Do they mean “buying” instead of “owning”?
No. Having mortgage dues doesn’t make one not a homeowner.
But having a mortgage does put you on the path to becoming one.
Have a mortgage you pay for long enough, and you’ll end up with ever decreasing payments, then no mortgage, and a house.
Have rent you pay for long enough, and you’ll have ever increasing payments, and never own a cent of the property when you quit.
For me, my apartments was proprietary of the bank till i managed to full repay the loan.
That’s not really how loans or equity works, but okay.
As a homeowner what weighs me down most is insurance, by a large margin. It keeps increasing while the coverage decreases. It’s a huge racket in my opinion
Racket.
A racquet is what you hit your insurance adjuster with when you’re tired of his racket.
Do you live in Florida?
Oklahoma 🙃rates go up each year due to tornados, at least that’s what they say. Even though i live in a heavily populated area that’ll never get hit.
I had to put a new roof on cause of softball sized hail caused by the infamous may 2013 storm that damn near leveled Moore Oklahoma. But other than that, no storm damage ever
Even though i live in a heavily populated area that’ll never get hit.
I don’t think tornadoes care.
In Arkansas we got a tornado in town. It was a huge wakeup call since people always think it won’t hit where they are.
There are multiple businesses that I personally used that got wiped out by the tornado.
Yeah I feel like Joplin proved that all wrong too.
Was the idea that tall buildings might break up wind shear that would feed the tornado?
I think so. When i lived in the foothills of the Smokey Mountains, common wisom was that we didn’t have to worry about tornados because of all the hills, which is basically the same idea. Then we had one touch down anyway. I think tornadoes just don’t care anymore, almost like they’re more energetic for some reason… like the climate has changed somehow…
That’s what the people living in Dallas said. Then a tornado hit the middle of a dense neighborhood.
I live near the coast where we never get tornadoes because the weather is moderated by the water or something, but now we’re getting a couple tornado watches every season - they’re coming
Have you shopped other companies for rates? I switched earlier this year and cut my insurance costs by more than half! Was fucking ridiculous how it just kept climbing.
I might still not understand but… Landlords have to pay insurance as well. Why would they be the exception. They have all the same costs and also want to make a profit. How can rent be cheaper then?
Two things: first, landlords aren’t entitled to a profit, and second, landlord input costs might be completely different from an owner resident.
On the first point, if the landlord’s costs are $2000/month, and the market rent for that unit is $1900/month, the landlord would rather lose $100/month on a lease than lose $2000/month on a vacant property.
On the second, it might be that the landlord bought the place when it was much cheaper, or has a much lower interest rate than what is available today. So if the landlord’s costs are $2000/month for a property that would now cost $4000/month at today’s purchase prices and interest rates, but can rent for $3000/month at a profit to himself.
Similarly, some volume landlords can spread certain costs around and not pay nearly as much as an owner resident. It might cost $1200 to hire a plumber to do a 6-hour job, but it also might cost $150 to simply have a plumber on the payroll to do that job, if you’ve got enough steady work that it’s cheaper to have him around.
It might be that a homeowner also bought home when it was cheaper. Come on, get a grip.
Because markets aren’t perfectly rational. If they were perfectly efficient, no company would ever be able to make a profit at all. But we don’t live in that perfect Econ 101 world, and companies can make profits because inefficiencies exist in the economy. As such, sometimes rent can be more expensive than owning.
Because if you buy a house, it’s just you and the bank, so you need to cover the banks risk for you as an individual, meaning higher interest rates. Larger purchases, or a group of houses are covered by different loan types, flexible rates at for example international rated plus half a point… and that is mich cheaper. The rate might fluctuate… but if the government strongarms the fed to keep the loans practically free, companies borrow for free plus half a point. And that is a lot of difference.
Also, the landlord is dropping that money into an asset that often appreciates in value. As long as they otherwise have cashflow to cover it, they can afford to “lose” money each month and make a big payday when they sell it.
Because on average, I imagine very few rental homes are brand new constructions/purchases so their mortgage is a couple years old and lower than if someone bought that same home today.
On paper, owning a home is almost always more expensive than renting — about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.
I’d be interested in seeing how they arrived at the 14% number.
When I bought my first home a couple of decades ago I moved out of my 1 bedroom apartment which I was paying a monthly rent of $700/month into a small starter home with a mortgage of $1000/month. 20 years later that exact same apartment rents for $1350/month. All of the years I lived there my house payment never rose higher than the $1000/month mortgage payment while the rent on the apartment apparently continued to increase year over year. Meanwhile I ended up selling the starter home for $110,000 than my purchase prices nearly 20 years ago.
So is their 14% number just calculated on the first month of each (renting vs buying)?
Once you factor in things it mentions like insurance, taxes, upkeep along with others like a down payment then it’s very easy to see where the 14% numbers comes from. Frankly, I’m surprised it’s only 14%. There’s a lot of additional and hidden costs with home ownership.
The difference is those “costs” are going towards buying equity that you then get to keep. Maintaining a house is expensive but it is an asset that maintains value. This article really doesn’t seem to understand that which shows a very basic misunderstanding of the wealth math that goes into home ownership.
Renting may be cheaper month to month but you’re literally pouring that money down a black hole never to be seen in your hands again.
