You keep saying this but my mortgage payment for the past six years has been 0. And when I had a mortgage the payment always was comparable with the rent I was paying on a 2 bedroom apartment before buying the house. That apartment would never accommodate my family of four.

If renting works for you that's great, keep renting. But don't pretend it's because it is somehow cheaper than owning - it's not.

Incorrect. You're also paying interest on the loan, which is usually pretty close to inflation. No matter how you slice it, you're pretty close to breaking even.

Also, you're not getting paid interest on the cash outlay you make the acquire the property, which is another loss.

> Voila: the power of leverage.

Leverage is just a tool you have, that can come back and bite you. If you leverage your investment by 10X, the real increases and decreases in value (adjusted for inflation) are 10X what they would be if you had not leveraged your assets. If you lose 10K of value on a 100k house that you put 20k down on, voila, the power of leverage. You just lost 50% of your investment.

> I'm not aware of any evidence that this is true.

The longer you go in your career, the less people care which school you went to because you have a work history that people can use to more accurately judge your productivity. If you're right out of college, your degree works as a proxy to that.

For most jobs, if you've already worked in the industry for 10 years, the salary you'll receive is roughly the same with and without a college degree, and the difference is even less between "good" and "bad" colleges. The earnings over career is a red herring, where right out of college, you get an initial salary boost.

50% of income as mortgage payments are extremely risky mortgages. We've just had the entire financial system collapse not so long ago because of such shenanigans.

Don't people remember the 2008 mortgage crisis?

If you can't pay the rent, you rent something cheaper. It is not nearly that easy when you have a mortgage.

Renting a house is more or less unheard of. If I want a house I need to buy one (or: “rent from the bank” as it were)

And the market price is basically “what two high income earners can afford if they pay interest only”.

So: if I want to live in a house at all, I need to buy it using borrowed money, and in the window I expect to live in a house (say 10-25 years) I couldn’t make a large dent in the principal regardless, because of the extremely low interest rates (around 1% now for mortgages) and the high prices that come from that. I don’t like it, but I don’t have a choice.

Also regulations strongly favor buying with borrowed money over renting. Interest can be deducted while those who rent from a landlord obviously pay interest too - indirectly through their rent - but in their case it isn’t deductible. So anyone who is forced to rent (e.g because they can’t afford the huge 15-20% down payment or aren’t paid enough to get the mortgage) is pretty much subsidizing the tax deductions of those who take mortgages.

Ya that's fair based on the payment schedule, banks gotta get their money if you pay it off early; but still more equity than renting.

>Unless you bought an adjustable rate mortgage.

Ya a lot of people got burned by balloon payments in 2008 after the market tanked. They were speculating more so than buying a house to live in many times I suspect. I bought a house in 2002 and it never went below what I paid for it by 2008. I bought at a really good time for my city though.

>Nearly all people imagine that if they paid $X for a house, then sold it for $(X +Y) that they made $Y profit.

I don't think anything ever works that way. Always giving someone a cut.

>They leave out all other costs, like taxes, real estate commissions, insurance, etc., etc., etc.

Ya all that sucks. But if you are renting, you still pay that for somebody else, it's baked in plus profit. If renting wasn't profitable, they wouldn't do it.

For a while, usually yes. Long term, no chance.

A mortgage can only ever go down. Rents most of the time only go up.

My mortgage was initially over 3K while rent had been ~1.5K. But years later, those equivalent rents are ~5K and my mortgage is under $1K. In a couple decades when I'm retired, who know how high those rents will be? But I know exactly what my mortgage will be, $0.

That's great, except that everyone is born short housing. You're not trying to afford something expensive, you are trying to cover your short position. And you're either going to do it by buying or renting. And since renting is just throwing the money at someone else, it can make a lot of sense to get into a mortgage instead. (This is why rent vs buy calculators exist.)

> I wonder what would happen to property prices if lending was severely restricted, maybe then the value would actually be affordable and not a lifelong debt that becomes unserviceable in the first hiccup

Agree on this point. It's a lot like universities and student loans. They have the numbers; they know the average student can afford $x / semester. They also know the average student can take out $y / semester in loans. So what are they going to charge? $(x + y)! Increasing the accessibility of student loans just gives the universities a reason to increase the prices. They don't care how much debt students walk out with; they already got theirs.

Yes. One of the smartest finance guys I know says the simple model of taking the landlord's (imputed) mortgage yield and adding four percent nearly always predicts the rental level.

> even in good times 5-8x your salary was a decent price. Now it's more like 20x in some places.

But the causality of this is surprising: that's because interest rates have come down. So the repayment monthly cost has remained constant, but the deposit and salary ratio have shot up.

Now that rates are on the way back up one of two things has to happen to maintain the ratio:

- house prices drop

- inflation increases nominal-income rapidly past house prices

The use of 30-year mortgages hugely slows down those effects, though.

But you are renting.

While renting isn't debt, it can be helpful to think of it as debt you have to pay every month (unless you plan to be homeless).

So you have 12N (where N is the number of years you think you might still live) of rent debt payments that you are committed to pay. If you transform that into mortgage payments, at least you're building equity. And it will only be 1230 payments (given a 30 year mortgage) so it is a bounded number unlike 12*N.

Your rent money is, but your down payment is not. Its getting at least a 5% return, and at best much more than that. And renting is cheaper than buying right now, because interest rates are high for current buyers BUT NOT current owners; supply and demand will presumably change that over time, but i.e. I can rent out our Austin home pretty cheap as is; if I'd bought it today and rented it out, I'd need to charge MUCH more to break even.

