There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"
Meanwhile housing is an amazing handout to the middle and upper classes through the 30-year fixed rate mortgage plus the mortgage interest tax deduction. Inflation increases rents, but the fixed-rate mortgage never increases. One of my property's mortgage is now only 40% of the rental rate after 8 years of inflation. It's like an annuity with an automatic inflation adjustment - I'm going to get rent until I die, which always goes up as the cost of living increases.
> There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"
I think you're stating the sentiment wrong, as someone who did and still does to some extent sympathize with it. The default view in American personal financial discourse has been that you need to buy a house. The heterodox view to which you're referring was that renting and investing is not obviously worse than buying a house. I don't recall any widespread view that you would come out way ahead by renting.
And, to be fair to that viewpoint, compared to buying a house outright, you would have been better off keeping your money in the market and renting over the last five years! S&P is up 91% over that period, and that's not even the total return index! Housing is up quite a bit, but in most places it is not up 91%. I sold a house in the Bay Area around five years ago for around $2.4M, and Zillow is telling me that it's now worth a little over $3M. Zillow could be off by a few hundred thousand in any direction, but I doubt it's off by $1.5M.
What the viewpoint fails to consider is the availability of extremely cheap leverage for houses. If housing does go up, and you have a 4:1 debt to equity ratio, then your appreciation is 4x the asset appreciation if you're at the beginning of your mortgage. If you're the person who bought my house, your $700k of appreciation on a downpayment of $500k is a 140% return (before transaction costs). Of course, if housing ever goes down . . . well, we all remember that well enough.
All in all, I'm not sure the case is closed on the rent and invest vs buy issue. Things look very favorable for buy over the last five to ten years! There is no question about that. However, I personally am not sure how to adjust for the risk associated with the increased leverage you use when you buy. I don't think it's an apples to apples comparison.
Property is probably a larger percentage of my portfolio than most people. You can get screwed on renting too - sure, you can always move, but moving sucks and I like stability. I have super-safe investments and insanely risky ones, and I'd put property much closer to the safe side than the risky side.
The bottom line is, in a truly free market I think housing would be a way less-good mechanism for investment. In our subsidized, zoning-restricted, NIMBY world housing can be a very good investment.
You act like home-ownership isn't an absolutely essential part of the economy, or like driving roughly half the population from their homes is not an undesirable thing?
Of course there are compelling financial products which incentivize home-ownership. It's massively important for homeownership to be possible for as many people as possible.
Homes are extremely expensive, but the down payment really isn't a problem, relative to the time and expense of keeping the damn thing running. The down payment continues to be reasonably proportional to home much money needs to be in place for someone to control the equity at stake.
What you're actually asking for, I think, is for home building to be subsidized, in order to drive down the construction and sale price. Because it's not like home builders are earning 50% margin on these structures, the reason house prices rise is because prices rise.
The reason home interest prices are low are also because prices rise, meaning risk at long timeframes is negligible. The only crucial point is to make a squeeze impossible and you can ride out anything - hence why it's so important for government to back-stop it, because if you can squeeze the US dollar we have bigger problems.
I'm not asking for anything - I'm stating that because of the government, buying housing is artificially propped up and is advantageous as an investment. I would support removing market-warping incentives that make me richer at the expense of others. But for various reasons I seriously doubt that will ever happen, so if you have cash to invest owning property should be some part of your portfolio. Active management takes effort which a lot of people don't want to do - I don't mind it myself - but good cities with healthy rental markets are attractive.
There is a long list of things that the government messes with. As an investor you should keep an eye on the political winds and what is favored for reasons outside of market forces. 1 to 5% boost per year compounds significantly.
The mortgage tax deduction is really hard to take these days given the increased standard deduction. I’ll try again this year, but unless I have something else to itemize, I’ll probably stay stuck with the standard deduction.
Being a landlord can suck even in a good market. If it were easy and risk free, everyone would do it.
> There was a popular internet sentiment ~10 years ago where everyone was convinced renting was superior to buying. "Invest the extra cash in an index fund!"
It’s clearly market specific. I bought a house 3 years ago, house is up ~15% but I would be ahead if I just put the down payment into the market instead.
Meanwhile housing is an amazing handout to the middle and upper classes through the 30-year fixed rate mortgage plus the mortgage interest tax deduction. Inflation increases rents, but the fixed-rate mortgage never increases. One of my property's mortgage is now only 40% of the rental rate after 8 years of inflation. It's like an annuity with an automatic inflation adjustment - I'm going to get rent until I die, which always goes up as the cost of living increases.