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I did not buy a house because I expected it to appreciate in value. I bought a house because the alternative was to pay rent.

Rent is a service. A renter does not get anything of inherent, transferable value out of the exchange. A renter is also subject to the whims of his/her landlord and, from my experience, a renter has to move regularly to avoid rent increases and bad landlords.

The majority of my mortgage payment goes towards ownership of a product - my house - which has inherent, transferable value. When I'm ready to move again, I can sell my house and put that money towards acquiring a new one using less debt. Meanwhile, I don't have to worry about landlord problems or rent increases so I can wait to move until I am ready.

I'd say that's a perfectly good reason to take on some debt. After all, if that money wasn't going to the bank, then it would just go to a landlord instead.

EDIT: I'm not saying rent is bad. It is a perfectly reasonable option for many people depending on their preferences and circumstances. I just wanted to highlight the reasons why I chose to take on some debt to buy a house, regardless of whether it will appreciate in value.

> The majority of my mortgage payment goes towards ownership of a product - my house

For many (most?) people that's not true. Even ignoring that mortgage payments often include property taxes and/or private mortgage insurance, you can expect to pay more interest than principal for the first fifteen years or more of a thirty-year mortgage.

Yes, if you look at your mortgage payments, very little is going to principal.

On the flipside, when you rent, you get certain services—maintenance of property and major appliances—that you don't get as a home owner. When I started my mortgage I was surprised at how much money I started spending on home stuff that I never used to spend as a renter. Partly it's because you own it so you have higher standards, but partly you're just eating costs that used to be hidden.

Exactly. Some would say I'm wasting money by renting. I'd say I'm saving myself time and stress by not becoming an unpaid novice handyman, and not spending money on home improvements that I could do without.

But you pay for those in the form of rent. As a homeowner you can also pay someone to do those things. There are a ton of property management companies that will handle a single house if you want to completely hand it off to someone.

In general when renting you usually rent a LOT less than you end up buying which I think is where many people get the "renting is cheaper than buying" thought.

It's not like your landlord magically eats all these extra costs. They pass them on to you.

It depends on the market. In most of the US, buying is cheaper all things considered, but that’s not always true. Would you rather buy or rent in Flint?

I think we can put property taxes aside, you’ll have to pay your landlords property taxes if you rent after all.

If you can afford the cost of a down payment (more on that later), then buying a home does have some utility in wealth generation. You’re right that most of the initial mortgage payments go towards interest, but even collecting 25% of your monthly payment towards your own net worth is a big deal compared to collecting 0%. Especially since there is a good chance that your landlord has a mortgage too, either original or secondary to afford more property, so you must pay their interest plus a portion of their living expenses. This is why generally speaking home ownership is considered superior to renting if you’re not going to move anytime soon.

I think the main argument against home ownership from a wealth standpoint is that it ties up a large amount of money as collateral that you could otherwise be using. Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively, potentially making me even more money. This is why the counterintuitive rule is that if you have enough money to buy a house with cash, you should get a mortgage and invest the rest, as you’ll be better off that way in the long run[0].

[0] Caveat here being your age. If you’re 30, you have another 30 years for the difference to grow in the stock market, while if you’re 70 you’d probably appreciate the lower cost of living and stability that this provides.

"Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively"

I've been saying this for years, maybe after this year it'll make more sense: It is not sensible to model "the market" as if it makes steady X% (for X somewhere in the 5-8 range) returns every year. It can and has gone decades being flat-ish, or slightly down after inflation, or up but nowhere near X% a year. The timescale where this is a reasonable model is longer than your expected productive working years. "Return X% a year" is basically the best case on a decade time scale, not the average case. There have been time frames in my life when paying principle on my mortgage was a significantly better "investment" than the stock market.

In hindsight it'll be obvious what you should have done, but in hindsight you can turn a few hundred dollars into a few million in just a couple of weeks with perfect past knowledge of the market, so if we're stipulating hindsight you've made way bigger mistakes than merely "buying a house".

In the long run, the market beats principle in your home. But “the long run” can often be far beyond a useful timeframe for a single human lifespan.

Incorrect. Property taxes are not part of the price setting.

You pay the max you are willing to pay for renting a place. You won because everyone else was willing to pay less.

If your rent is 2000 and property taxes are 200, and they go up to 300, are you willing/able to pay more?

Land taxes carry no dead weight.

http://wealthandwant.com/themes/Not_Passed_On.html

In general prices are set by the ability to pay, not by the input costs + some "fair profit".

Many landlords have no mortgage, and are clearing loads of profit every single month. Are they charging lower rent because they only need "fair profit"? No, they charge the market rate.

Excellent point.

"Doctor, it hurts when I do this."

"Don't do that."

