I’ve heard this argument a lot on HN, and yes it can be argued, there are valid points, but personally I think it ignores some realities. First, the article is pointing out that housing prices are high enough that a growing number of people can’t afford the down payment. Second, for people who barely have the down payment, it takes a lot of discipline (and faith) to park all your money in the stock market and not spend it. It’s one thing when you invest disposable income, and another entirely to gamble your life savings. Plus index funds aren’t always outperforming real-estate, so you can’t base the argument on only the last 5 years. Usually this argument has come in the form of suggesting that the best stock market returns out there exceed real estate inflation, and so you have to be a savvy investor and stay on top of your stocks day-to-day, which is a very tall order for the bottom half of the population.
Okay on top of all that, a down payment is 20% of the cost of a house. Buying the house is perhaps a little more like a leveraged loan. If the stock market and real-estate were to both inflate by the same amount, your investment in a house gets you 5x the return that your down payment investment makes. In the mean time, all the money you pay in rent goes down the drain, whereas all the money you pay into the house above the down payment comes back to you when you sell the house. From my point of view, a house seems like a far better investment, when you factor in the rent you lose. And historically home ownership has been the single most important wealth-building tool for the average US citizen.
It is legitimately concerning that the median house price is so high, and the trend is continuing upwards. Some of the fuss is concern over the future potential of a crashing economy, and yes that certainly will give us bigger things to worry about.
Okay on top of all that, a down payment is 20% of the cost of a house. Buying the house is perhaps a little more like a leveraged loan. If the stock market and real-estate were to both inflate by the same amount, your investment in a house gets you 5x the return that your down payment investment makes. In the mean time, all the money you pay in rent goes down the drain, whereas all the money you pay into the house above the down payment comes back to you when you sell the house. From my point of view, a house seems like a far better investment, when you factor in the rent you lose. And historically home ownership has been the single most important wealth-building tool for the average US citizen.
It is legitimately concerning that the median house price is so high, and the trend is continuing upwards. Some of the fuss is concern over the future potential of a crashing economy, and yes that certainly will give us bigger things to worry about.