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Comment by david422 | Hacker News Reader

When you buy a house and get a mortgage, you are going to be paying MUCH more in interest (than expected). Over the course of the mortgage, you are going to be paying MUCH more than the sticker price. Between closing costs and taxes and fees maintenance, you will need more cash than you think.

My advice is look at the numbers very carefully and choose something that is (below) or fits your budget. Sudden financial issues like the loss of a job or new vehicle purchase can put a big strain on all this.

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This is a topic that often comes up, but once you pry, people usually overlook inflation. As an example, let's say you took out a $300,000 mortgage 30 years ago. The inflation adjusted cost of that today is $634,546 [0], so figuratively you end up paying more than double the sticker price just because of inflation.

[0] https://www.calculator.net/inflation-calculator.html?cstarti...

Eh? This is totally backwards. The amount you owe is fixed, e.g. 300k. Inflation means that that 300k is worth less and less as time goes on. Therefore, inflation is a good thing for debtors!!!

No, it isn't backwards when you consider the perspective of the bank. They give you 300k now, if you only paid them back 300k in total they would be incredibly deep in the red. Interest is there to offset that fact and then some. Even if the bank ended up at net zero after inflation, they would still be deep in the red because of the opportunity cost. In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on. Banks are not in the business of charity, so the debtors have to cover the gap, plus profit.

> In other words, inflation means what you're paying back to the bank is worth less and less as the time goes on.

Well yes, that's exactly my point. The $1 you pay back to the bank 25 years ago is worth MORE than the 1$ you paid yesterday. But you still only need to pay back a fixed $300k.

Obviously agree that interest paid is where the bank charges you for the loan, but your original point about inflation meaning your actually paying back the inflation adjusted value of the loan makes no sense.

I think this phrasing misses the point. If you paid back anything less than the inflation adjusted cost, the bank would lose money on the loan. Hence, the minimal amount you have to actually pay back is the inflation adjusted cost at the end of your mortgage, simplified to the 600k in the above comment. In the real world both inflation and interest happen continuously, but it's easier to exemplify without that fact.

The slower you pay off that loan the more you save because of inflation.

The faster inflation goes up the better a loan on an asset is. Because the asset doesn’t inflate.

Inflation is a reason why you want to buy a house.

What?? Something’s off in your statement. Inflation is actually a good thing when it comes to buying a house. You buy a house, get a (fixed) mortgage, and make set payments for the next 30 years. However, the payment amount never changes so as inflation takes effect over the years, your “real” payment gets cheaper and cheaper. In my case, the $1500/month I started paying in 2011 was worth a lot more than $1500 is worth today.

What do you do when the people you're bidding against don't understand this?

it's called renting.

Americans are obsessed with owning a home at all cost. This means that you are effectively bidding against people that do not even do the math. They are ready to spend Millions of dollar on something that is comparatively cheap to rent.

The fact that absolutely everyone wants to buy pushed prices through the roof. The good news is that you can take the other side of this bet. it's called renting.

Currently in most places in the US you will save literally millions over the 30 year mortgage by renting and investing in the market instead.

Reminder that renting and owning is functionally almost exactly the same thing.

Never trust your realtor and never trust other homeowner that most of the time never did the math (We all know those people: "I bought my home for 500k 15 years ago. It is now worth 1M$, therefore I made 500k$").

In other words, let other people take the irrational side of this bet and take the rational side by renting. It's an arbitrage opportunity.

An important fact that this doesn't account for is that, in the United States, living in housing that you own is highly tax-advantaged, at least if you can get a mortgage on it. For example, mortgage interest is tax-deductible for owner-occupied housing (whereas landlords usually can't deduct interest on their mortgages and so those taxes are passed on to renters), and mortgage rates for owner-occupied housing are far below market due to government subsidies and guarantees (whereas landlords have to pay higher rates that, again, they pass on to renters). This isn't good policy, but as long as it's the case, buying a single-family home is a smarter financial choice for most Americans than renting one.

I live in the US and I'm aware of this. Those tax deductible interest should be calculated in the complex buy vs rent equation.

In fact, even when taking them into account, it still doesn't make sense for most Americans to own. (In today's market).

Renting and investing is still the way to go for at least 75% of Americans (this is slightly more nuanced for low cost of living areas, but hold true for any MCOL or HCOL areas).

Eventually the math could make sense again, but right now owning is a huge luxury that will cost you millions in the long run.

I invite you to play with this calculator: www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html

It's not all numbers, though. Both have a lot of intangibles that can and should affect your decision.

