Home ownership is still mostly renting | Hacker News Reader

Home ownership is still mostly renting

mattbruenig.com

MB seems to make a simple error a couple of times here:

> So, the financial case for homeownership is much weaker than I think most realize, especially when compared to alternative ways of investing the same money.

> So these principal payments are generating a net return of 1.795 percent (2.295 – 0.5). These same dollars, if placed in a diversified stock/bond portfolio, would generate a much higher return than that.

The problem with this angle is that people in general have to have housing, and so they're going to pay a substantial part of their income either on rent on on a mortgage. There's rarely an option to invest "the same money" in anything else.

Overall this seems like a solid analysis, but the contrast with "what else you could do with the money" seems a little weird when that's not really a choice (unless you live somewhere with a huge difference between the cost of renting vs owning).

The “what else you could do with the money” argument is standard in finance/economics , in fact it’s the cornerstone of the famous Black-Scholes formula for pricing options which takes into account "risk-free" interest rate.

Alternative investment is of course a thing.

However, you're missing the point. People MUST live somewhere.

Their only alternative investment is with regard to their down payment for money saved, or the amount of money that is (mortgage - equivalent rent), which is usually negative!

The BULK (or entirety) of the money they spend on their mortgage is not money that would otherwise be available for alternative investment.

In my experience in the recent market (in a HCOL city in the U.S.), rentals (even only compared to the costs in homeownership, i.e. ignoring principal payments) are much cheaper than mortgages for an equivalently sized house/unit. That's the assertion of the article, and it rings true.

You're right that the bulk of the mortgage payments, especially towards the beginning, do not go towards building any capital, which makes the investment even less appealing.

In my experience in the recent market (in a HCOL city in the U.K.) rent is only marginally less than the interest on the equivalent mortgage.

All the cost calculations should be based off interest only. The principle repayment is a cashflow issue - and a signifcant one at that.

can confirm, monthly mortgage payment + taxes is about twice the monthly rent on similar property in HCOL US cities

The problem is that, in this case, "what else you could do with the money" is limited to one thing - a recurring subscription cost with no asset value acquired. It's a faulty argument that shows a lack of critical thinking on the author's part.

His central point is that the "rent" you pay via the costs of homeownership are often approximately equal to the costs of actually paying rent. Since principal payments are on top of those costs, that is money you _can_ do something else with if you were renting, in this analysis.

Of course, that part of the analysis ignores the potential capital gain of the property value, which is often one of the appealing financial factors of homeownership. But the article also addresses that.

Except that in many places renting is even more expensive than monthly mortgage payments.

I can't speak to all markets, but in my experience in a HCOL city in the U.S., this is not true, at least anymore. Buying a place never broke even with renting an equivalently sized one, even in the long run. Yes, there are lifestyle advantages to homeownership, but at my current place and time, not financial advantages.

I live in a low-mid CoL city, so I guess this is all super YMMV, but even with a 5% down payment, a decent home would run me around $1.5k/mo in mortgage payments (including interest, principal, PMI, and an escrow payment for taxes and insurance), whereas an equivalent rental would run well over $2k/mo, possibly closer to $2.5k/mo.

Sure, I can (and do) rent an apartment for less than a house, but that means rent increases whenever the owner feels like it - my rent has been steadily increasing to the tune of about 5%/yr, and this year it was all the way up to a 7% increase.

I was in a similar boat years ago. The company I rented from wanted to increase my rent 12% year over year. I told them I didn't make 12% more money, spent a lot of time pleading, and talked them down to merely 9%. Rents were all over the place, and there was little I could do about, except move to a new apartment every year.

His analysis is that roughly 75% of his ownership costs are equivalent to a rent. To be able to invest the other 25% of his cost of ownership into something else, he would have to be able to find an equivalent property that he could rent for 75% of his total cost of ownership (or accept a reduction in the size and/or quality of his home).

I don't know how realistic that is across many different areas, but it's certainly not possible in many locations.

> Since principal payments are on top of those costs

I was under the impression that in most cases, the principal payments aren't on top of those costs. At least not all of it.

But the point is that renting is significantly cheaper than owning a home- so you take the difference and put it in the market every month. That's the key point- that the monies invested in the market over time will beat however much your house appreciated (minus the costs of owning a home in that timeframe, minus the costs of selling, which are usually very significant). If you're in a market where renting is more expensive than owning a home, of course it makes more sense to own.