Granted, building equity doesn’t matter when you’re already have no cash paycheck-to-paycheck for either.
No, not all of them. Insurance, property tax, and maintenance do not go to equity.
Not to mention mortgage interest.
For me, insurance and property tax work out to about 1/3 of my former rent (which was a smaller place than my current home). My mortgage by itself is about the same as my former rent. Based on what another commenter said about the typical percentage of payment toward interest (69% after 1 year, 55% after 10 years, 33% after 20) after a year my money-in-the-black-hole is roughly even to renting with about 1/4 of my total payment going straight to equity. After 10 years that goes up to 1/3 into equity, after 20 it’s about 1/2.
Yes, my total payment is higher, but the home is larger; if I’d made a more horizontal move, the equity building rate would be more favorable. Additionally, I rented that space for 4 years and the rent went up 30%. The main thing to increase my payments now would be an increase in property taxes, which reflect an increase in property value. Personally, I felt very different about a 30% increase in rent than I’d feel about a property value increase that would bump taxes enough to raise my current payment 30%.
All I really did was convert some of what I’d save normally into the form of real estate. Home values typically increase about 3-5% annually, which is pretty comparable to most investment instruments. And I get the material benefit of a neat house to enjoy in the meantime, instead of some holdings with zero non-monetary value.
It’s not necessarily the right move for everyone. I am particularly handy, so my maintenance costs are lower than they might be for others. But so far as money-in-the-black-hole and equity are concerned, I’d imagine most people who can shoulder the up-front costs would break even pretty quickly, interest included.
And the apartments we rented in the past had shitty inefficient heating systems (gas converted oil burners and baseboard heat that cost us a fortune every winter (7-8 months a year).
Now I’m looking at installing solar and a heat pump. Not something I could have done in a rental. The asshole landlord wouldn’t even fix the sink drain.
Property taxes are still partly tax deductible. Also even at my low mortgage rate of 3%, I get about $450/mo. back via the mortgage interest tax deduction, worth about $300/mo. over the standard deduction IIRC. I am not sure if they factor these things into the 14% number.
It’s not common for people to itemize any longer after Trump’s tax updates a few years ago
Those tax updates screwed me. Yes, it temporarily raised the tax deduction, but it also capped the tax deductions if you were above the standard. His changes cost me a couple grand a year.
It’s not common for people to itemize any longer after Trump’s tax updates a few years ago
The Tax Cuts and Jobs Act (TCJA) of 2017 Trump passed put in place permanent tax cuts for corporations and temporary tax cuts for individuals. The individuals tax cuts expire next year in 2025 so in 2026 the current standard deduction for single filers of $14,600 drops to $8,300. For joint filers is currently $29,000 and dropping to $16,600. source
Unless these tax cuts for individuals are renewed, we might see many more folks itemizing again because the standard deduction is too small again.
The part of that which REALLY hurt me was the cap on how much you could deduct. I itemized even with the increase in higher standard deduction, so capping my deduction hurt me a lot.
This is more of a case where the article doesn’t take the time to explain the nuance. Everyone knows home ownership increases equity. Which is why it costs more.
I rent a house for $4600/mo. To buy this same house in the same neighborhood, it would be roughly $1.6m, tho prices are starting to fall a little on these higher cost neighborhoods, so let’s say $1.5m for a deal.
With a 20% down-payment on a 30 year fixed rate loan, it would be close to $10000/mo (including insurance and property taxes).
Also, the lions share of your mortgage goes to paying down interest for the first decade or so.
So let’s say $1k goes to principle per month. You’re still burning twice as much money owning as renting.
The only financial upside is that you may be able to sell for more than you paid. Minus Realtor fees, whatever renovations / maintenance you made over the years, etc.
The current market is insane.
Edit - so I’m not talking in complete generalities, I glanced at the interest/principal ratio. No idea how accurate this is.
After a year of mortgage payments, 31% of your money starts to go toward the principal. You see 45% going toward principal after ten years and 67% going toward principal after year 20.
https://www.americanfinancing.net/mortgage-basics/mortgage-payment-explained
I don’t know what the ratio is in the first year, maybe 100% interest?
So at a monthly payment of $9800, $7864 of which is towards mortgage, that’s $2437 / mo towards principal from years 2-9.
So essentially you’re burning $7363 instead of $4600 for the hope that your house increases in value when you sell it.
Fiscally speaking. There are a lot of other pros and cons to owning.
That is the state of the buy v rent trade-off on that house TODAY. In 10 years, the rent on that house will go up but the mortgage will stay the same. Regardless of the equity you build in owning (which can be leveraged for other things even if you don’t sell), your “rent” stays fixed while renting goes up every year.
Companies are able to take longer term stances and can sustain short term losses. They buy a house and keep it for 10 years, long enough that those losses transition to profits.
That’s making done huge assumptions that you have no way of knowing will be reality.
Rent may go up. It may go down.
Housing prices may go up. It may go down.
Locking yourself into a mortgage for “fixed rent” may end up closing you hundreds of thousands more than apples to apples rent. Taking the above scenario, you’re paying about $360k more in the first 10 years than you would renting, if rent prices don’t go up over that time period.
