I agree that house prices should come down.

But given that you need a home, what's the difference between $1000 in rent+fees and $1000 in mortgage+taxes+fees?

Normally the biggest difference between renting and buying with debt is that you can stop renting. But you're not going to stop having a home.

my landlord friend told me, many of her tenants earn decent salary, definitely more than her income, they can even spend $8000 or more to remodel a car or things like that, but can never save up to the 20% down payment ever.

> spend $8000 or more to remodel a car

> can never save up to the 20% down payment

something tells me those two things are connected

Well, at that rate, one could not remodel 15 cars and maybe have enough for the down payment on a studio in some markets.

Or one could remodel a car and give up on home ownership, because it seems like a losing idea atm, and they'll have pursued something they find fruitful for the time being. At least they'll have the car in common with their boomer neighbors.

    > remodel a car

What does this mean?

Restore a classic or like high performance (or other) customizations.

This truth has come up quite a lot lately in conversations. It's not just the down payment though, it's like ok first I get together $120k for the down payment, then I'm on the hook for potentially double the already obscene amount the same place would cost to rent for the mortgage payment, then utils, then repairs, taxes (almost like one would need to be a landlord to afford it). Like, pass, ~$4k+ a month is more than I'd prefer to be on the hook for, and that's just a mediocre 1 bedroom condo. Doesn't help that there are no viable jobs or enough stability to ride out any volatility now that you've drained your savings on the mortgage.

Instead, a modest trip and a few gadgets is wildly less compromising and stressful.

> then utils, then repairs, taxes

Remember you're paying for all these costs (+ landlord profit) when you rent.

Right now in many places we're in a bit of an inversion where you can rent for less than the cost to buy - because some owners have old properties with low mortgage rates, etc.

But the main deal is people are still in "appreciation mode" where they don't really care if on paper they're losing money, because the house is appreciating faster than that.

Once appreciation slows or dries up (or prices start going back down) then things will get suddenly interesting.

We pay whatever they can get away with charging or increasing it to, and often have the standard utilities rolled into the number, which generally seems favorable. I pay rent, insurance, and Internet, rhe rest is rolled into to a max 2% increase per year. If they tried something excessive we'd start looking elsewhere.

My view has always been that buying gives me price stability. $1000 in mortgage + taxes + fees is only going to change by a hike in taxes but rent changes at the whim of the market. Here in my west coast city, the mortgage on a 4 bedroom house purchased 10 years ago is the same as a 2 bedroom apartment today.

Just a minor nit pick, but important: When comparing the costs of renting vs owning, you need to compare rent+fees to mortgage_interest+property_taxes+fees, minus any real estate tax deductions (if you itemize). The principal portion of your mortgage payment is not an expense, it turns into your own home equity so it's money coming out of one pocket and going into the other. The interest portion is generally federal tax deductible, and your property taxes as well (unless you hit the SALT cap which hopefully expires after 2025).

    > it turns into your own home equity so it's money coming out of one pocket and going into the other

What if house prices are falling?

Your home equity = your property's value minus your loan balance. So even if that value is currently negative, every dollar you pay towards principal increases it. It's not an expense.

Your expense is that you've hitched yourself to an oversized loan, so you're putting money from one pocket to another, except the latter has a hole in it and you have an obligation to keep feeding it. If your cost was only mortgage interest, you'd be happier with 600k outstanding at 1% than 300k at 4% for the same house.

> Just a minor nit pick, but important: When comparing the costs of renting vs owning, you need to compare rent+fees to mortgage_interest+property_taxes+fees, minus any real estate tax deductions (if you itemize). The principal portion of your mortgage payment is not an expense, it turns into your own home equity so it's money coming out of one pocket and going into the other.

You need to compare both numbers, because that equity doesn't do much to help you make your payments.