There are calculators out there for comparing rent vs. buy options in various metro areas. That's one mistake Bruenig made, what's true for his area might not necessarily be true in a different city

Depends on the location. In the UK IIRC mortgage payments are typically lower than rent payments, assuming you can find the initial deposit.

Yup. In the UK the benefits of owning are clear, but the entrance requirements can be very high.

People greatly mis understand this point. Renting really is cheaper in the short term than buyng, especially if you can get a multi year lease. I’ve rented many single family houses in my life, and always, without fail, the rent was less than what the current mortgage (with minimal downpayment) + upkeep. This delta also tends to grow as the value of the house goes up.

So a very valid strategy is to rent, and take that delta and put it in an index fund. This won’t outperform a mortgage in a very hot market, but you will still likely be able to live “rent free” after 30 years of this strategy with a 4% drawdown on just that account.

The main argument I like for home ownership is that it really helps force this savings, since many have a hard time not spending money on frivolous things.

That said, I finally bought the house I was renting 6 years ago. Mostly it was a hedge against raising rents. My area was seeing 10%+ yearly rent increases. So far it turned out to be a smart play, but interest rates could have gone up a couple points, and I might uave been underwater for several years.

Add to that the added benefit of "as long as I make my payments, this place is mine forever" - which is certainly not the case with renting.

There's a whole slew of intangibles that come with "owning" your home that I think have made my quality of life significantly better (and certainly worth every penny): being able to make whatever changes I want, knowing that what I do to the property could outlive me (in the sense of taking care of the planet), and having a sense of accomplishment when I fix or upgrade odds and ends.

I'll conceded that I might be missing something but houses in my area cost significantly more to rent ($1.5K+/mo) than my mortgage ($1.2K) and have a ton more restrictions (pets, modifications, etc). Every house or apartment I've rented I've had to fight tooth and nail with the owner/manager to get anytime fixed (I once had water seeping out of my kitchen floor for over 2 months in an apartment, it just finally stopped, they came out multiple times and did nothing). This doesn't even start to take into account the yearly monthly rent hikes to the tune of $50-$100. One apartment complex I lived in did these rent hikes like clockwork all while removing/closing amenities left and right.

The author here seems to be making the point that "not really that much money is going to the principal in the end and even the money that does could be better invested". Maybe that's true but it ignores a ton of other upsides to owning a home IMHO.

Are you including taxes, insurance, and maintenance (both minor and major) in your comparison? That $1,500 rent wraps all of those costs up, while only part of those costs are in a mortgage payment. Over time, it's easy to see how the $3,600 per year difference can be eaten up by maintenance on things like broken/dead appliances/general & major home repairs. A new roof may only be necessary every 20 years or so, but it's very expensive when it happens.

That being said, I just spent 10 years renting the same house. My rent did not go up during that time, and my landlord had fairly average maintenance costs during that time including: * replaced broken fridge * paid to have dangerous trees removed * paid to upgrade flooring after a sewer backup flooded the house. Most of this cost was borne by insurance.

My former landlord is now selling the house. The market value of the house is double what it was when I moved in. That sounds awesome, but that's about a 7% rate of return, which is quite a bit less than if he had simply put his money in an S&P 500 index fund.

> That sounds awesome, but that's about a 7% rate of return, which is quite a bit less than if he had simply put his money in an S&P 500 index fund.

Yeah, he made a 7% return on the real estate itself. BUT, he was also collecting rent on the house the 10 years you were living there. That's a lot more than what he would have gotten from the S&P.

But then you have to subtract all of the costs of owning the physical property over a long time span- everything that broke. Plus the taxes, insurance, water & sewer etc., as Bruenig notes.

I previously worked in a commercial real estate brokerage for apartment buildings, got to know a lot of landlords, and saw the finances of their properties personally. Over a long enough time span, 90+% of the building has to be replaced- everything from the roof down to the basement is essentially on a clock to obsolence from the moment you sign the deed.

Plus the landlord was paying income tax on the rent while your market gains are untaxed till you sell, etc.

Granted, but look at it from a purely analytical point of view. The land lord has invested in the property, whatever property it may be. He/she is now renting out that property to you to make a profit and has factored in the cost of upkeep, taxes, labor and wages for not only their staff but also themselves. That's renting. If you're renting a single house from a landlord who rents out a couple of houses, that margin is smaller, but they are still going to want to pay for those houses, costs and make a small profit.

No one gets into these things to lose money. If they start to lose money, they fix up the property and hope for a good market, I would think.

