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lolubuntu t1_irlypt8 wrote

Reply to comment by PryomancerMTGA in [OC] House price you can afford by paying 1000/month for 30 years vs. interest rate by hmiamid

https://www.inflationtool.com/us-dollar/1970-to-present-value

25 x 7.7 = 192.5

So overall while the nominal price is up ~16x, the 'real' price is only ~2x higher after factoring in inflation.

Yeah, 400 is worth more than 200, but it's not night/day different. You would likely end up in the same (or better) living in a small place and tossing A LOT of money into stocks. The DJIA was at ~750 in 1970. It's presently at ~30,000, which is 40x higher.

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PryomancerMTGA t1_irm0ewh wrote

First a technicality, home ownership is a leveraged investment that also provides several tax benefits that offset Dow index investments advantages. So it wouldn't be calculated a a 2x roi over the time period and was likely cash positive relative to renting before they sold it.

Second and most importantly, would you really advise a couple parents to rent rather than own? Home ownership and paying a mortgage has significant advantages over renting.

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lolubuntu t1_irm3zb7 wrote

>First a technicality, home ownership is a leveraged investment

You can leverage stocks as well, though not as aggressively. Though calls are a thing.

>that also provides several tax benefits that offset Dow index investments advantages. So it wouldn't be calculated a a 2x roi over the time period and was likely cash positive relative to renting before they sold it.

Depends on income.

If you're in a lower income tax bracket (under $160,000) it makes less sense because the tax benefits are lower.

If you're high income and in a state like California, it makes more sense as your marginal tax rate is around 50%.

BUT this assumes that owning a house has 0 impact on income. There are studies showing that when controlling for education and a few other factors, home ownership reduces income. People are less likely to job hop. "look I saved $100k on rent the last 10 years" sounds kind of stupid if you missed out on $500k in income AND you opted for 2-4x the square footage you otherwise would have... and you spent half your free time mowing, cleaning gutters, painting, etc.

Also, taxes ARE a thing. Using a 1.5% tax rate each year, in the short to mid-run you can end up paying almost as much on property tax as you would on rent overall in A LOT of places.

This also applies on the back end if you ever try to realize appreciation as well, though there are SOME exceptions to that if you lived in a residence 2/5 years.

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PryomancerMTGA t1_irm4vdc wrote

That's a really interesting point on home ownership having a negative impact on income. That's a really good point.

I wasn't aware of anywhere that had property taxes equivalent to rent. I'll have to look into that.

As you have pointed out home ownership decisions can get complicated. It was the right decision for them, but I'm the current market with avg home prices in the $500 k range and mortgage rates like they are maybe not buying makes sense (Dow scares me now too).

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lolubuntu t1_irm7r8v wrote

Don't get me wrong, I wouldn't mind going back in time to 2020 and tossing some cash down and buying a house. Timing the market is hard though.

Home ownership as a FORCED savings plan has some benefits though - namely that it forces undisciplined people to toss $$$ into something other than new cars and booze.

It's just that all BS considered it's often a wash vs just putting money in an index fund.

And you would likely end up ahead, living in a tiny shoebox apartment and chasing $$$. 5 years at a FAANG banking (net of taxes) $100-200k a year is enough to basically buy a house, cash.

Home ownership is kind of fetishized at this point. It feels almost like the same level of circle jerk as it was back in 2006... though I could be off.

I'll probably buy a house when I'm sick of the rat race and decide to semi-retire (aka have enough $$$ to retire outright but want more spending $$$, something to do and the prestige of being a "semi-retired 30-something year old college professor" over just being unemployed).

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