The article talks a lot about mortgages. How does the math work if you pay in full at the time of purchase?
you divide the amount of money that it costs by the amount of dollars you would pay to rent something like that per month and then figure that’s how long it’ll take for you to look at a duck instead of a chicken
Then add a few years, since you’ll be the one paying to replace wear items like roof, carpets, and appliances.
That’s true in general. And if you assume a perfectly efficient market, yes, renting would never be cheaper than buying. On the other hand, if markets were perfectly efficient, no company would ever be able to make a profit at all.
One market distortion is that in certain times, people will actually pay a premium for renting. People aren’t perfectly rational actors. Or moreover, they prioritize things beyond just simple cost. Even if buying is more expensive that renting, all costs considered, often people will pay more just for the stability and certainty that comes with home ownership.
The housing market is also distorted by all the present owners with locked-in 30-year mortgages. This has suppressed the supply of existing homes on the market. Rental companies don’t get access to federally-subsidized 30 year mortgages, so they are less subject to this interest rate lock-in.
I pointed out a few things, but these are a few of many. The key thing to realize is that housing is highly illiquid, and its production, ownership, and sale is heavily regulated, taxed, and subsidized. It’s a heavily regulated market. This means that the market will not always follow basic econ 101 behavior. Yes, in theory, rentals will include all costs. But that is rarely the case.
In fact, in a perfectly efficient market, it’s likely that neither buying nor renting would be beneficial. If everyone acted perfectly rationally all the time, the cost of renting would exactly equal the cost of buying. And in that world, buying would never be worth it, simply because it wouldn’t be worth the extra hassle to safe not a single penny.
Renting could never compare to owning, as Equity is the biggest source of wealth for the middle class in the US. Not owning equity to pass on to your kids is one of the worst mistakes you can make. IF you can afford that sort of thing.
Leaving out the last sentence in your quoting does a disservice to what they were pointing out.
They weren’t saying anyone deserves to be poor. They weren’t saying that real estate being an investment is ideal or how it should be.
The housing market is historically, currently, and prospectively an investment, and one of the only high-return, low-risk investments available to the middle class. If you can play that game and don’t, then you are making a mistake, especially if you have kids.
Equity is pointless when your $30,000 roof and $20,000 HVAC break at the same time and you’re taking out a 20 year home equity loan to replace them. (And good luck with the $70,000 windows.)
How have we screwed up as a society, much less species, when shelter is seen as a financial investment rather than what it is, a thing we literally need to survive?
Raising your kid(s) right is better than passing any monetary wealth on to them. If they grow up knowing that they’re set and will inherit your money/house, they may get lazy and just depend on that wealth. That money will be gone after the 3rd generation.
Your parents zipcode is the best indicator of your success in life. We don’t live in a merit based situation. This isn’t up for debate. Most Americans get most of their wealth as the equity their parents owned that they got from their parents all the way back to the homestead act. My FIL has a nice house. His dad bought it for him with a home equity loan. He bought at least three of his kids homes with home equity loans (no not the one I married) he still owns that home, and his kids do too, and their kids will probably have their parents help them with buying a home. That’s the majorly of net worth of all of these people.