Well many, many rentals were originally owner-occupied SFHs or condos. So they weren't purchased to be profitable.

From my experience at a commercial real estate brokerage, forming a personal relationship with dozens & dozens of landlords- it's an extremely unprofessional small business, attracted by people who think 'land, they're not making any more of it' is a sophisticated statement. It also attracts a lot of 'more money than sense' types who are willing to eat losses for the first 5+ years because they think they'll make more money over time. I would conservatively estimate 20-33% of new landlords are actually losing money every year. Could be way higher than that!

Imagine saying 'there's tons of day traders, no one gets into day trading to lose money, so they must all be making $'. In fact, no- it just attracts a lot of unsophisticated folks. Same thing with owning a small retail business or a restaurant- there's lots of restaurants, they're also terrible businesses! I would put being a small landlord closer to owning a restaurant

That seem crazy... not crazy in the, "I don't believe you" sense, crazy in the sense that people would just keep rolling with losses in renting and not just flip houses, which is still a pain, but you don't have to deal with renters and are sort of doing the same job.

In OP's example, the landlord had to buy a fridge, cut down some trees, and replace a floor. Clearly, 10 years of rent payments would cover that.

Being a landlord has costs, but I'm not sure what your point is. Renting property is clearly profitable, or it wouldn't be so common.

  A lot of the expenses happen when you switch tenants. In between tenants, before the new tenant arrive, the carpet may have to be replaced, the house may have to be repainted, various other maintenance jobs that are deffered must happen.

The article's analysis missed one big thing in the comparison: rent (necessarily) includes a profit margin for the owners. In a mortgage this is the interest payment on the loan, but in a mortgage the owner gradually shifts from lender to buyer. (In fact, one way of looking at paying down a mortgage early is that the buyer is earning higher returns at the expense of the lender.)

It wouldn't surprise me at all that a mortgage, after accounting for all factors, is still cheaper than renting.

Rent does not necessarily include a profit margin for the owner. There is a rental market rate and if the landlord's expenses exceed that rate, they can and do rent out the unit at that rate. It's still better than leaving it empty. Loss-making business ventures are common, and if we're talking about owners who have a separate source of income than property ownership, loss-making side hustles are exceedingly common. (there's a lot of complexity that sometimes does incentivize big commercial-property landlords to leave office spaces empty in some cities, but, I think that's a different market yet again)

It does not necessarily include a profit margin for the owners, because houses & condos are simultaneously purchased by non-landlords who aren't trying to generate a return- so that's who sets the prices. And in practice real estate attracts the deeply financially unsophisticated, or the wealthy doctor who's willing to take losses for 5+ years for future appreciation.

I mean, there's lots of small restaurant businesses out there, but they don't necessarily generate a real profit or make real financial sense. Some industries just attract irrational or unsophisticated people!

Market value doesn't describe returns on a house. Rental income (and thus defraying of the mortgage, and thus effective defraying of the cost of goods sold) significantly tilts that number.

I'm including everything other than maintenance in those numbers. I had a 18 year old HVAC system I replaced earlier this year but I had been saving for it and knew it was coming. I had a new system installed within 3 days of calling out the company which I can almost promise would not have happened if I was renting. Can you get a good landlord? Sure, I know they must exist but I've not (nor have my close friends) ever found one. Heck, even if somehow (it's simply not possible in reality after staying for 5+ years from what I can see) you come out even on renting or buying a house I'd taking buying just so I didn't have to interact with and beg another party to uphold their end of the contract. I won't bore you or anyone else with stories of renting and waiting on things to be fixed or contracts to be upheld but suffice to say, I have no interest in renting again after the experiences I've had. On paper a lot of the places I rented were a good deal (especially for someone like me who doesn't want do most of the work themselves) but in practice it always sucked.

> Can you get a good landlord? Sure, I know they must exist but I've not (nor have my close friends) ever found one.

I always wonder why the only 'financial geniuses' that are landlords are, to a person, such bad landlords.

TFA mentions the other costs that you're (potentially) not including: property taxes, maintainance, building insurance (depending on your escrow situation).

I think MB's point is that there's a lot of talk about how "investing" in home ownership is a smart financial move, and that a more careful consideration of this suggests that it's not so clear that this is true.

There are definitely other reasons to own, if you're of the right inclination (I certainly am).

