> The majority of my mortgage payment goes towards ownership of a product - my house
For many (most?) people that's not true. Even ignoring that mortgage payments often include property taxes and/or private mortgage insurance, you can expect to pay more interest than principal for the first fifteen years or more of a thirty-year mortgage.
I think we can put property taxes aside, you’ll have to pay your landlords property taxes if you rent after all.
If you can afford the cost of a down payment (more on that later), then buying a home does have some utility in wealth generation. You’re right that most of the initial mortgage payments go towards interest, but even collecting 25% of your monthly payment towards your own net worth is a big deal compared to collecting 0%. Especially since there is a good chance that your landlord has a mortgage too, either original or secondary to afford more property, so you must pay their interest plus a portion of their living expenses. This is why generally speaking home ownership is considered superior to renting if you’re not going to move anytime soon.
I think the main argument against home ownership from a wealth standpoint is that it ties up a large amount of money as collateral that you could otherwise be using. Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively, potentially making me even more money. This is why the counterintuitive rule is that if you have enough money to buy a house with cash, you should get a mortgage and invest the rest, as you’ll be better off that way in the long run[0].
[0] Caveat here being your age. If you’re 30, you have another 30 years for the difference to grow in the stock market, while if you’re 70 you’d probably appreciate the lower cost of living and stability that this provides.
In general prices are set by the ability to pay, not by the input costs + some "fair profit".
Many landlords have no mortgage, and are clearing loads of profit every single month. Are they charging lower rent because they only need "fair profit"? No, they charge the market rate.
"Here in SoCal purchasing a home with a traditional 20% down would involve locking up $200,000 that could be put into the market productively"
I've been saying this for years, maybe after this year it'll make more sense: It is not sensible to model "the market" as if it makes steady X% (for X somewhere in the 5-8 range) returns every year. It can and has gone decades being flat-ish, or slightly down after inflation, or up but nowhere near X% a year. The timescale where this is a reasonable model is longer than your expected productive working years. "Return X% a year" is basically the best case on a decade time scale, not the average case. There have been time frames in my life when paying principle on my mortgage was a significantly better "investment" than the stock market.
In hindsight it'll be obvious what you should have done, but in hindsight you can turn a few hundred dollars into a few million in just a couple of weeks with perfect past knowledge of the market, so if we're stipulating hindsight you've made way bigger mistakes than merely "buying a house".
The standard recommendations for buying a house, in my opinion, are recommendations for buying a house you can barely afford. I recommend buying houses you can comfortably afford, and put some extra principal payments in towards the beginning if at all possible. (Especially if you're just starting now-ish... I suspect the whole "but you could have put it in the stock market instead and made tons more money" both looks a bit less appealing than it did a year ago, and may take a bit before it's advice that would turn out well again.)
An HN-specific nuance is that I might as well be saying "don't live in the valley"... you want to call that an exception, eh, go ahead, you're an adult. But in general I recommend that.
(Also, you have to check the area you are in. Where I happen to live & in the price zone I'm in, mortgages are quite a bit cheaper than rent. Though that may not be true in another year!)
>I recommend buying houses you can comfortably afford
This is great advice. In addition to paying less mortgage, the more affordable house is likely smaller, costing less to heat and maintain. I'd be really interested to see a TCO breakdown for various sizes and ages of house.
Yes, if you look at your mortgage payments, very little is going to principal.
On the flipside, when you rent, you get certain services—maintenance of property and major appliances—that you don't get as a home owner. When I started my mortgage I was surprised at how much money I started spending on home stuff that I never used to spend as a renter. Partly it's because you own it so you have higher standards, but partly you're just eating costs that used to be hidden.
But you pay for those in the form of rent. As a homeowner you can also pay someone to do those things. There are a ton of property management companies that will handle a single house if you want to completely hand it off to someone.
In general when renting you usually rent a LOT less than you end up buying which I think is where many people get the "renting is cheaper than buying" thought.
It's not like your landlord magically eats all these extra costs. They pass them on to you.
It depends on the market. In most of the US, buying is cheaper all things considered, but that’s not always true. Would you rather buy or rent in Flint?
Exactly. Some would say I'm wasting money by renting. I'd say I'm saving myself time and stress by not becoming an unpaid novice handyman, and not spending money on home improvements that I could do without.
if I rent for 10 years or I pay a mortgage for 10 years, then at the end of the 10 years I have likely paid less in mortgage payments than I would have paid in rent payments. further if I sell my property then it is likely that I could recoup some or all of my mortgage payments, I definitely can't do this with my rent payments.
People always talk about how “you pay more in interest than principle for the first X years” but seemingly forget that you pay some principle always, versus never paying any principle renting. And in my area (Seattle), the rent vs. mortgage monthly prices aren’t all too different, but with mortgage you get some of it back, plus appreciation.
But I won’t fight too hard against people being pro-rent, as my family makes a good chunk of change off of them :)
For many (most?) people that's not true. Even ignoring that mortgage payments often include property taxes and/or private mortgage insurance, you can expect to pay more interest than principal for the first fifteen years or more of a thirty-year mortgage.