://kaue.me/posts/2019/10/16/jl-collins-why-your-house-i..., which points to this.

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