I don’t get articles like this. It’s arguably a better financial decision to NOT buy a home, and park your downpayment in a broad based index fund. I get that there are arguments for or against, but there doesn’t seem to be a clear financial advantage to home ownership. So, what’s the big fuss about? Just pay rent and carry on? Surely, there are better things to focus on?
No-one can kick you out of your own home because they want to rent to someone they can charge more. No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog.
Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.
> Not everything is a purely financial decision. A home is primarily a place to live, not an investment opportunity.
I am always shocked at how many people simply don't understand this.
For example: no matter how many index funds I buy, I will still have to find a landlord who allows pets in their home if the current landlord decides to kick me out for a better tenant (whatever that means for them).
I don't have to deal with that in my own home. My home, my rules. And this is worth more to me than knowing I optimized my investment portfolio.
Human dignity has value. Shelter security has value. Knowing that you won't be moving in the next few months has value. But the value of these things cannot be measured in dollars.
A very US-centered view for sure, I see just tons of insecurity and other negative emotions. Europeans don't have this with such ferocious intensity.
One of happiest countries in the world - Switzerland, has minimal home ownership, people simply focus on more important matters in life (and rules and their actual enforcement are on next 10 levels compared to general US, yet nobody does biggest financial move in their lives based on those).
In this thread, I mostly see young folks frustrated that their easy investment chance evaporated, although it was never actually easy but people owned and desired to own radically less in the past. A bit of greed, a bit of FOMO, a bit of emotions described above. And an intense sense that a big, well-located house (not an apartment, hell no) is not everybody's right, but their basic human right enforced by some Geneva convention and UN forces. They will happily accept brutal communism with whatever else it brings just that they can get it too.
Or its one of those few topics where HN really isn't the best place to look for balanced opinions. I get it, I would maybe feel the same if I was in such situation bound with such mindset.
No, it's the other way round. Wanting a place you can call your own is a basic fundamental human desire. It's the insanity of the world today that such a basic thing is viewed as a luxury and people engage in semantic gymnastics to justify permanent renting.
Sure desire but not right, and then almost everybody engages in exactly same desire, in exactly same self-centered perspective (I want best possible location, biggest house, ideally biggish land around, convenient to work and fun and schools etc.).
Its physically impossible to satisfy everybody who wants that, we don't (yet) build cities in 3D with this in mind. Such demand will literally every single time outstrip supply unless given society is in deep demographic spiral.
There used to be times when people thought about buying houses when they reached cca 40. Worked their way to it, patiently. These days, 30 year old will complain to you how world is unfair since he already doesn't have it all since he wants to retire at 50. Or how they are priced out of some great place since almost everybody wants to live there too, including boss of his boss of his boss. Working class was priced out places like Manhattan maybe 50 years ago in much higher numbers, and nobody bat an eye.
> Such demand will literally every single time outstrip supply unless given society is in deep demographic spiral.
I am not sure that is the case. Or at least there is no natural law that would mandate this. And why is it less of a problem in say, India? In India, big cities see massive growth in terms of number of livable units built. They don't have the NIMBY culture of the US or the oppressive zoning restrictions, and many more people can aspire to own a flat by the time they are in the late 30s or 40s.
I think most people people would be fine if they knew they would be afford to buy in their 40s. But I don't see that happening for a lot more of the Zoomer generation.
> No-one can kick you out of your own home because they want to rent to someone they can charge more
Property tax isn’t voluntary and as exogenous as a landlord. (Also eminent domain, to say nothing of most peoples’ mortgages.)
> Not everything is a purely financial decision
Making the largest leveraged purchase of your life for an emotional comfort object is irrational. That doesn’t make it wrong. But it ceases to be a policy concern. (I might feel secure having a Fabergé egg in my possession, that doesn’t mean the public needs to give a shit about it.)
The reason home ownership is a public priority is various and I agree with it as a goal. But it’s a bad financial decision for many people, and there is legitimacy to questioning if we can duplicate the forced-saving and civic engagement benefits more simply.
You pay property tax either way, it just might be rolled into your rent. You probably have years to pay missing property taxes, while landlords will wait nowhere near that long. Eminent domain is only exercised rarely, and doesn’t even compare to how often rents are increased, or how often people are evicted.
That’s misleading and mostly irrelevant. My sampling of states so far yields an answer in years, looks like around 2-5 years depending on state. Rental evictions are measured in months, typically perhaps 1-3.