I agree you should buy what you want and use the payments as the guide; and maybe you can re-finance in the future. But when I plug payments into investment calculators, buying the home isn't coming out ahead of investing the down payment and renting instead.

They also tend to ignore that mortgage repayments remain static while rent goes up, that interest payments goes down if you pay in advance (offset accounts) and that once it's all payed off your rent is $0.

A mortgage for a home within my means is one of the best financial decisions I've ever made.

Not if everyone has access to easy money, no.

House prices are roughly set by prevailing rents. Take the cost of renting and the cost of ownership and set them to roughly equal. Now, drop interest rates on mortgages a couple percent, what happens to house prices? Monthly payments of mortgages go down, renters and potential landlords see it and try to win bids for houses, driving housing prices back up again.

Much the same thing is, IMO, going on with college prices: since they're largely financed, easier credit leads to higher bids. I'd much rather have college affordable period on a part-time entry-level salary than have interest rate times tuition be affordable on a white-collar salary.

Basically, lower interest rates doesn't particularly help future borrowers. Falling interest rates helps folks who hold assets and can sell them or refinance the debt servicing them.

I heard this advice all the time pre-2008. Then those people got burned real bad when things didn't turn out the way they'd hoped.

In my country the rent has usually been more expensive than the cost to service a mortgage (particularly taking into account only the interest repayments, not the principal repayments).

Mortgages are one of the only easy ways to leverage 5x for the average person, and over the course of 30 years you can expect to be earning more (inflation of your salary) whereas the mortgage stays the same.

Rent, on the other hand, typically rises in proportion to your income, so your cost are increasing each year. With a mortgage, your costs are either the same or decreasing if you repay the mortgage faster than the initial term.

Where I'm from, interest and dividends from other forms of investments are taxed as income, but repaying your mortgage is not. In addition, as long as it continues to be a desirable place to live and incomes keep rising, real estate prices will continue to rise as a function of income. This means that you're leveraging into a fairly low risk asset with good growth potential, and tax-free returns.

Plus all the intangibles, like being able to:

- Have as many pets as you want, or pets at all - Not be kicked out with a short amount of notice - Redecorate, put pictures up, improve the house as you please - No 3-monthly house inspections

I'm not saying home ownership is a panacea but it has a lot of positives over renting, both financially and otherwise.

of comparable size/desirability. The thing with a mortgage is, you're likely 'stuck' with the property you have, and so you may be stuck paying more money than you really need to pay. Likely if instead you just were renting, you could rent something far smaller with smaller payments, and be ahead.

> Why exactly?

Because if it is your mortgage, it has an end date. After that your housing costs drop dramatically. If you time it so that your housing costs drop dramatically near the time your income drops dramatically in retirement, it's a good combination.

That depends heavily on your goals. I hear this a lot, but it always reads to me like people think equity just magically happens when you buy a home (with a mortgage). No, you have to put money into it monthly, and a portion of that goes to pay of principal, which builds equity.

Whether or not putting that money into a large, fixed, illiquid asset (versus stocks/bonds) is a good idea... well, it depends. Personally, if I could get an interest-only mortgage with a reasonable interest rate (for my primary home), I would probably go for it. I personally don't care all that much about building equity, and I'd rather free up that cash for other investments.

Of course, many people would use the option of an interest-only mortgage in order to buy even more house than they can afford, instead of for the purposes of freeing up cash, and then end up in dire financial straits, as we saw in the 00s.

Also, re: paying rent vs. building equity: yes, I do have a larger space than when I was renting, but I am also paying more than my last rent, in property tax + mortgage interest + HOA dues. That's money that's just as equivalently "thrown away" as if I was just renting. I don't regret this decision, but let's not pretend that renting is throwing away money, and owning is perfect use of money.

This is not true in most of the formerly booming real estate markets in the U.S. My coworker just bought a condo for $500K in Boston. At 6%, his interest payments are $30K/year, or $2500/month. My friends are renting a similar place for $2200/month.

I've heard it's worse in California, eg. people paying $3500/month in mortgage payments for houses that rent for $2000 or so. The recent Businessweek article on Merced mentioned homes with $3400/month that the owners walked away from, then out-of-state speculators bought it at a foreclosure auction and are now renting it back to the original owners for $1200/month.

> The interest rate for a mortgage right now is a few % points below what the stock market has returned, on average, over the last 50 years.

First rule of finance: any truly risk-free profit opportunities will be arbitraged away as soon as large numbers of people become aware of them.

That's exactly what happened in the 1990s. People suddenly realized that the stock market, on average, returned higher rates than a 30-year mortgage, so they took out mortgages and invested it in the stock market. As a result, the stock market quadrupled between 1995 and 2000. Then they pulled it out of the stock market and back into real estate between between 2001 and 2005.

It's highly unlikely that stock market returns over the next 50 years will match those of the previous 50 years, even with the cratering of the real-estate market.

If you can assume historical returns, renting is a financially superior choice. Well, assuming my math was correct. Both are big assumptions admittedly.

The reason is that when you buy, while you are effectively saving by having your money go towards your home, over the long term on average home prices don't increase.

On the other hand if you invest that down payment, it will compound.

Note that the result is not the same if you buy a place with cash and rent it out to others, because in this case you can reinvest your returns. However if you buy a place to live in, for most people they need a mortgage and their theoretical savings can not be reinvested.

Or in other words, O(c^n) is a superset of O(n) for c > 1.