Yes, both rent and housing tend to go up over time. But who knows what the immediate future holds anymore. Housing prices are starting to contract. There’s more push for high density housing, which people generally think will lower rent (I disagree, but I’m against the grain here).
One thing I’ve learned from economists is that despite all their expertise, they’re very bad at predicting big events that have huge impacts on the economy. And we’ve been getting a lot of those the last few decades.
Oh come on, that’s being extremely, EXTREMELY… I can’t find the word. Not pedantic, not pessimistic, and not near sighted. Whatever the term is for when you take the absolute extreme edge case to try making a point.
Rent will always go up over time due to inflation. Yes, you might have dips for a year or two, but landlords will always raise the rent based on inflation at the minimum. And regardless of big drops in house prices during economy crashes, your mortgage does not go up over time outside of adjustments to taxes and insurance. Even when there was the worst housing crash in US history in 2008, my rent never dropped. My rent kept going up every single year by the maximum amount the city allowed under rent control. Housing prices dropped, which allowed me to buy a house. And in your case where you talk about losing $360k due to buying instead of renting over 10 years, you are ignoring that $245k will be going to buying down the principle (amortization calculations for a 6% loan on $1.5M for 30 years). You spent $552,000 at a bare minimum, assuming no rent increases (impossibly unlikely), and have 0 to show for it. The owner spent almost exactly twice that but has $245k in equity on top of whatever equity had grown from house prince inflation over 10 years. Every year it gets better for the homeowner, especially when you hit 30 years and have paid off the house… while you are still renting.
In reality, when I bought my house 12 years ago my mortgage was $3900 (with taxes and insurance) and rent would have been $4000. Now, my mortgage is $4100 and rent is $6000.
Now, I’m also ignoring the money that can be made investing the money you save renting vs buying. But if we use your assumptions, then there is no guarantee you’ll make money investing your money.
How would your point of view differ if you had bought your house right before the crash? Your entire outlook on the wisdom of paying yourself via principal vs a landlord seems to be based on your particular (lucky) circumstance that you got into the market at a time where your monthly cost for mortgage was comparable to rent prices at the time. So locking it in time was a good decision.
That is not the case anymore. I have presented numbers to support that argument, even if it’s overly simplified for simple calculations.
And you’re seemingly ignoring the distinct possibility that housing prices may tank, at which case locking your rate at twice comparable rent would be a terrible situation.
Right now, my money is parked in other investments. We are keeping an eye on the housing market, but paying $300k as a down-payment for the privilege of doubling my monthly housing cost does not seem like a financially prudent decision, when my money is making more in its current investments. And given that if we took a loan out now, we’d probably refinance for a lower interest rate at a later time, reseting the interest/principal schedule anyway.
This is the reality of the market right now. Your outlook is not applicable in today’s paradigm.
insurance
I was shocked as a homeowner to find that home insurance is not that much more expensive than renters insurance, especially for a condo where the HOA is sharing a large amount of the cost
taxes
I mean, especially if you’re already a homeowner and your assessment is years old, this amounts to less than $1k/yr.
Using the above poster’s example both of those costs annualize out to still be cheaper than rent
It’s actually horrifying how fast rent has gone up. Our mortgage in Boston went from being $1000mo more than average rent to $500mo under average rent in only two years. Even with the tax hike we just passed in my town, my total cost of ownership is far below renting even accounting for the savings we set aside for upkeep and emergencies
Plus this whole time we’ve been improving the property. We now have solar on a 0% apr loan and don’t have electricity bills anymore and the mo billing for the panels is less than our old electric bills. We also used a state program to replace all the insulation and windows at cost with another 0 apr loan. So our gas bill is now only ~$80-100 compared to the $400-500 gas bill in the shithole apartments around here with 200 year old paper insulation. And if we want we can use another state program to replace our furnace with a heat pump and lower that further.
So our relative cost went down even more as utilities keep going up and renters have zero control over their homes energy usage
The property tax on my house is $7000/year… and that is with a fixed assessment from 12 years ago. If I were to buy my house today, my tax would be $21000/year.
That’s why I caveated with if you are already a homeowner for a while. It’s totally different to be buying a house now and comparing it to rent now. The important bit is the cost is fixed and rent is not. In our case it only took two years for rent to surpass us.
But yeah. Especially if you live in a state with no income taxes, the property tax story is very region dependent. If property taxes are that extreme though, it’s almost certainly also being built into peoples rent which means it’s not contributing heavily to the difference in cost from renting and owning
These are very region dependant. My state has no income or sales tax, but the property taxes are higher, my 1 acre with a mobile home is basically 3k. It’s almost certainly cheaper than renting, but you can’t just make sweeping statements like that.
At the same time. If sales tax has always been that high then it would be silly to not realize that cost is baked into the local rents in the same region
Certainly in my town where taxes were just hiked, every landlord is going to hike rent accordingly in September (it’s a Boston thing that 90% of leases always end in September)
Sounds like you have the fortune of living where these things are cheaper. In Ontario, home insurance is much higher and property tax being less than 1K a year is completely unheard of.
Less relevant in a condo
Once you factor in things it mentions like insurance, taxes, upkeep along with others like a down payment then it’s very easy to see where the 14% numbers comes from.
