My first home (bought 2014) is up 100% and my second home (bought 2019) is up 55% over purchase price.
It's unsustainable for this country to think that houses can be both (1) an appreciating investment and (2) affordable.
But in order for us to find long-term price stability, people like me must make peace with the idea of our houses _never_ appreciating beyond inflation.
How much did you "make" on your investment once you account for the ton of fees that are involved in housing though? If your house doesn't go up at least 5% a year, you are already losing money once you account for HOA, insurance, taxes, repairs etc.
I would bet you would have had a better outcome renting and investing in the SP500 instead.
Except that you don't have a 5:1 leverage, not even close once you account for the fees. The math is surprising. I recommend the NYT Rent or Buy calculator.
There is also absolutely zero chance that you will get a 22.5% chance return on your house over 40 years. Those have been the crazy covid returns that will most probably be reverting to the mean over the next few years.
"House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024"
Except if it's your primary residence, you can get close to 30:1...
The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation.
> House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024
4.63% on 5:1 leverage is... 23%... And you cherry picked at the start of a recession...
I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof)
Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you?
You quickly realize that in order to make the math work you need your house to go up AT LEAST 5 or even 6% a year. In the current environment your house even needs to go up close to 8/9% a year to just break even.
And you are right that you use leverage so if it goes up above those numbers you start to make up equity very quickly. But there is almost no chance those type of returns will hold in the future.
> Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you?
This is not how it works.
You would have to pay rent.
You'd take the opportunity cost of the difference in rent vs the cost of your house after the mortgage interest deduction (discounting principal, since that isn't a cost).
If it's an investment - you'd consider your cash-flow and principal.
It is the best one I have found so far. Even in the ZIRP era, I couldn't find places that made sense buying based on that calculator. Nowadays it is even more clear cut that buying doesn't make sense financially (it could make sense for you if you put a ton of personal value on owning).
> I would advise to use the rent or buy calculator
I've used it. It's not good.
If you asked someone to make a calculator that makes renting as attractive as possible - it would look similar to the NYT calculator.
It's not surprising this calculator comes from a city where the majority of people rent, and is read mainly by "elites" who live in areas where more people rent...
At the time, I lived in LA in this exact calculator convinced me that housing was a horrible investment in 2013.
Had I bought then instead of had my money in the S&P my net-worth would almost be triple what it is now.
Luckily, I'm doing fine either way, and did buy and lock in a 2.7% interest rate, after learning this calculator has some serious flaws and building a much more realistic spreadsheet to model it...
Most home made calculator/spreadsheet completely gloss over all the fees and details. But also most people have already emotionally decided to buy and want to pretend they did the math to justify their decision.
It assumes home prices will rise equal to inflation which hasn’t been true in recent years
It doesn’t allow you to add monthly utilities for renting but assumes 100$/month for buying. I personally have never rented a place where all utilities were covered
It assumes quite high property taxes compared to what I pay
It assumes market returns of 4.5% which is true in a long term sense but not really in the short term
It assumes rents will increase 3% per year, configurable but not true in recent years
It factors in closing costs so I guess it’s assuming you will sell at the end of the period? This is a somewhat strange assumption to me. At the end of the period I could borrow against the value of the house without selling it for instance.
I think it’s a really good tool though I wish it had just a few more options to tweak, and that the defaults got updated to reflect current rates perhaps
The buy vs rent calculator is good, I’ve used it before.
In my particular case, I hoped to live in the same place for multiple decades, and correctly guessed that my city was on a strong growth path, and was able to get once-in-lifetime interest rates.
Obviously if those factors changed housing would be a worse investment. But as it is, those are two of the best financial decisions I’ve ever made.
Well...the substantial difference is that I could borrow at 3.6% and 2.7% respectively.
On my first home, I put $5,000 down on a $96,000 house. I owe $40k (15-year mortgage) and it's worth $180k. Subtract $20k in seller costs, and $20k in expenses over the past decade and I have $100k in equity.
That is about 6x better than just investing the $5k in the S&P.
How could you only put 20k$ of expenses over the last decade? That doesn't even cover close to the principal and interests on your mortgage. You also don't account for the time-value of money.
In this case you might get slightly ahead than a simple boring SP500 investment, but those returns are the outlier and it would be extremely unlikely to repeat in the future (especially with the current interest rates)
I didn’t include P+I because when it was my primary residence it’s just my housing cost (which I can’t otherwise invest) and now as a rental those are paid for out of rental income.
Regardless, my original point is that the returns outpace inflation, which I consider a political-social problem given the number of parents who are currently explaining to their kids that buying a home is a “good investment.”
Use the NYT Rent or Buy calculator. Most home made math don't account for the ton of fees/taxes/insurances and the time-value of money, and the exceptional returns of the SP500.
I have yet to find a single place that would have been worth it long term versus renting (Bay area, which is a VHCOL) while you do the correct math.
The problem of your math is that you are assuming rentals are equal from one place to another as long as the price match. I can tell you that's not true. My old 3BR apartment in a very desirable school neighborhood went from $2K to $5K now. My old neighbor still paying that price because their kids are in the school. They are kicking themselves right now for not buying when the rate was lower. Now, they are desperate to buy anything in the area.
It's unsustainable for this country to think that houses can be both (1) an appreciating investment and (2) affordable.
But in order for us to find long-term price stability, people like me must make peace with the idea of our houses _never_ appreciating beyond inflation.