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Comment by flyingpenguin | Hacker News Reader

This is why being in low interest debt is so amazing. Take two people with the exact same job tracks, same appartments, family, interests, etc...

But give one of them $2,000,000 in mortgage debt at 3.0% interest on 3 properties that are rented out, and don't have the other have anything.

In 15 years, those properties will be worth 2-3x as much, and the debt will still be 2,000,000. This is what happened to boomers even though they don't realize it. Its not that houses are some amazing investment, its that no one will give you 7figure loans at 3% interest to buy stocks with money you don't have, but they will do it for a property.

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I don’t think the 2-3x as much in 15 years time is likely to be true. When interest rates start out low there is much less scope for appreciation than when they start out high. So if you buy when mortgage rates are at 3% you can’t expect the big gains you get when mortgage rates fall.

My personal rule of thumb is that rents remain fairly stable as a proportion of earnings under balanced supply and prices are then a function of rents / mortgage rates.

Over the past 15 years median household income has gone from $50k to $80k while mortgage rates more than halved from 6.5% in 2006 to 3.1% in 2021. Most of that 2-3x increase is from the fall in rates.

> My personal rule of thumb is that rents remain fairly stable as a proportion of earnings

This is the problem, because supply is artificially constrains if wages double (through efficiencies), rents increase to soak up the extra productivity.

That did happen to Boomers, but I wouldn't assume it will happen again. Over a long enough time period housing values must approximately track inflation, because there is an upper threshold of income percentage (certainly below 100%) people can afford to spend on housing. Currently, mortgage rates are about 2x what inflation has been over decades historically. Boomers mostly made money with regulatory capture- landowners were able to politically block housing construction during a time of increasing population, causing a short term anomaly where people were paying steadily increasingly high percentages of income on housing. Both that regulatory capture, and the population growth are disappearing now.

When I run the numbers where I live based on current market rates buying a home is predicted to be a big money loser over time vs renting and investing the difference. Renting lets you buy into housing with the prices and tax rates of when the owners bought them decades ago.

Buying still has a ton of tax advantages and gives people access to an incredible amount of leverage that they wouldn't be able to get otherwise.

For what it's worth, I don't disagree with you, and I think renting makes more sense than buying right now for the first time in decades, but it's just by a hair.

It depends on when and where: All real estate investment is a bet on a specific location, and properties don't maintain themselves: In general, the land appreciates, while the house on top of it loses value.

If you bought a house 15 years ago large parts of north St Louis, chances are you lost money, even without accounting for said home maintenance. They one I live in didn't go up 50% in 15 years. A lot of commercial investments? Ravaged.

So while it's true that it's possible to leverage yourself more in real estate, and that said leverage is even tax advantaged, assuming that the line will go up faster than anything else in a risk-adjusted way is a very risky position to take.

> In 15 years, those properties will be worth 2-3x as much

You're extrapolating the last 15 years onto the next 15 years. The last 15 years came on the heels of a historic decline in real estate prices that occurred just prior to that period (2008-2010).

>This is what happened to boomers even though they don't realize it. Its not that houses are some amazing investment, its that no one will give you 7figure loans at 3% interest to buy stocks with money you don't have, but they will do it for a property.

Interest rates from 1971-1998 were higher than they are today[1].

[1] https://www.freddiemac.com/pmms

Depends on the 15 years. If the government’s fiscal policy is zero inflation, except houses, sure.

It’s really a war bubble, which will pop, with pretty devastating impact.

It kind of happened to boomers, but it's wrong in a number of ways.

1. Interest rates were in the teens when they bought their houses. However they may have only paid $50k for a house in the 80s.

2. Most only bought their own house and didn't have many other investments. My parents for example had an investment property in the 90s, but were an exception.

3. House values have gone up because building regulations and zoning have become so onerous that supply hasn't kept up with demand. I believe this will continue and house prices will continue to beat inflation in many jurisdictions.

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