So you’re agreeing with me that they’re only comparing the first month of ownership of the house with the last month of renting? There’s no factoring in the long term rise in rents to their math?
There’s a lot of additional and hidden costs with home ownership.
There certainly are, but its very situational. A 100 year old home will have very different upkeep costs than a 10 year old home. A home in a hurricane zone will have different upkeep than one that isn’t.
I mean neither of us know how they arrived at the 14% number. So your comparison is not really relevant and I would say it’s not a good one even. But in a generic/average month-to-month overview, home ownership is almost always more expensive.
I had a long reply typed out exploring the various aspects and raising questions to the methodology and applicability of the advice in the article to different groups of people in different geographies and stage of life. However the tone of replies seems to just want to accept the article as is. Its a yahoo finance article, so the depth is pretty shallow and only speaks in broad generalizations. Your reply is doubling down on exactly that. There’s nothing wrong with that per se, but it looks like the there isn’t a desire in this thread to explore it any further.
So we’ll just accept the article answer which you summarize well: “generic/average month-to-month overview, home ownership is almost always more expensive.”
Conventional wisdom says keep renting folks and don’t question it.
Did you not read the comment? Property tax, insurance, and upkeep are all perpetual costs. The down-payment, closing fees, and potential mortgage insurance are the only up-front costs.
Did you not read the comment? Property tax, insurance, and upkeep are all perpetual costs. The down-payment, closing fees, and potential mortgage insurance are the only up-front costs.
I read the comment. It doesn’t address the question. “Over what period of time?”
Are they judging on owing a house for 30 years vs renting for 30 years or are they judging owning house for 1 year vs renting for 1 year?
For me, I’m in a condo that we bought with a 15-year mortgage during the pandemic. My mortgage (including escrow/taxes and insurance) plus HOA fees is about $2100/month. My old apartment (including monthly pet fee) was more than that when I lived there. It’s currently listed for $2500/month (big complex, not necessarily my unit).
I promise all y’all I’m not spending $400/month on homeowner-specific costs. And, I could reduce my monthly cost by moving to a 30-year mortgage instead of a 15-year mortgage.
Edit: looked up my old apartment again. Holy shit, it’s listed for $2750, which doesn’t include a pet fee.
It’s just talking about the first month / year. Assuming that only inflation is effecting prices to keep things simple the price of renting goes up over time with inflation, while a mortgage stays constant dollar wise, and since a dollar is worth less over time the payment is less.
Combine this with building equity the net cost of owning a home goes down over time while renting goes up. The question is when do those two lines meet, eg. If you bought a home now how long would it take to be paying the same as renting. Maybe it’s 5 years, maybe 10 or 15 depends on the market, judging by the article it seems that period is getting longer as the starting point for a mortgage is really high and will take a while to recover.
Replace central air: $8k Deadwood 40+ year old trees: $6k Remove & replace concrete driveway without killing the 80 year old pine who’s roots are buckling it: $8k Remove particle board siding and replace with vinyl: $12k New water heater (+ new requirements for not having a pressure bomb in the house): $3k
Owning a home for three years has been more expensive than renting for a couple decades. Sure the mortgage is $500 a month less then rent, but the loans/credit card + interest for all the above is killing us.
Seriously considering one of the brand new apartments in the up and coming district for only $2k a month if we can sell the money pit with outdated everything!!
I am confused, my thought process went like this:
So it’s more expensive to own then rent?
Unless you own it and rent it out to others?
Nobody would be a landlord if a dwelling cost more to maintain then to rent out.
So something doesn’t add up.
When you mortgage a home as an investment property, you are leveraging your money 5-1 (on a 20% down payment)
If rent covers 90% of the mortgage, you still make an absolutely huge profit amortized over the loan.
If you consider the tax incentives (interest write off, depreciation, capital gains deferment, pass through deduction) the gap in the rent can be covered.
Consider paying 50k down on a 250k house, the. Paying an additional 15 percent over the life of the loan (around 40k) to cover for gaps in rent.
Over the life of the loan you turned 90 grand into 250 grand (and a house is an appreciating asset, so it will likely be worth more than 250 by the end of it all)
Deduct depreciation (value of the home minus land value over 27.5 years) and carry over losses can even make up for the gap of rent you pay entirely over time.
This is exactly the kind of math that normal people don’t get when it comes to this conversation. Every industry has some convoluted, obscure, non-intuitive way to actually make money when it doesn’t sound like you should. You have to think in different ways and in longer terms.
Even then though, it’s not as amazing as it seems. Real estate is not the only sector that can make profits on leverage. In fact, pretty much any publicly traded company relies on leverage and debt. If you buy a share of an index fund, you’re buying shared of companies, most of them taking advantage of the same leverage you would when buying a rental property.
But basically no broker is going to give you a million in margin on a 200k account, and you don’t get margin called on mortgages (typically) the way you do with margin accounts.
You missed the point. My point is that even if you buy stock on 100% equity, 0 margin trading, you still are investing on margin. You are investing on margin because those company stocks you are buying themselves used these leverage techniques in their own operations.