Owning can feel suffocating at times, and like a ball and chain at others. You can't just decide you don't like it or the area anymore and go. Maintenance is also no joke.

Renting feels ephemeral. Getting kicked out at lease end sucks, it's hard to uproot everything and start over. Having inane rules and a landlord constantly drive by can make you feel both infantile and spied on.

I've done both off and on and those are my own thoughts on the two.

Financially only it's easy to pick a winner. But for some, one of these factors may be worth the extra however much money the difference is.

The best way to calculate those intangible is to associate a value to them, Most people love to say that owning is so good because they can decide on their own house improvement.

Ok, but how much do you really value this over? Is it worth 2M$ over 30 years? Because in a lot of cases this is what you leave on the table by deciding to own.

How much is your kid's smile worth because they are able to build a treehouse, or ride a go kart around the yard?

Breaking everything into some numerical value misses the whole point of life. But hey, who cares if you're rich when you're old?

I agree there are pluses to living in a house. One, you can rent a house. But also, there are benefits for kids living in apartments, condos as well. If we're just talking about money, maybe the things you can afford (more travel with your kids, more activities for your kids, more money for kids hobbies, etc...). More time (instead of spending time maintaining your house, gardening, mowing the lawn, etc... you can spend that time with your kids).

I'm not saying an apartment is better than a house. I'm only saying it's not about "rich when your old" vs "kids treehouse and go kart".

Thinking about all the things I loved about my house. Had a pool (but so do many apartment complexes). Could be much noisier than I can in an apartment. Had a garage for tools. I thinking most of the other things I liked have analogs in apartments/condos. But again, you can rent a house.

In the U.S., renting a single-family home is not usually a particularly good idea. Because of the tax disadvantages that I mentioned upthread, but also because the market's relatively thin (in part because of said tax disadvantages) and this makes it harder to find a house you like as much.

(You can pay people to do maintenance tasks on your house, and if you rent then you're already indirectly paying for that. Professional landlords benefit a bit from economies of scale and such, but it's a minor difference.)

>> if you rent then you're already indirectly paying for that.

Quick note: People repeat this non stop ("The cost is passed down to the renter"). This has been proven false many times. The cost to the landlord is mostly irrelevant to the renter. Rent is set by offer and demand in a particular market. Just try to increase your place 1000$ above market rates because "Maintenance and taxes", your renters will move. So it obviously doesn't work like this.

Increased costs that affect all landlords equally are reflected in market prices, though not necessarily in a linear fashion.

I think you are missing the point entirely and have an "holier than you attitude"

The whole point of optimizing for some things is exactly so that I can spend more time with my kids and wife. I will be retired in the next year (in my 40s) and spend time with them while most people will continue to work in their 70s to pay their mortgage.

I am regularly traveling the world with my son and loved ones while most people use their weekend to "repair their homes".

The exact reason I do all of this is to spend way more time with my loved ones. Most people that act in autopilot mode never think about this and therefore end up not spending time with their kids (But Go Kart around the yard!)

You seem to think the only way forward is to provide a house to your family. I think retiring early, spending more time with them and experiencing the world is a good trade off for renting. I would invite you to consider different point of views

I am a renter so I don't have a horse in this race, but renting is many times the financially worse choice even in HCOL.

Why? Because rent inflates like crazy over here! In the Bay Area 7%+ a year is completely expected, and 10% is not unusual. I have been all over the Bay Area for more than a decade (San Francisco proper, East Bay, South Bay) and know this well. It's been nuts.

Random example: the 1 bedroom apartment that I lived in 2012 and was then going for $1,500 a month, is now going for $3,800 in the exact same building (with no/minimal renovations it seems, I just looked it up). An ~8% YoY increase. That will do it to any buy vs rent calculator, very easy to break even in under 5 years, and that's excluding the speculative ability to refinance if interest rates go down from the current 7%, in which case it becomes a huge boost.

Renting as a long term choice just works in European countries where normal people can lock in 5+ year leases with no or minimal rent increases. America is too profit-seeking and greedy for that.

I still rent for flexibility reasons, but I definitely see it as a luxury lifestyle choice, the most financially responsible thing would be to buy, even in HCOL.

All this in my opinion and personal experience, totally fine if people see it differently.

SF is the poster child of a HCOL where buying makes absolutely no sense.

Even if rent increases a lot, the buy to rent ratio is so horrible that it could continue to increase for MANY more years before buying could make sense.

