Renting is Throwing Money Away, Right? (2015)

In your example, a 20% decline in stocks would wipe you out.

In principle, the same thing can happen to a home. But there are two reasons it isn’t as bad : 1) as long as you keep up the payments, the lender won’t foreclose you. 2) there’s a dampening effect in home sales - when demand softens, volume collapses. So a 20% decline doesn’t happen as often.

I owned a house in Redwood City during the 2008 collapse and ended up under-water in it for a while (negative equity). I just held on and it recovered nicely, and I sold it for a great profit in 2014. My stock broker would’ve never let me do that.

More broadly, buying is also an “option” to stay in the area long term. In a place like the SF Bay Area, where you just can’t tell what will happen next to house prices, that should be factored in as part of the value.

An interesting experiment: go back and use the article's numbers for "what does the future hold?" That is, 2% home price growth, 2% rent growth, 8% investment returns. For me, those numbers say I could rent for $5,000 and come out ahead. Using the recent-history numbers for where I live, the price craters to $1,500.

I know the article says "circumstances may vary" a dozen times, but I think it's still pretty misleading, especially the P/R section. High and rising housing prices go hand in hand with large rent increases, and rent growth dominates pretty much everything else in this calculation.

To make such a bold refutal will require another source besides what the U.S. tax law says, because US tax law classifications aren't the same thing as market classifications. There are other reasons at play why tax law considers an asset to be of a certain type/category.

I am glad you qualified. Like you said it depends. If you live in downward trending market in a city/town/state where jobs are leaving and aren't keeping your house updated, yes you have a depreciating asset. If you bought in early next to a brand new man-made lake on the outskirts of a major metropolis, you could build a shed and make out like a bandit once the market surges. Most cases fall somewhere in between, on average, keeps up with inflation (the article cites Yale research in this regard). By keeping up with inflation, that by definition makes it not depreciating.

Your point about deduction that is how our economy works. The government pushes you into home ownership. Our economy is based on incentivizing debt. Path of least resistance. Work with your economy, not against it. It isn't hard to see this.

Also don't forget that the previous tenant let his kids shoot BBs at the siding, so the water has been leaking in causing it to wear faster and faster, your wife doesn't like how it looks like grandma's house, and for some reason the toilet in the master bath takes 10 minutes to refill the tank and it drives you nuts just often enough that you seriously consider ripping out the requisite walls just to re-run the old copper piping.

Oh and when you bought this home, did you already happen to have a lawn mower, edger, fertilizer spreader, and such? Are you planning on utilizing that extra space to build a raised garden and then realize half-way through that if you don't install an automated drip system you'll have sunk all those costs into a garden that dies the moment you leave on a 7-day family vacation?

Oh yea and the last owner definitely was heavy handed with the salt on the driveway, and you don't need to replace it now, but better put $100 a month into a savings fund for the inevitable replacement 5 years from now.

Not to mention that the cement that was poured to make the back porch has re-leveled itself at a 4 degree angle and when you host guests they bump the picnic table such that it always wobbles and spills everyone's drinks. Fortunately you don't have to excavate it and re-pour because there now exist companies that use advanced machinery to just backfill in extra concrete to level the pads, but it still is going to put you out $2k.

/end rant

Needless to say, as I look at our next home, I am realizing there is this delightful sweet-spot between home ownership and renting an apartment: townhomes in master-planned communities. The HOA covers building _and_ yard maintenance, but you have full creative power over the inside. No need to store shovels and lawn mowers, and your weekends are free to walk the park that is literally across the street (I'm looking at you, Daybreak, in South Jordan UT). Oh and the single-car garage isn't a big deal because transit is built straight to the community, and you are within walking distance to convenience stores and the pub.

It's basically "a house" with all the negative parts taken care of by paying the HOA who can deal with the economies of scale, making the cost very worth it if you are an engineer with a little bit of cash to spare each month.

You haven't really gained 100k. You have gained 100k multiplied by your percentage of equity, i.e. the amount you have paid so far into your mortgage principal. Assuming it's a 30-year mortgage, that will be around 30%, so around 30k.

(And of course, the house price doubling in 10 years is a bit unrealistic unless you live in a booming area.)