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Comment by csdvrx | Hacker News Reader

The correct strategy is not to rent, but to buy on credit at a fixed rate, then let inflation take care of it for you.

There's no way governments can repay their debts (and not just in the US: EU, Japan... about anywhere!)

So it make sense to act after having seen the writing on the wall: first, they said inflation wasn't going to happen because... reasons, then they said it was totally going to be temporary, now I'm sure they'll find other plausible excuses, but it looks to me they are trying to delay the inevitable and let the mortgage market adjust by stalling those who still think inflation is uncertain.

So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!

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> The correct strategy is not to rent, but to buy on credit at a fixed rate, then let inflation take care of it for you.

I’m reasonably sure the people who are leaving because the rent is too high aren’t just neglecting to buy a home. Not everyone can just get a half million dollar loan.

> Not everyone can just get a half million dollar loan.

You are still optimist, in some part of the world, it is way other one million.

And this is the core of the problem: We are making the poorest even more poor by excluding them of the housing market and making them renters for life.

It can only finish tragically on the long term: constant growing social instability or 2008-style housing crisis. Choose your weapon.

Where I am (NYC), I'd say renting is a smart choice.

Every time I check, I see that buying an apartment (or a house) would make me pay significantly more per month for the best 30-year loan than I pay to rent a comparable place. This is even before the property tax.

I suppose that the future appreciation is priced into the cist of a dwelling. Realty is universally seen as an investment vehicle.

If we for a brief moment imagine that it won't be such a great investment, and maybe would go down when adjusted to inflation, the idea to break your back to own it loses its luster.

I had the same thoughts as you tens years ago. Kept doing the calculations and renting worked out so much cheaper but I struggled into the market and purchased a house after a year of searching and low balling.

What you are missing is: - They are not creating new land in New York. New York has reached a critical mass and will continue to grow - Part of your mortgage payment goes towards principle. That's your money.. you are paying yourself back. - A mortgage is the cheapest interest rate you will ever get

If you can pull it off a house in New York I would say go for it. Apartments can have better locations and can be cheaper but it's riskier. A house with land will not go down if at all for long.

> A mortgage is the cheapest interest rate you will ever get

There are cheaper margin loans.

Have they tried just not being poor? /s

> The correct strategy is not to rent, but to buy on credit at a fixed rate, then let inflation take care of it for you.

The problem is getting access to the credit in the first place and being able to afford the legal fees.

To buy my flat. I had to put down a payment of £15,000. I bought the property about £30,000 cheaper than it probably should have been. So I would have had to put £20+k as a deposit. Not many people can afford it. Then on top of that I paid about £2-3k in legal work.

I earn decent money in the UK and it wasn't straight forward to me. I can only imagine the trouble people who are less well off.

> So simply align your interests to the government interests, and manage your money just like they do: without a care in the world about the petty needs of say having a stable budget!

Which will lead you to ruin but has almost no repercussions at all for them. The game is fixed.

Sounds like a sensible strategy and there is not a day I regret for not getting in the housing market sooner like two years ago when things were still affordable (it looked quite expensive even back then but compared to now it looks Like a great deal).

Question is what happens during the inevitable impending credit default crisis as you outline. Would the housing market just floor to zero? Or your hypothesis is they would let the inflation go run away? Either way (default or inflating debt away strategy) I am not sure how the housing market will adjust just because I am not sure what the outcome of downfall would be to all the middle class families who stretched to max and bought SFH post 2015.

You ride it to the top and then take the government bailout.

A friend told me about a friend in Las Vegas who bought a big house prior to 2008, then HELOC’d it to the max to buy new vehicles, boats, etc. Took advantage of every opportunity to leverage himself to the hilt.

Housing went tits up, so he stopped paying the mortgage for two years, then mailed the keys back and walked away keeping the cars and boats.

Sure he had to declare bankruptcy, but after a couple years was able to repair his credit and buy another home. (The seven year mark remained but hey there were willing lenders).

Bastard made out like a bandit despite going bankrupt.

Aren't they supposed to repo those big purchases?

