Originally Posted by thenbagis
Sorry... but I hate that argument. You can't live in a stock, so it's not a fair comparison.
You need to look at opportunity cost. You need to live somewhere. So for most people that choice is rent vs buy. And there lies your answer for why those percentages are the way they are. The percentage of renters is lower where the cost of buying (a monthly mortgage payment) is closer to the monthly rent.
Lets just run through some rough calculations...
If I live somewhere for 5 years and pay $1000 in rent... that's $60,000 in rent.
The monthly payment on a $186,000 house is $998.49 per month and the total interest on that mortgage over 5 years is $44,710.73... However with a mortgage deduction on your income taxes (lets assume 25% tax bracket, so effective rate 17.25% [$50,000 salary])... your actual interest payment is $36,998... plus your $5,300/year maintenance ($26,500) (which honestly seems high to me). Total cost is over 5 years is $63,498. Plus closing costs ($2000) and cost to sell (let's assume no increase in value, for sake of argument... $11,160)... that's a total cost of $76,658.... or $16,658 more than the option of renting.
If property values go up and/or you spend less on maintenance, it could be a wash at the 5 year mark. As time goes on, the interest paid (per year) goes down and there is a greater chance of value going up.
Regardless, it's unfair to say the equity is missing out on a full 6-7%....
(and honestly, i learned a lot by running through those calculations)
Additionally if you sell after five yearsyou break even or lose a couple of thousand dollars, but if you rent your still out 60,000. The money you put into your house eventually comes back, but rentmoeny is forever lost.
i.e. My parents paid $30,000 for their house. Afer paying it off they paid a total of $100,000 including interest over 30 years. Its now worth $200,000.
The couple that rented for 30 years never has a chance to recoup the $70,000 paid in rent over the same period.
Even if my parents house were only worth $100,000, now they could sell and rent for the next 30 years useing the proceeds from the house. So over a 60 year period my parents pay $100,000 for shelter while the renters pay $140,000 over 60 years.
A house is a long term investemnt. If you look at it that way instead of trying to get a steady 10 % ROI on your money it makes sense.
You don't invest to make money in real estate. But if you need shelter its a better way of preserving capital than renting where you just throw money down the toilet never to be seen again.