This entire discussion is as it's ignoring mortgages, where the entire security argument for homeownership breaks down beyond being an emotional comfort object.
Homeownership is statistically more secure because home owners are richer. The home doesn't make a homeowner more secure, their wealth does. Remove the wealth effect and homeowners are about as precariously perched as renters. In the past decades, home-price appreciation contributed significantly to that wealth. Someone making the smae purchase today is less likely to similarly benefit. Particularly if they're conceding they're making a bad financial decision for emotional reasons.
> Remove the wealth effect and homeowners are about as precariously perched as renters.
How so? I just showed that’s not true for evictions due to non-payment, at least for the property taxes issue you raised. When it comes to mortgages vs rent, maybe they’re similar risk, but in that case, the mortgage is not riskier, so the benefits of a house seem worth it, especially considering that as long as you keep up the payments, you are highly likely to eventually get your money back with a house, and 100% guaranteed to lose all your rent.
> In the past decades, home-price appreciation contributed significantly to that wealth.
Right, home ownership has historically been a vehicle for wealth building.
> Someone making the smae purchase today is less likely to similarly benefit.
Why’s that? Are you assuming that real estate inflation might slow down, but the market won’t?
A house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return. People who paid $200k down payment on a $1M house in 2019 can sell today for $1.5M and walk away with more than double their money, or around 4x the profit that someone who invested the $200k in the stock market and got the same (incredibly good) returns.
I don’t agree that buying a house is a bad financial decision, how do you justify that claim? There is certainly a distribution of outcomes, but on average I think most people profit from buying a house… especially when you compare it to paying rent.
We’re at record price to income levels amidst a stable versus growing population. (Note: I own a home.)
> house is a leveraged loan until you pay it off. If the price goes up, you get the leveraged return
Crazy how 2006 this pitch is. (Together with the “you are highly likely to eventually get your money back with a house.” Maybe we need a housing recession, both so people can buy in and others reminded there is no free lunch.)
> Maybe we need a housing recession, both so people can buy in and other reminded there is no free lunch.
Jesus, that’s a bit dark. Getting your money back from the sale of something you owned isn’t a free lunch. It’s just 100% better than dropping most of your money into a hole called rent, and never owning anything, and being beholden to landlords.
If my argument is too old and hasn’t adapted to the 2024 economy, which is entirely possible, then show me what it takes to do better than buying $420k a house on a $75 income with $84k in savings. (I’m just picking the “median” numbers from the article.) A 2-bedroom apartment where I live is anywhere from $2500 to $4k, so let’s say $36k/year in rent. Rent is much higher than this in SF or NYC of course. How long do you have to rent for the interest on $84k in ETFs to cover $36k/year in rent, assuming your rent doesn’t go up?
Edit: I’m not certain that did the calculation correctly, but it looks to me like on a 5% market return it would take 69 years for an $84k investment to break even against $36k in rent.
> It’s just 100% better than dropping most of your money into a hole called rent
You take the difference between rent and ownership costs, not just the down payment, leverage that (2x max), and calculate the difference. The Times has a good tool for this [1]. (It doesn’t lever. Securities-based loans are almost always cheaper than mortgages.)
The sucker in the present math is the individual, aspirational, emotionally-motivated buyer. The winner, the sellers and first-lien lenders.
> assuming your rent doesn’t go up?
I’d actually argue this is what most people pay for with homeownership. You may become a bit poorer, but your future is more certain. If you’re savvy you can use that certainty to take more risk in other parts of your life. Buying a home, for most Americans, is buying insurance. The problem is few see it that way, which is pretty great for the real estate industry.
The times tool says I’m better off buying to the tune of $100k over 10 years given the example I used above. I don’t know if that’s a reasonable assumption, however in order to break even I need to reduce the rent to $2300. In my locale, the difference between $2300 in rent and a $420k house is not emotional, the house is a tangible and significant space and standard of living increase.
I don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that. The mortgage and TCO costs of the property plus some profit for the landlord are what renters pay.
> don’t know why it would be any other way; the landlord has to pay a mortgage or purchase price, and the rent must be higher than that
Landlord is locked in. (They also have search, turnover and collection costs.) Tenant has flexibility. Sometimes the landlord makes money, sometimes they don't. Nothing guarantees them a return. (Ask a real-estate agent about buying an investment property. The pitch almost always turns on price appreciation.)
