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Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

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Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#11

Post by bottlerock »

AlexandrB wrote: post #8

One very important thing to keep in mind with these kinds of comparisons: are you actually going to be investing the money you save by renting? I think for most people the answer is no, and that money will just be spent on stuff . In that sense, homeownership is more of a "life hack" that forces you to save rather than a superior investment.

I was always a little puzzled by this concept and I think it gets more silly every decade. How can someone routinely spend money on goods given how insanely cheap goods have become?

There's maybe a small percentage of the population addicted to buying brands beyond what they could possibly use, but most people run out of the ability to buy a significant amount of stuff every year. I.e. even a thousand a month habit is insane to maintain and nothing compared to bad housing choices.

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#12

Post by AlexandrB »

asherlc wrote: post #9

One thing this seems to ignore -- a mortgage gives you _leverage_ for an investment. Is any bank going to loan you hundreds of thousands of dollars to invest in the S&P?

Usually these kinds of calculations take that into account. E.g. the up front investment in the stock market == the downpayment on the house. But remember that you're paying for that leverage with interest, which further eats into your gains on the house.

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#13

Post by AlexandrB »

bottlerock wrote: post #11
AlexandrB wrote: post #8

One very important thing to keep in mind with these kinds of comparisons: are you actually going to be investing the money you save by renting? I think for most people the answer is no, and that money will just be spent on stuff . In that sense, homeownership is more of a "life hack" that forces you to save rather than a superior investment.

I was always a little puzzled by this concept and I think it gets more silly every decade. How can someone routinely spend money on goods given how insanely cheap goods have become? There's maybe a small percentage of the population addicted to buying brands beyond what they could possibly use, but most people run out of the ability to buy a significant amount of stuff every year. I.e. even a thousand a month habit i…

Maybe I should have used a word other than stuff, but it's easy to spend a lot of money on travel, pets, entertainment, etc. Some of these categories have infinite sinks - e.g. gambling or gatcha games for entertainment.

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#15

Post by rich_sasha »

bottlerock wrote: post #11
AlexandrB wrote: post #8

One very important thing to keep in mind with these kinds of comparisons: are you actually going to be investing the money you save by renting? I think for most people the answer is no, and that money will just be spent on stuff . In that sense, homeownership is more of a "life hack" that forces you to save rather than a superior investment.

I was always a little puzzled by this concept and I think it gets more silly every decade. How can someone routinely spend money on goods given how insanely cheap goods have become? There's maybe a small percentage of the population addicted to buying brands beyond what they could possibly use, but most people run out of the ability to buy a significant amount of stuff every year. I.e. even a thousand a month habit i…

There's services too. Schools, universities, theatres and cinemas, going out to restaurants bars and clubs.

Also some goods are not at all cheap. Cars, clothes, shoes, hardware - you can spend as much as you like on these.

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#16

Post by weepinbell »

asherlc wrote: post #9

One thing this seems to ignore -- a mortgage gives you _leverage_ for an investment. Is any bank going to loan you hundreds of thousands of dollars to invest in the S&P?

The NYTimes/NerdWallet calculators implicitly account for that in their logic - they track money you gain/lose from down payment/mortgage/interest/taxes, then selling the house at the end.

On the renting side, they only assume investing the money that isn't going to down payment/monthly mortgage payments, not investing the full value of the house.

My blog post here is just giving an argument that 2 of their parameters should be updated, then showing the result of that update.

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#17

Post by Atreiden »

I'd point out that the data for homes is averaged nationally. Historically, there have been Good Places and Bad Places to buy a home. Home price growth in in-demand coastal areas is very different than in rural areas. In the US, "Flyover states" I'm sure skew this number heavily.

Part of this is captured by the Volatility Index mentioned

> Individual houses are 4x the volatility of a housing index, close to the same volatility as the stock market.

But it bears calling out explicitly. Economically depressed areas will have very poor growth relative to inflation. Economically prosperous, desirable, growing areas will, by definition, have an increasing population and a finite area to accommodate that population. NIMBYism exacerbates this effect by reducing supply of new homes.

If you pick a good location, buying a home is a fantastic purchase. It ties up that investment money in an asset that you can actually USE. You can improve it, make modifications and tweaks to your liking, which renters cannot. And often times these improvements result in positive net positive return.

You'll never get forced out because your landlord wants to sell.

You'll never have to deal with toxic landlords at all.

You'll get to deduct all that mortgage interest from your taxes (if you itemize).

And in California, your monthly payments will never rise YoY more than $MONTHLY_TAX * .02

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#18

Post by izacus »

adiabatichottub wrote: post #14

Okay, somebody help me out here. Maybe I'm missing something, but the basic equation is that you as tenant are paying the landlords costs plus their profit. How can renting ever be cheaper than buying?

And mortgage costs are somehow free? :)

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#19

Post by AnimalMuppet »

OgsyedIE wrote: post #6

This whole argument assumes that the 1977-2024 period is a good basis for predicting the future, but that period is the height of globalization, a long stretch of stocks (almost) always beating commodities and land. Looking at much longer timescales however, the USA has periodic flips between commodity bear times and commodity boom times that line up with changes in DC's willingness to support the global trade of int…

> the USA has periodic flips between commodity bear times and commodity boom times that line up with changes in DC's willingness to support the global trade of intermediate goods and services.

Could you explain a bit more here? What counts as a change in DC's willingness? And, out of boom or bust, which aligns with which kind of DC policy?

Re: Buying a Home Is Probably Even Worse Than NYTimes/NerdWallet Calculators Imply

#20

Post by adiabatichottub »

izacus wrote: post #18
adiabatichottub wrote: post #14

Okay, somebody help me out here. Maybe I'm missing something, but the basic equation is that you as tenant are paying the landlords costs plus their profit. How can renting ever be cheaper than buying?

And mortgage costs are somehow free? :)

The are not free, they are paid by the tenant.
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