The standard recommendations for buying a house, in my opinion, are recommendations for buying a house you can barely afford. I recommend buying houses you can comfortably afford, and put some extra principal payments in towards the beginning if at all possible. (Especially if you're just starting now-ish... I suspect the whole "but you could have put it in the stock market instead and made tons more money" both looks a bit less appealing than it did a year ago, and may take a bit before it's advice that would turn out well again.)

An HN-specific nuance is that I might as well be saying "don't live in the valley"... you want to call that an exception, eh, go ahead, you're an adult. But in general I recommend that.

(Also, you have to check the area you are in. Where I happen to live & in the price zone I'm in, mortgages are quite a bit cheaper than rent. Though that may not be true in another year!)

>I recommend buying houses you can comfortably afford

This is great advice. In addition to paying less mortgage, the more affordable house is likely smaller, costing less to heat and maintain. I'd be really interested to see a TCO breakdown for various sizes and ages of house.

Where I live cheaper houses are more likely to be old (ie 80+ years) and badly insulated, costing more to heat and to maintain....

This is tough if you have children. I have no problem living in a 1200sq ft modest house, but they simply don't exist in good school zones in my area.

if I rent for 10 years or I pay a mortgage for 10 years, then at the end of the 10 years I have likely paid less in mortgage payments than I would have paid in rent payments. further if I sell my property then it is likely that I could recoup some or all of my mortgage payments, I definitely can't do this with my rent payments.

People always talk about how “you pay more in interest than principle for the first X years” but seemingly forget that you pay some principle always, versus never paying any principle renting. And in my area (Seattle), the rent vs. mortgage monthly prices aren’t all too different, but with mortgage you get some of it back, plus appreciation.

But I won’t fight too hard against people being pro-rent, as my family makes a good chunk of change off of them :)

It may make more sense, to bey an apartment, rent it out and live in another place that your rent.

A renter does not get anything of inherent, transferable value out of the exchange.

Does "I didn't have to find a contractor to tear out the kitchen wall when a leak on the third floor got all the way down to my first floor apartment, nor did I have to pay for them to do this, and could just keep on going to work as normal" count as value?

Any decent landlord provides the service of "medium-sized repairs happen without any more work on your part than a message".

> Does "I didn't have to find a contractor to tear out the kitchen wall when a leak on the third floor got all the way down to my first floor apartment, nor did I have to pay for them to do this, and could just keep on going to work as normal" count as value?

How often does this happen, and how much does it cost? I can guarantee you your time is not worth this much and it is still less expensive and safer for you to buy a house than rent one.

If you rent for 30 years, at the end of these 30 years you will have nothing and if anything happens, you'll be left in the streets.

If you take a loan for 30 years, at the end you will have a roof above your head, for the rest of your life. The small amount of time you spend finding a contractor and cost of those infrequent leaks repairs represent nothing.

> If you rent for 30 years, at the end of these 30 years you will have nothing

That chestnut again. It makes me sad to see it on HN. It's just a dishonest comparison.

The money saved by not paying back a bank loan plus interest goes into long term investment, not into consumables. In most places on the world, for the last 40 years, the renter comes ahead of the home-owner in spe in terms of total cost.

> In most places on the world

I presume the context is the United States where a typical loan requires no more than a 20% down payment, providing 4:1 non-recourse leverage, with 3-4% interest. Outside of home mortgages, that sort of sweet-heart financing is only available to the very wealthy. When you factor in retained equity, at the end of the day, unless mobility or liquidity is exceptionally important to you, buying absolutely makes sense for the vast majority of Americans who can afford it. The home mortgage interest tax deduction is just icing on the cake.

That housing prices don't appreciate as much as the stock market is not dispositive. Now, once you already own a home, then of course the fact that the stock market provides higher returns matters for subsequent investment decisions. The calculus of residential ownership isn't nearly as favorable for non-owner-occupants. For small-time real estate investors banks offer you less leverage (3:1 or worse), higher interest rates, and your risk exposure is greater because you're purely speculating--whereas with owner-occupier you were presumably going to be living in that market, so you're only marginally speculating.

The situation is different in many other parts of the world with different socioeconomic policies (e.g. expensive mortgages, high down payments) and real estate markets (e.g. more common for housing to depreciate in value), but that's irrelevant to the U.S. You can't say whether owning makes sense or not without accounting for all the opportunity costs, which can vary widely. But in the U.S., generally and historically, buying a home adds up. Maybe the U.S. is worse off for incentivizing homeownership, but it is what it is.

> A renter does not get anything of inherent, transferable value out of the exchange.

Your getting a roof? And maybe a garden?

> A renter is also subject to the whims of his/her landlord and, from my experience, a renter has to move regularly to avoid rent increases and bad landlords.

You have a contract that sets the duration. If you have a flexible contract you also have the option to change (if you have more money or need less space).