I’m not saying buying never works for the buyer. (It looks like it might work where you are.) Just that most people buying today are transferring wealth away from themselves in exchange for emotional comfort.
The notion that leasing is pissing money away is a deeply-flawed and probably-wrong theory. It’s also somewhat uniquely American (and British) middle class, which makes me suspicious about its origins.
Renting is short-term flexibility and lower barrier to entry. It can have some advantages if used carefully. In the long term, it gets questionable. (The Times calculator says so too).
The thing that would stop me from buying right now isn’t the price, it’s the interest rate. Also one method for dramatically reducing TCO of a house without increasing the monthly payments by that much is to finance with a shorter term loan. It’s harder to get rent to win when financing with a 15 year loan.
And it’s way harder to get rent to win without the opportunity cost, especially when comparing apples to apples on space. I feel like you’re mostly talking about what’s possible but not what’s likely. You might be able to come out ahead renting but I think most people won’t. Most people at the edge of buying a house aren’t going to invest if they decide to rent instead. The choice doesn’t seem to play out as buy vs rent+invest, but more often just buy vs rent. When the choice is buy vs rent, and renting isn’t offset by investing, then it really is pissing money away, transferring wealth away faster than if they bought a house.
> Most people at the edge of buying a house aren’t going to invest if they decide to rent instead
Sure. In the same way self insuring is generally a mistake, even if you're wealthy, because most of us don't have the discipline to hold that liquidity hostage continuously. The forced-saving benefit of homeownership is real. I simply ponder whether it (and the increased civic engagement ownership brings) can be replicated some other way.
That’s an interesting question, it would be great if there were good alternatives.
So FWIW after sleeping and thinking about it, I might be coming around to what you were saying, that buying at high prices and high interest might not be a great financial decision right now. My today thinking is that this whole discussion was perhaps not really about buying vs renting, it was mostly about financing and the often obscured total cost of a loan. I guess if we were talking about paying cash for a house, the calculus vs renting is completely different. I’ve been lucky with my houses and I shouldn’t assume everyone will be as lucky. I did realize a couple of funny ways to frame things. Buying a house might let you leverage your down payment, but a loan is also bank leverage against you, since you will eventually pay back 2x-3x the loan amount. Or another way of putting it is that when I buy a house with a loan, I’m renting the money to buy the house. :P
Right. Property taxes are paid by landlords, who then charge it back to you in rent. Your example article indirectly says the same thing: tax cuts were not passed on, landlords kept them.
Landlords not cutting the rent supports my claim that renters are effectively paying the property tax. You can argue that not all taxes are passed on, but the reality is that landlords have a set of costs, one of which is taxes, and they have a set of incomes from renters, and the income rent will always be higher than the costs, unless we’re talking about rent control or something like that. If the costs exceed the rents, then landlord goes out of business.
I edited before you replied, and just clarified. I didn’t change my point at all.
Rents are certainly not always higher than costs. Plenty of "investor" landlords buying properties that return less in rent than the mortgage expenses of said property (or the cost of capital).
Making 4% in rent isn't great when the mortgage interest is 6%. The difference is made up out of the landlord's pocket, and they gamble on capital gains to make up the shortfall (or rising rents vs a mostly fixed mortgage expenses)
> rents can be temporarily lower than costs in the short term. In the long term if that happens, the landlord ceases to be a landlord
In the very long run, yes. In the medium term, as in decades, home-price appreciation has let landlords in several markets run at a loss and rely entirely on capital gains for profits.
Home ownership is effectively enshrined as a value in most economies. The emotion is part of society’s design. Conforming to this incentive or belief is not unusually irrational,
> Property tax isn’t voluntary and as exogenous as a landlord
I live in the UK. I have to pay the same rate of council tax for the property whether I own it or rent it.
However that’s completely beside the point: my council tax isn’t suddenly going to double overnight because a single person decided they can extract more money.
> Making the largest leveraged purchase of your life for an emotional comfort object is irrational
You are completely missing the point. A place to live that is truly your own is not like buying some luxury good.
I could buy your argument were it about buying a mansion vs a small family home, but the article is about people being unable to buy any home.
> No-one can tell you you can’t change the wallpaper in your own home, or remodel the bathroom, or get a dog.
Yes, the housing association absolutely can tell you not to remodel your bathroom. Unless you literally own a house rather than an appartment, you really don't have a lot more rights than a renter would have.
