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Comment by jrflo | Hacker News Reader

A lot of discussion of the cons without discussion of the pros. For example: 1) your home is a hedge against inflation, your $2000 to interest sounds terrible when rent is $2500, but doesn't sound so bad if rent rises to $3500. If you live in your home for long enough, this is all but guaranteed. 2) your home is a leveraged investment. You may only be getting 4% per year in appreciation, but that's 4% gains on the total value of your home, not just your equity. If you have a 500,000 home that appreciates by 4%, that's 20,000 that you get directly, not the bank.

Interest rates sure have made it less of a good deal than it was ~5-10 years ago, but it's usually still worth it in the long run.

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> Interest rates sure have made it less of a good deal than it was ~5-10 years ago, but it's usually still worth it in the long run.

Not only that, but when interest rates come down it's usually pretty easy to refinance

The biggest advantage of buying a house is that it forces people to actually put money into a giant savings account which is not easily accessible. Otherwise people just spend the vast majority of the money they have. As an investment, houses are historically mediocre outside of some hot areas.

Why is that good? That is horrible for economic development and employment. It is worse for a country than being nuked.

I'd also like an answer to why it's good, but also to why it's horrible or "worse than being nuked". I admit I know nothing. :)

Well, at least if you're nuked, you might be able to redevelop that land before the nimby's emerge from their shelters.

Contrary to popular belief, people spending all their money buying pointless shit is not good for the economy.

If all the money of a country is not locked up in real estate of the olds, then that money could be invested in small and large businesses, in infrastructure, in young workers being able to create a family, and even useful products and useful services.

But it seems that the entire world has decided that everything except real estate - even the continuation of the species through children - is just "pointless shit". Better to have a very expensive tomb to haunt.

It seems like we're just a few years away from when the elderly start demanding to be buried in their houses and have them sealed off for all future.

But it is good for the individual.

You do have a point that in the long run, the health and growth of the overall economy impacts the quality of life of individuals, but the interests of individuals must be balanced against the interests of a country as as a whole.

Consider that people immediately spending all their salary at the beginning of every month and being broke and hungry for the rest of the month is good for the economy, but is obviously not what we want if we care about human well-being.

But that is an argument for banning everything and forcing people into a Matrix style pod at birth, since some people otherwise will be irresponsible.

And if you're talking about people who go broke and hungry waiting for the next pay check, in most cases it is because they have to spend so much on their rent or mortgage. Being "house-poor", as they call it.

> your home is a leveraged investment

Which means the potential losses are leveraged too. Plenty of people have ended up in that position. It isn't all upside.

All investments inherently have risk. Looking at historical data the average return is 4% per year on houses in the US. This average includes the '08 housing market crash. If you hold for long enough, your risk is drastically mitigated. Whereas with rent you're basically guaranteed for prices to go up year over year, unless we are in a deflationary market which is quite rare.

> If you hold for long enough

You are improperly accounting for risk. People don't own a diversified portfolio of houses, they typical own one house. The "if you hold it long enough" is to some extent disqualifying. Many people never see any real return over multiple decades.

Where I live rents won't cover the interest payment on a new mortgage. The return on renting is insanely good here in addition to the increased optionality and reduced risk. I've owned many homes, I'm just not emotionally attached to the idea of owning one nor deluded about the rate of return.

I'm not saying you need a diversified portfolio, I'm just saying that the actual rate of return will regress to the mean of 4% given enough time. Obviously we don't know if that regime will hold forever but that's the nature of investing, predicting the future is very difficult.

I agree though that this is a very location-dependent thing to consider. Local renting rates vs property values is hugely important when determining if it makes sense economically or not. In your area you'd probably be taking a loss compared to renting until rents rise enough to make your mortgage look appealing and appreciation offsets those early losses, which could be a long time depending on the situation. And you may not want to do that at all even if the math looks ok depending on your risk appetite!

My original comment was just address shortcomings in the original post omitting benefits to home ownership, it's certainly not a cut-and-dry issue which is why I had problems with the post originally.

The argument is that rate of return only regresses to the mean if you diversify. It's like saying "I hold stock in a single company, so if I hold long enough, my return will average the return of the S&P 500". Your returns will look like the mean only if you diversify across investments, not over time.

Generally prices go up if the location doesnt tank. There are other benefits in itemization that for higher earners make it even more compelling.

For sure though, there are real risks esp if you shop at the edge of your affordability

The general problem with leverage is a margin call though.

You largely will not get margin called over your house. The bank doesn't want it. And also the house largely won't get re-assessed in value so you can launder the volatility through bad markets.

However, if you take out a $1M stock position and it drops down to $0.5M the broker absolutely will re-assesse your position based on market prices and then take liquidate you to ensure they're whole.

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