During a typical bankruptcy yeah, but 2008 wasn’t typical.

Banks were losing paperwork, mortgages had passed through multiple hands, they couldn’t deal with the foreclosure volume. Hell, banks were going under. It was a complete mess. That’s why if you stopped paying your mortgage it was often 1-2 years before anyone even came knocking.

In many cases, if you simply sent the keys back and were in a non-recourse state, nothing more happened. The bank added the home to the foreclosure backlog and deemed the debt “uncollectable”.

If they balked, you go through a bankruptcy process, but who had time for that? Plus the government had programs to help relieve underwater homeowners.

There was a bit of a financial “reset” in a sense. Many people were allowed to wipe the slate clean and start over.

And that man's name? - 400 FICo

Why do you think that there is going to be a credit default crisis.

The governments around the world are experts in printing money and kicking the can down the road. In the US, medicare is going to not be able to repay its bills in less than 4 years. They will combat all of that just by printing more money and letting inflation run at 6-7%.

That doesn't make any sense. Higher inflation won't keep the Medicare program solvent. The usual approach has been to cut the fees paid to healthcare providers. That's why Medicare beneficiaries in many areas have trouble finding doctors willing to take them on as new patients.

This time is different.

There's increases in wages right now as well and employees are demanding higher salaries.

They don't care about asset price inflation, they care deeply about wage-price spirals.

A government that takes on debt in its own currency like the US isn’t going to default except perhaps as a political stunt. The likely outcome is that they let inflation eat away at the debt until the ratio of debt to GDP is back to a more normal level. This benefits anyone with debt including those with a fixed rate mortgage.

Where people could get into trouble is if they take out a variable rate mortgage because rates will probably rise as inflation heats up. The other risk is I f the economy hits a bump and you can’t get or keep a job that pays the mortgage payment. These can be mostly mitigated by not trying to over extend yourself financially.

This keeps China in check as the debt they hold becomes worth less value. Because other western countries are doing something similiar the US dollar will stay strong.

There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"

Meanwhile housing is an amazing handout to the middle and upper classes through the 30-year fixed rate mortgage plus the mortgage interest tax deduction. Inflation increases rents, but the fixed-rate mortgage never increases. One of my property's mortgage is now only 40% of the rental rate after 8 years of inflation. It's like an annuity with an automatic inflation adjustment - I'm going to get rent until I die, which always goes up as the cost of living increases.

> There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"

I think you're stating the sentiment wrong, as someone who did and still does to some extent sympathize with it. The default view in American personal financial discourse has been that you need to buy a house. The heterodox view to which you're referring was that renting and investing is not obviously worse than buying a house. I don't recall any widespread view that you would come out way ahead by renting.

And, to be fair to that viewpoint, compared to buying a house outright, you would have been better off keeping your money in the market and renting over the last five years! S&P is up 91% over that period, and that's not even the total return index! Housing is up quite a bit, but in most places it is not up 91%. I sold a house in the Bay Area around five years ago for around $2.4M, and Zillow is telling me that it's now worth a little over $3M. Zillow could be off by a few hundred thousand in any direction, but I doubt it's off by $1.5M.

What the viewpoint fails to consider is the availability of extremely cheap leverage for houses. If housing does go up, and you have a 4:1 debt to equity ratio, then your appreciation is 4x the asset appreciation if you're at the beginning of your mortgage. If you're the person who bought my house, your $700k of appreciation on a downpayment of $500k is a 140% return (before transaction costs). Of course, if housing ever goes down . . . well, we all remember that well enough.

All in all, I'm not sure the case is closed on the rent and invest vs buy issue. Things look very favorable for buy over the last five to ten years! There is no question about that. However, I personally am not sure how to adjust for the risk associated with the increased leverage you use when you buy. I don't think it's an apples to apples comparison.

Property is probably a larger percentage of my portfolio than most people. You can get screwed on renting too - sure, you can always move, but moving sucks and I like stability. I have super-safe investments and insanely risky ones, and I'd put property much closer to the safe side than the risky side.