Firstly I am legitimately surprised that Finland has HOAs. I had always assumed they were a largely American construct (I’m British).
Secondly I was absolutely talking about owning a house rather than an apartment. I feel an apartment is a slightly different situation by virtue of being an inherently shared space.
That said, I still it baffling that someone would try to exert control over what you do with the inside of your own home.
> Firstly I am legitimately surprised that Finland has HOAs. I had always assumed they were a largely American construc
The Finnish HOAs are a uniquely Finnish construct. They are in many ways different from the American HOAs, even though the name is the same.
> That said, I still it baffling that someone would try to exert control over what you do with the inside of your own home.
In the Finnish system, as a "homeowner" in a HOA, you actually don't own things such as... the walls inside your apartment. The HOA owns the walls. You own a piece of the HOA and the right to live inside the walls. But if you want to fix damage inside the walls, for example, you need the HOA to do that, because they own the walls.
Strange they call it an HOA when it sounds like the basic concept of “home ownership” doesn’t actually exist.
First thing I did when I bought a house was smash a nail in the wall and hang a picture. Well I guess the second, I ripped down walls and painted first.
I don't know if I'm translating to English correctly. I mean, technically it does not have an English translation, since the construct does not exist in countries where English is a native language.
The direct translation would be "house company", but that sounds wrong.
Not sure how long the parent has rented for but there is definitely a point, especially if you have children, where you realize having your own home is really important so you can express yourself without fear of eviction.
I always wanted to build a home gym and have a workshop, I have these things now, I never could before, I'm happier now than I was before, it was something I really wanted to do with my life, rent doesn't allow you to do those things, most of the time anyway.
The parent commenter spoke explicitly about it as a financial decision. Your counter comment directly contradicts their assumptions (financial decision), which makes it inappropriate.
People just want a house to live in. That's it. They don't want a "broad based index fund" or investments or anything else. They just want a house to live in. With all the stability that comes with it. And then spend their free time doing more useful things. Also it doesn't scale; we can't all be investing all the time.
This kind of reductionism where everything boils down to financials is exactly how we ended up in this mess to start with. Maybe we shouldn't have structured everything around that because ... people just want a house to live in.
I have rented for the past 20 years, the vast majority of my adult life. We are buying soon.
Could I make more in an index fund? Sure, probably. But I can’t make a rental into what I want it to be, you are often not even allowed to paint the walls.
Home ownership isn't a good financial option for everyone, but for most consumers who aren't accredited investors it's the only way to make highly leveraged trades. You can't buy an index fund with 20:1 leverage. Of course this occasionally blows up, but even then the downside is limited.
Even if ownership doesn't make sense from a financial standpoint it's still somewhat essential for parents of school age children. Renters can be forced to move on short notice if the landlord declines to renew the lease, like if they're planning to sell or redevelop the property. This instability has a cost that goes beyond financial concerns.
People always talk about how buying a home is the only way for the common person to obtain leverage. Please excuse my ignorance, but how does the common person use that leverage, exactly?
Leverage in finance is the concept of buying an asset with money that's not yours (i.e. a loan).
So suppose you have $100, and you believe a stock will increase by 10% in value, then borrowing $900 and buying $1000 of the stock, will leave you with $1100 if your prediction is true. When you pay off the loan, you'll be left with $200, and you will have doubled your money.
The loan thereby acts as a leverage multiplying the 10% return on investment to in this case a 100% return on investment.
Now imagine that instead of having $100, you have $50k, and instead of borrowing $900, you borrow $450k, and instead of buying stock, you buy a home with the 50k deposit and 450k mortgage. The same applies, the home appreciates 10% to 550k, but your equity increases from $50k to $100k. Again, the mortgage loan acts as a lever.
The difference is that most consumers do not have large and cheap capital available to them, say to borrow $450k to invest in the stock market. But most people do have such opportunities to invest in the real estate market with a mortgage.
Anyway, wether it's a good investment really depends on many factors. The NYT buy or rent calculator is still one of the best sources to get an intuition on what is best for your circumstance. https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...
Right, my question is more about how the average person can actually use that leverage. So you've got $80k in leverage, it grows (presumably), but how do you actually use it?
You have to sell the house, right? So you can only cash in on that leverage when you reverse mortgage or otherwise downsize, right?
Yes, but thanks to leverage you have effectively created higher returns for your retirement portfolio than you would have been able to without the leverage.
