It's not as simple as that. Home ownership can be a lucrative investment long-term, it depends on many factors. When property values appreciate a lot, as they have been recently, home owners have done very well.
The recent rate of appreciation is not typical. Homes generally appreciate at 3-4% per year. Subtract from that taxes, insurance and upkeep. They’re a terrible investment unless you own rental property, at which point your tenants are paying down the loan.
So, the alternative to buying, which is a terrible investment according to you, is renting, where you pay down the loan of the landlord. That’s better, how?
I didn’t say you shouldn’t buy if you need a place to live. I said they’re a terrible investment. Also keep in mind that while you may be paying down the landlord’s loan when renting, you are also paying a massive amount of interest when buying. At today’s rates, you’ll give the bank $565,000 in pure interest over 30 years to borrow $400,000, making your total outlay $965,000. Either way, a large amount of money is going up in smoke.
This opinion doesn't take into account the optionality of the mortgage and the opportunities provided to the borrower. American mortgages generally allow prepayments - if the value of your house increases rapidly, you can sell, pay off the mortgage, and pocket the profit. You can pay additional principal at any time to reduce interest payments. If rates fall, you can refinance. If the economy is great, you're borrowing at 7 percent while your investments are earning 10+.
If the value of your house rises rapidly, you cannot just sell because then you have to buy another house to live somewhere, which has also appreciated. See the other comments about this.
Not if it's an investment property, which is part of the reason real estate isn't, as the OP states, a "terrible investment."
Further, your claim isn't universally true. You could rent for a while, you could downsize to a smaller house, you could move to a location which hasn't experienced as dramatic price growth, or just an overall lower-priced region (i.e. Californians moving to Texas, Nevada, Montana, etc)
It’s not. This trope is repeated on this forum all the time.
Some people prefer the freedom of not being stuck in one place. Super duper. That’s excellent, they prefer renting.
Trying to convince the rest of the world that it is a sound financial decision in lieu of buying a home and establishing equity is where the argument over “renting is better than buying from a financial perspective” falls apart and the absurdities start getting thrown about.
Its heavily market-dependant, but assuming rent expenses = the cost of interest, from a financial perspective they are close to equivalent. If you take the money that would be paying off the mortgage to invest, you should be in a similar financial position at the end.
1-1 compariaons are hard, though, because in practice houses are huge levered bets on a RE market, so they can have huge returns if chosen well. Those are usually the kinds of markets where rents tend to be lower than the mortgage payment, however, so things might net out more even than you'd expect at the end.
Depends on the country I guess. Mortgage interest in AU is not tax deductible unless it's an investment (ie. owner-occupiers don't get a deduction). Consumption is not generally tax deductible, was my understanding (and living in a house is basically consumption)