Owning a home is useful in that you must have somewhere to live, and ownership can reduce your cost of living. That’s separate from the price rising, even stable prices allow you to build equity and lower your CoL.

My unpopular opinion is that home prices should fluctuate around inflation, barring sudden changes in local population. The utility of a home is effectively fixed, most of us will never afford two, making the ability for them to rise in value faster than wages in the area limited. Furthermore, without maintenance and occasional renovations homes actually degrade, implying that their value should actually slip slightly compared to inflation without occasional infusions of cash.

It's maybe an unpopular opinion but it is the truth - Robert Shiller has gathered a lot of data that confirms it (prices go along with inflation if you don't compensate for maintenance costs - meaning that the actual value depreciates over time). He writes about it extensively in Irrational Exuberance.

Investing in your primary residence should have a small return, but much less than investing in the market.

So from a purely dollars and cents point of view it makes the most sense to live with your parents forever, or find the smallest apartment in the worst neighborhood with the worst commute and the most roommates. But that doesn't make sense. So what does make sense?

Look at the opportunity cost of your house. What is your expected small return if you buy a large house vs. your larger return if you get a small apartment and invest the rest in the market? Remember to include all the cost of owning, taxes, maintenance, etc.

That difference, the opportunity cost, is what the decision to buy a house will cost you.

My opinion is that you should still go ahead and buy the house, knowing the opportunity cost. What are you working so hard for? A nice sized house, a car, vacations, money for retirement.

Don't buy a home so expensive that you can't save for retirement that you want or the vacation you want. Banks will let you borrow enough money to get yourself into this situation. It's up to you to figure out your whole financial picture, and buy a house that fits your income.

So go ahead and spend your money on those things, as long as they're in balance with each other. A balance that's right for you. Some people really want to retire early. Some people really want a large house. Each person has a different balance that's right for them.

Yeah I completely disagree with this sentiment that debt = bad. You should use debt where it acts as an investment (in the true sense of the word investment, rather than speculation). If you need to take on debt to buy that car that saves you an hour walk to work every day then that is good debt. Is it a good idea to use debt to purchase a house? If we believe in free markets then ownership should have roughly the same cost as renting. But ownership allows you to have more certainty that you won't get evicted x years down the line and that may be a worthy thing to invest in.

It's only a good debt if you have something useful to do with that hour you save. If it's just to spend more time watching TV then walking to work is the better investment by far.

Debt is risk. What happens when you lose all your income (as millions are right now)? Payments can't get made, and repossessions happen. If losing a job doesn't sound like a disaster to you, you've probably never experienced it, and/or you have the privilege of having a career in an in-demand field.

And that's why there are products to insure you against this risk called payment protection insurance (PPI). It's a shame that in the UK, PPI is now synonymous with mis-selling. The true cost of debt should be the interest rate and the costs to insure the debt (buildings insurance, landlords insurance, car insurance, PPI...)

How are they working out right now? It's one thing for an insurer to have a steady but small stream of policy payouts; it's another when half of your customers suddenly need a bailout at the same time.

Insurance companies buy re-insurance themselves

Repossession is a slow process. As a practical matter a homeowner who loses their job is in a better short-term position than a renter (all else being equal) because eviction for non-payment of rent is much faster than foreclosure.

But debt buys you a house when you're done repaying it.

If you are renting and you loose your income, the exact same thing happens to you, you can't pay and you might end up without a roof above your head.

I would rather be in debt and have a small chance of owning a house, than pay rent for 30 years knowing I will absolutely never own that house.

Even if your house gets foreclosed on, they don't confiscate it; you still own whatever equity you have in it, so you get a check when it's sold. Yes, you don't build equity quickly at the start, but still it's better than the rental situation in this regard.

Spot on! I once read that Warren Buffet doesn't recommend leverage greater than 1.4x and I can only say I agree fully. The fact that most of the people find 5x leverage "normal" is scary.

Yet Warren Buffet has made most of his wealth through either normal leveraging or leveraging using his insurance companies' float. https://www.nber.org/papers/w19681

Sure, BH uses some leverage. But much less than 5:1 unless things have changed a lot in the past few years. [Or unless I'm worse than I realize at figuring out balance sheets, which is certainly possible.]

> Yet

The very first paragraph says "we estimate that Buffett's leverage is about 1.6-to-1 on average."

Pretty close to 1.4

It's also nonsense on its face. The point of credit is to smooth out expense over the useful life (depreciation) of an asset. Cities fload bonds to build roads. People take out loans to pay for cars. As long as you can pay off the debt approximately before the purchase depreciates, then credit and interest is a reasonable way to amortize cost. Waiting until you pay cash deprives you of the value of the asset -- which may be non-monetary. You can't eat money; it is currency for buying utility.