Higher returns than what though? It sure sounds like the only financial advantage to owning a home vs other investments is the leverage. Yet the S&P will return far more even considering the 80% leverage in most cases.
If you take all the money that you have spent on a down payment, closing and selling costs, taxes, and maintenance, subtract rent, and put the remainder in a market index fund, for the vast majority of situations you will have FAR more money by retirement. Like it's not even close.
I guess I'm just a bit tired of the messaging that real estate is such a great financial investment. Historically it's better than a lot of options but not even close to the best investment vehicle. Houses are homes first, not money makers, and if we continue to emphasize the latter, we will never solve the housing affordability crisis.
Let me put it to you another way: if homebuyers didn't have access to cheap leverage, then a stock market index fund would appear much more appealing than house as an investment. But when homebuyers have access to cheap leverage (and stock investors don't), the balance tips more in favor of home buying. And when I say "more in favor", I mean when compared to no leverage.
Perhaps you're making an argument that even with leverage, most people would be better off investing in the stock market rather than real estate. And perhaps that is true. But leverage does tip the balance in favor of real estate.
I'm saying even with leverage you would make far more money investing in index funds. The math is very clear. In the best real estate decades (which may be behind us), index funds may not win. But on average, over multiple decades it's not even close.
Can you show the calculations you made? I would expect the result to depend a lot on the assumptions you put in, particularly regarding leverage ratio, interest rates, stock market returns, and real estate returns.
It does depend on a lot, but the majority of scenarios you’ll put into rent vs buy calculators, for various places across the country, come out in favor of renting. In expensive areas, dramatically so. When interest rates are high, even moreso.
Let's take a quick look at my current situation as an example. Right now my family spends $2650/mth renting a nice home in the Denver metro area, with an excess of $2-3k/mth that goes into market investments at ~11% annual historical average. An equivalent house would cost us $600,000. Let's ignore the currently bleak housing market (where house prices have fallen ~10% in real dollars over the last 2.5 yrs), and assume your RE returns is a historical +4% annually (past 50 years).
Equation for compound interest at a fixed rate with initial sum:
P = P_o * e^ (rt)
After 30 years we would have the following equity in our home:
P = 600000*e^(.04*30)
= 1.99 million
This is with a total monthly mortgage payment of ~$4200 (including taxes and PMI), to have 1.99m at retirement.
Now let’s compare to renting and continuing to invest the money we would have spent on the house into market index funds.
Equation for previous month’s interest added to $2k/mth (use excel):
P_monthly =[previous month balance]*e^(r*t)+[monthly savings]
After 30 years we would have the following equity in our investment account:
P_monthly =[previous month balance]*e^(0.11/12*1)+2000 (use excel)
= 5.73 million
So I'm paying almost the same (2650 rent + 2k/month), but have more than 3 MILLION DOLLARS MORE at retirement.
This is to say nothing of all the other costs of a mortgage besides loan interest (essentially the cost to get you to the point of buying a home). Throw out $12k in closing costs. Throw out the 10 yrs of opportunity costs putting our savings in a secure HYSA (4.5%) rather than index funds (11%) to afford a $100k down payment. Throw out maintenance ($5-8k annually) and all the time spent maintaining the home (thousands of hours).
You would be more than 3 MILLION DOLLARS wealthier if you continued to rent. The leverage helps you, but that 7% differential in average returns makes it inconsequential. The power of compound interest - it's literally the only way average people have any dream of becoming wealthy.
Homes are terrible investments, relatively speaking. It’s not even close.
You have an error in this calculation where you make the assumption that real estate prices keep rising over 30 years but rent prices remain stagnant. Both of these things can't obviously be true at the same time. A more realistic calculation would have both real estate and rent prices increasing over the 30 years.
Your calculation also obscures what is the interest rate on the loan, which is the most significant component affecting the result. Sure, if you assume a high interest rate (currently baked into the $4200 number I presume), then your result will be that home ownership will look very bad. Whereas if you assume a lower interest rate, you will get a result in the other direction.
I'm not claiming that homes are great investments. And I know that renting is currently cheaper than buying a home (with current interest rates). But I am saying that your calculation isn't making a fair comparison.
Valid-ish points. My calculation is my situation right now, and I don't claim it is going to be true for everyone across all time and eternity. But over the course of someone's working life, renting will net you far more money than buying in the vast majority of cases.
