5 ms·

Buying a house isn't just about expected return. It's also about hedging. You need to live somewhere, so you have an implicit liability of a stream of rental co

by jsw97 1mo ago

Buying a house isn't just about expected return. It's also about hedging. You need to live somewhere, so you have an implicit liability of a stream of rental costs. The most natural hedge for that is a house. If expected future rental costs go up, your house value goes up. If they go down, your house value goes down. Overall, your risk, in present value terms, is reduced. Of course this doesn't work exactly and you can nitpick this, but I think people should at least look at housing assets as more than "is it going to go up?", and more about long-term risk reduction. (And, just to be clear, this doesn't mean that you should lever up beyond reason to buy a house.)

bobson381 1mo ago
Right. This would make it possible and reasonable if you could find a house that is enough, such that you can live in it, expect a reasonably good experience in it for the life of your time in it, and that that mortgage payment, plus all maintenance, insurance, tax, etc. is reasonably comparable to an equivalent rental. Depending on where you are, this is not always the case. Or you need to buy a small place at current rates and prices to make it at all comparable. You have to decide what "enough" is, and that's variable depending on your expected standard of living, etc. I am personally currently lucky enough to be in a good rental situation, which colors my view. Having a landlord that will fix problems and eat incidental appliance/roof/major expenses is a form of insurance paid as rental.
spacebanana7 1mo ago
Exactly- owning one home is actually the neutral position. Renters are persistently taking a short position on real estate and landlords/multiple owners are effectively long.
quadragenarian 1mo ago
Keep in mind though that by entering into a 20% down mortgage you are effectively levered up 5x against your local real estate market. So it’s not like you’re totally reducing your risk. Luckily for homeowners, home prices only go up since the GFC so this leverage seems like a good position to be in.

by jsw97 1mo ago

bobson381 1mo ago

Right. This would make it possible and reasonable if you could find a house that is enough, such that you can live in it, expect a reasonably good experience in it for the life of your time in it, and that that mortgage payment, plus all maintenance, insurance, tax, etc. is reasonably comparable to an equivalent rental. Depending on where you are, this is not always the case. Or you need to buy a small place at current rates and prices to make it at all comparable. You have to decide what "enough" is, and that's variable depending on your expected standard of living, etc. I am personally currently lucky enough to be in a good rental situation, which colors my view. Having a landlord that will fix problems and eat incidental appliance/roof/major expenses is a form of insurance paid as rental.

spacebanana7 1mo ago

Exactly- owning one home is actually the neutral position. Renters are persistently taking a short position on real estate and landlords/multiple owners are effectively long.

quadragenarian 1mo ago

Keep in mind though that by entering into a 20% down mortgage you are effectively levered up 5x against your local real estate market. So it’s not like you’re totally reducing your risk. Luckily for homeowners, home prices only go up since the GFC so this leverage seems like a good position to be in.