The bottom line is, in a truly free market I think housing would be a way less-good mechanism for investment. In our subsidized, zoning-restricted, NIMBY world housing can be a very good investment.

Shouldn’t you include 5 years of lost Bay Area rental income in that comparison? That could be another 250-300k on the side of the house.

They didn’t include the dividends of the S&P 500 either (they said they didn’t use the TR index)

You act like home-ownership isn't an absolutely essential part of the economy, or like driving roughly half the population from their homes is not an undesirable thing?

Of course there are compelling financial products which incentivize home-ownership. It's massively important for homeownership to be possible for as many people as possible.

Homes are extremely expensive, but the down payment really isn't a problem, relative to the time and expense of keeping the damn thing running. The down payment continues to be reasonably proportional to home much money needs to be in place for someone to control the equity at stake.

What you're actually asking for, I think, is for home building to be subsidized, in order to drive down the construction and sale price. Because it's not like home builders are earning 50% margin on these structures, the reason house prices rise is because prices rise.

The reason home interest prices are low are also because prices rise, meaning risk at long timeframes is negligible. The only crucial point is to make a squeeze impossible and you can ride out anything - hence why it's so important for government to back-stop it, because if you can squeeze the US dollar we have bigger problems.

I'm not asking for anything - I'm stating that because of the government, buying housing is artificially propped up and is advantageous as an investment. I would support removing market-warping incentives that make me richer at the expense of others. But for various reasons I seriously doubt that will ever happen, so if you have cash to invest owning property should be some part of your portfolio. Active management takes effort which a lot of people don't want to do - I don't mind it myself - but good cities with healthy rental markets are attractive.

There is a long list of things that the government messes with. As an investor you should keep an eye on the political winds and what is favored for reasons outside of market forces. 1 to 5% boost per year compounds significantly.

The mortgage tax deduction is really hard to take these days given the increased standard deduction. I’ll try again this year, but unless I have something else to itemize, I’ll probably stay stuck with the standard deduction.

Being a landlord can suck even in a good market. If it were easy and risk free, everyone would do it.

Mostly it's the fixed rate mortgage - if you are wealthy it doesn't help - but it's still a handout that can tip the scales to owning over renting.

> There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"

This is still something people should look into, but it depends on your real estate market and taxation. It's not black magic after all, there are calculators for that: https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

Sometimes it is indeed better to rent.

It’s clearly market specific. I bought a house 3 years ago, house is up ~15% but I would be ahead if I just put the down payment into the market instead.

Ya, that's why I'm thinking that it might be good to ban owning multiple properties

Well, you're kinda right but houses are the most expensive they've ever been. You need a hefty downpayment which is gonna take a lot from your savings. It's not like houses are given for free now.

For first-time homeowners, you only need 3.5% + closing costs for an FHA. That can represent several thousands of dollars, but there's plenty of folks with $600+ car payments and $100+ cell phone bills living in apartments, so it's not like saving up $10-15K is completely unreasonable.

You can "house hack" by continually moving into the house you buy. Each time you move you need just 5% down. https://www.biggerpockets.com/forums/311/topics/857256-fha-l...

OK where I live that's impossible, you need 25% down and it's very expensive, realistically it will take most of your savings. For 3.5% downpayment, if the interest isn't too high, I'd take it yesterday.

There's 0 down 30 year fixed mortgages. https://liberty.financial/lending/mortgages/community-hero-1...

Unfortunately at least in Texas taxing authorities can outstrip annual cost of living increases and inflation by a wide margin.

> There's no way governments can repay their debts (and not just in the US: EU, Japan... about anywhere!)

Population growth, persistent production....there are several factors that could help governments dig themselves out of debt.

But there's a democrat in the white house, which means it's time to wring our hands and gnash our teeth and wail about the national debt...

The central banks of the major governments, especially Japan, own a huge percentage of their government debt. Quantitative easing, of which we've had a lot recently, prints money and buys debt. If the government pays down the debt, the payment goes to the central bank destroying the money (aka the opposite of printing it). So paying down the debt will be deflationary.

Except if the fed hikes interest rates and crashes the economy, and with it the real estate market.

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