This is only looking at a point in time, not the life of the loan. In the US at least, we have fixed rate loans (many countries do not have that). So your “rent” when you mortgage a home is fixed for 30 years. When you rent, your rental costs increase with inflation every year. While it might be 14% higher to mortgage than rent right now, in a few years your mortgage will stay the same while your rent will have increased. Yes, there are repair/maintenance costs, but after 5 years or so you are saving enough per month to pay for those repairs.
Most landlords bought the place earlier when home prices and mortgage rates were lower, or they just own the place outright and don’t make any mortgage payments.
This article is about choosing whether to buy at current rates or rent at current rates. If you bought a place 10 years ago for half the price it’s worth now and a 2% interest rate then you’re probably going to be paying less then renting
I believe they are taking into account the cost to purchase these days since interest rates are higher, ergo high mortgage payments.
As someone else mentioned most landlords have locked in rates at this point. Not many new landlords.
I agree, and came in here to say the same thing. I think the data is being skewed by the fact that many (not all, of course) rental properties are subdivided into multiple units (or built that way in the first place). People commenting about how it’s considering modern costs, well, they must not have read the first two sentences of the article:
On paper, owning a home is almost always more expensive than renting — about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.
But the difference has grown much more extreme in recent years as just about all homeownership costs have ballooned.
The only way you can arrive at that 14% number is if you’re averaging in multi-unit apartment buildings. Very few, if any, landlords are out there subsidizing their non-family tenants by charging less than the normal costs of ownership. If most landlords are losing money year over year, well… at that point just sell the property.
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Highly dependent on where one lives I guess. My friend just rented a new apartment and his rent is over double what my mortage payments are. That’s also money he is never getting back where as in my case my house is paid in about 15 years after which I own the damn thing and the monthly mortage payment drops off entirely. Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.
Excluding mortage, the montly cost of owning my house is 275€ which includes water and electricity.
That’s also excluding regular maintenance or emergency repairs that a landlord would be (often reluctantly) responsible for. It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.
It is also possible to do big, expensive, necessary renovations on a house and have it hardly affect the value at all.
Isn’t this kind of irrelevant unless you’re a house flipper? If you own a house and make renovations to it, it is because you find some practical value in it.
A house flipper would do everything they can to avoid having to do something like this. It’s primarily a normal home owner who would have to shell out for this.
Ex. when I bought my house, they told me the roof had recently been redone. I didn’t know enough about it, but the pre-inspection didn’t see any issues. Fast forward a year later we have someone look at it because it isn’t looking right in some places. Turns out it’s a very old “torchdown” roof, and by “redone” the previous owners had someone spray it with a silvercoat paint. This is something you do maybe 2-3 times in the life of this kind of roof. The inspector said there were at least 7 layers of paint, the roof itself was way past its recommended lifetime, and if there were any issues it would be impossible to know without taking the whole roof off. They said we could just wait until we have a leak, and then get it replaced, but (given several weather and money factors involved) we chose to go ahead, bite the bullet, and have a new roof installed. This was enormously expensive, but if I were to put the house on the market right after it was done, the state of the roof was already priced in. If someone wanted to pay $X a year ago thinking the roof was already recently “redone”, me getting it actually redone isn’t going to move that needle for anyone. It was purely for my peace of mind as the home owner who wants to continue living here. Sure that has value to me, but no tangible value that I can use to justify the purchase vs renting. I could have rented in this place for well over a year for the price of that roof.
A house flipper would have said “well, let’s try to get rid of this thing before that becomes a problem for us to worry about, shall we?”
The best thing you can do to improve the value of your house is granite countertops and stainless steel appliances. The next best thing is some kind of fancy bathroom. Finally, a fresh coat of beige paint and moving out almost all of your stuff is a big help.
Apparently granite counters are passé now. Or at least whatever dreck that makes it to my feed says so.
The painting and staging are by far the best bang for the buck, since they’re cheap
No, increasing the value of your home is one way to get out of PMI payments. And it also helps if you get a reverse mortgage.
My mortage payments for one year would cover all maintenance I’ve done to the house during the 8 years I’ve lived here including an entire bathroom remodel. Obviously someone less handy would need to hire someone to do the jobs I’ve done myself so that helps a little with the costs, but still. The maintenance costs for my house aren’t even in the top 5 expenses I have.
It’s not about what your mortgage payment is. Interest rates are significantly higher now. See how much the same house costs at the current price and interest rates. Most likely it’s significantly higher now as both rates and prices have increased.
My mortage payment is 520€/month including interests which are tied to Euribor12 and change once a year. My interests now are less than they were a year ago.
Meanwhile, we’re a third through a 15 year mortgage locked in at 2.5% for the life of the loan. If we had been willing to pay a bit higher in interest, we could have locked in a 30 year mortgage rate, probably around 3%.
The article talks a lot about mortgages. How does the math work if you pay in full at the time of purchase?
Renting could never compare to owning, as Equity is the biggest source of wealth for the middle class in the US. Not owning equity to pass on to your kids is one of the worst mistakes you can make. IF you can afford that sort of thing.
How have we screwed up as a society, much less species, when shelter is seen as a financial investment rather than what it is, a thing we literally need to survive?
Well, as houses don’t magically appear out of thin air, I guess it has been like this since we started building permanent shelter.
Until relatively recently, it wasn’t that uncommon to just go and find some unused land and build a house on it. No intergenerational wealth required.
unused land
Unused by white people?
