But you're not paying rent because you have hundreds of thousands of dollars locked up in tye house?
The real question is, how much money would you have made if all that equity was in the stock market? Sometimes that can be more than what rent would be.
True, but what is more risky? Having most of your money in a single, non-liquid asset with a very local market or having most of your money in a diversified, liquid asset?
I'm not saying owning a home is a bad idea, just having 80%+ of your money in it.
Owning $300k of stocks is better than owning a single $300k property for the reason you give. The question becomes a lot fuzzier when you overlay your own need for housing on top of it.
What I mean is, if I had $300k cash in the bank and I was renting an apartment I enjoyed, I'd be smarter to invest the $300k in a diversified portfolio than spend all of it on a single rental house and playing landlord.
Equally if I had $300k cash and nowhere to live, I might very well be better off buying a house than renting a home and buying the portfolio. A vast amount depends on individual circumstances and stage of life.
I don't disagree. I'm certainly not anti-owning a home, but it's much more risky than people think it is. This is despite all the people who witnessed the 2008 crash.
I see people stretch themselves with a mortgage, dumping every dollar they have in order to make up the down payment. A single-asset investment philosophy. Why do they do it? The only answer I can imagine is that risk of their home going down in value is low. I disagree the risk is that low.
Besides, it's the leverage. You can buy $625,500 of house with 2.5% down + a monthly payment with a ~4% vig. Nowhere else can you get that kind of money at that kind of rate with ~$16k down.
Then if you're smart you invest other money other places to diversify. You can live in house, unlike Vanguard funds. But you should have both.
Here is my nightmare scenario: I live in the Bay area and if I wanted to buy a single-family house, I'd be looking at $900K at a minimum (if you avoid the really run-down/dangerous areas of the city).
Let's say I have the down payment of 20%. That's $180K. I buy the house and I can swing the $6000 per month in PMI, utilities, maintenance, etc.
Then the market takes a dip of 20%. If you own a $200K home, the hit would be $40K. That would suck, but with a good paying job, you could handle it.
In SF, a 20% drop (still within the realm of possibility) means you just lost $200K (if you include the other costs of closing on the home). $200K would be 5+ years of savings down the tubes.
You did _not_ lose anything! That's a paper loss! Are you a speculator expecting to sell the house in 2-4 years? If you went to all of that effort to buy a _family_ home, presumably you are planning on staying there for a while (possibly long enough for the price to recover).
On the other hand, I agree that now you're underwater and if you're forced to sell you'd be in trouble. But if there was a risk you'd have to sell the house so soon, why would you buy it in the first place?
PMI is mortgage insurance, which you do not have to pay with 20% down. You may have meant PITI (principle, interest, taxes & insurance) which for that example situation would be about $4500/mo.
Even so, assuming your mortgage is fixed rate, your payments don't change regardless of the value of your home. Whether it's worth $1 today or $10MM today, it only matters what you paid. Like the other commenter said, it's a paper loss.
You say "stock market crashes", I say "dividend yields go way up!". The losses are usually paper losses (hello tax-loss harvesting!), which don't bother long-term investors (whether they are home owners or stock investors). (I don't think you can tax-loss harvest a home though...)
The real question is, how much money would you have made if all that equity was in the stock market? Sometimes that can be more than what rent would be.