I'm also a new homeowner, and my mortgage + property taxes + insurance + utilities are about 2/3rds of what I was paying for rent last year. Will ongoing maintenance on my home eat up the $400 a month I'm saving? I guess that's possible... but even if it did, I'm still breaking even, and I own my own home.

That's particular to the area I live in, though, where the rental market is extremely tight in comparison to the buying market. In my particular case, the article's advice about "what else you could do with the money" is moot. The rental market here exists for people who need transient housing, or who's financial situations makes a loan difficult to get.

I'm a little confused. If you owned the home or condo, you'd have to handle getting anything fixed yourself, including your water seeping example. So you have to pay out of pocket for it, plus handle dealing with the contractor, etc. Why do you think that's a case against renting?

If you have an unresponsive landlord, you can simply hire the handyman yourself, subtract the cost from your rent while emailing them an invoice, and dare the landlord to do something about it. You could even pay yourself a small fee for the time you invested in dealing with the handyman, time off work, etc. The landlord can't realistically sue you for such a small amount of money, they'd have zero case in court, and anyways the court system in blue states is very pro-tenant

> I'm a little confused. If you owned the home or condo, you'd have to handle getting anything fixed yourself, including your water seeping example. So you have to pay out of pocket for it, plus handle dealing with the contractor, etc. Why do you think that's a case against renting?

In that case I would have actually had it fixed instead of having to wear shoes in my kitchen for months. Also I budget monthly for things like this that might come up. I'd much rather manage that extra money (difference between mortgage and renting) than trust a landlord.

> If you have an unresponsive landlord, you can simply hire the handyman yourself, subtract the cost from your rent while emailing them an invoice, and dare the landlord to do something about it.

That's a nice story but it rarely play out well in practice. Time and energy are not free and I have better things to do with my time than try to claw back what I'm owed from a scummy landlord in small claims court or similar.

> The landlord can't realistically sue you for such a small amount of money, they'd have zero case in court, and anyways the court system in blue states is very pro-tenant

They can make your life hell in other ways or just refuse to renew the lease when your year is up. I'm not interested in moving every year until I find a competent landlord and I live in a red state.

>Time and energy are not free and I have better things to do with my time than try to claw back what I'm owed from a scummy landlord in small claims court or similar

I think you missed what I said. No courts are involved- if your rent is $2000, and the handyman was $1000, you send the landlord $1000 for the month along with the handyman's invoice. What are they going to do about it?

> What are they going to do about it?

File eviction papers? Refuse to renew your lease? (though I understand this would probably not be an issue in this situation since you wouldn't want to renew) Ignore all future maintenance requests? Stop upholding other parts of the contracts? Try and tank your credit? The list goes on...

I used to think like you appear to on this issue, but it's a different story when you are actually in the thick of it. Just like how people say "well that's against labor laws" or "your employer can't do that legally", it doesn't really matter for the person who needs that job to survive, they can only find a new job or put up with it, they don't have the money/time/energy to fight it. It's very similar to dealing with a bad landlord. I don't care about being right, I just want to be happy. Renting leads to unhappiness for me, it doesn't make how right I am, I still have to deal with the landlord's BS. At the end of the day "legality" is cold comfort if you have a toxic landlord.

Other than not renewing your lease, they literally can't do any of those things. (Your credit? You have to be a certified financial institution to be able to report things to your credit report. Fun fact, small claims court judgements are no longer reported on your credit anymore either). In a blue state if a landlord tried to take you to housing court for paying for a repair they refused to fix (obviously you have email documentation that you asked several times first), they would probably walk out of court paying a large fine. There's a whole parallel (landlord-hostile) housing court system.

I think what you're missing is rather than taking anyone to court yourself, you control the cash flow (when & how much of a check you write every month), and they're the ones who have to do anything about it if they disagree. That's different from a labor dispute where you're the one getting an attorney, filing a lawsuit, etc.

The broader point is that blue states are very pro-tenant, so you're starting off with an incredible advantage

I 100% understand how I might be in the right and win anything brought against me. What I'm trying to say is I don't want to deal with that headache or become an expert on how this works in order to win. Also, like I said before, I live in a red state and while I don't know exactly what rights a renter has, I don't want to know. I shouldn't have to become informed on this stuff when I'm doing everything right. Also just because something isn't legal, doesn't mean a landlord won't do it. I don't want to eventually win, I want to never deal with it in the first place.

Good landlord, you're fine.

Bad landlord, they say you over inflated it, and are now behind on rent. This gives them the opening to evict, or you have to take to small claims, or your local tenant's rights group.

