Hacker News Reader

Comment by fallingknife | Hacker News Reader

It's not, though. Since 1970 home prices in the US have gone up 16x and the S&P 500 has gone up 44x. Adjusted for inflation, that's 2x for houses and 5.5x for stocks. And you don't have to sell your stock if you have to move (and take a 6% hit on RE agent commissions) or pay money to maintain it. You can borrow against it whenever you want with just the click of a button. Of course housing sounds like a great form of wealth when you compare it to the hilariously bad investment of a bag of diamonds in a safe.

View on HN

These calculations ignore that most homes are eligible for extreme amounts of highly protected leverage. Sure, you can trade on margin on the stock market, but you are subject to margin calls, which is not the case with a home.

So multiple that 16x by the typical 4x-5x leveraging, and homes turn out to be really great. And since the transaction fees and the non-existence of index funds in the 1970s made it harder to invest in the stock market at a small scale, and homes were a much better investment.

Add on to that that everybody needs a place to live, and your home acting as an investment vehicle with equivalent performance to the US stock market, and people from the 1970s have had had an amazing deal that younger people have not had access to.

But you have to put that capital in anyway because house leverage is amortizing. Margin debt is not.

All that leverage absolutely crushed investors in the 2008 housing crash, and is again now ruining people who had poor or nonexistent interest rate hedges.

The idea that it’s easy or natural to make money via leveraged housing had ruined many people.

This isn't really a thing in the US right now. Less than 10% of mortgages are adjustable. The share of ARMs in 08 was much, much higher.

*/1 ARMs are insane and shouldn't be allowed in the market.

*/5s or even */3s offer an interesting option, depending on terms.

Yup, people don't realize that leverage works both way. It's not a freebie.

You are looking at avg gain. I can tell you anecdotally that over the past 25 years there have been markets that have barely budged at all in median prices, and markets that have seen fold change gains in median home prices. In some markets you are doing a lot worse than the index, in others you handily beat the index and these are generally the ones people bemoan in cost of living articles in the media.

The difference here is that you would make 44x from the spare change you can save every month after paying for rent, not from a loan worth >5x your yearly salary.

A loan which you have to pay back with interest. So unless home prices are rising faster than interest rates, you're losing on that deal

Or, you know, you rent out the place.

And if you are your own landlord (ie a homeowner) you can pretend your rent is whatever you want, but the market rent is what one should impute as the value of that rent.

Which you can still lose on. Most major markets in the US now rent below cost to own.

Yes, but:

1) Historically they have.

2) Most people in the US that haven't purchased very recently are locked in at very low rates. Only 9% of mortgages are over 6%. 61% of outstanding mortages are <4% [0].

3) There are a lot of incentives (and the ability) for governments to ensure home prices continue to increase, although at a rate lower than they are now.

4) We spent over a year with inflation that is double most people's mortgage rates.

5) You have to live somewhere regardless; the alternative is renting. For most of the country, at least until very recently, that was a worse option.

[0] https://apolloacademy.com/the-distribution-of-mortgage-inter...

Reply on news.ycombinator.com