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.

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.

I don't really get this. I just recently bought a house. Paying down my mortgage is just a bit more expensive than renting my apartment was. Leases are a year long, I think I could sell my house within that period of time, and we wouldn't need to ask our landlord's permission. Why is a mortgage strictly worse for living off of savings?

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.

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.

A $1000 mortgage, even if variable rate, isn't suddenly going to jump to $2000. I suppose it could happen if this is early in the mortgage (most of the payment is interest and the interest rate suddenly doubles). Unlike rent, interest rates don't go monotonically up, though; they go up and down. Unless it's already at zero, interest has room to go down, too. A mortgage gets cheaper when the interest rate goes down. Won't happen with rent, except in some god forsaken town that is shrinking. (The company closes the mine, and everyone leaves or whatever, and the remaining people practically have to be paid to stay.)

That is to say, a mortgage can get cheaper even if you're living in a desirable place where values are appreciating, because the interest rate is linked to national and global finance which isn't related to the real estate dynamics of your particular neck of the woods. Rents will never get cheaper in a place like that.

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.

Paying off an interest only loan on a property may well be better than renting but it’s more like renting than paying principal + interest.

When you pay off an interest only loan your “rent” costs are your entire mortgage payment.

When you’re paying principal + interest the “rent” is still only the interest portion of your payment.

In both cases you keep pace with the market better than if you’re renting.

If the only way you could avoid renting were to get an interest only loan then that’s certainly a better option.

> Is there a reason to believe that it's a net benefit regardless of the interest rate?

Yes renting is objectively the worst possible financial situation regardless of interest rate (definitely true in Australia, possibly true elsewhere as well).

Unless prices go down and you end up losing a bunch of money (or worse, underwater).

That's the problem, rates and housing prices don't exist in isolation. People don't generally care about the actual sticker price of the house, they care about what the monthly payment is going to be, so lower interest rates imply willingness to bid higher... and the opposite is also true, higher interest rates mean people can't afford to bid as high and sale prices go down.

Essentially, people are locked in at higher principal/lower interest, but now the housing market is moving towards lower principal/higher interest, and that means that a huge amount of housing "net worth" (whether current or future) just evaporated for a lot of people. Your $300k house is now a $250k house again and you just lost all that money you spent years paying down (inflation ain't the only way for value to evaporate).

If interest rates double, then so does the interest portion of the mortgage for new homebuyers. It's not quite double, since some of the mortgage goes to principal, but it'll be almost double. And with the interest rate so low... it doesn't make much in "real terms" to make a big relative increase. I refi'd at... 2.75%? So if the fed raises interest rates from 0% to 2%, that nearly doubles my interest rate. Obviously I am not buying today but other people are, and that still determines the value of my asset.

I suppose it's the old "don't buy the house as an investment, buy it to lock in a rent that you can afford" but it's definitely been worrying me. Thankfully the last few years have put me far enough ahead that I'm not in any danger even with a big dip.

And I suppose the counterargument is that institutional buyers are still making big cash offers, so maybe there won't be that much of a dip. But without the hike, values would have gone higher, it's still a loss of expected value. And the institutional investors aspect of the market is really not a great thing either right now.

There are situations where this doesn't matter. Obviously if you bought with a lot of borrowed money, and home prices drop significantly, and you try to sell while still owing money you may be in trouble.

But if you pay it off (or didn't borrow) you will own the home free and clear. When you own one home free and clear, the price is almost irrelevant. If you measure your net worth in houses as opposed to dollars, you have 1. If you move you'll sell one and buy one at whatever the going rate is - unless you're looking to upsize or downsize the price is not relevant.

What if I held off buying until prices drop?!?! Well, if you borrow nearly the full amount, it makes little difference. Housing as a percent of income has remained unchanged for 50 years (I saw something recently confirming this). In other words, your monthly payments are determined first and then the bank tells you how much house you can buy - which is exactly why prices vary inversely with interest rates.

In the situations above, the biggest problems stem from rate changes during the course of a low equity housing loan that is paid off early. IMHO we need to get back to 10-15 year terms as the norm.