Not fun.

Going to court over this in California, New York or Massachusetts:

You: Here are 3 emails I sent documenting the problem and asking for it to be fixed, here's a 4th email stating I would be hiring the handyman myself if it wasn't fixed, here's the 5th email with the invoice

Landlord: (who cares. Also they don't have an attorney because the cost of an attorney in court exceeds the repair by a huge margin)

Magistrate (in the 15-20 minutes you get in small claims or housing court): Landlord, you are fined $5000 for not fixing the issue fast enough. Next fine is $10k if you don't shape up. Dismissed

That's great for the 20% of Americans that live in those states. In many of the other states, you're evicted and looking to find another rental that will take you even though you were just evicted for not paying rent.

That's because rent of $1.5k is for the whole of a house, whereas the mortgage is only covering whichever part of the house you don't own.

My rent would be $3k, but I own one third of the house, so my mortgage is $2k.

The alternative would be paying $3k in rent and investing the $100k in equity. The cash-flow from the equity investment would off-set some of the cost of renting.

This totally misses the point that there is no where else you can get 20x leverage at < 3% interest. Even with modest appreciation, you're going to make a lot of money putting 5% down on a house.

20x leverage = 20x return, but also 20x risk.

Don't forget that the only reason housing works is because the margin calls take years, in contrast to instant (forex, crypto) or days (equities).

Except it is 1x risk for example in the US - see jingle mail. The debt is against the property not the person thus 20x return 1x risk (plus your destroyed credit).

For other countries in the world there is bankrupcy.

This only applies to non-recourse state, of which there are only 12.

Doesn't this only matter if the property is worth less than the mortgage? If the lender can foreclose and sell the property for enough to clear the outstanding mortgage, there's no additional loss beyond the down payment (and any equity paid in since then).

But you're still out the downpayment? Your loss is still 20x.

If the down payment was x, how are you out 20x? Let's use real numbers:

House cost: $200,000

Down Payment: $10,000 (5%)

(Time passes...)

Value at foreclosure: $200,000 (no price change)

EDIT: I changed the math on this a few times, updating to reflect that you indeed get your downpayment back (minus fees).

The bank sells the house for $200,000. You get your $10,000 back after paying the $190,000 mortgage balance. But you're not on the hook for anything. You walk away with only a hit to your credit. You went from owing the bank $190,000 to owing $0 and having $10,000 in your pocket.

Also (for non-recourse state):

House cost: $200,000

Down Payment: $10,000 (5%)

(Time passes...)

Value at foreclosure: $100,000 (massive change)

The bank sells the house for $100,000. You don't get your $10,000 back. But you're not on the hook for anything. You walk away minus $10,000 (i.e. 1x) and a hit to your credit. You went from owing the bank $190,000 to owing $0.

Exactly this. If the property goes up $100k, you earn a 10x return on your $10k. If it goes down $100k, you only lose your $10k (in non-recourse states). It's asymmetric leverage.

In your example, you get your deposit back, as 190k covers the debt, extra 10k goes back to owner. (e.g. if 195k was sale price would recieve back 5k etc)

>If the down payment was x, how are you out 20x?

right but in this case the house value never changed, so there was never any loss. Suppose the house value went down 5%, then you'd be totally wiped out (ie. you lose your entire deposit).

Correct. You are on the hook for 1x, not 20x, your down payment. This is asymmetric leverage in favor of the buyer.

It is a fair point that for small negative changes you are getting a leverage effect (i.e. for a 1% down move in asset value you do have a 20% loss on your capital).

There is however a floor so the payout profile is a lot more like an option.

This! Putting down 20k on a house in my late twenties was one of the best investments I’ve ever made.

I was especially surprised so many of my peers who had no clue that’s how little it takes to get into a mortgage. Of course, assuming you have a steady job/income.

Do you mean 5X? I believe 20% down is more common. If you do only put down 5% you'll also have PMI on top of interest.

That said, your point stands that it's easy to get low interest leverage.

Another related point that I think is implicit in your comment is that you win even if home values only keep up with inflation (what you'd expect with a healthy home supply).

I believe the average down payment on a house for first time buyers is around 5% these days (in the US): https://www.bankrate.com/mortgages/how-much-is-a-down-paymen...

Looks like the answer is in the middle of our guesses: your link says the median down payment is 12% for all buyers.

Using leverage to buy something not expected to increase in value more than inflation is not necessarily a savvy move.

