> So sure, a mortgage in SF is $6k/mo. But rent might be $6k/mo as well -- and you don't earn any equity or tax write-offs while renting.
When you rent, your money is gone. When you buy, you normally get most or all of it back later. There's barely any economic comparison between renting and ownership. The tax write offs is the one of the least of your concerns.
People go completely and absolutely nuts when they end up "underwater" with mortgages, which means the sale price of the house at some point becomes less than what you bought it for, or worse, less than the remainder of what you owe. It's an utter and total disaster if you can only get back 80% of what you paid. And yet nobody blinks an eye about sending 100% of their money down the rental drain.
With ownership, you add to the value/legacy that you can pass to your family when you die. As a renter, you add nothing.
When renting, people often get priced out of their apartments, or evicted for circumstances beyond their control. With ownership, the sale price is once, and generally only rare major disasters can push you out. The risks to renting are greater than the risks for home ownership.
These things are why it's so incredibly important that home ownership is affordable across the country. If it goes out of reach, we will have a huge economic problem with large consequences.
When I sell my house I'm not getting back all my property taxes paid, interest paid, closing costs, inspection cost, realtor commission, insurance payments, and routine maintenance costs.
Interest is a good point. But taxes are in the noise where I live, as is all the rest of your list.
Either way, we could debate a whole bunch of minor costs, and it's obviously not the same for everyone. But that would be missing the point completely.
If you sell your 500k house for a very very bad return of 125k, you will be 125k ahead of where a renter is. Renting returns nothing. Whether or not I get back 100% of what I put in, the point is when you rent you get nothing back.
I think this is an unfair comparison, because by choosing to buy a house rather than rent, you need to account for the opportunity cost of not investing the money you're paying into the mortgage in a stock market. Using the calculator here, over a period of 10 years with a measly S&P 500 annual return of 4.66% if you started out with 125k down payment and invested a mortgage payment of $3125 each month, you would have ended up with 927k. It seems to me that what you ought to be comparing is the growth of index funds (what most people should be investing in), and housing market in your area.
Regarding the example of people losing money selling a house in Detroit, it seems to me that by renting and investing the money you would have been putting into the mortgage, you are better able to diversify the risk of your housing area depreciating in price. However, there are areas that experiencing housing price growth better than stock market return, so there are advantages and disadvantages to renting vs. buying a house. By no means is it as clear-cut as you portray.
It takes a pretty good return on an investment to make back what you lose on rent.
The point I'm making is that buying a house is an investment, and renting is not.
I've done both, I've rented for long periods of my life. In San Francisco, among other places. I've also bought two houses.
I wish I had seen the economics of buying much sooner, because renting is throwing money away. When I was younger I was comparing mortgage payments to rent, and it didn't seem to make much difference. But if I'd realized that rent is gone and mortgage payments come back, I'd have tried to buy much sooner.
Renting is more expensive than buying in every county I've ever lived, including SF. So the argument that you could rent and invest instead of buying doesn't make sense to me. If you can rent and invest, then you can buy and invest. As long as you can afford the down payment, which is the main barrier to entry.
In your example, I could end up with 927k, but you have to subtract your rent. If your rent is 3k/mo, then you'd have spent 375k on rent for a net return of 550k. And you had to pay both the 3k/mo investment and 3k/mo rent at the same time.
Chances are pretty good in some places that if you buy a house for 350k, after 10 years it will sell for 550k, and you could still afford the side 3k investment per month and get the 927k on top of it, for a total of ~1.4M.
"When I sell my house I'm not getting back all my property taxes paid, interest paid ..."
Perhaps not - but you are deducting those from your taxes the entire time.
I have no comment to make about the appropriateness of the mortgage interest tax deduction. It exists and should be factored into your economic models.