Equity is pointless when your $30,000 roof and $20,000 HVAC break at the same time and you’re taking out a 20 year home equity loan to replace them. (And good luck with the $70,000 windows.)
2-4x reality, but yeah…
Not at all, these are (roughly) prices for 2-3 bedroom single-family homes. If curious, check AIs for any reasonably successful region around the country like Raleigh, San Jose, Austin, etc. Prices are about the same. I looked up the cost for a dual system for a larger home (that would have 2x AC, 2x furnace) and that jumped to $30k-40k for HVAC. Water heater install (gas, tank) can run $800-3000 depending on the market.
Asking others for prices for windows, I think the spread was somewhere between $50k-90k, although it’s been a while since I asked peeps. That’s before actually going after specialty windows.
Prices have skyrocketed since the pandemic.
I don’t know about that - I had my roof replaced (by insurance thankfully) about a year ago, and it was ~26k. HVAC out of pocket a couple years ago was about 15k. Not fun!
It depends on how big your house is.
I paid $10k for a 4 ton 15 SEER AC this summer (this depends on location I suppose). I paid $13k for a normal roof replacement last year.
1600 sqft house.
the homeowner could have an industrial HVAC system and a wooden roof
Not owning equity to pass on to your kids is one of the worst mistakes you can make.
“Oops, I guess I made the ‘mistake’ of not making enough money to afford the outrageous price of real estate. I guess my children deserve to be poor.”
Or maybe we should treat housing as an public resource rather than an investment, and encourage the market to keep prices low for the sake of maintaining a healthy society.
Leaving out the last sentence in your quoting does a disservice to what they were pointing out.
They weren’t saying anyone deserves to be poor. They weren’t saying that real estate being an investment is ideal or how it should be.
The housing market is historically, currently, and prospectively an investment, and one of the only high-return, low-risk investments available to the middle class. If you can play that game and don’t, then you are making a mistake, especially if you have kids.
Kids? I’m not a fan of parasites
Raising your kid(s) right is better than passing any monetary wealth on to them. If they grow up knowing that they’re set and will inherit your money/house, they may get lazy and just depend on that wealth. That money will be gone after the 3rd generation.
Kinda shitty that people are downvoting this. Raising your kids right includes giving them the education they need to live and acquire wealth as well, so it’s not like this is wrong.
you divide the amount of money that it costs by the amount of dollars you would pay to rent something like that per month and then figure that’s how long it’ll take for you to look at a duck instead of a chicken
Then add a few years, since you’ll be the one paying to replace wear items like roof, carpets, and appliances.
insurance and property taxes and a very large HOA fee that looks almost like a rent payment if you’re in a good city
That’s true in general. And if you assume a perfectly efficient market, yes, renting would never be cheaper than buying. On the other hand, if markets were perfectly efficient, no company would ever be able to make a profit at all.
One market distortion is that in certain times, people will actually pay a premium for renting. People aren’t perfectly rational actors. Or moreover, they prioritize things beyond just simple cost. Even if buying is more expensive that renting, all costs considered, often people will pay more just for the stability and certainty that comes with home ownership.
The housing market is also distorted by all the present owners with locked-in 30-year mortgages. This has suppressed the supply of existing homes on the market. Rental companies don’t get access to federally-subsidized 30 year mortgages, so they are less subject to this interest rate lock-in.
I pointed out a few things, but these are a few of many. The key thing to realize is that housing is highly illiquid, and its production, ownership, and sale is heavily regulated, taxed, and subsidized. It’s a heavily regulated market. This means that the market will not always follow basic econ 101 behavior. Yes, in theory, rentals will include all costs. But that is rarely the case.
In fact, in a perfectly efficient market, it’s likely that neither buying nor renting would be beneficial. If everyone acted perfectly rationally all the time, the cost of renting would exactly equal the cost of buying. And in that world, buying would never be worth it, simply because it wouldn’t be worth the extra hassle to safe not a single penny.
The cost of renting or buying would be negligible if we prioritized human needs over the human want to hoard wealth
Not the scenario this article talks about. Most people need mortgages, especially first time buyers.
Cost of materials and demand for contractors. Even if you DIY it, everything is 3x as expensive as it was before covid. The price of lumber never really went back to where it was before covid. Its clearly price gouging.
The price of lumber never really went back to where it was before covid.
https://tradingeconomics.com/commodity/lumber
The price in at the start of 2020 was ~$377.55 per thousand board feet.
https://www.bls.gov/data/inflation_calculator.htm
$377.55 in January 2020 is $460.34 in July 2024 dollars.
The price of lumber in July 2024 was $423.27.
So it’s gotten back down to and fallen below pre-COVID-19 prices in real terms.
It does look like the price has risen from July 2024 to November 2024, so it’s presently higher, but it has not stayed above pre-COVID prices since the end of COVID-19.
What I’m seeing is that prices for lumber today are fairly flat based on location. Back in 2019, someone in AZ might pay $2 per 2x4 while someone in OK might pay $3. It was very variable depending on where you bought. Today, just about everyone has to pay $3.75 per 2x4.
See my response to the reply above this one.