I invite you to use the NYT Rent or buy calculator, It is clear as day: www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html

I just did, picturing exactly the situation I'm in right now:

- Rent: $3,500

- Home price: $700,000 (a similar unit just sold for this price a few months ago in my building)

- Rent increase: 8%

- All other parameters left as default, which seem reasonable (and as I said, there might be chances of refinancing over the next 10 years, which would drastically skew the picture, but I'm leaving that assumption out)

The ratio of 0.5% monthly rent/price is common for non-luxury "dated" condos all over the city, so I think my situation reflects well the typical renter.

Once again, in my personal experience, guided by a decade+ of living here, what people miss is the crazy rate of rent inflation. There is always a massive rent increase right around the corner, and God forbid if you are forced to move (because the landlord wants you to, it happened a couple times), then you take a gigantic hit at market rate. Once you factor in these occasional resets and the standard yearly increase, you get very close to 10% rent increase.

Is this a condo with an outrageous HOA that you are not including? Many such cases that explain why condos are valued so much lower.

In SF I have been renting a 1.6M$ townhouse for 4k$/month, and that is very typical of what you can find in SF and in SV.

That has been my experience. Rent increase have been outrageous, but not as bad as the ratio between renting and buying. I would still rent even if my rent went up 50%...

On a related note, how do routine inspections work in the US? Does someone walk through the house taking photos every 6 or 12 months, making sure you're keeping the place clean and no damage etc? That's how it is here in Australia, and is absolutely the worst aspect of renting IMHO.

Nowhere I've lived has ever done that and I don't even think there was provision for it in any lease I've signed.

I ended up asking Grok, which said:

"Routine inspections are common in many states but not universal. Some states, like California and Texas, explicitly allow periodic inspections with proper notice, while others may have stricter regulations limiting landlord access unless there's a specific reason (e.g., repairs or suspected lease violations)."

I think you're leaving out other expenses. You'll be paying HOA fees (one friend in SF pays ~$1000 a month and I've heard of worse). You'll also be paying property tax at around $650 a month. You'll probably be paying some maintenance that your landlord would have had to cover (though maybe HOA fees cover some of that?)

If you live in rent controlled housing in SF, your rent increases are gonna be a lot less than 10% a year. And you're unlikely to ever be evicted due to a house sale.

During our last apartment search, it was not particularly difficult to find a rent controlled apartment.

I wish other cities would do the same thing.

Rent controlled housing (depending on how implemented) can effectively create “land gentry” who have access to a valuable asset at below market prices that they can’t sell.

Nevertheless, I think it's unconscionable to let landlords arbitrarily increase rent and evict people at will. Rent control and increasing the housing supply should be orthogonal issues, more or less.

> During our last apartment search, it was not particularly difficult to find a rent controlled apartment.

They're not hard to find, but the competition is cutthroat, sometimes worse than among potential buyers bidding on a house.

> Why? Because rent inflates like crazy over here! In the Bay Area 7%+ a year is completely expected, and 10% is not unusual. I have been all over the Bay Area for more than a decade (San Francisco proper, East Bay, South Bay) and know this well. It's been nuts.

The great thing about renting? You can move.

Aww, they ~~paywalled~~ login-walled(?) the calculator since I last used it (my saved link of https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... also redirects to your 2024 version)

The strategy is to buy now. Because you can refinance in the future.

That calculator should include an interest rate change in the future.

So take a bad deal now with the promise of maybe refinancing in 10 years. If that even ever happens again. And most of the interests are being paid upfront.

It will happen again. Look back like 10 decades. Interest rates oscillate. Follow the long term trend.

Sure but almost never close to zero. And how much are you really going to save when they go from 6.5% to 4.5% in 10 years? While most of the interests will already be paid?

Hell, most people will not even want to live in the same place in 10 years.

Honestly this sounds like yet another argument from a realtor to push prices irrationally to all time high.

That's just perspective. The loan is 30 years. The monthly payment never changes right? So you can think of monthly payments as flat principle + interest that's constant.

It's the same thing. The only difference is in taxes.

If you refinance your monthly rate goes down. And you get a tax break.

Interest rates will never fall to pandemic-era levels again. It was a once-in-a-lifetime event that catapulted the equity of those who were smart enough to pounce on a house during a world-shaking event.

But mortgage interest is an itemized deduction, which means it only becomes a tax benefit when your interest + other deductions exceed the standard deduction. And if you do take the deduction, only the delta between it the standard deduction is a benefit.

