
Home ownership is a lousy investment compared with stocks or bonds - devy
https://www.usatoday.com/story/money/columnist/2018/02/18/why-your-home-lousy-investment-when-you-think-its-great/340516002/
======
djrogers
This is a horribly incomplete analysis. It doesn’t account for the cost of
rent, and it assumes that everyone would be crazy enough to keep a 7.5%
interest mortgage for 20 years! You’d have to try really hard to _not_ find
this intentionally disingenuous.

~~~
w8rbt
They probably want us to get into the stock market casino. Just lost half of
your money? Remember you are in it ___long term_ __. It 'll go back up and you
just need to diversify more (give the broker more money) so you won't lose
___as much_ __during the next down-turn.

I'm sorry if this sounds cynical, but that's my honest assessment of the stock
market. Some very wealthy salesman is always trying to get me to put more
money into it and continually tells me to just be patient. It feels like a big
scam.

~~~
ryandrake
I just took a new job and one of the benefits they offer is this health care
savings account, where you get a high deductible plan and then also contribute
to this other account tax free for medical spending. One of the "features" of
this account (actually touted by the custodian's literature) is that you can
stick that money--you guessed it--right into the stock market casino! So, now
you want me to take money I'm already setting aside for something as important
as my health and put it on the Wall Street roulette wheel? The mind boggles.

~~~
kspaans
That's why there is a minimum contribution to the HSA before you're allowed to
invest it. It's for healthy people who have saved up a big chunk and don't
expect to need the money for 10 or more years, so they can park it somewhere
to earn a decent return. The stock market is only a casino if you're in it for
the short term.

------
payne92
This is a terrible analysis from someone who offers professional investment
advice (the author).

Nobody would have held a 7.5% mortgage w/o refinancing. You can always ratchet
down if rates go down.

Mortgage interest is (was?) largely deductible, greatly reducing the after-tax
interest rate, especially in the market example cited (San Mateo).

Property taxes are deductible as well (less so before the recent tax changes).

You have to live somewhere and that's a quantifiable benefit (in rental
equivalent terms). If you put all of your money in stocks, and none in a
house, you're going to have to pay rent somewhere.

A portion of the capital gains on the sale of your primary residence is tax-
free, further increasing your after-tax returns.

Housing market examples, like stocks, can always be cherry-picked for one
argument or the other.

Home ownership is not always a _great_ investment, but it's usually not lousy.

------
c1utch1
I didn't buy my place for the investment although I'm confident it's going to
work out just fine from a financial stand point. I did it for the personal
utility that comes with improved quality of life and satisfaction from having
a place that I can customize and not have a landlord that I have to stress
about kicking me out and / or raising rent. The after-tax all-in cost is about
the same as what it would cost to rent out the place that I bought so I don't
see how it is such a "lousy investment".

------
sanderjd
To me, this is like pointing out that car ownership is a lousy investment: it
may be true, but it seems beside the point. If I want to have a car that I'm
planning to hang onto for a long time, and which I can do whatever I want
with, I want to buy a car instead of leasing it. Sure, I won't make money that
way, and I might even come out ahead financially if I were to lease, but then
it isn't my car, it belongs to someone else, and there are going to be a bunch
of rules associated with that. To me, owning a house is the same thing, but
with the added bonus that there is actually a chance of making some money. But
that's purely a bonus; comparing it with buying stocks or bonds seems ...odd
to me.

~~~
skybrian
It's still important for home buyers. If you go in knowing you probably won't
make money on the car or house, you won't buy more than you need (unless you
really want to). And maybe invest the rest?

------
tigershark
This article doesn’t consider at all the cost of rental. I have no idea in US
but in London renting an house is quite more expensive than mortgaging one.
And you have to consider the non-insignificant problem of rental going up
5-10%/year while mortgage interest are going quite quickly to zero if you pay
the mortgage at the same rate of the rent. If I listened to this “genius”
instead of being almost the sole owner of an house doubled in price in 7 years
I would have spent much more than 100k on rental in the same period without
having nothing at all at the end. I can’t really understand what this
“journalists” gain in deceiving people in this way..

~~~
aphextron
And so you respond with purely anecdotal evidence, based on your special case
of buying a home at precisely the right time, in the most overheated real
estate market on earth (London). Look for instance at a random home in
Phoenix, AZ [0]. If you had bought at the very bottom of the housing crash in
'09, and sold today, that's about 50% returns before any of the associated
costs with home ownership and mortgages. Compare that to ~300% return over the
same period from just dumping your money in the S&P 500 [1]

[0] [https://www.zillow.com/homes/for_sale/Phoenix-
AZ/pmf,pf_pt/7...](https://www.zillow.com/homes/for_sale/Phoenix-
AZ/pmf,pf_pt/71601764_zpid/40326_rid/globalrelevanceex_sort/33.994042,-111.632767,33.216286,-112.616044_rect/9_zm/)

[1]
[https://www.morningstar.com/etfs/arcx/vti/quote.html](https://www.morningstar.com/etfs/arcx/vti/quote.html)