Sadly the case in a lot of places is the difference is control over your environment, or simply stability. In a lot of places your rights as a renter are so bad you can basically do nothing to improve the place you live, and even if you were allowed you would be foolish to do so because then your landlord could just kick you out or hike up the rent (and might just do that anyway). (where I live even multi-year tenants are frequently forbidden from putting up pictures on the walls, let alone repainting them, FFS). In places with proper rental rights, rent vs buy is a lot less clear-cut, especially if prices don't have much room to go up any further (buying only looks like a non-brainer financially in the past decade's environment of extreme price increases, or if you fail to consider opportunity costs. Even if you can afford to buy a house, it's not necessarily the best use of your money, but the non-financial side can be a really big part of why people go for it anyway).

Where is anyone forbidden from putting up pictures on the walls? 99.9% of residential rental contracts just state that the dwelling has to be returned in the condition rented. Go ahead and paint and put holes in the walls, just be sure it’s repainted and patched when you move out.

Right, I was talking about the financial aspect, not the quality of life.

It's more typical to think of 'affording' in terms of your expected lifetime income, and this is generally a good predictor of people's spending habits. Lending generally enables this. Avoiding debt entirely is a very risk-averse strategy. As ridiculous as house prices are, they are still generally affordable for many (and whether renting or buying is a better overall financial decision is dependent on many factors which depend on your location, how long you expect to own the house, and your risk profile for real estate vs any other kind of investment. Factors like rental rights can also factor pretty heavily).

Why is avoiding debt a risk averse strategy?

I actually do a lot of high risk investments with a small percentage of my net worth -- bitcoin, options, you name it. But I do it with hard cash to my name. If I lose a chunk of that I don't owe anyone anything.

I just never thought spending someone else's money and then owing them was even anywhere close to my moral radar of things I would do.

The only one time I took a debt is for a car when I had the cash to buy it but it was 2022 and I took a loan at 2% and put the balance of the car in treasury and municipal bonds at ~5% and paying back the loan slowly while selling off the bonds. I wouldn't take a loan if I didn't have the money. Before I could afford a car I just rented cars.

> Why is avoiding debt a risk averse strategy?

Note that they said avoiding ALL debt.

For example, my student loan collects interest at a rate of 2.9%. Therefore, it makes sense to maintain that debt if I believe (and accept the risk) of making an investment that pays back a rate of 10%.

Financially it might make sense to keep that debt, pay the minimum and invest cash into let's say an index fund.

If you have a hardline stance that you NEVER want any debt, then you are basically saying you're highly risk averse (at least when it comes to ending up in the negative).

because the risk with debt is not being able to pay it back - and you are paying the lender for their side of that risk (generally paying less the more of that risk falls on your side, like secured debt). It's a service they are freely offering (and in fact benefits them disproportionately on average), I don't see how it's a moral issue at all.

The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something.

However, the most basic clean-and-functional versions of basic necessities (food, water, shelter, and transportation) should be accessible to everyone working a full-time job, in my opinion, without having to spend other peoples' money.

3 out of those 4 are attainable even with a low-paying job, it's really just shelter that is the problem.

Do you believe that taking investment is immoral as well, then? That access to resources should be entirely based on past work/achievements, with no judgement applied to anything to be done in the future? That does seem to be the standard you are applying to yourself, at least.

(And again, I do agree that housing is incredibly overpriced in much of the world, it's just that debt vs not doesn't have much to do with it. The high price of mortgages is the same reason the rent is high, and the rent being too high is a problem even if it doesn't involve debt)

Investment is different. In the worst case scenario business goes bankrupt, which usually means you shut down the entity, sell off the assets, and everyone including the owners just go off and gets new jobs and live happily ever after.

Personally going bankrupt means you're now facing the possibility of actually being homeless on the streets.

    > housing is incredibly overpriced in much of the world

Can we please stop this on HN? No, it isn't -- "much of the world". It is overpriced in tiny areas (with incredibly vibrant local economies) of very wealthy countries. Even if you leave Paris, 25+km outside of the city, the property is suddenly reasonably priced. Same for Berlin. (Forget London!) Same for Tokyo. Same for Milan. Also, mostly we have our parents' generation to blame for outrageous house prices in these tiny areas -- they consistently supported and voted for NIMBY-friendly policies. The solution is "simple", but, politically, very difficult to implement: Make housing a human right, not a casino.