It's a basic power law situation. The only real question is WHEN the 11% return will overtake the 4% return. The interest on the 4%-returning loan is a factor, but it's secondary.
> The only real question is WHEN the 11% return will overtake the 4% return. The interest on the 4%-returning loan is a factor, but it's secondary.
If we ignore the interest rate on the loan and simply assume stock market always makes 11% and real estate market always makes 4%, then the situation becomes really simple and is in favor of real estate investing.
Suppose a person has $20k to invest and they are considering putting it as down payment on a house, or investing in the stock market. (Let's ignore future cash flows and how those are invested, just consider the initial investment of $20k.)
Stock market option: $20k with no leverage -> 11% ROI on a $20k investment
Real estate option: $20k of your own money + $80k of the bank's money -> 4% ROI on $100k investment (counting both your money and the loan) -> 20% ROI on $20k investment (counting only your own money)
20% is better than 11%, so if you could get a zero interest loan, then the real estate investment would be much better.
Now, if we assume the interest rate is not 0%, but is instead 4% (same as our expected return), then of course the situation looks bleak.
So the interest on the loan is not a "secondary" factor. It's the most important factor.
I think the main point grandparent in this thread was trying to say that it's very easy to get cheap leverage on a mortgage, and basically impossible to get cheap leverage on stock market investments, and when you put the math on the back of the napkin like this, it becomes clear that the access to leverage can make real estate investing more appealing than stock market investing.
>Let's ignore future cash flows and how those are invested, just consider the initial investment of $20k.
But that's only a tiny piece of the money you will spend on the house and ignoring this will obviously lead you to a false conclusion.
Anyway, you don't have to agree with the numbers. I can link you to articles where Warren Buffet also points out the same thing, but you don't have to believe him either. Or you can Google rent vs buy calculators and do the full picture math yourself, if you're really that interested.
An 11% return will always beat a 4% return eventually, no matter what the initial conditions are. The question is just when.
> An 11% return will always beat a 4% return eventually, no matter what the initial conditions are.
No, it won't. I already gave you a very simple and easily verifiable scenario where that 4% return will beat that 11% return because of leverage. If you don't even accept that hypothetical, then you must be arguing just for the sake of arguing.
> But that's only a tiny piece of the money you will spend on the house and ignoring this will obviously lead you to a false conclusion.
That simple example was not supposed to be a realistic model of the world. I'm fine expanding the simple example step by step into a fully realistic model of the world. But there's no point going there if you refuse to accept very basic arithmetic facts in the simple example.
Hey, I don't view this as arguing at all. I'm sorry you do. I find it valuable as a check on my own thinking and assumptions. If you are feeling negative emotions with this exchange, please walk away!
>if you refuse to accept very basic arithmetic facts in the simple example
I refuse to accept your assertions because they're simply incorrect. Basic power law math - a higher value exponent will always win, eventually.
>Stock market option: $20k with no leverage -> 11% ROI on a $20k investment
P = P_o * e^(r*t)
P = 20,000 * e^(0.11*t)
>Real estate option: $20k of your own money + $80k of the bank's money -> 4% ROI on $100k investment (counting both your money and the loan)
P = 100,000 * e^(0.04*t)
Set these two equations equal to each other and solve for t. This will give you the number of years the 4% return with a 100k initial investment will beat the 11% return with a 20k initial investment.
20,000 * e^(.04*t) = 100,000 * e^(0.11*t)
t = 23 years. After 40 years, the 11% return has beaten the 4% return by 3.3x
If I'm misinterpreting your "very simple and easily verifiable scenario," please let me know. But I don't think so. Your error is in this statement. I'll leave it to you to figure out why, let me know if you need help! ;P
>(counting both your money and the loan) -> 20% ROI on $20k investment (counting only your own money) 20% is better than 11%,*
Oh crap, you're right. Sorry about my tone earlier. What I didn't consider properly is that the leverage ratio goes down over time as your equity in the house increases. So even though you start off with a leverage ratio which allows you to beat the returns from the non leveraged stock market investment, after some point the leverage ratio goes down below that point.
I tried to do the math now (independently from your calculations) and I ended up with the number 16 as "years after which the stock market 11% return has beaten the leveraged 4% return". I think your calculation result 23 is different from 16 because it assumes the loan can be kept as "free money" instead of paying it back.
However, the flaw in this is that most people don't have the discipline to put excess cash they would have spent on a home into index funds and forego touching that money until retirement.
