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Comment by closeparen | Hacker News Reader

How can it be that they earn enough to make the monthly payments, then?

They're already paying more than that much in rent. They just can't put together that and 20% of the full (greatly inflated) valuation at the same time.

Where? In the expensive coastal markets the price to rent ratio is enormous; the mortgage is much higher than the rent on the same home.

A lot of the UK

> the mortgage is much higher than the rent on the same home

That would really surprise me. Everyone I know talks about how much cheaper it would be to buy if only they could afford the deposit.

Most of the time the mortgage is lower than the rent for the obvious reason that when you rent you're both paying the landlord's mortgage, plus their profit.

> when you rent you're both paying the landlord's mortgage, plus their profit.

True, of course. But you are also paying the landlord's property taxes and maintenance costs and (sometimes) utilities and....

A pet peeve of mine is when people compare mortgage payments to rent payments as if they are a equivalent. There is a lot of additional overhead in homeownership beyond the mortgage payment.

Though maybe it's a sore point for me because my furnace died this morning and it's -40 outside so guess who gets to drop an unplanned $6k this week?

> There is a lot of additional overhead in homeownership beyond the mortgage payment.

Which you pay via your rent as well, as your landlord is also paying those overheads.

When you rent you're paying everything you pay when you own... plus profit for someone else.

> plus profit for someone else.

Well, possible profit. There is risk involved. Underwater mortgages are totally a thing.

More recently, a fair number of landlords are in trouble right now due to the COVID eviction pause. Their tenants stopped paying, but their own principal, interest, and insurance payments kept going clickety-clickety-click. Some of them are even walking away from the properties.

It's also important for everyone to keep in mind that not everywhere is the Bay Area, or even California. Judging nationwide housing conditions by the conditions in those regions is likely a mistake.

Yes, that's what I just said.

The problem is that there is a tendency for people to compare the rent payment directly to only the mortgage payment.

Many landlords do not have a mortgage. Or if they do, the cost basis is much lower than if you bought the same place today. Also, there are major costs to owning home beyond the mortgage. To use myself as an example, only ~60% of my ownership costs are the actual mortgage.

Whether or not the fully burdened mortgage is less than the rent depends on the region but it is not uncommon for the costs of owning to be higher than the costs of renting, and this still makes sense for the landlord because of differences in cost basis.

A long-tenured landlord made some money in his role as a speculator, and currently has it invested as equity in the property. Which, yes, gives him a lower mortgage payment than you would face. This $X invested in the property is yielding him $Y in marginal cash flow per month. You can do that too, assuming you have $X, by paying extra towards your own mortgage. But do you want to? Depends on the value of $X and $Y; you may be better off buying index funds.

It is surprising, and counterintuitive. In the "hot," high price to rent ratio cities (NYC, BOS, DC, LA, SF, SEA, etc) landlords don't make money in their capacity as landlords, but as speculators.

Rent is just a little bit of gravy to partly offset the cost of owning those appreciating assets. It's not the point.

That makes no sense at all. Nobody would buy in that scenario and for the landlord the return is negative, so they wouldn't buy either.

Property appreciation can make renting below the mortgage payment financially attractive. A house that's appreciating 5% per year is covering for a lot of negative cash flow.

Well, they're probably paying rent before buying. And in many places in the country a monthly mortgage plus tax and insurance payment comes out well under rent.

Oh they earn enough to make monthly payments. They just happen to be paying someone else's mortgage, rather than their own.

I can see this being true in some markets, but the places where we talk about house prices going crazy, they are doing so not just in absolute terms but in proportion to rents.

This often ignores the cost of council rates, insurance, loan interest, etc. You need to be able to afford more than just rent to own. But if the bank approves you, it’s likely right because they don’t want to give loans that people can’t afford.

No, it's pretty common that people end up paying more in rent than they would for a mortgage. You could maybe argue that the job security is what is priced into this, but it happens to working professionals too.

Historically low interest rates. Also, the average percentage of household income allocated towards housing has been steadily increasing.

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