Maybe you'd take issue with my "not expected to increase in value more than inflation" statement, but ultimately you are certainly in no way guaranteed to "make a lot of money putting 5% down on a house".

Everyone thinks they are a financial genius after a 10 year bull market.

If it moves exactly with inflation, then levering up actually is savvy. Ex: if inflation is 1% and you put down 5%, your return in real dollars is nearly 20%.

I don't follow, you need to account for things like property tax, home repair costs, insurance and the realtor fee to know what the return would be.

If you are considering renting vs buying the best calculator I know for these things is here: https://michaelbluejay.com/house/rentvsbuy.html

But the results are all dependent on your assumptions. If you assume houses will increase in value you get much better results than if you assume they will lose value, or not keep up with inflation.

If you assume stocks will go up a lot, it makes housing a comparatively "worse" investment.

Yes, my calculation ignored property tax, repairs, etc. I thought you were making a claim that being at the inflation level meant leverage wouldn't help you. I agree you'd have to take the total cost into account before deciding whether to buy or rent, but then in that larger analysis I don't see how comparing to the inflation rate is so crucial: it's possible that the home value increases faster than inflation but it still makes better sense to rent (if taxes or repairs are prohibitively expensive). I think I misunderstood your point.

This completely depends on the "modest appreciation". Even though it seems like it, growth in housing is not a given in the way you can reasonably assume stock market appreciation over the long term. Plus there is a lot more uncertainty since you cannot hedge your investment in a home. The entire market could be doing great but your particular house may be affected by local zoning laws or a homeless shelter in the neighborhood or a new highway or anything else.

The sleight of hand here is presenting the breakdown in the first years of a mortgage, when the interest payment is at it's highest, as though it's representative of the mortgage as a whole.

Suppose I presented the analysis based on the last year of a mortgage. The interest payment would be almost nothing, with most of that swinging over into the payment on the principal. Presenting that as being representative of mortgage economics would be grossly misleading, and so is this.

The other thing to bear in mind is that mortgage payments, including interest, can be half as much as the rent on a similar property. That's certainly the case in my area. Even factoring in tax and insurance it's often significantly cheaper to pay a mortgage than to pay rent, quite apart from the wealth building argument.

> The other thing to bear in mind is that mortgage payments, including interest, can be half as much as the rent on a similar property.

It can also be twice as much. It can also be the same amount. It can be anywhere between negative a lot & positive a lot.

The point is to do the maths and not just parrot the bullshit line 'renting is wasting money' because it may or may not be true.

Yes, absolutely and I don’t think I’m parroting any line. I’ve rented before and it can be the best option depending on your circumstances.

In addition to the proportion of interest decreasing over time as the principal is paid down, there's an additional factor: the mortgage payment is fixed for the full term of the loan at purchase time. So suppose you take out a 30 year mortgage with a monthly payment of $2000 in 2021 and you never pre-pay or refinance. In 2050, you'll still be paying $2000 per month even though rents will have risen with inflation over that time.

Not a great argument, really. In much of the country ownership is a much better deal both financially (cost for equivalent housing per month) and in terms of stability. Once you buy, unless you're foolish enough to get an ARM, your costs are fixed -- but rent is subject to capricious shifts upward annually.

ARMs are not bad. You can re-lock in the rates at the time when it comes up. It's no different than a commercial balloon payment.

Also homeownership is only a "better deal" when things work out perfectly. In reality, you spend far more time with maintenance, cleaning, and are required to stay exactly where you are for a minimum of 7-10 years before you start putting a real dent in equity. Not to mention is an illiquid asset on top of significant closing fees on both ends (my state in particular is a "seller pays both realtor fees" state, regardless if you got a realtor).

Homeownership is egregiously expensive in time and money. The only nicety it gives to lower income people is an asset then can refinance and get loan money out to put them further in debt bondage. Homeownership should only be considered if you've got a ridiculously stable job/market as well as the time and money to maintain the property (assuming you can't just construct a new home or buy one made within the last 10 years).

ARMs can be advantageous if you know you don't want to live in the house for 10+ years.

Few people are able to accurately predict their own futures this way.

I went in expecting hyperbole or clickbait but the author has a very sensible breakdown.

Nothing shocking, and the conclusion is really that it comes down to being a numbers game. Either renting or buying could be better financially based on a hundred different variables, some of which you know in advance and others you don't.

