[weepinbell]

https://tinkerdeck.com/projects/rent-buy-growth

I've been basing one of the biggest financial decisions in my life - whether to buy a house - in large part on NYT/NerdWallet Rent-Buy calculators. But when I dig in, it seems that the model is both extremely sensitive to home/S&P500 growth assumptions, and that their defaults aren't well thought through.

This site is my attempt to organize my thoughts on what reasonable defaults should be, and provides an interactive tool to explore housing and S&P500 growth historical growth rates.

I'd appreciate feedback!

[samuelson]

I really like the interactive graphs but I can't see how you're accounting for the cost/value of the use of the property. The return on investment for paying rent for 30 years is exactly $0.

I think what you're really comparing is if the stock market or the housing market is a better investment, but you're not taking into account that the use of the property has value.

Think of it like a landlord, you're not just investing in a house to let it sit empty and then sell it later, you're buying it with the intention of collecting rent every month. Or to put it another way, it's like comparing the prices of dividend and non-dividend stocks without accounting for the dividend.

For a personal home, you need to account for the fact that owning it means you live there rent free. There's a monthly cost for the mortgage, but that cost doesn't increase with inflation the way rent does. Owning a home comes with expenses for upkeep and taxes, but once the mortgage is paid off those are the only thing you have to account for.

[weepinbell]

> I can't see how you're accounting for the cost/value of the use of the property

That's what the rent/buy calculators are doing! It's summing up all the cash flows for owning a property (down payment, mortgage, taxes, maintenance, etc, and then crucially selling it after 30 or so years) and for renting a property (rent, and investment income from money that would have otherwise went to down payment/mortgage), and telling you how the results differ.

All I'm doing is tweaking 2 of the parameters of these calculators: The rate the home appreciates in value, and the rate cash investments appreciate in value. Everything else stays the same.

[ashwinsundar]

    On my own finances, plugging my "preferred" numbers into the NYTimes calculator along with a plausible house price and financing that I would buy, changes the rent/buy difference by more than $1.5M over 25 years (!!!!).

You're not doing anything wrong, you're just plugging in some more accurate knowledge about the local housing market that you have. The calculator had to use some sort of assumptions, so they seemed to have gone with medians or averages that made sense at the time.

I tried playing this game too when I bought my house. I ran Monte Carlo simulations which concluded that buying a house was a bad idea, based on historical data. Plus, this whole new "Covid" thing was surely to crash the housing market, right? I ended up buying a house anyway, and found out a little later that my projections were completely wrong. You can't predict the future, after all...

[weepinbell]

I can definitely make this more clear, but this is specifically only changing the home appreciation and asset appreciation rates that produce that $1.5M change. I used the topline numbers at the beginning of the blog post, which is the national 20th percentile for housing growth and S&P growth. Everything else (local factors like price, rent, mortgage interest, property taxes) is held equal.