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The real cost of owning a home

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Re: The real cost of owning a home

#271

Post by jandrewrogers »

rwmj wrote: post #246
vikingerik wrote: post #197

Earlier quoted context omitted.

Yes, this is broadly correct. The free market will (roughly) arbitrage out any differences between owning and renting. The hidden factor is that whatever money you have in house equity represents opportunity cost that it isn't in investments. If you have 400k in a house and the stock market returns 6% over inflation, then the opportunity cost is 2k per month in interest, which is comparable to what you'd pay in rent.…

But the same argument applies to landlords too. Why are they willingly losing money?

A landlord is unlikely to have the same cost basis as someone buying on a new mortgage. I know many landlords that own their rentals outright. The ability to make a profit renting for less than you'd pay in interest charges alone changes the financial calculation.

That said, landlords don't always have a choice to not lose money. These are investments, there is inherent risk.

Re: The real cost of owning a home

#272

Post by hx8 »

sakopov wrote: post #97
cosmic_cheese wrote: post #12

On the other hand, renting comes with hidden (and some not so hidden) costs too. The main one for me is the inherent precariousness that comes with renting. You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things. The constant low level stress of knowi…

I would argue against this. I'm not sure owning is that much better. At the very least it's just as bad as renting if you bought in the past few years... I bought my home in 2023 and since then my monthly HOA payments doubled, my insurance premiums (nearly) tripled and my property taxes have gone up about $1000. Homeownership went from 35% to 45% of my monthly income. If you bought in the past few years, owning has a…

I own single family homes in a few different states. None of them are seeing the HOA + Insurance + Tax increases you are describing in the last 2 years.

I'm guessing you bought in a place that is seeing a rapid increase in property values, which I saw in 2020-2022 by owning in a zoom town. That would explain why insurance and taxes are increasing.

Re: The real cost of owning a home

#273

Post by amw-zero »

anthonypasq wrote: post #265
huhkerrf wrote: post #261

Earlier quoted context omitted.

> You may also suddenly have unpleasant neighbors. That is true with a house as well, but the distance between you and them is closer in an apartment. Not all, but a lot of the debate between renting and owning include something like this, but you can rent a home, and you can buy an apartment.

very weird how so many people are using apartments vs single family homes as a variable in discussing renting vs buying

It's not weird, since 99% of rentals are apartments, right?

Re: The real cost of owning a home

#274

Post by y1n0 »

huhkerrf wrote: post #258
inanutshellus wrote: post #221

Earlier quoted context omitted.

Neighbors of owned-properties: - care about the long-term effects of their actions - care about the plan of their surroundings - plan to stick around This is a HUGE part of the psychological benefit you refer to of buying. Notably this is equally applicable to any occupant-owned property (e.g. condos > apartments).

Yeah, but it's also one of the downsides. "Care about the plan of their surroundings" can just as easily turn into the HOA drama that many prefer to avoid.

HOA drama sucks for sure, but just outside of my HOA controlled neighborhood, I see also the houses with junk cars in their yards and grass gone to seed.

As much as I hate many stupid rules and seemingly unfair application of them, I do like that it mitigates against people that just don't give a shit about their property or the impact of their life choices on others.

Re: The real cost of owning a home

#275

Post by jmyeet »

I've come to the conclusion that high housing prices are pretty much the root of most of our problems and is probably the biggest factor in increasing wealth inequality. I came across the housing theory of everything recently [1][2]. Disappearing third spaces, out-of-control inflation. homelessness, etc can all be traced back to housing affordability being the primary factor.

I tend to abhor buying vs rent calculators. I always have. Why? Because of inelastic demand. You can't opt out of the housing market. Well you can. It's called being homeless. If you rent, you have in effect taken a short position on the housing market. If house prices go down, rents tend to follow and you're better off than those that bought. If house prices go up, you're worse off. That's a short position.

So, by buying a house, all you're doing is closing out a short position. You might argue "but you still win or lose depending on the housing market's movement" but that's not actually true. Why? Because if all houses double in value, you still own 1 housing unit's worth of wealth. You're actually no better off. Who is? Corporate landlords and those that own swathes of houses. But your "investment" in tdhe housing market is used to buy your vote. You have a tendency to become a NIMBY. You tend to think of rising house prices as "good" despite the ultimately destructive effect on society.

Once again, China has been proven to be correct. Xi Jinping said back in the 2010s "houses are for living, not for speculation" [3]. Remember the trillion-dollar Evergrande default? Have you seen Western coverage of Chinese "ghost cities" or how the Chinese real estate market has been in turmoil like it's a bad thing?

