Alright, I’m a sucker. Here is your real world example. Let’s compare 20 Year TIPS to owning a house. The TIPS are easy. As I sit here and type, the real yield on 20 year Tips is 2.30%. My Bloomberg screen does not show 20 year treasuries, so I’ll calculate the implied inflation expectations by taking the average of the 10 year and 30 year, which gets you to about 2.15%, resulting in a total expected TIPS yield of 4.45%. Since we only care about the 2.30% of real yield, why did we have to calculate the total expected yield? The answer is taxes, which are paid on the entire yield. Obviously tax rates vary, but based on 28%, this reduces the 2.30% yield by 1.25%, resulting in an after tax real yield to TIPS of 1.05%.saurabhec wrote:It is going to be hard to be convinced merely on the basis of hand-waving or qualitative arguments. If you can setup a small, realistic example of how home buying is superior to renting, or even how an unleveraged home purchase can be a positive real return transaction (if assuming home prices track inflation), it will be much easier to follow your chain of thought.swaption wrote: I have come to the conclusion at this point that there is nothing I can say that will lead you to understand or concede my position. You are going to believe what you clearly want to believe.
Now let’s take a house. I have some pretty good proxies for this in terms of rent for value stats as I was recently looking for a temporary rental (during my own home improvements, ultimately decided to tough it out in the basement). Let’s take a house worth $500K. In my area, one could assume a rent of roughly $2.5K, and that’s likely conservative on the low side. I live in a high property tax area, so one could assume about $10K per annum (but at least you get good schools). The property tax is federal tax deductible, so the net expense would be $7.2K (based on the above 28% rate). Maintenance would likely run you about $5K per year.
So a purchaser of the $500k house would then have an annual housing expense of $7.2K for taxes and $5K for maintenance, resulting in a total expense of $12.2K. But you would not be paying rent payment of $30K per year, so the net return on the house would be the difference of $17.8K per year. Based on the $500K purchase price, this is a net real return of 3.56%. This return is generally tax free and it exceeds the similar calculation for TIPS by 2.51% per annum. That's a big advantage for an unlevered asset.
I think another poster hit on it pretty well that all real estate is local. Some areas may be good buying opportunities and others not so much. It is ingrained into most of us to want some semblance of the life our parents had, and in most of the US that is growing up in a house with your own patch of land. In larger cities that have limited space such as a NYC it may be so expensive to buy that it seems pointless to wrap so much of your net worth in a house. I like having my own space and piece of land that I can manage (even if the work is not always fun), and it is affordable where I live so I chose to buy after renting for a couple years. 
) I would think the utility bills would be exactly the same for a house that you could rent or buy. All this to say is that there are examples where buying a home is a good financial decision and more than that a stable place to raise a family.
