Comment by bunderbunder
7 hours ago
I'm not sure it is. If you can just barely afford a home, that also suggests that you don't have enough financial cushion to deal with all the little surprises that come with homeownership. Worse, you might be ill-positioned to weather a something like a recession. Recessions are nasty things and have a tendency to cause people to lose their jobs and become underwater on their home loans in rapid succession.
Now, apartments can suck too. Especially in places like the USA where we have a landlord cartel actively pushing up prices, and a professional landlord president who shut down an antitrust investigation into said cartel shortly after entering office.
I certainly can't say I have all the answers here; right now housing sucks every way you look at it. But I do believe quite firmly that this idea that going very deeply into debt and securing it with the actual roof over your head is somehow good for a person's financial security is an idea that mostly serves the interests of people who earn a commission on convincing people to get into that situation.
You're just arguing what "barely afford a home" is. Ok, it has to include a maintenance budget. And maybe a financial buffer. But those are true regardless of taxes. That doesn't mean that there are lots of people who can afford the home and the maintenance and some taxes but not the full tax amount.
> I'm not sure it is. If you can just barely afford a home, that also suggests that you don't have enough financial cushion to deal with all the little surprises that come with homeownership. Worse, you might be ill-positioned to weather a something like a recession. Recessions are nasty things and have a tendency to cause people to lose their jobs and become underwater on their home loans in rapid succession.
'Tis better than to have owned and lost, than to have never owned at all.
> Now, apartments can suck too. Especially in places like the USA where we have a landlord cartel actively pushing up prices, and a professional landlord president who shut down an antitrust investigation into said cartel shortly after entering office.
So rather than ever own a home, just rent. It's about the same as taking a pile of money out into the middle of the street every month and setting it on fire, but what else can a person do?
Die?
That's looking at the ability to buy ONLY as a numbers game, but it says nothing of the emotional effect it has on actual buyers. I bought a house. I can ask for a raise I'm worth it. I am doing well now... I'll get a better job next. Now I have a wife and kid and they want me to do better. etc...
While not all stories are like that, many are (in fact most are).
Even assuming things just increase at the rate of inflation, a house you can just barely afford today is a good investment because in 20 or 30 years that house is going to be worth far more while your payments have stayed the same and your income has increased.
Note that I'm very against cash out refinancing, which a lot of people are doing to get the cash that the house is worth. In my opinion the best reason to have a house is in 30 years it's paid off and now you can live there rent free for the rest of your life.
I just don't believe that that math works out so easily if you run real numbers.
I am a fairly recent homeowner. Before that I lived in an apartment in the same neighborhood. I like owning the house and having control over the space. I like having a bit more space. But, after I add up home loan interest, taxes, homeowner's insurance, higher utility bills, maintenance, etc., the amount of money that I will definitely never see again adds up to quite a bit more than I was paying to live in an apartment that, square footage aside, was aesthetically much nicer and better situated than the house.
And then, yeah, some additional amount goes to equity in an "investment" that is less liquid and historically earns a lower rate than a decent index fund.
When a person buys a home with a mortgage (congrats, by the way!), they gain the possibility of getting some return on the money they spend to have a place to live. It might work out long-term or it might not, but there's a chance (and it's often a pretty favorable one) that it works out well-enough as the years tick by that the light at the end of the tunnel keeps getting actually-closer.
Every day, thousands of folks do emerge from that tunnel and gain the ability to make profound statements like "Well, at least the house is paid for."
This is in stark contrast to renting, wherein: There is absolute certainty that none of the money spent towards having a place to live will ever be returned. It doesn't matter how much is spent: Whether a little, a lot, or a lot more, that money is always just unilaterally gone. There's no chance at all of anything else happening. The odds of winning are nonexistent. There is no light at the end of the tunnel, and there never can be -- it's just inescapable darkness in there.
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> But, after I add up home loan interest, taxes, homeowner's insurance, higher utility bills, maintenance, etc., the amount of money that I will definitely never see again adds up
So your landlord was renting your apartment to you at a loss?
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You need to report back again in 30 years. As a recent homeowner, you are absolutely correct. I don't even need to ask for details. However, things will change over the next 30 years. Your tax and insurance will go up with inflation and so it will actually be free to live there. However, in 30 years your loan is paid off and you get to live there for the rest of your life with no house payment ever again.
As a general rule of thumb, the break-even comes out to be about seven years. It can be as bad as 15 years if you get unlucky and when you buy it what the economy does, but by 30 years it is almost guaranteed you are overall money head buying a house.
Although I do have to point out that I did not consider other investment options. If you take an apartment for cheap rent and then invest the difference between what a house payment would be including all that insurance and taxes versus your apartment and apartment insurance (less buy important) - and invest the difference in stocks, that is going to change your financial situation. All those equal that expect to be equal over in the long run. Since by investing, you are investing less money. However, just to make things tricky, in the U.S., we can invest up to a certain maximum in a 401k or IRA, both of which are going to be much better because of taxes, but it doesn't matter if you have an apartment or you have a house, you're at the same maximum. And so someone with a house can get that advantage of that and their future rent is paid for while someone with an apartment is still going to be pay for that apartment all their life.
There's a few other assumptions above. I'm assuming you're relatively young and you're going to live a relatively long life in the same area. Moving houses that's going to change things, apartments are much easier to move. Be the umlucky person who dies young: you won't get to take advantage of either investment.
Overall apartments and houses can both be good things and you need to examine the situation for your own life. Life includes your future, which is of course unknown. Good luck.
Anyone who claims there is a universal answer for everyone is categorically, utterly wrong.
>"If you can just barely afford a home, that also suggests that you don't have enough financial cushion to deal with all the little surprises that come with homeownership. Worse, you might be ill-positioned to weather a something like a recession. Recessions are nasty things and have a tendency to cause people to lose their jobs and become underwater on their home loans in rapid succession."
Except you have to live somewhere, it's not like buying a boat. All of these dangers apply equally to owners and renters. Yet the protection you get from owning in that situation is massively advantaged over renting. Lose your job and can't afford your mortgage? Oh no, guess I'll have to take out a HELOC, or apply for forbearance, then wait years to be foreclosed on and declare bankruptcy. Lose your job and can't afford your rent? Sheriff's knocking on the door in 90 days to throw you on the street.