[dahart]

> Remove the wealth effect and homeowners are about as precariously perched as renters.

How so? I just showed that’s not true for evictions due to non-payment, at least for the property taxes issue you raised. When it comes to mortgages vs rent, maybe they’re similar risk, but in that case, the mortgage is not riskier, so the benefits of a house seem worth it, especially considering that as long as you keep up the payments, you are highly likely to eventually get your money back with a house, and 100% guaranteed to lose all your rent.

> In the past decades, home-price appreciation contributed significantly to that wealth.

Right, home ownership has historically been a vehicle for wealth building.

> Someone making the smae purchase today is less likely to similarly benefit.

Why’s that? Are you assuming that real estate inflation might slow down, but the market won’t?

A house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return. People who paid $200k down payment on a $1M house in 2019 can sell today for $1.5M and walk away with more than double their money, or around 4x the profit that someone who invested the $200k in the stock market and got the same (incredibly good) returns.

I don’t agree that buying a house is a bad financial decision, how do you justify that claim? There is certainly a distribution of outcomes, but on average I think most people profit from buying a house… especially when you compare it to paying rent.

[JumpCrisscross]

> Why’s that?

We’re at record price to income levels amidst a stable versus growing population. (Note: I own a home.)

> house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return

Crazy how 2006 this pitch is. (Together with the “you are highly likely to eventually get your money back with a house.” Maybe we need a housing recession, both so people can buy in and others reminded there is no free lunch.)

[dahart]

> Maybe we need a housing recession, both so people can buy in and other reminded there is no free lunch.

Jesus, that’s a bit dark. Getting your money back from the sale of something you owned isn’t a free lunch. It’s just 100% better than dropping most of your money into a hole called rent, and never owning anything, and being beholden to landlords.

If my argument is too old and hasn’t adapted to the 2024 economy, which is entirely possible, then show me what it takes to do better than buying $420k a house on a $75 income with $84k in savings. (I’m just picking the “median” numbers from the article.) A 2-bedroom apartment where I live is anywhere from $2500 to $4k, so let’s say $36k/year in rent. Rent is much higher than this in SF or NYC of course. How long do you have to rent for the interest on $84k in ETFs to cover $36k/year in rent, assuming your rent doesn’t go up?

Edit: I’m not certain that did the calculation correctly, but it looks to me like on a 5% market return it would take 69 years for an $84k investment to break even against $36k in rent.

[JumpCrisscross]

> It’s just 100% better than dropping most of your money into a hole called rent

You take the difference between rent and ownership costs, not just the down payment, leverage that (2x max), and calculate the difference. The Times has a good tool for this [1]. (It doesn’t lever. Securities-based loans are almost always cheaper than mortgages.)

The sucker in the present math is the individual, aspirational, emotionally-motivated buyer. The winner, the sellers and first-lien lenders.

> assuming your rent doesn’t go up?

I’d actually argue this is what most people pay for with homeownership. You may become a bit poorer, but your future is more certain. If you’re savvy you can use that certainty to take more risk in other parts of your life. Buying a home, for most Americans, is buying insurance. The problem is few see it that way, which is pretty great for the real estate industry.

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

[dahart]

The times tool says I’m better off buying to the tune of $100k over 10 years given the example I used above. I don’t know if that’s a reasonable assumption, however in order to break even I need to reduce the rent to $2300. In my locale, the difference between $2300 in rent and a $420k house is not emotional, the house is a tangible and significant space and standard of living increase.

I don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that. The mortgage and TCO costs of the property plus some profit for the landlord are what renters pay.

[JumpCrisscross]

> don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that

Landlord is locked in. (They also have search, turnover and collection costs.) Tenant has flexibility. Sometimes the landlord makes money, sometimes they don't. Nothing guarantees them a return. (Ask a real-estate agent about buying an investment property. The pitch almost always turns on price appreciation.)

I’m not saying buying never works for the buyer. (It looks like it might work where you are.) Just that most people buying today are transferring wealth away from themselves in exchange for emotional comfort.

The notion that leasing is pissing money away is a deeply-flawed and probably-wrong theory. It’s also somewhat uniquely American (and British) middle class, which makes me suspicious about its origins.

[dahart]

Renting is short-term flexibility and lower barrier to entry. It can have some advantages if used carefully. In the long term, it gets questionable. (The Times calculator says so too).

The thing that would stop me from buying right now isn’t the price, it’s the interest rate. Also one method for dramatically reducing TCO of a house without increasing the monthly payments by that much is to finance with a shorter term loan. It’s harder to get rent to win when financing with a 15 year loan.

And it’s way harder to get rent to win without the opportunity cost, especially when comparing apples to apples on space. I feel like you’re mostly talking about what’s possible but not what’s likely. You might be able to come out ahead renting but I think most people won’t. Most people at the edge of buying a house aren’t going to invest if they decide to rent instead. The choice doesn’t seem to play out as buy vs rent+invest, but more often just buy vs rent. When the choice is buy vs rent, and renting isn’t offset by investing, then it really is pissing money away, transferring wealth away faster than if they bought a house.