When and how to buy a house - by Kevin Whitaker
Kaleidoscope Mind
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When and how to buy a house<br>Kevin Whitaker<br>May 12, 2026
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I wrote about what I learned after buying a house a while back, but I’ve also been talking with some friends about what to consider beforehand. Here are my takes on two questions: whether to buy or rent, and how much to budget if you’re buying.<br>Buying vs renting
First, you may not have a choice. If you’re young and living in a high-cost area, you probably can’t afford a down payment on a house; if you’re looking for a single-family home in the suburbs, you won’t find one for rent in many areas (which is changing somewhat, unless some legislators have their way). For the reasons below, you definitely shouldn’t live somewhere you don’t want to just for the sake of buying property. So only ask this question if the home you want is available either way (say, a two-bedroom apartment or condo near a major city) or if you’re flexible between types (say, you know you’ll move to the suburbs eventually but could do it now or later).<br>Once you’re weighing those options, don’t fall into the trap of thinking that “renting is just throwing money away.” If you’re renting, you don’t have to make a down payment, which means you can instead invest that money in stocks (or whatever else, but really it should be stocks). And if you’re buying, a lot of what you pay goes toward mortgage interest, property taxes, repairs, and other costs that don’t directly build wealth.<br>In a free market, homes should be priced in a way that makes it equally attractive to invest in a house or to rent and invest your money elsewhere.1 And in fact, a study of the “rate of return on everything” over more than a century found that, after accounting for all the costs, stocks and residential housing have each returned about 7% per year. I’m sure you know someone who bought a house in like January 2020 and got wealthy immediately, but that’s not the average outcome. If you know your house will go up in value soon, of course you should buy it. But by the same token, if you know Build-A-Bear stock will go up soon, you should put the down payment there instead and rent for a while. If you’re reading this newsletter for advice, you don’t know either of those things.<br>So in general, neither renting nor buying is clearly better financially. Instead, the decision comes down to secondary factors—financial or otherwise—that matter more or less to you.<br>In favor of buying:<br>Your expenses are predictable. In the US, standard mortgages have a fixed monthly payment for 30 years;2 if you rent somewhere (without rent control), you might have to pay more when you renew your lease. Similarly, buying guarantees that you’ll be able to live in the same place indefinitely, which might not be possible at any price in some rentals.
You can customize a house you own as much as you want; rentals may have restrictions.
To stay in your house, you have to keep paying your mortgage and building equity; this “forced savings” is helpful for some people who would otherwise be tempted to spend all their money each month instead of investing some.
A mortgage gives you leverage on your investment. If you take out a $400k mortgage on a $500k home, and the next day its value rises to $600k, the house price has gone up 20%—but your home equity has risen from $100k to $200k, a 100% increase.<br>This cuts the other way too: if it went down by the same amount, your equity has fallen 100%. This sounds bad, but there’s a decent economic argument that young adults are better off using leverage—you can compound your gains over time, and if you get wiped out, you have a long career to make it up. It’s easier to get a mortgage than to get leverage on stocks.
And housing specifically is an even better investment to leverage: if you lose 100% on a purely financial asset, you’re left with nothing. But if your home equity falls by 100%, you still get to live in the house! Price changes only matter when you sell, and you always have the option of just keeping the house instead.
In favor of renting:<br>The process of buying a house is a lot more expensive than renting. You generally face costs for agents, a mortgage lender, title work, an attorney, inspection, and other setup costs like changing the locks; those cost 3-6% of the home price plus a lot of your time. If you want to move later, you’ll pay a similar amount again to sell.
If you’re renting, you don’t have to arrange for repairs or pay for them out of pocket. This is a mixed bag—you might be stuck waiting for your landlord to fix something urgent, but it means less work for you, and you don’t need to finance any large repairs yourself.
A mortgage is a bet on the local labor market. If you work at General Motors in Detroit and you lose your job, that probably means American automakers are struggling, which means nobody wants to move to Detroit, which means your home value will also go down. If...