[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.

[JumpCrisscross]

> Most people at the edge of buying a house aren’t going to invest if they decide to rent instead

Sure. In the same way self insuring is generally a mistake, even if you're wealthy, because most of us don't have the discipline to hold that liquidity hostage continuously. The forced-saving benefit of homeownership is real. I simply ponder whether it (and the increased civic engagement ownership brings) can be replicated some other way.

[dahart]

That’s an interesting question, it would be great if there were good alternatives.

So FWIW after sleeping and thinking about it, I might be coming around to what you were saying, that buying at high prices and high interest might not be a great financial decision right now. My today thinking is that this whole discussion was perhaps not really about buying vs renting, it was mostly about financing and the often obscured total cost of a loan. I guess if we were talking about paying cash for a house, the calculus vs renting is completely different. I’ve been lucky with my houses and I shouldn’t assume everyone will be as lucky. I did realize a couple of funny ways to frame things. Buying a house might let you leverage your down payment, but a loan is also bank leverage against you, since you will eventually pay back 2x-3x the loan amount. Or another way of putting it is that when I buy a house with a loan, I’m renting the money to buy the house. :P