Comment by codegeek | Hacker News Reader

Comment by codegeek | Hacker News Reader

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Housing may not depreciate like cars but it doesn't always appreciate at the rate in many areas that justifies keeping it with all the costs. In my neighborhood (with a decent school district and safe/no crime area), housing market has appreciated like 3-4% at best in last 7 years. I like living in my house but looking at it purely from an investment perspective, the returns are terrible because If I sold it today, I don't know if the 3-4% gain would be enough to offset the costs of repairs/taxes etc. that I have spent in last 7 years. And I live in NJ, the highest taxed state in the nation when it comes to property taxes. Sure I could stay in another 5-10 years to find out if appreciation rate goes up but it is more of a gamble then since I am spending tons of money every year to maintain the house in addition to mortgage payments.

Housing is NOT always a good investment from an economic perspective. It depends on the location, market events and most importantly what price you bought it at.

> If I sold it today, I don't know if the 3-4% gain would be enough to offset the costs of repairs/taxes etc. that I have spent in last 7 years.

Sure, agreed, but let's think that through a minute. So your housing has 'only' beaten inflation by ~25%, and that if you sold it today, you would have 'only' gotten 7 years of effectively-rent-free living?

Imagine if you had actually had to rent a house during that time. I don't know what rates are in NJ, but you would have spent about $1200/month in rent (or ~$100k over 7 years) to have done something like that in Michigan.

The common "bad" scenario I hear about is one like yours, where you got 7 years of housing, and the appreciation "only" covered almost all of that maintenance/upkeep, but didn't also cut you a free-money bonus check on top of it.

That's where the "housing is always a good investment" line comes from. Yes, you had to take out a loan and front all the other money out-of-pocket yourself (and not everyone can afford to do that). But if you get it most-to-all of it back when you sell the house, then even in your "bad" example, you came out ~$100,000 ahead of any regular person who had not owned.

Whoa, there! Not so fast. In addition to things like home insurance, maintenance, etc, there's opportunity cost on the (I'm guessing?) 20% down payment. If GP had invested that 20% in a broad-market index fund over the past 7 years, I suspect it'd have grown a hell of a lot more than $100k.

If that was an option, sure absolutely. I've never met a person who could actually afford a 20% downpayment recently (5% downpayments are common here in Michigan, for real humans buying houses in the past decade or so).

But yes, if you are wealthy enough to afford a 20% downpayment on a house, you are wealthy enough to potentially have opportunity costs from other investments at your disposal. Agreed.

The irony of the lower down payment? It increases demand; which obviously increases price.

So they are able to afford what they normally can't afford because of the tool (i.e., lower down payment) which helped make homes unaffordable.

I actually put 20% down 7 years ago on the house and I can tell you that if I had invested that downpayment purely in index funds, I would have a lot more cash today. So again, housing was not a good investment from an economic perspective. I bought it for my children but I look at it as a major expense and not investment.

if you were less risk adverse, it's possible to pull equity out of your house and have that reinvested in stocks, and continue paying the mortgage (and may be work out a way to make it tax efficient, like debt recycling). Then as long as the stock market out-performs the debt cost (which is likely), you win out ahead by quite a bit more.

How would you pull equity out of the house other than doing things like HELOC ? HELOCs have huge interest and doesn't make sense to take that money and reinvest unless you know how to play the risky games like options trading etc.

with a variable mortgage loan, a bank usually has a product called an offset account. When you pay back the principle, this offset account grows. It acts like a line of credit, and the max size is the value of the loan.

So essentially, it is a HELOC. But it's at the same rate as your home loan, which is usually quite a lot lower than the margin rate if you borrowed to buy shares. Of course, this offset loan cannot go higher than the equity you've already paid back, so unlike a margin loan (which can go up to 10x!?).

> effectively-rent-free living?

Not in NJ. Property taxes quickly eliminate any illusion of free. Factor in maintenance, including time, and you're barely breaking even.

Owning provides a sense of stability and community. But investment in many areas is highly overrated.

People might be singing a different tune in a few decades when the ground flood of their buildings are taking on water from rising sea levels and economic activity is ceasing due to environmental effects.

It’s a very idiosyncratic risk you’re taking buying a home. Looking at a primary residence as an investment is silly in my opinion. Treating it as consumption makes more sense.

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