> The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something.

There's a difference between having money and earning money. If you find $20, are you therefore $20 more deserving? If you are mugged and the thief gets $100, does that make you $100 less deserving?

There are plenty of people who have lots of money through no good deed, and plenty who have little through no evil deed, and I think confusing monetary holdings with morality is a very poor road to go down.

Just to throw in a thought on this..

I agree that "meant to have" and "deserve" are the wrong concepts here. But reality and practicality are what they are.

If I work hard and save my earnings, with the intention to buy something which we agree is a "valid" need/want (whatever that something is), and then lose the money through some circumstance that we we agree is "not my fault", that really sucks and I don't claim that it affects how much I "deserve" the thing (whatever deserve means), but the reality is that I now don't have the money to buy that thing. Am I going to now borrow money because "I worked hard and I deserve it"? Some would, others wouldn't.

> The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something.

You're thinking of debt as a consumer. Like, take a personal loan or credit card debt and buy a big screen TV. Yes, that's dumb.

Not all debt is like that. Picture this scenario: Your bank pays 5% interest on deposits. You're offered a loan from somewhere for an interest rate of 4.9%. It is a no-brainer to take that loan, go into debt, for as much as possible! Deposit it into your bank account and profit each month. If the rates change such that the bank pays less, just pay off the loan.

Now, sure, that's a simplistic scenario since nobody will offer you a loan for less than the banks are paying interest right now. But with time being another variable, you can manouver yourself into that situation. Right now my bank pays more interest than the percentage I pay on my mortgage balance. I'm literally making money every month by having debt. It would be very dumb to pay off that mortgage debt even though I have the cash to do so.

No brainer may be pushing it... At a minimum there is duration risk and other various terms in the note where this breaks down quickly.

Banks do this all the time and some often fail.

>As ridiculous as house prices are, they are still generally affordable for many

What? Technically this is true because “many” people already own homes and can use that wealth towards another. However, when talking about the unafordability of homes the target market being discussed should be first-time home buyers (unless you have an investment podcast or something).

In my HCoL bubble the only people I know that can afford their first house are high-income DINKs, or living 30mins outside of the city, or have a high-paying remote job and can relocate to a LCoL area with its own drawbacks.

Yes, you do live in a bubble. 65% of US families own a home.

https://www.statista.com/statistics/184902/homeownership-rat...

Most cities aren’t San Francisco and New York City. Even in both California and New York, there are many areas with affordable homes for single income families.

I did mostly mean it in that weasly-way. My main point is that if you can afford the mortgage, you can afford the house, you don't need to be able to make a cash payment for it to afford it. Housing is for sure becoming very difficult to afford even by that definition in a lot of places (and it's not particularly reasonable that even if you can, that housing should take up such a large fraction of your lifetime earnings).

> I never understood buying things that I can't afford.

I think even if you choose not to use debt as a mechanism, you should understand why it's used as a mechanism, much like the parent comment has. Debt as a mechanism is not a bad thing - there's ample proof out there that availability of credit is an extremely strong indicator of future economic activity at the macro level.

It's fine to expect some people to buy a house with cash. I don't think that precludes saving for many years to do so (meaning the median income doesn't need to be $1M/yr).

Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there, unless median income is close to ~1M by my back-of-envelope calculations, which include:

- taxes (1M is close to 500K after taxes)

- money that you need to cut out and put into retirement to sustain yourself from age 65-100

- living expenses and rent until you buy

- real estate prices rising the whole time

Which is why taking on debt to buy property is often a good option - you lock in prices, then they rise. Where I live, house prices double in value every ten years, quite reliably. Recently, it's been faster. In ten years, you're paying rent on a $2m property while someone else is paying down a $500-800k loan (using your example figure).

> living expenses and rent until you buy

Which will of course be stratospheric in a world where median labor costs $500 per hour.

> sustain yourself from age 65-100

Fortunately my life expectancy has dropped in the past few years!

    > Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there

Where? In many, many highly developed countries this isn't true.

    > 1M is close to 500K after taxes

Woah. Where do you live where effective income tax rates are 50% for 1M+? Please don't confuse marginal ("headline") vs effective ("actual") tax rates.

In San Francisco if you make $1M as a W-2 employee your marginal tax rate is ~53% and your effective tax rate is ~47%.

If you make $1M on your own the rates are even higher.

(That's not including the 10% sales tax you pay on almost everything you buy with the money you have left, property taxes on property you thought you owned, property taxes landlords financially pass onto you as a renter, etc.)

Property taxes are the only thing in California that are pretty mellow given prop 13. Well, unless the property was just turned over.

Don't worry, the home prices in SF are still much cheaper than Sydney or Hongkong.

I'm in the same spot. I'm in the middle class, I've been renting for years, and I refuse to go into debt by taking out a loan for a house. This is a societal failure.

A mortgage as a tool is available to you. If you refuse to go into debt, is that societal failure? Affordability of housing is a serious issue, but I'm not sure expecting to buy property without debt is necessarily so.

It seems like a self-defeating position to take?

> I refuse to go into debt by taking out a loan for a house

But you are renting.

While renting isn't debt, it can be helpful to think of it as debt you have to pay every month (unless you plan to be homeless).

So you have 12N (where N is the number of years you think you might still live) of rent debt payments that you are committed to pay. If you transform that into mortgage payments, at least you're building equity. And it will only be 1230 payments (given a 30 year mortgage) so it is a bounded number unlike 12*N.

Not really, you can get out of paying rent easily, usually the maximum penalty is one extra month of rent, which won't break most middle class people.

It's not that simple to sell a house, and if real estate prices crash you're still on the hook for the several hundred thousand dollar difference.

> Not really, you can get out of paying rent easily

And then, what?

Unless you have a backup plan which allows you to live for free somewhere, you can't get out of paying someone for it. Whether rent or a mortgage.

For housing, it is most useful to plan long term and consider you have a lifetime of housing payments coming up. How can you minimize that lifetime total?

I think halal mortgages are instructive on this point. To be clear, I’m not Muslim nor a lending expert, I just think it’s a really interesting setup.

As I understand it, sharia law forbids paying interest, so a conventional mortgage is not an option for adherents. However, several different mechanisms are allowed by which the purchaser gradually gains full ownership of the home. E.g. one is roughly equivalent to a rent-to-own agreement. The financier still gains a profit that reflects the risk their upfront investment is subject to.

What I find interesting is a recognition that some people need a lot of time to attain homeownership, and it may be valuable to let them live in the home before they fully achieve it, despite the outright rejection of lending as the mechanism.

Well damn, can I just take out $10M in personal loans, tell them my religion doesn't believe in paying interest, buy Treasury bonds with it, and live off the interest?

If you find someone who lends you 10M interest free sure

I agree. I think current economical "norm" of having debt is made for purpose by states and banks. Because when you have debt, you will be more obedient citizen, always voting in favor of system that gives "benefits" of using money that you don't own. With price of loosing our freedom with every new regulations.

> I never understood buying things that I can't afford.

For most things, that's a wise philosophy. Going into debt for something that depreciates like cars or furniture or electronics, is not wise.

Housing is different though for several reasons. One is that you must live somewhere. So (unless being homeless in an option) you have to pay for housing one way or the other. So you either buy (build equity) or rent (a pure expense). Another reason is that a house may (often does) appreciate in value so you're leveraging that debt to make money. Even if it depreciates, it hardly ever depreciates faster than paying rent. Another reason is that rents always go up, a mortgage locks in your cost for the next 30 years.

You can think of a mortgage like renting a house from your bank.

Or a bit more precisely, for the time the mortgage is running, you and the bank are essentially co-owners, and you rent the share you don't own from the bank (that would be the interests) while at the same time, you buy the bank share bit by bit (that would be the principal). At the end, you become a full owner and stop paying "rent" to the bank.