If we are using "anecdata" then I can say you'll never get your value out of your house - I personally know people who have sold their house for $5K, $20K, $30K, and $50K less than they bought them for. Hell, the entire city of Detroit, Flint, etc. has seen prices plummet so hard they are practically giving away houses and there is a huge arson problem - people are burning their houses for insurance money en mass.
In your "example", if you're very lucky and both buy and sell at the right time during a housing bubble then relocate to an area not experiencing a bubble, then maybe. (I believe you are severely underestimating the carrying costs of a typical house though, it's not just the big stuff.)
However, that's not even remotely close to the typical case. House prices rising fast enough to cover all those costs is indication of an unsustainable bubble.
>We can see that if you had bought a house at the peak in 1980 you would have lost purchasing power if you had sold in 1985 (not to mention transaction costs). And then for a little while around 1990 you would have been slightly ahead, but then through most of the 1990’s you would actually be losing money once again. So you’ve paid off half of your 30 year mortgage, you’ve paid taxes, insurance, maintenance, etc. and your house has not kept up with inflation!
You also have to keep in mind the economy of most towns and some cities is very, very volatile and depends heavily on 1-2 employers or industries. Those go away and there's economic collapse. When there's large economic collapse then buy buy home value.
(It's personal preference but I disagree with the idea of leaving family [besides spouse] any significant amount of money/assets when you die - most of my estate is going to charity upon my death)
I'm not sure what your point is. I claim that you get back more than 50% of your money more than 50% of the time. I believe the historical data nation wide agrees with that. When you rent, you get 0% of your money back. 0% is a worse return than x% where x > 0. 0% return is a lot worse than 50%. And there are plenty of people who get better than 100%, I'm not saying it's everyone, but it's a fact that it's common.
So which would you rather have? A 50k loss on your house after 10 or 20 years, or have spent 600k renting a place in San Francisco for 10 years and having 0 dollars back?
There are good reasons to rent, but the long term economic benefits are not one of them. There's just no comparison, and bringing up taxes and fees and repair costs and whether inflation matches, none of that makes a single bit of difference.
I think the point they were trying to make is that, even if you get a large portion of the sale price back, you don't generally end up with much more than if you had rented. Even if you make more than 50% of your money, as you claim is usually the case, this can be very comparable if not less than renting and investing the down payment in index funds.
If you can rent and invest, you can also buy and invest, right? The only way that renting is an investment advantage is the down payment, but you have to subtract your rent from your returns to see if it makes sense. In the example at the top of this thread, 6k/mo rent is 750k over 10 years. You have to have a very large down payment and very good returns consistently for 10 solid years to make that back.
"If you can rent and invest, you can also buy and invest"
Not necessarily, the less you put into the downpayment the more you pay in interest, the less the calculation makes sense.
I'm not disagreeing that there are many scenarios, likely including the 6k/mo example, that buying makes sense. What I take issue with, and I imagine other commenters did as well, is the idea that "When you rent, your money is gone. When you buy, you normally get most or all of it back later." This is far too simple, and there are many cases where the two are equivalent or renting comes out on top. It's easy to find such scenarios in the NYT calculator [0], even when you assume your house goes up in value.
When you rent, your money is gone. When you buy, you normally get most or all of it back later. There's barely any economic comparison between renting and ownership. The tax write offs is the one of the least of your concerns.
People go completely and absolutely nuts when they end up "underwater" with mortgages, which means the sale price of the house at some point becomes less than what you bought it for, or worse, less than the remainder of what you owe. It's an utter and total disaster if you can only get back 80% of what you paid. And yet nobody blinks an eye about sending 100% of their money down the rental drain.
With ownership, you add to the value/legacy that you can pass to your family when you die. As a renter, you add nothing.
When renting, people often get priced out of their apartments, or evicted for circumstances beyond their control. With ownership, the sale price is once, and generally only rare major disasters can push you out. The risks to renting are greater than the risks for home ownership.
These things are why it's so incredibly important that home ownership is affordable across the country. If it goes out of reach, we will have a huge economic problem with large consequences.