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Comment by vayup | Hacker News Reader

As I grew older (and hopefully wiser), I have internalized investment returns is a lot more than sanitized numbers. I did the numbers and as a result did not buy much real estate when I was yonger. It was pretty clear, if I put the same cash outflow into stocks, I would come out ahead... Way ahead!

The things is, I didn't put the same cash outflow in stocks. For various reasons. But mainly, it was just not psychologically palatable to max out my investments on equity by streching my finances. With hindsight, given the buffer in most real estate investments (left with tangible assets, banks shouldering some of the risk etc.) it would have been a lot more psychologically palatable to investment my max in real estate.

My point is not that real estate is "best". But merely, there is a lot more to returns than cold numbers. If you think you already understand it, and are under 30, you are likely underestimating the significance of that. I know I did.

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This is the argument that buying a house serves as a subpar, forced investment for most people.

But I don't know if I agree with you, I understood in my twenties that housing was generally a bad investment. We are now 10 years later and I invested everything in the stock market instead and came way ... way ahead than if I bough one or more houses.

I personally find it way way more scary to buy an average 2M$ house that could crash and lose half of its value overnight than the whole American economy that is relatively diversified. What happens if there is a fire in your neighborhood? Or if your city is the next Detroit? We have been made to believe a house is a safe investment. I personally think it's the scariest least diversified investment you could ever make.

The other factors beyond cost to consider are:

1/ with renting, you might outlive your landlord (forcing you and your kids to move / switch schools).

2/ control over the health of your home (installing water filters, air quality sensors, fixing mold immediately instead of waiting for a landlord).

You know I hear this all the time but it never quite makes sense to me. REA is inherently a better asset class than the vast majority of assets, simply because you can leverage up without a risk of being stopped out.

Doing the numbers on (most) developed economies, buying freehold housing is typically a worse investment than stocks before leverage, but after, RE almost always comes ahead. Nobody is going to let you mortgage a basket of stocks, but almost any bank will let you do that with a house.

That said - I hate this idea because I think this kind of thinking is what has lead to many of societies problems in the developed world at the moment. But, from a rational point of view the numbers make sense.

It's worse than that. Buying a house without leverage is a terrible investment.

The leverage is absolutely required because all the fees that come with real estate (Realtors, Interest, HOA, Taxes, Insurances, Closing costs, Downpayment opportunity cost,...). The leverage makes it an OK investment, but still historically not on the level of a diversified basket of stocks.

The leverage also works in both ways and essentially makes your house an even more risky asset. It supposes that it only ever goes up which has not always been the case historically.

VA loans with no down payment and 3.5-4.5% rates did a lot of good work for quite awhile.

But, with the desires of builders to maximize profits, I don't see supply of homes (especially smaller ones of 1-3 bedrooms) easing anytime soon.

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