So a mortgage is a very compelling enforcement mechanism to get average people to save for retirement.
If we're being honest that's a much more powerful reason to buy a home than "leverage."
Not only that, it has better terms than a leveraged loan, since you can't get margin called! As long as you are making your mortgage payments you can't be foreclosed even if the value of the underlying property has plummeted.
Even aside from the many places where there has been a clear financial advantage to home ownership, a core value that drives desire of home ownership is stability of tenure. The control over ones destiny and the nigh impossibility that one could be forced to move has strong value.
That "control" is mostly a fantasy. I own an appartment and when I found mold damage I wasn't able to just fix it, I had to take the housing association to court and fought with them for 2 years. It's now fixed and I'm trying to sell the appartment and nobody wants to buy it. Then I read articles like this and it just makes me laugh at the absurdity of it.
In the U.S., only about 30% of homeowners are subject to housing associations.
I get how that seems odd if you live in a big city, a multifamily building, etc. -- associations and their problems are ubiquitous there. But it's not the experience of most American homeowners.
No, that's not how it works. The housing market is not like the stock market. Houses are not fungible assets. I could list my house for $1 today and by tomorrow no one would have even made a single phone call to enquire about it. A house is not sold until a motivated buyer is found, no matter how low you drop the price.
I explained to you pretty clearly why you are wrong. If you want to believe in this fantasy that housing market is just like any other market, I can't really stop you.
That definitely wasn't the case in the 1990s through to about 2020. House prices doubled about every 10 years in some areas while interest rates were about 2% on average. Housing has been by far the best small investment open to most people.
The problem now is that property buying at scale for the long term is a model private funds are trying, interest rates are going up, and housing supply at the lower end of the scale is constricted because there's no profit building those houses. All of which means people who want to buy a house rather than pay a landlord are basically screwed.
Not disagreeing with the general assessment however let's stick with facts... mortgage rates decreased during much of that period but were still above 6 through most of the 90s and even at the lowest, didn't get all the way down to 2.0%
I didn't say mortgage rates. I wasn't saying it was cheap to buy a house. I was saying that buying a house was a better investment compared to interest rates eg putting the money in the bank. I could have made that clearer.
It really depends what the rent-to-mortgage ratio is, which apparently varies a lot by area.
Where I live, rents are often about equivalent to the mortgage + property taxes, plus a little more. In other words, in the house I live in right now, my mortgage + property tax is about $2,500/month. If I were to rent it out, I could likely get $2,600/month for it, possibly up to $3,000.
In this scenario, if you plan on living somewhere permanently, there's not a single way to do the math that it works out that renting ends up being the better choice. Not only do you pay more now, but rent nearly always goes up.
> but there doesn’t seem to be a clear financial advantage to home ownership
Just the simple fact that money paid to rent goes into a black hole whereas money paid towards a mortgage that builds equity should be a clear financial advantage to home ownership.
Opting to rent is insanely short-sighted. Like, even if I could rent the house I'm in right now for $2,000/month ($500 less than the monthly cost of buying), over the next 10+ years, rent will very likely go up over time. And again, that money is just being burnt. When you buy, eventually, you don't have a mortgage anymore.
I think the only way renting ends up working out better is if you live in some crazy place where a mortage+tax is double the monthly cost of renting.
This is a creation of the US federal government — a 30 year fixed makes no sense without government intervention, since that is an absurd level of interest rate risk the bank would need to take. I don't know of any other country with 30 year fixed mortgages — most have something similar to the 5/1 ARM as the main option.
edit: Seems like Germany has fixed mortgages but makes it hard to refinance.
The fixed prepayment is what makes them insane. Fixed interest instruments are common, at least at the institutional level, but no penalty prepayment option is the crazy part, because it exposes the lender to all the downside if rates go up and none of the upside if they go down.
Belgium and The Netherlands have it too, though it's optional. Most mortgages have a 30 year runtime with a 10 year fixed rate. The longer your fixed rate, the higher the rate becomes.
For the Netherlands: While it differs per bank, legally you're allowed to pay up to 10% of your mortgage extra per year (some banks offer higher rates, I can do 20% for example) without extra costs. When the rate changes (due to going from fixed to variable, or variable with a large change in a year) you're allowed to pay back as much as you want, without extra costs.
If you want to pay back more/faster, the bank calculates a fee ("loss of income due to lost interest payments") that you have to pay, which is still cheaper than just doing your regular payments.