Still, IMHO it is a bad time to buy. Also IMHO interest rates need to be a LOT higher to fix our economic problems, which would mean big drops in home prices still ahead.

That would really surprise me. Everyone I know talks about how much cheaper it would be to buy if only they could afford the deposit.

Most of the time the mortgage is lower than the rent for the obvious reason that when you rent you're both paying the landlord's mortgage, plus their profit.

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.

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.

The analysis from 1, 2, and 3 seem obviously financially bad. Because they stop at a particular point in time. The point of buying over renting, when using a fixed-APR mortgage, is to lock in a monthly rate (that will eventually sunset to only the cost of maintenance and taxes). And peace of mind that only an act of god or being fired will force you to move. This is never guaranteed with rent, unless you have one of those multi-decade leases. And good luck finding a house with a multi-decade lease.

For an investing analogy, buying a house is like buying an annuity. Not buying the market. When a person buys an annuity they are still considered to be "investing".

This is true, but assumes that prices drop significantly rather than merely stop rising like crazy and also doesn't include that if you're renting, you never get that rent back from the period of time you were waiting.

Back in 2013 I was renting an apartment for $1600/month, but my dad made me do the math and I ended up buying a condo about 10 minutes walk away, larger and far higher quality everything and the mortgage was only around $800/month. Even with the monthly assessment fee (for the management company to handle the property and facilities) it was lower than what I was renting for. Just had to get over the down-payment hump.

They care, because when interest rates go up, rich savers buy the dip.

That's one of the biggest ironies when it comes to people shouting that low interest rates make housing expensive. Yeah they make it expensive for those who already have enough money to buy a house outright. The amount of money you are paying on your mortgage in an area with a housing shortage is determined by your salary, not the interest rate.

I presume the context is the United States where a typical loan requires no more than a 20% down payment, providing 4:1 non-recourse leverage, with 3-4% interest. Outside of home mortgages, that sort of sweet-heart financing is only available to the very wealthy. When you factor in retained equity, at the end of the day, unless mobility or liquidity is exceptionally important to you, buying absolutely makes sense for the vast majority of Americans who can afford it. The home mortgage interest tax deduction is just icing on the cake.

That housing prices don't appreciate as much as the stock market is not dispositive. Now, once you already own a home, then of course the fact that the stock market provides higher returns matters for subsequent investment decisions. The calculus of residential ownership isn't nearly as favorable for non-owner-occupants. For small-time real estate investors banks offer you less leverage (3:1 or worse), higher interest rates, and your risk exposure is greater because you're purely speculating--whereas with owner-occupier you were presumably going to be living in that market, so you're only marginally speculating.

The situation is different in many other parts of the world with different socioeconomic policies (e.g. expensive mortgages, high down payments) and real estate markets (e.g. more common for housing to depreciate in value), but that's irrelevant to the U.S. You can't say whether owning makes sense or not without accounting for all the opportunity costs, which can vary widely. But in the U.S., generally and historically, buying a home adds up. Maybe the U.S. is worse off for incentivizing homeownership, but it is what it is.

Actually, you're paying somebody who also might be paying interest on a loan. What happens to money after you pay it is immaterial. You're not paying interest on a rent debt you've accumulated.

> The point is, a mortgage creates leverage and it's silly to ignore that when thinking about return.

You're spinning it in terms of pure rewards. When you leverage your money on an investment which can have value go both up and down, you're just magnifying your exposure. Of course, if you can find an investment that's guaranteed to go up, of course you should leverage yourself to the hilt. If that's the case, go buy up some tulip bulb.

> This is speculation by you. Again: note how many resumes keep college on them.

And also by you - if we did an A/B test based on years of experience vs college, we can see whether that matters or not. Everything else is speculation.

> you think that salaries for people with degrees grow more slowly than for people without degrees.

Of course they do. If you start off earning 30k as a high school dropout doing the same job as somebody earning 60k who has a degree, your wage will rise more quickly if you perform at the same level.