7% long term stock average in the past doesn't mean the future
3 condos I bought in the 2007 downturn are appraised at double today, much higher rate of appreciation than inflation...
Of course past doesn’t imply the future will be the same , but I used long run averages for both stock market and housing market , so it’s fair .
A 5/1 ARM that changes rates after 5 years is a product you can buy, but it would only be used in niche scenarios.
I understand it is not like that in most other countries and I'm not 100% sure why. Something to do with the federal government backstopping most mortgages I think.
Just goes to show you have to do the non hand wavy version of this for your actual situation ; my broader point stands though.
I literally just closed on a condo last month and got a 30 year fixed rate jumbo mortgage at 3%.
It’s not perfect but it’s reasonable. It may free up some other money in the house case , which you could use to make up some of the difference. Or that might get eaten by rates.
US home maintenance seems high though - roof repairs are a known thing for some reason. In he U.K. I live near an estate of thousands of houses all 50 years old, I can’t ever remember seeing one being repaired.
But yes, the mortgage rate is fixed in the US, your mortgage payment doesn't change, your wages increase at least with inflation, and relatively speaking the mortgage gets cheaper every year. Rents on the other hand, tend to adjust with inflation. The breakeven point is about 3-5 years as it happens.
If that's your investing thesis then obviously the expensive coastal metros make no sense. These prices reflect a history of excellent returns. It costs a lot more to own than to rent - people are paying to be landlords! Clearly they're doing this in the expectation that appreciation will make up for their losses.
Look obviously the details matter - we can cherry pick cases in either direction that “won” or “lose”.
The point is more that the sentiment in OP is common but wrong, it’s not obvious. One thing I didn’t get into is US specific but often it’s the mortgage tax credit that makes it worthwhile but again, it depends ....
Let's do the math. Nobody is getting a 1.1million mortgage for 3k/mo, so let's pick something conservative but more realistic.
According to zillow, for a 3k/mo payment you can get a 520k loan with a 20% (130k) downpayment, 30 years with an average 3%. You'll be lucky to keep it to 3% for the next 30 years but we'll let that stay. This 3k/mo payment includes estimated property taxes etc., but no home maintenance costs - there's going to be 50k or so of that over the 30 years.
So after 30 years, you've got a 650k house + whatever appreciation it has over that time, minus the 50k expenses. Historically house appreciation is about the same as inflation, so if we stay in today dollars that washes out. After 30 years, you walk away with 600k (todays dollars). If we pretend it won't cost you anything extra, 650k
What if you stayed renting and invest that 130k? Stock market long term average is about 7%, net inflation about 4%. So lets use that, I'm cheating by stating in 2021 dollars and you just keep investing the $500/mo difference.
Take 130k today, invest for 3% with a 500/mo contribution for 30 years.
Result is: $601,000 (again, sticking in today dollars as i've zeroed out inflation)
Do the same thing at 4%: $760k
Base on historic market, you're likely somewhere in between. Looks like it's not a huge difference, which shouldn't surprise you. This means that pretty minor differences in your life circumstances can push you one way or another, but nothing is obviously compelling.
(Ok one thing jurisdictionally dependent I didn't mention, there can be tax implications of this or not, depending on where you live. Ymmv.)