Yeah, it sucks and really fucks with the “building equity in your home” narrative that updating/remodeling has. Now every fucking thing costs so much, that is very unlikely I get back out what I pay for updates in a home sale price later on. It seems like even maintaining your home is for the ultra-rich, now.
Building equity through improvements has pretty much always been a lie, the win was enjoying that improvement. The vast majority of improvements don’t actually net a higher sell value than their cost.
That’s definitely true to an extent! Like if you’re looking at spending several hundred dollars on a new tub or something for your bathroom when it’s already pretty updated, you’re not going to see much return for that. But if your bathroom is straight outta the mid 80s and hasn’t been updated at all, you’ll probably get more bang for your buck that way (very long-term speaking).
Or things like replacing the roof or old AC units, or honestly just painting and replacing light switches, can add a bit to the eventual sales price. Not a ton, but not nothing. It’s all things a buyer will potentially weigh when looking at your home. Just like they will…questionable diy decisions lol
Lumber prices are actually currently where they were for much of 2018.
Yeah thats an interesting statement right?
Because when I look up a chart I see the same thing.
But when I go to buy lumber, and especially sheet materials, its all still 2.5x - 3x what I was paying in 2019. So as an individual which should I believe? The lived experience I have is the one that took the money out of my account when I bought the lumber.
Some examples: This was $15 in 2019/20: https://www.homedepot.com/p/15-32-in-x-4-ft-x-8-ft-Sheathing-Plywood-Actual-0-438-in-x-48-in-x-96-in-20159/206827282
(You might get a different price. For me, its $26)
And this was $25 in 2019/20: https://www.homedepot.com/p/3-4-in-x-4-ft-x-8-ft-Hi-Bor-APA-Rated-Sheathing-Pressure-Treated-Plywood-95360/202087831 (You might get a different price. For me, its $60)
Non-treated 2x4 were $2, and treated were $3.5 in 2019/20: https://www.homedepot.com/p/2-in-x-4-in-x-96-in-2-Premium-Grade-KD-HT-Stud-058449/312528776 https://www.homedepot.com/p/2-in-x-4-in-x-8-ft-Standard-Better-Hi-Bor-Pressure-Treated-Lumber-95344/202087781
(You might get a different price. For me, its $4, and $6)
Its a reflection of the same presentation that the Democrats tried to make about the economy: “Look at these abstract metrics disconnected from your lived experience, they say that the economy is great!”
But thats irrelevant if the most reliable form of data I have, my lived experience, disagrees with it. The reality is I live in an old house and it needs some serious repairs. I have to put some of them off because the cost of materials is just ridiculous, let alone trying to find contractors to do work at anything less than robber baron prices.
You probably have to look at the price that Home Depot is paying for it, not the price they’re charging you.
Why would I or anyone else give a flying fuck what Home Depot paid for the lumber they’re selling me? I can’t buy it at their price; I have to buy it at whatever retail price they (or Lowes, or Ace, or TrueValue, or 84, or whoever…) have set.
If the wholesale price of lumber – which is not accessible to normal people – has fallen but the retail price is still high, all that means is that these retailers are price gouging which is exactly what the original commenter was talking about.
Whoa there, I was just trying to make sense of the discrepancy.
Again. Think about what you are asking.
You are asking me to make some additional abstraction beyond my lived experience. When you ask me to do that, what does that do to my confidence in your rhetoric?
I was just trying to make sense of the numbers. We are all acutely aware of the retail price gouging.
Yeah, those prices are based on wholesale.
This ignores the difference after 5-10 years. Rent keeps going up.
Maintenance cost and property taxes too though.
Still cheaper to own, if you have the initial funds or loan to buy and know you won’t be leaving the area for awhile. If you rent a property those maintenance and tax and insurance and interest costs associated with owning it are just passed on to you in to your rent, plus a profit margin so the owner can make money off renting it out to you. Owning the same property would cost less, over time, and not just that, but you would have something to show for it.
What you forget is the cost of opportunity: the money that is stuck in a house is money that would yield income if it was invested somewhere else. Long term stock markets typically return 7%+, while rental return (or the rent you save by buying) can be anywhere from 3 to 7% depending on market, minus maintenance and other holding costs.
So there’s no fast and hard guarantee that owning or renting is best - you need to run a proper simulation with the right parametres taking everything into account. In markets with low rental returns, renting is typically optimal.
Seems like inflation goes up faster than long term stocks, especially in 2025-2028
Where is the money that is stuck in the house, that would hypothetically be able to be invested if not spent on the house? You have to pay to live somewhere, and if you’re paying less to purchase than rent, that is money saved which is available to invest. Do you mean the up-front downpayment money needed to acquire a mortgage in the first place (typically 10-20% of the purchase cost), that could be invested in the market instead for a higher return than slowly building equity through principal payments?
Let me give you an overly simplified example. You are in a property market where rental yield is 3% (happens in some cities)
You could put a million dollar into buying a house and save $30k in rent every year
or
You could rent a million dollar house for $30k, and invest your million dollar in the market at 7%, returning $70k per year
Obviously this gets more complicated with mortgages, taxes, maintenance, interest rates, etc. but the gist of it is that owning your home always comes with an opportunity cost, every dollar of house equity is a dollar that isn’t invested somewhere else. Depending on circumstances, renting might be the most economical choice.