At this point, the so-called tax benefits are mainly a realtor talking point (the same as "Renting is throwing money away")

>whereas landlords usually can't deduct interest on their mortgages and so those taxes are passed on to renters

This is incorrect - landlords of course can usually deduct mortgage interest from their taxable income.

> Reminder that renting and owning is functionally almost exactly the same thing.

Erm, apart from the bit where you, you know, own the property meaning you can put pictures on the wall, and that's just the start...

But I've always said, if you have no desire to use the benefits of owning (ie. modifying it), then it's more of a liability as now you have to pay for repairs etc.

> Erm, apart from the bit where you, you know, own the property meaning you can put pictures on the wall, and that's just the start...

Maybe, just maybe, those benefits are not as big as the house ownership social class has made us believe it is? Put pictures on the wall.

>Reminder that renting and owning is functionally almost exactly the same thing.

I don't even know where to start, but no, they are not the same thing. You get to live there, that's largely where the similarities end.

>"I bought my home for 500k 15 years ago. It is now worth 1M$, therefore I made 500k$").

Assuming 2k rent (for a 500k home), renting would have cost you $360000, and that's just a net loss. On a 30 year mortgage, the mortgage would be 2100 a month. You would have paid off $196000, be able to realize the gains, and it's incredibly unlikely you spent $196000 on repairs in 15 years. And your mortgage would not have increased in that time.

I don't even know where to start. The math is incredibly more complex than the back of the napkin example you just gave. (downpayment, taxes, hoa, repairs, insurance, realtors, closing fees??)

But you are proving my point, you "think" you came ahead (while ending up paying way way more). Functionally you live in the same place, and the system managed to extract more money from you.

>and it's incredibly unlikely you spent $196000 on repairs in 15 years.

You have $196000 of buffer on all these (downpayment, taxes, hoa, repairs, insurance, realtors, closing fees??). This number doesn't even include the earnings if you sold the house, in your hypothetical example of the price doubling in 15 years, you actually have $696000 to play with here.

Though it's funny you mention taxes since deducting mortgage interest is one of the biggest tax benefits most people have access to.

Look I don't know why your so anti-house, but you really might want to run the numbers again. You provided two numbers, I did further math on them, and your reply was simply 'the math is incredibly more complex'. This is hardly a fruitful argument from my end.

>Functionally you live in the same place, and the system managed to extract more money from you.

I'm honestly sorry you feel this way. You are only hurting yourself.

Again, the back of the napkin math you do doesn't work. Educate yourself and search online or on this thread. A ton of people agree with me and the math once you dig deep.

https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

We don't need to agree. You seem happy to think you came ahead financially, good for you.

The napkin math was using real numbers lol I didn't make them up.

Educate yourself and search online or on this thread.

You wait and invest In something else and you try to convince your spouse that living in a super nice neighborhood as a renter isn’t a bad deal. But sometimes you lose rational arguments on feels and that’s just life

2 anecdotes

* Met a guy who bought a place in Manhattan Beach LA. He said it was the best investment of his life. It was more than he and his wife could afford be she insisted. Of course maybe they just got lucky that nothing bad happened the would have forced them to sell.

* Have a friend that looked for over 20 years. He go out looking 2 or 3 times a month. Everything was always beyond what he was willing to spent, people out bid him etc. Finally he just came to the realization that if he didn't buy he'd never live in a house (one of his goals). So, he bought, higher than he would have. He seems pretty happy to have a house. He's been in it 6-7 years now and at least according to RedFin it's worth less than he bought it for but I don't think he cares. He's happy to be living in his own house and not an apartment.

PS: I'm not suggesting the alternative is worse.

I had the same outcomes as above it seemed overpriced but I bought in anyway and the forced savings made it a good investment anyways. But ultimately it was a good investment because my initial view of where the market was heading was completely incorrect.

I feel like most of the response to housing comments are from coastal US perspectives where the math really does not work at the moment. But that is not the case everywhere nor outside of the US.

> When you buy a house and get a mortgage, you are going to be paying MUCH more in interest (than expected). Over the course of the mortgage, you are going to be paying MUCH more than the sticker price. Between closing costs and taxes and fees maintenance, you will need more cash than you think.

This. No idea why people fall into the hype of owning a house they can't afford in the long term.

Also, there's no shame in renting and it's frequently a better financial decision.

If you get a mortgage you're also getting extremely cheap credit compared to other options in many jurisdictions.

One should do proper accounting as things change wildly from one place to another.

Exactly, calculate total cost of loan vs. cost of purchase

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