undefined | Better HN

0 pointsjrflo9h ago0 comments

All investments inherently have risk. Looking at historical data the average return is 4% per year on houses in the US. This average includes the '08 housing market crash. If you hold for long enough, your risk is drastically mitigated. Whereas with rent you're basically guaranteed for prices to go up year over year, unless we are in a deflationary market which is quite rare.

0 comments

jandrewrogers9h ago

> If you hold for long enough

You are improperly accounting for risk. People don't own a diversified portfolio of houses, they typical own one house. The "if you hold it long enough" is to some extent disqualifying. Many people never see any real return over multiple decades.

Where I live rents won't cover the interest payment on a new mortgage. The return on renting is insanely good here in addition to the increased optionality and reduced risk. I've owned many homes, I'm just not emotionally attached to the idea of owning one nor deluded about the rate of return.

jrfloOP7h ago

I'm not saying you need a diversified portfolio, I'm just saying that the actual rate of return will regress to the mean of 4% given enough time. Obviously we don't know if that regime will hold forever but that's the nature of investing, predicting the future is very difficult.

I agree though that this is a very location-dependent thing to consider. Local renting rates vs property values is hugely important when determining if it makes sense economically or not. In your area you'd probably be taking a loss compared to renting until rents rise enough to make your mortgage look appealing and appreciation offsets those early losses, which could be a long time depending on the situation. And you may not want to do that at all even if the math looks ok depending on your risk appetite!

My original comment was just address shortcomings in the original post omitting benefits to home ownership, it's certainly not a cut-and-dry issue which is why I had problems with the post originally.

ashley956h ago

The argument is that rate of return only regresses to the mean if you diversify. It's like saying "I hold stock in a single company, so if I hold long enough, my return will average the return of the S&P 500". Your returns will look like the mean only if you diversify across investments, not over time.