In the first year of a 30y mortgage, yes interest is a big component... But even in year 5 or especially in year 10+ interest is much smaller and the principal impact greater. The long term impacts of ownership are the benefit, of course a large purchase will not stack up against renting in the short term!

Yes, unless I missed something, the analysis doesn't account for the decrease in interest costs over time. Still an interesting piece, just would be a fairer comparison.

Also that interest is largely (if not totally) tax deductible.

Almost 90% of Americans file the standard deduction which precludes you from deducting mortgage interest.

https://taxfoundation.org/90-percent-taxpayers-projected-tcj...

The std deduction is fairly large now. You have a tough time getting past it for most people. There is also a cap on how much you can deduct. When I had a mortgage I calculated that about half way through the loan I would no longer be able to deduct the interest because the std one was bigger. One guy I worked with said this 'i love using the standard deduction it means I am not paying money to get my money back I am getting a lower tax rate'.

That person has a good point. It's definitely a lot simpler.

Wow TIL it’s 90% that use standard deduction, thanks for the tip, I’ll factor this in when discussing this in the future.

Renting or speculation, pick your poison. property taxes participate in the rent, and 30yr mortgages backed by the fed drive speculation.

The reason why everybody could afford a house back in the day was cause the government didn't guarantee anybody a home and banks only lent money out to the best of credit because they had a cap they could only lend. Once that cap was met, no more mortgages for the year.

I basically agree with Bruenig. To put what I said in a couple of comments in one place:

The idea is that if renting is cheaper than owning in your city, you pocket the difference you would've spent on owning and put it in the market. So your total market gains will exceed (home appreciation minus repairs minus taxes/insurance/water&sewer minus real estate commissions and taxes to sell)

Over a long enough time span, 90+% of the building has to be replaced- everything from the roof down to the basement is essentially on a clock to obsolence from the moment you sign the deed. So even calculating what your expenses are in a given year doesn't cover every 5 or 10 year expenses (a new bathroom, say), or the tail risk of a new roof or new heating system.

Over multiple decades of ownership, you have to renovate the house- just to stay at the same level of quality. So yes you could theoretically sell your home you've owned for 30 years for a profit- but if you didn't replace the kitchen, bathroom, repaint, redo the roof, etc. etc.- the value's going to be pretty low. No one wants your kitchen from 30-40 years ago! So you probably renovated the house at least once- so subtract $50-200k renovation cost from your profit & loss.

Once you want to sell your house, you encounter even more expenses- even without a real estate agent, you say a few % just to the city/state/attorneys!

Yes, a landlord can make money on rent (and if you consider all the risks of being a landlord in a blue state, I'd argue that's an excessively risky business). But, they're paying income taxes on the rent, while my gains in the market are tax free

The forced saving angle is often maligned by the sort of hyper-rational people that become engineers, but it's a real benefit. Things that happen to real people:

- job loss

- startup fails

- sudden medical expense

- freelance contract customer decides to spend less next month

- is married, spouse experiences any of the above

- decides to invest in something that fails

- decides to invest in VC, but that VC performs at or below the median of VC funds (e.g. far below S&P)

- takes a lower-paying job for external reasons (to learn new tech, exciting new space, etc.)

Financial stress situations like these challenge the "just save the difference in an index fund" plan. The simple fact is that when you are going through something like this, the temptation is going to be very strong not to make 100% of the index fund investment. If you miss it enough times over the decades, you won't see any benefit from this strategy (and you still will not own a home). On the contrary, if you owe a mortgage every month, you will (if it is possible) find the money somehow.

On an excel spreadsheet level I would agree, but this ignores a couple parts of renting reality that are awful:

- You can have the property sold out from under you, and you have to scramble to move. This one is the worst in my mind.

- Rulesets for rentals are often more restrictive compared to home ownership. Pets, parking, HOA rules, etc.

- Quality is often lower in rentals. Sometimes by more than you would expect. Appliances are a great corner to cut by rental properties. The owner occupied places I've bought had vastly better quality appliances, and I can tell the difference. To get equivalent level in my city, you'll be paying much more.

- You determine the quality of work in your place. Renting insulates you from the cost, but often this means your landlord sends someone with duct tape to fix a window instead of weather stripping or replacing the window.

It's hard to compare like for like, but these are very real problems. I've had a few friends forced to move, and for some it's been more moves than years. Fine if you live out of a backpack+laptop, but the logistics of renting are a huge pain. Recently, I've noticed an uptick in this behaviour last two years due to landlords flipping their properties, and the subsequent owners out of state. This is definitely worse, I see a pattern of task rabbits and other bottom tier services replacing local work.

