Not to mention the freedom to do whatever you want to your home / house without having to ask for permission, or being in a position of putting money into an asset that you don't own.
Sure, you can make the argument that I can hopefully expect some capital gains down the road if/when I sell the place. But that's not guaranteed (consider all the people underwater on their mortgages, for example, after the 2008 financial crisis; I wouldn't be at all surprised if something like that happens again during my lifetime), and it may well be that putting that money in the stock market would net me better returns over time.
But it really just depends on your local housing market. In some places it makes more financial sense to rent (rent < interest+taxes+upkeep), and in some places to buy (rent > interest+taxes+upkeep). And sometimes the financials aren't the #1 driver of the decision, anyway.
If your wages keep up with inflation (say 3% for example), in 10 years you'll be making about 35% more dollars but your housing payment stays the same. If your home value tracks inflation, it will also be up 35% after a decade, but your payment stays the same. And if you're lucky, there may have also been appreciation above inflation. Inflation melts your fixed rate debt and grows the nominal value of your asset, speeding the rate at which you build wealth in the form of home equity.
Over that same period, a renter is certain to have experienced significant increases in their housing costs. They may have saved and invested more than the homeowner over the first few years of homeownership, but as you know this is a long-term game.
I guess it comes down to what form of risk/investing you are most comfortable with and whether you value the intangible lifestyle things like getting to customize things to your liking. Getting to purchase an asset with between 5-33x leverage in the form of low fixed rate debt seems like a pretty unique opportunity for most people who would not be comfortable borrowing for other forms of investment.
If you sell your house 2 years after buying it, unless the prices really skyrocketted during that time you should have rented instead.
If you stay 30 years in your house however it's financially much better to buy rather than renting.
Of course there are non-financial aspects (freedom of modification for homeowner, easier to move out for renters) but the financial equation boils down to how long you stay in the same house. Exactly where is the cut-off depends where and when you live.
Rent is part of the value of a property. If you live in it, you're essentially paying its opportunity cost. That in itself has nothing to do if you borrowed money against it or not.
The only way to not pay rent is to make someone else pay for you (eg live with someone else that doesn't charge you)
It's the bigger part of your "housing costs" in both cases.
If you can pay a mortgage most likely you can pay a rent, and it's going to be way cheaper if you factor everything in. And in both cases you can be evicted if you don't pay anyway.
As a lifelong renter, I’ve done quite well by keeping my rent low (my preference is studio/1-bedrooms in relatively dense urban areas) and putting extra money into the market.
30 years from when I started renting, I’ll have quite a lot to show for it!
Housing is an expense to me, not an investment.
But again, each situation varies. Before living with my now wife just like you I lived in a small apartment, because that was all I really needed at the time ( and it was very budget friendly ).
Mistakes people make: starting with too big a house where they are in trouble immediately if they miss a paycheck. Refinancing and taking equity out to spend on other "things" that depreciate or are consumables like boats, new cars, extravagant vacations, expensive furniture, etc.
I don’t even use half the rooms in my house and it’s still a way better deal. And no less convenient as I still have everything I really need within a 3-4 block radius. And my mortgage will only get cheaper over time — especially if we get a ton of inflation.
I honestly don't understand this line of thinking. "Why do people even want [tangible good]?"
If an explanation is really needed: it's nice to have a large, private space. People like cars in garages, a room for their work, a room to cook, a room to relax, a room to sleep, a room to store stuff, etc. Why do people bother with any of these things? Why isn't everyone a minimalist? Why do people even bother living?
It's bizarre and alien to me. It also misses the point that people are supposedly free to pursue happiness.
Owning land and a house is a huge step in status and financial security. Owning a house is also a huge luxury. It's strange to deny either of these realities. Some people don't want luxuries, okay, but it should be clear that nearly everyone does.
Part of the problem is that homes being the largest asset that a person owns because they’re chasing the status of that American Dream. Can you think of any other illiquid asset that people would suggest piling a majority of your net worth into?