All that happened was that Xi quietly popped the real estate bubble and made it more difficult and expensive to own more than one home. Prior to Xi's reforms, property speculation was rampant. It's going to take years for that correction to work itself out but it is ultimately a good for China as a whole.

Oh and one nitpick about the "costs" of home ownership from this post. A lot of the things like the repairs are cash outlays but they also tend to improve the value so that's more of an ivnestment than an expense.

[1]: https://worksinprogress.co/issue/the-housing-theory-of-every...

[2]: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6571818

[3]: https://en.wikipedia.org/wiki/Houses_are_for_living,_not_for...

Re: The real cost of owning a home

#276

Post by gib444 »

relium wrote: post #15

I think 1% per year is insufficient for repairs. Even a paint job will cost more than that these days. There's also a potential HOA fee, even in many neighborhoods with freestanding homes. But there are tax benefits of home ownership too. The interest deduction used to very significant, although less now since they raised the standard deduction. There's also a $250K/500K non-taxable capital gains benefit when you sel…

Some people get lucky. I'm not lucky and I've probably spent more like 2.5% on average.

There's always a loud minority that love to boast that all they had to do was replace a washer back in '86 for 50c

Re: The real cost of owning a home

#277

Post by SirMaster »

cmiles8 wrote: post #62

Over short term windows it’s very possible for renting to make more sense. Over the long term it’s very difficult for renting to come out ahead. If you’re talking about the same town over say 20 years then the chances of renting coming out ahead is near zero. In the US at least the tax system is also heavily setup to favor home ownership. Mortgage interest and real estate taxes (which are baked into rent) are tax ded…

I have been renting the same unit for 15 years now. It was 400/mo when I moved in 15 years ago, and it's 650/mo now, 15 years later.

I have paid about 90K in rent now over the last 15 years and this also includes water and heat.

My friends with houses in my area pay about that much in property taxes plus heat that I pay for rent...

I pay this small amount and make 6 figures and I put the majority of my income into index funds. I am fairly sure that I am coming out way ahead of a house. Plus how do you put a value on the time sink for maintenance and upkeep? Mowing, shoveling, etc.

Re: The real cost of owning a home

#278

Post by richardubright »

zeroonetwothree wrote: post #114
cosmic_cheese wrote: post #12

On the other hand, renting comes with hidden (and some not so hidden) costs too. The main one for me is the inherent precariousness that comes with renting. You don’t know how much longer you’re going to be able to stay in your apartment, whether that be due to rent hikes or the landlord deciding that they want to give the apartment to their nephew or any number of other things. The constant low level stress of knowi…

Why not just sign a longer term lease? Most landlords would love that.

I have never lived somewhere that allowed longer than a 14-month lease.

Re: The real cost of owning a home

#279

Post by eloisant »

> About 80% of your first mortgage payment is interest.

Is it common in US?? In France the current rates are about 3,5% fixed rate, meaning in your first payment on a 25 years loan you pay about 55% interests. Which I think is pretty high already!

What kind of rate do you have to end up paying 80% of interests in your first payment?

Re: The real cost of owning a home

#280

Post by Paracompact »

sdellis wrote: post #210
jedberg wrote: post #164

The benefit of owning a home is almost always psychological, not financial. If you take the money you'd use for a down payment and mortgage and invest it instead (after paying rent) you end up in about the same place. But the psychological benefits can be huge. You have much greater control over the place you spend most of your time. You can change it to your liking. You don't have to worry about rent increases or ow…

I don't think that's good advice. I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k. It's way more tangible for people than trusting some index fund with their savings, especially if they can maintain the home, improve it, and do repairs mostly themselves. And bonus... when you sell, you don't have to wait…

> I, and most people I know who have invested in home ownership over the past 30-40 years, have done way better than we could ever have in the stock market or 401k.

https://www.macrotrends.net/3072/us-house-price-index (~3x in the past 30 years, about 3.7% return per year)

https://www.macrotrends.net/2324/sp-500-historical-chart-dat... (~15x in the past 30 years, about 9.3% return per year)

This is in line with conventional wisdom on return rates for these asset classes: https://awealthofcommonsense.com/2024/01/what-is-the-histori...

Unless you are comparing retrospectively hot-shot real estate with retrospectively mediocre stocks, then stock market investment has always won out substantially over real estate investment in terms of raw return rate. This makes sense, given that if the opposite were really true, then it would make no sense to invest in productive businesses as opposed to holding companies that just hoarded empty houses indefinitely.

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