Leverage is the magic in mortgages, and everyone along the way is getting their cut, the city, the real estate agents, etc. There are a ton of misc expenses in the transaction. Property tax is kind of rent junior edition.

There are negatives to owning, parking a bunch of capital, can't escape longer term negative neighbourhood problems, you're responsible for fixes.

For all the investing advice you see, you cannot live in a bitcoin/stock account, etc. You have to live somewhere, why not have more control over it.

What I've learned is that when people have to make a decision on whether to take on a 6-figure loan to own a whole home and maybe even land with it, they'll get very emotional about their decision. Some people are fervently anti-owning, some people fervently anti-rent. Both options have their ups and downs and depend on many factors.

I've chosen not to buy a house yet and I'm glad. I've been able to move at the drop of a hat, have any issue inspected and fixed with a ticket submission, and have had access to excellent amenities. I would never go back and change these years renting. At the same time, I'm getting to a point where I want land, quiet, privacy, and control, so I'm planning to buy a house in the next year or two (if all goes well). This plan works great for me, probably not for everyone.

One big thing I often see missing in these comparisons of renting versus owning a home is the difference of the housing stock. Sure, I could rent an apartment less than my mortgage + insurance + taxes + maintenance savings, but then I'm most likely living in much less square footage, I probably don't have a private garage, I don't have private outdoor spaces, and I get much less say over the features of the space. My mortgage + escrow amount is a roughly $200 more per month than the last apartment I rented at, but with that I gained over twice the square footage, a two car garage, a pool, and a good bit of private yard. I can run cables in my wall for whatever I want, I can put amateur radio antennas throughout my attic and in my yard, I can install an electric vehicle charger in my garage, I can mount speakers and WiFi AP's on my ceiling, I can do practically whatever with my home without having to get approval from people. For a few hundred dollars a month more, I get significantly more. The apartment and my home are pretty much the same market, they're about 2mi away from each other.

The other aspect is home ownership helps hedge against housing inflation. That rent I paid a couple years ago at the apartment is now more than my mortgage + escrow. True, you still feel the effects of housing inflation through higher taxes and insurance premiums, but even MB's numbers show that to only be 30% of the overall costs of the house. You're going to feel the effects of housing inflation much more being a renter signing new leases every year rather than having a significant chunk of your costs completely fixed (P&I), and maintenance costs when truly budgeted right can be somewhat fixed.

Other than that I really do agree with MB in this. It always amazes me how people don't quite get the idea that your home price going up doesn't really mean great things for you unless you're planning on trading down. A house is worth what a house is worth, you're going to have a hard time really realizing those gains unless you plan on living under a bridge with your pile of money.

Finally, if all you're wanting to do is maximize returns on every dollar that passes through your hands, owning a home isn't necessarily the best choice. The best choice is to rent the cheapest, crappiest apartment with absolutely no amenities in the crappiest part of town and invest everything. But then you're choosing a vastly different lifestyle, so its really a question of what you value in life. Personally, I enjoy floating in my pool after a stressful day of work and find a lot of value in that but maybe you find looking at your Coinbase wallet more relaxing.

I guess it's a good thing for homeowners that there are other considerations than financial ones in their favor. I think the decision to build or buy a house rather than renting has a lot in common with starting your own business rather than working for someone else:

The risk is higher, and the reward may or may not be any good, but at the end of the day you get to make the decisions. I think that has more value than most of HN tends to acknowledge.

the primary benefit to home ownership is stability. While in the US, one has a "sane"/"professional" rental market (i.e. buildings that are built as rentals and managed as a whole). In many other markets, one doesn't have this. One essentially has individually owned apartments that are rented out by those individuals, without any strong form of protection in terms of required maintenance that needs to be done or the knowledge that as long as you're willing to pay market rent, you can stay for as long as you want. In those cases, its better to buy, simply for the security / control, even if its not the best "financial" use of money.

> Betting on home value appreciation has paid off on average over time, but it’s definitely not a risk-free bet for any given property or over any given time period.

Ok, but the same applies to the stocks you might buy as well.

But with housing you also have real property ownership benefits. Nobody can evict you! That’s a wonderful feeling.

he said mostly renting but then say 25% go to your principal. So it’s as if it’s 25% cheaper assuming you pay same monthly amount.

But I agree If you have HOA burning your money overpaying on useless stuff renting could actually be cheaper.

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