* opportunity cost
* property taxes
* interest
I understand where you're coming from though. You wouldn't want social mobility to become the norm.
With that aside, I absolutely do want to foster social mobility. I actually think it’s still possible but probably not in the dream-world way many people think where it comes completely on their own terms. In most cases, it involves avoiding a few basic things like substance abuse, onerous debt, living outside ones means, and having kids before one is financially stable.
But that often flies in the face of what people emotionally want or are told to pursue, so sometimes people want to go into massive debt for depreciating assets or to go to college because that’s what “everyone” does, or to live in an expensive, trendy area because it’s cool or they think that’s where they need to be to chase status. Barring those types of mistakes, social mobility (towards the upper middle class level at least) is generally available. I’m willing to bet many people on HN are already close to that status even if it doesn’t feel like it because they’re comparing themselves to economic outliers rather than the average citizen.
I'll happily deny this reality. Owning a home is a huge luxury to some, but it is also a huge burden to some.
Maybe it shouldn’t be.
It's factored in your net worth (i.e. your wealth) but it's not something you can leverage like the rest of your wealth.
Note that if you're a homeowner, and the overall market goes up, you don't benefit from it at all. Your wealth goes up on paper, but it doesn't change anything in your life except it will be more expensive if you want to move.
And many people do downsize as they get older, meaning it’s less expensive to move events if their home value increased. Unfortunately, many people (just skim this thread) assume home values always go up so they consider them an investment.
- up to $500,000 in tax-free capital gains for couples
- cheap leverage via low interest rates courtesy of the Fed and further subsidized by renters via mortgage interest deduction
- SALT deduction (albeit reduced as of 2017)
Just a broader comment: the main financial argument against home ownership is really the size of the deposit. If you are paying 25% down (this is now standard where I am in the UK, we went from 120% mortgages to 75% mortgages in the last ten years...and house prices kept rising, so the upfront cost of housing is way way way up) then it may be close for some people. But you add in the security, the potential for capital growth...it is attractive financially (and I wouldn't say this is true in the UK, downpayments are too high, mortgage rates are too expensive and come with massive interest rate risk...it isn't worth it on a pure financial basis).
I can't see myself every buying a house because I just don't like having a lot of stuff, it tends to worry/distract me. But I think it is unfortunate that housing has become associated with this "I got mine" mentality. Germany is a nation of renters, it has led to levels of wealth inequality higher than the US because all that value from rising property prices has gone into the pockets of a few large corporations (the median net financial wealth of a German citizen is EUR20k, about the same as Greece...and they have one of the highest per capita rates of billionaires). Maybe we can tax rising property values more efficiently but the US model (essentially, publicly guaranteed mortgages) works quite well too.
For 20% down:
21–25 years: 3.84%
26–30 years: 3.94%
But yes, I agree that at current house prices (8-10x median local income) both the deposit size and the rates at prohibitive
I wish more people (in the US, especially) would think of housing in this way. I think we'd have much more sane housing markets just with that change, even without fixing a lot of the other structural problems we have around housing.
Rest of the population have family's, and have to care where and how their children grow up.
You need to include everything like: 1) mortgage interest, 2) property taxes, 3) insurance, 4) maintenance, 5) opportunity cost of down payment, 6) transaction costs buying and selling.
Clearly if you see major appreciation in the value of your house you'll clearly come out ahead of renting, but I've been in two situations (one while renting, one while owning) where I would have come out ahead renting. In one case the home values went up 20%, but the stock market went up 50% and adjusting for transaction costs, I made more money continuing to rent than buy.
People just believe that this is impossible in the property market
Factor 1 to 4 are all included (with additional profit margin on top) in rent so you're always paying for those regardless. As an owner at least you don't pay the extra profit margin on it to the landlord.
On #6, if you're moving very frequently then yes, you're better off renting. If you want to settle down, buy.
So realistically that only leaves #5 as a consideration. In the short haul it favors the renter but over a lifetime, not so much.
Buying and renting are separate markets. Just because housing prices go up doesn’t mean rent does as well.