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Home ownership is still mostly renting

mattbruenig.com

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Re: Home ownership is still mostly renting

#91

Post by everdrive »

shadowoflight wrote: post #62
FreezeInTheDark wrote: post #43

Earlier quoted context omitted.

I can't speak to all markets, but in my experience in a HCOL city in the U.S., this is not true, at least anymore. Buying a place never broke even with renting an equivalently sized one, even in the long run. Yes, there are lifestyle advantages to homeownership, but at my current place and time, not financial advantages.

I live in a low-mid CoL city, so I guess this is all super YMMV, but even with a 5% down payment, a decent home would run me around $1.5k/mo in mortgage payments (including interest, principal, PMI, and an escrow payment for taxes and insurance), whereas an equivalent rental would run well over $2k/mo, possibly closer to $2.5k/mo. Sure, I can (and do) rent an apartment for less than a house, but that means rent incre…

I was in a similar boat years ago. The company I rented from wanted to increase my rent 12% year over year. I told them I didn't make 12% more money, spent a lot of time pleading, and talked them down to merely 9%. Rents were all over the place, and there was little I could do about, except move to a new apartment every year.

Re: Home ownership is still mostly renting

#92

Post by anotherman554 »

dsizzle wrote: post #81
anotherman554 wrote: post #18

Earlier quoted context omitted.

Using leverage to buy something not expected to increase in value more than inflation is not necessarily a savvy move. Maybe you'd take issue with my "not expected to increase in value more than inflation" statement, but ultimately you are certainly in no way guaranteed to "make a lot of money putting 5% down on a house". Everyone thinks they are a financial genius after a 10 year bull market.

If it moves exactly with inflation, then levering up actually is savvy. Ex: if inflation is 1% and you put down 5%, your return in real dollars is nearly 20%.

I don't follow, you need to account for things like property tax, home repair costs, insurance and the realtor fee to know what the return would be.

If you are considering renting vs buying the best calculator I know for these things is here: https://michaelbluejay.com/house/rentvsbuy.html

But the results are all dependent on your assumptions. If you assume houses will increase in value you get much better results than if you assume they will lose value, or not keep up with inflation.

If you assume stocks will go up a lot, it makes housing a comparatively "worse" investment.

Re: Home ownership is still mostly renting

#93

Post by runako »

gruez wrote: post #89
runako wrote: post #85

Earlier quoted context omitted.

If the down payment was x, how are you out 20x? Let's use real numbers: House cost: $200,000 Down Payment: $10,000 (5%) (Time passes...) Value at foreclosure: $200,000 (no price change) EDIT: I changed the math on this a few times, updating to reflect that you indeed get your downpayment back (minus fees). The bank sells the house for $200,000. You get your $10,000 back after paying the $190,000 mortgage balance. But…

>If the down payment was x, how are you out 20x? right but in this case the house value never changed, so there was never any loss. Suppose the house value went down 5%, then you'd be totally wiped out (ie. you lose your entire deposit).

Correct. You are on the hook for 1x, not 20x, your down payment. This is asymmetric leverage in favor of the buyer.

Re: Home ownership is still mostly renting

#94

Post by sayonaraman »

FreezeInTheDark wrote: post #37
Enginerrrd wrote: post #27

Earlier quoted context omitted.

Alternative investment is of course a thing. However, you're missing the point. People MUST live somewhere. Their only alternative investment is with regard to their down payment for money saved, or the amount of money that is (mortgage - equivalent rent), which is usually negative! The BULK (or entirety) of the money they spend on their mortgage is not money that would otherwise be available for alternative investme…

In my experience in the recent market (in a HCOL city in the U.S.), rentals (even only compared to the costs in homeownership, i.e. ignoring principal payments) are much cheaper than mortgages for an equivalently sized house/unit. That's the assertion of the article, and it rings true. You're right that the bulk of the mortgage payments, especially towards the beginning, do not go towards building any capital, which…

can confirm, monthly mortgage payment + taxes is about twice the monthly rent on similar property in HCOL US cities

Re: Home ownership is still mostly renting

#95

Post by shapefrog »

runako wrote: post #93
gruez wrote: post #89

Earlier quoted context omitted.

>If the down payment was x, how are you out 20x? right but in this case the house value never changed, so there was never any loss. Suppose the house value went down 5%, then you'd be totally wiped out (ie. you lose your entire deposit).

Correct. You are on the hook for 1x, not 20x, your down payment. This is asymmetric leverage in favor of the buyer.

It is a fair point that for small negative changes you are getting a leverage effect (i.e. for a 1% down move in asset value you do have a 20% loss on your capital).

There is however a floor so the payout profile is a lot more like an option.

Re: Home ownership is still mostly renting

#96

Post by ubermonkey »

paxys wrote: post #82
ubermonkey wrote: post #8

Not a great argument, really. In much of the country ownership is a much better deal both financially (cost for equivalent housing per month) and in terms of stability. Once you buy, unless you're foolish enough to get an ARM, your costs are fixed -- but rent is subject to capricious shifts upward annually.

ARMs can be advantageous if you know you don't want to live in the house for 10+ years.

Few people are able to accurately predict their own futures this way.

Re: Home ownership is still mostly renting

#97

Post by compsciphd »

the primary benefit to home ownership is stability. While in the US, one has a "sane"/"professional" rental market (i.e. buildings that are built as rentals and managed as a whole). In many other markets, one doesn't have this. One essentially has individually owned apartments that are rented out by those individuals, without any strong form of protection in terms of required maintenance that needs to be done or the knowledge that as long as you're willing to pay market rent, you can stay for as long as you want. In those cases, its better to buy, simply for the security / control, even if its not the best "financial" use of money.

Re: Home ownership is still mostly renting

#98

Post by dsizzle »

anotherman554 wrote: post #92
dsizzle wrote: post #81

Earlier quoted context omitted.

If it moves exactly with inflation, then levering up actually is savvy. Ex: if inflation is 1% and you put down 5%, your return in real dollars is nearly 20%.

I don't follow, you need to account for things like property tax, home repair costs, insurance and the realtor fee to know what the return would be. If you are considering renting vs buying the best calculator I know for these things is here: https://michaelbluejay.com/house/rentvsbuy.html But the results are all dependent on your assumptions. If you assume houses will increase in value you get much better results th…

Yes, my calculation ignored property tax, repairs, etc. I thought you were making a claim that being at the inflation level meant leverage wouldn't help you. I agree you'd have to take the total cost into account before deciding whether to buy or rent, but then in that larger analysis I don't see how comparing to the inflation rate is so crucial: it's possible that the home value increases faster than inflation but it still makes better sense to rent (if taxes or repairs are prohibitively expensive). I think I misunderstood your point.
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