Rent vs. Buy your home

PBS News Hour had a short segment with NY Times economics reporter David Leonhardt where he confirmed that “your home as an investment” is a lie that been told for decades by the Real Estate and Mortgage industries.



Rent what, exactly? They never tell the whole story. Always weasel wording. Keeping things cloudy. That’s my whole problem with the subject.


It seems the biggest issues are:

Exorbitant transaction costs, 6% in and out is absurd,

Knowing the best time to buy, as with any market,

And huge income inequality, where younger buyers can’t afford a home.

Solutions might be to reduce the transaction cost to 1% and to prevent corporations and deep pocket investors from buying multiple homes and controlling the market.

Snowball’s chance, but possible.

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A home is not an investment. It is a lifestyle choice. It needs to be treated as such.

I bought my first home in 1999, which I had built. Lived there 10 years with relatively low maintenance costs because everything was new, but that does not last. Plus you want to upgrade at some point.

Moved out due to changes to work, and wife and I both wanted shorter commutes. Moved to a great location but into a very old house. We were being eaten alive by maintenance.

So moved back to suburbs, to a much newer and better built home. Had to paint the whole house inside and out, install sprinklers, and replace the AC. But we were basically forced into that home and it has stairs, which we never wanted. Stayed there 4 years but never liked the stairs… so…

Moved to a house w/o stairs in same school district. We had to put on a roof that insurance refused to pay for. A few other pricey maintenance expenses. Been here close to 6 years now.

The realtor fees for all those moves was a lot of course. So has been all the maintenance. It has absolutely been a quality of life thing to live in these houses, not an investment. When we are empty nesters and retired, honestly, I am going to consider renting again.


And exactly how is this going to make individuals? It seems to me reducing transactions costs will only encourage more Private Equity investors.

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Someone pointed out avg commission in UK is just over 1% vs just under 6% in the US. Why the difference? Law suit in Kansas City charges antitrust violations. Industry collusions.

Also I notice we seem to believe in market timing in real estate. Not in stock investments. Why is that?

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Because without it they have no case

When you buy a single family residence, you’re not buying the whole market like an S&P 500 index fund. You’re buying an individual home in a national real estate market with a much smaller historical return than the S&P 500 (4% per year for housing vs. 10.7% for the S&P 500) So right up front, we know that half the homes in the country are seeing price appreciation over the past 100 years of less than 4%.

I think it was MarkR who wrote, “if it wasn’t your home, you’d never put money in it”.



Because real estate is an expense. Making the calculation whether it is cheaper to rent or buy is one way to evaluate and potentially reduce that expense.


I’m curious how you live in the S&P 500. I once tried cooking dinner in the Dow 30 but it didn’t turn out so well. And I find that trying to park my car in The Russell 2000, but it got scratched up.

Meanwhile my ‘house” (condo, actually) appreciated over 8% annually across 35 years, and the current home would sell for roughly double what we paid for it 5 years ago.

So yeah, bad deal, I guess.


Right. You owned a condo in Boston. Pretty much the equivalent of me owning DELL shares. No doubt the price appreciation on your Boston condo was in the 99th percentile nationally. The vast majority of homeowners aren’t as lucky.

What’s the price appreciation on Knoxville TN homes over the past 35 years?


Rent whatever meets your housing needs and compare it to purchasing the equivalent square feet of space and amenities.


Like stocks, it depends what you buy. Ours has doubled - in just a few years. (Yes, I’ve made some improvements.) Most in this neighborhood, which is modest, BTW, are up around 30% in the last 3 years.

If you buy a crappy stock you don’t do so well. If you buy a crappy home you don’t do so well. It’s easy to buy “an average” stock using an index. It’s not so easy to buy “an average” home in the same way, so my advice is don’t buy a crappy home.

Oh, and…

The Knoxville, TN housing market is somewhat competitive, scoring 47 out of 100. The average Knoxville house price *was $307K last month* , up 10.2% since last ...

As usual with NPR, the root issue / prism is income inequality in the face of rising house prices.

TLDR: It depends: on the rent amount vs your monthly total expenses in the house, whether utilities are included, on house price appreciation over what time period (that ZIRP thing was a deliberately designed moneymaker for finance cos), whether you could invest any difference, if so at what CAGR.

Scenario: Nice house built in 2000 in a then-new woodsy ex-urban subdivision. Great location then, still is. Private builder built it for $150K less than the spec builder quotes. (starting advantage 1). 20% stuffed in the walls to start so no PMI. (adv #2). Rates somewhat higher 20 years ago but refinanced down to 3.5% pre-pandemic. Paid down over the years but never paid off. Property taxes have gradually grown from 9K/year to 11K/year.
Mortgage, taxes and insurance payment has been average $2000/mo.
With estimated utilities & expenses: total spend $750K in 23 years. Haven’t had to do the roof yet.
Assuming recently inflated house prices hold, $1.1m sale price* netted gets me 10.5% CAGR on the initial capital and 1%/flat total return on everything.

Rent - assuming aggressively low and zero inflation rent on a smaller but similar house of $3K/month, utilities not included so $3300+/month.
Since the rent is more than the average monthly cost of the house, there’s no “savings” to invest, and 100% total expense / 0% return.

NPR’s now-cliche point is that house affordability in many places has crashed since '19. But that doesn’t mean renting is a bad comparative deal anymore.

*: assuming recently inflated post-pandemic estimate

  • this exercise has reminded me how lucky/blessed/fortunate I have been with timing and life to live where we chose to making the salary I did.

What NPR story are you looking at? The video segment at the top of this tread is from PBS News Hour.


I assumed it was a different NPR, so I went looking for a different translation for the acronym. I didn’t notice anything promising though.

A typo, admittedly but it’s a distinction without a difference in that case.