~~~
tigershark
Your 300% return sadly doesn’t include the cost of renting. If buying SPX
would give me free housing I would be the first buyer, believe me. But unless
you are born very, very, privileged you need to buy an house or to pay a
rental, unless you want to live with your parents, and your wife is happy to
do so. For me, as I repeat, it was a no-brainer. If you want to live for the
foreseeable future with your parents then obviously better to put money on
some index rather than buying an house. If you have a family I’m really not
sure that it would be better even in Phoenix or in Castrovillari or wherever
in the world you want.

~~~
kspaans
The article does make the unstated assumption that you're able to 1) rent for
cheaper than the cost of a mortgage + extras, and more importantly 2) invest
the difference. If your individual circumstances don't allow that and you're
able to afford the necessary downpayment, the calculation is pretty easy to
make, yes.

------
breitling
The attraction of buying a house has always been (to me) the leveraging of the
money. I can buy a $500K house for $100K down and the X% appreciation applies
to the full $500K.

Better yet, I can put 5% down and buy the same property. Then the X%
appreciation of a property turns into X% times 20 return.

~~~
cycrutchfield
You can do the same by buying stocks on margin.

It does not mean this is a good idea, however.

~~~
sokoloff
In practice,it’s hard to get much beyond 3x leverage in the equities market.
It’s _typical_ to find 5x, fairly common to get 20x, and possible to get to
33x in the real estate market.

~~~
toomanybeersies
You can get massive leverage on CFDs (Contracts for Difference), you can run
on as little as 5% margin (i.e. 20x).

Maybe it's different in the USA, but in New Zealand the lowest I've seen is
5%, which is uncommon, 10% for lower value houses, and only 20% margin is
common.

~~~
sokoloff
GGP was “stocks on margin” and my response of (unqualified) equities I meant
stocks as well.

------
moonka
I bought a place several years ago in Seattle, where the market has been going
up like crazy. So has the stock market. Between fees, interest, and
opportunity cost of my down payment in the stock market, I'm not sure I've
financially come out ahead if I were to sell today. However, non-financially
it's been great. I've had stability, a place I can make my own, and haven't
had to deal with a landlord. Buying a primary residence as an investment is
far from a sure thing. But it might be the right call for other reasons.

~~~
poulsbohemian
Seattle _might_ be due for a correction in the near future, but if you bought
several years ago, it would be hard to _not_ make money in real estate right
now in Seattle. Did you see where average prices on Capitol Hill are now >
$1MM? Ballard / Phinney Ridge everything is > $800K. Unless there are
extenuating circumstances, you should be more than fine should you choose to
sell.

To me the interesting question is, does one believe this growth will continue
for several more years? IE: should one buy a (overpriced?) property today in
one of these popular residential neighborhoods? Or, is one better off looking
farther afield assuming that less desirable neighborhoods are going to
eventually become desirable as most of us are priced out of places like
Fremont or Ballard? In other words, are we at the top of market already?

~~~
moonka
I wasn't suggesting that I won't be ok, just that it might not beat out the
gains I would have had if I had the rent difference and downpayment invested.
And that is in a very hot market.

I'm not sure if the growth will continue. If I was buying today with an eye
for appreciation, I'd aim for one of the less desirable neighborhoods towards
the south end.

~~~
poulsbohemian
I'd agree with that; there are some good values to the south.

------
spac
Real estate is just another type of investment, and one that can bring
diversification to a portfolio. Of course if your net worth is all invested in
your home, your risk/reward profile is probably suboptimal (YMMV!)

~~~
OscarCunningham
You could invest in a real estate investment trust (REIT) to diversify over
several houses rather than just one.

~~~
spac
Absolutely. But I guess that when you look a the diversification together with
the opportunity to be the owner of your own house, it's a sensible investment.
Basically I was just disputing that buying a house is never a reasonable
investment choice. But hey, I'm not number 200 in the list of richest
Americans ;)

------
sytelus
This is lousy calculation by armchair pundit. The main thing missing is all
the rents you would have paid if you didn't owned the house. So if you have
two scenarios, one where you just rented an apartment with ever increasing
rents and other where you had a fixed mortgage for 30-year - you would most
likely win by wide margin in 2nd scenario.

------
prepend
This article is an example of the bad math common in rent vs but discussions.
Sadly it contributes to the difficulty of developing wealth or the perception
that the rich get richer and the poor get poorer.

It’s not always best to buy instead of rent, it takes many factors like
stability, career, family, etc. So any blanket advice like “always buy” is not
very useful.

That being said, buying a house over renting is likely the top means for the
middle class to develop wealth (maybe under save for retirement and exercise).
This article is really about investing in real estate vs. stocks. And stupid
real estate investing where there’s no income from the house.

A proper analysis needs to account for cost of purchase and ownership vs. cost
of rent. This author is either really stupid or expects his readers to be
stupid. If the former then you don’t want to buy his investment advice, if the
latter then readers shouldn’t buy anyone investment advice.

------
5555624
I bought my house as a place to live. (My only "mistake" was that it's a bit
larger than I need.) It was a cheaper option than renting, as apartments
50%-60% smaller were significantly more than my mortgage payment. Buying a
house to live in, with the idea it's an investment just doesn't seem to be
guaranteed to me. That's especially true if it comes to making any
modifications -- I want to do them to suit me, not trying to consider if a
future buyer wants them.