This is interesting. I do get that if you have initial money to buy a house outright, there are better mostly safe things you can invest in, to get a higher return on investment than a house. If I got a 30 year mortgage in 1994 and paid $1M over that time to pay it off on say, a 5% fixed rate with no PMI or downpayment required, the purchase price was probably closer to $500K assuming 2.5% average annual inflation. And average housing inflation since then was more like 2.8%, so factoring in maintenance and taxes and insurance, guessing no real appreciation over that time. But the quality of life difference to an apartment of the same cost would I think in most cases more than make up for it.
I think where I’m stuck is, we’re starting from the idea of having $1M in hand to start out with to buy a house outright or rent + invest, where a much more common situation is either: I have not got anything saved up, so I can neither invest nor get a mortgage without an initial downpayment; or else, I have enough saved up for a downpayment or PMI and hopefully a secure enough income to pay the mortgage every month.
In my case, mortgage + escrow + maintenance costs are still less than half what I was paying for my cheapest studio apt nearly a decade later, and a much better quality of life because of the extra savings. My neighbors are renting a nearly identical house, and it’s criminal how much they have to pay to stay there. I wouldn’t be able to afford rent here.
What even is maintenance?
Leaky roof? Nah, throw some clear tarp over it and you’ve got a sun roof.
Tenants better appreciate the improvement. If they don’t, their rent should be raised!
Thousands per year, usually.
My rent went down year over year.
I bet you also think you pay income taxes cause they take it out of every check and then fail to connect the dots they gave it all back and then some during tax season.
What is your mortgage on the tent?
We livin in a new gilded age, bruh.
By February, I will have put $100k into a house in stuff that’s nearly invisible - replace fence, repair leaking pool equipment, stabilize foundation, repair plumbing, and replace exterior ‘wood’ that was really watelogged mdf. My mom paid $220k 11 years ago. I’ve inherited it - and the $130k mortgage balance. My son is helping me by living there and covering the mortgage payment and I’m pulling money out of retirement to make repairs. It would likely take another $100k to update the 1980s kitchen, bathrooms, electrical, and 20 yr old hvac. Oh yeah, plus $10k/yr in taxes and insurance! Anyone want to buy a house?
repair leaking pool equipment
You have a pool. You are already head and shoulders above most people, including people who are also mortgaging a property.
It’s green and has been unusable for most of this year. It’s essentially a pond.
But you’re building equity! /s
Yeah, but, after X years you own your house.
After X years of renting, you got nothing.
That’s some rich dad poor dad BS. Means nothing if you can’t afford the additional y cost over renting, plus with interest rates where they’re at……so much of that monthly payment is still going nowhere.
You don’t have to pay the mortgage in thirty years and eat the entirety of the interest. I paid mine off in three.
There’s no way I’m not saving money over renting at this point. I pay less than $1000 a month to live in a place that would cost $4000 a month to rent.
What year did you buy your home, and what cost? What is it worth today on Zillow or your site of choice?
I bought in early 2020 and it’s now worth about 50% more than it was.
I kinda lucked out, because I bought right before everyone realized that we were screwed with COVID and were going to be stuck in their houses because the government had no idea what they were doing. I say “kinda lucked out” because I watched Trump deliver a speech as the stocks tanked in the corner, and realized he had no idea how to handle it. After watching it I turned to my spouse and said, “I know it sounds crazy, but I think we should buy a place right now.” I also had been looking for some time and realized that mortgage rates were near all time lows.
All time low rates + stuck in small places = everyone that can buy a bigger place will buy a bigger place.
Ah, very wise. You must see how people didn’t get matching 50% raises, matched with even higher interest rates… unfortunately the time of paying off your home early might be behind us, at least for a long while.
Yeah with current mortgage rates and prices…it’s definitely rougher.
Applying a little extra to principle – if you ever have it – still helps a lot with the amount of interest you’re paying.
Depending on where you live, much or all of that value goes away if it’s 35-50 percent more expensive to own. Especially if you choose to invest the savings.
They said 14% in the article. Don’t go doubling it or more for the sake of winning an argument.
Commercial real estate investment firm CBRE pegs the premium to buy versus own at about 35% earlier this year, with the dip in mortgage rates in the fall helping bring that level down from a record high of 52%. Their measure includes the cost of mortgage insurance that most lenders require but doesn’t factor in expenses like homeowners insurance or upkeep.
We’re talking about two different things.
Its funny because the conventional wisdom is that rent is “throwing money away”
My house is paid for so I’m gonna say nope - even with maintenance and taxes, etc
I don’t think your case is what the article describes.
Yeah, if you bought recently, you’re a fucking moron lol
Wanting somewhere to live, amirite? 😂😂😂😂
Lots of options besides paying 500k more than the house it worth. Depending on your market of course. Houses in my area doubled in price in the last 6years.
I mean, duh. There are always cheaper places to live. But nobody wants to make a 3 hour commute to where the jobs are.
Assuming the jobs in that city stay there.
Missing the market is worse than waiting
If you miss it, you’re not in debt you can’t ever recover from.
Debt is always a bad idea. I won’t buy a home on debt
Must be nice to have a million in cash
A condo costs $200,000. And I do recognize the privilege
Wow where do you get a $200k condo?!
Colombia