If it appreciates? Great. If the value stays the same? Fine. If I move and can
only make what's outstanding on the mortgage? That's good, too. If it's worth
less? Then I will look into renting it out.

------
raiyu
There are a few inconsistencies here for sure, as in if you don't buy the
house you still have to pay for rent. But I think the largest takeaway is that
really financing the house eats away the most amount of profit. The benefit to
financing is of course if you can't buy the house outright you can still own
it, hopefully pay around what you would for renting, and then still end up
with a profit, which is more than can be said for renting.

I think the biggest factors to consider are is this your primary residence,
what are the carrying costs for the property if you bought it outright, and
how much of your net worth is tied up in this asset, or said another way, how
much of your burn rate.

------
blakdawg
... says the article written by a guy who sells stocks and bonds for a living.

I wonder if he lives in a rental.

~~~
Pica_soO
Such articles make me nervous- is there a stock or bond bubble?

------
irrational
I have a 3% mortgage for 30 years (though I am paying toward the principle so
I should pay it off in 20 years). My mortgage + insurance/taxes for a 4
bedroom house on a quarter acre is far less (about $500-1000 less a month)
than what people in my area are paying for tiny 1-2 bedroom apartments.

Plus if I were to sell my house right now I could sell it for more than double
what I bought it for. The market might tank, but I'm planning on living here
for another 20 years at least so it could go through the boom-bust cycle a few
times before I get around to selling.

------
skookumchuck
I don't care much for real estate investing. You pay taxes, insurance, and
maintenance on it. You only have a vague notion of what it is worth, and that
all depends on just happening on the right buyer at the right time. It can
take a month to a year to sell. You pay 6% commission on selling it.

With stocks, you know second by second what it is worth. There are no taxes,
maintenance, insurance, or liabilities that come with it. You can buy/sell it
at any moment. With a discount broker, the sales commissions are minimal.

~~~
prklmn
If you’re talking about the US, you’re wrong in that there are capital gains
taxes at 20% long term, and up to 38% short term on the sale of stock. For a
real estate investment that you live in, couples do not have to pay capital
gains tax on up to $500k worth of gains.

Just to play devil’s advocate - when you buy a stock, you are buying nothing
more than a piece of paper, and you don’t even get a piece of paper nowadays.
It’s really easy to manipulate the price of a piece of paper.

~~~
skookumchuck
It's more complicated than that. The $500k is for married couples - it's $250k
for singles. You also have to stay in the house for at least 2 years. There
are a bunch of other rules, too.

> It’s really easy to manipulate the price of a piece of paper.

The real estate crash of 2007 shows there is no such thing as sure thing in
real estate, either.

------
mrlyc
I've done better with my home investment than I have with my managed
investment funds. I bought my flat in 1994 for $107,000 and it's now worth
$715,000 after Melbourne had the same rise in house prices as San Francisco.

Two problems, though. (1) The money is locked up. I can't take a couple of
bricks down to the travel agent and exchange them for tickets. (2) I am locked
up. Google wants me to work for them but are quite insistent that I move to
California. I guess remote work can only go so far.

~~~
jjeaff
Some people do better in the lottery than their managed investments too.

~~~
tonfa
And that's less than the return of the s&p in the same period (~880k).

~~~
jjeaff
Well, I assume you are calculating as if you paid all cash for the house. With
a mortgage, you leverage quite a bit. Most would never be able to leverage
that much to invest in the stock market.

------
starkruzr
Like, sure, but it's beside the point when one considers that you have to live
_somewhere_.

------
kspaans
The Globe and Mail also has a great comparison of rent vs buy using numbers
from Toronto (includes closing costs, taxes, maintenance, inflation, etc):
[https://www.youtube.com/watch?v=NZR_vMTLfIk](https://www.youtube.com/watch?v=NZR_vMTLfIk)

(buying comes out slightly ahead assuming you don't move for 25 years, and the
renter averages 7.5%/year returns on their investments, and, and, and etc.)

TL;DR buying is probably better if you don't move very often, but there are so
many variables that you can't know beforehand -- that you need to be able
calculate whether renting vs buying is more profitable -- that it's probably
not worth worrying about.

EDIT: The NYT also has a nice visual calculator for this:
[https://www.nytimes.com/interactive/2014/upshot/buy-rent-
cal...](https://www.nytimes.com/interactive/2014/upshot/buy-rent-
calculator.html) You need to know about 21 variables (that can change over
time during the lifetime of your mortgage).

~~~
Rebelgecko
That NYT calculator is awesome, and helped convince me to buy my place.
Particularly helpful for seeing how changing interest rate vs down payment
affects the overall cost of a mortgage and moves the break even point vs
renting.

Hopefully at some point they update their site to take the new tax laws into
account (which will make buying less competitive for people in areas with
higher cost of living)

~~~
throwaway30yo
I agree its a great calculator. The funny thing is that I used it and it
convinced me its far better to rent in my market.

------
Overtonwindow
My home is not an investment but since I'm now renting it out it is turning a
very tidy profit.