The above statement also applies if you want to refinance if, for example, your home went up in value. They can and will drop your rate but you have to pay a fine. That being said, in the past, when rate drops were really large, you could go to a different bank, have them take over your mortgage pay the fine for you just so they can get you to come to them (though I'm assuming they're no longer so keen on that).
I’ve heard this argument a lot on HN, and yes it can be argued, there are valid points, but personally I think it ignores some realities. First, the article is pointing out that housing prices are high enough that a growing number of people can’t afford the down payment. Second, for people who barely have the down payment, it takes a lot of discipline (and faith) to park all your money in the stock market and not spend it. It’s one thing when you invest disposable income, and another entirely to gamble your life savings. Plus index funds aren’t always outperforming real-estate, so you can’t base the argument on only the last 5 years. Usually this argument has come in the form of suggesting that the best stock market returns out there exceed real estate inflation, and so you have to be a savvy investor and stay on top of your stocks day-to-day, which is a very tall order for the bottom half of the population.
Okay on top of all that, a down payment is 20% of the cost of a house. Buying the house is perhaps a little more like a leveraged loan. If the stock market and real-estate were to both inflate by the same amount, your investment in a house gets you 5x the return that your down payment investment makes. In the mean time, all the money you pay in rent goes down the drain, whereas all the money you pay into the house above the down payment comes back to you when you sell the house. From my point of view, a house seems like a far better investment, when you factor in the rent you lose. And historically home ownership has been the single most important wealth-building tool for the average US citizen.
It is legitimately concerning that the median house price is so high, and the trend is continuing upwards. Some of the fuss is concern over the future potential of a crashing economy, and yes that certainly will give us bigger things to worry about.
Every person should be able to have a right to say "This is me. This is where I live. I belong here." It's all fun and games until you've lived in one place for 15 years and your landlord decides to sell the place out from under your feet because a developer wants to build a high rise.
I had the exact same thoughts as you when reading the article. It seems that many people are irrationaly fixated on home ownership as some kind of magical pathway for wealth. When you ask these people to put some numbers on paper, that magic goes POOF pretty fast.
If it was a universally better financial decision to not buy a home, then who would you rent a home from? Someone who made a bad financial decision?
If this was the case, then there would be more and more renters, and less and less tenants, so rent would increase, and make homeowning a better financial decision. There's a stable equilibrium there, even taking into account the various taxes involved.
Surely you can see the difference between giving away a significant portion of your income to your landlord, or paying towards your mortgage.
In one case you can sell your property and get your money back, so you can decide to do whatever you want with it (like index fund if you so chose). And in the other it's your landlord who's either paying their mortgage with your money, or placing it in said index fund...
While true (the landlord is obviously making money, otherwise they wouldn't be doing it), there are other variables worth considering.
If you decide to move, you pay 6% in real estate fees (extortion) to sell / buy. If you rent, the house never changes hands, and hence this fee isn't paid.
At least in many parts of the US, the financial loss of renting is currently less than the financial loss of a mortgage, after subtracting contribution to principal. In Seattle there are places where renting is $2k+/month cheaper than the non-principal carrying costs of the same place. Buying it instead of renting it would literally be lighting $2k/month on fire that you don't need to. A renter can invest that extra $2k/month, so they come out ahead.
The cost structure of landlords is often very different than the cost structure of new homeowners. They can make a tidy profit charging rent that is significantly lower than your mortgage payment.
I have this feeling too and recently started making a calculator which I intend to add a comparison for (housecalculator.co.nz)
Of course reality is nuanced - a friend of mine for example is building out essentially his own apartment in his garage and having his sister pay rent for his house.
I'm still not sure how best to add a "compare buying to renting" feature for the calculator, so any ideas are most welcome!
Depends when. A home is a leveraged investment, plus often exempt from capital gain taxes. If you bought it at the beginning of a large real estate bull market you probably did better than an unleveraged investment in the S&P.
It's not as simple as that. Home ownership can be a lucrative investment long-term, it depends on many factors. When property values appreciate a lot, as they have been recently, home owners have done very well.
The recent rate of appreciation is not typical. Homes generally appreciate at 3-4% per year. Subtract from that taxes, insurance and upkeep. They’re a terrible investment unless you own rental property, at which point your tenants are paying down the loan.
So, the alternative to buying, which is a terrible investment according to you, is renting, where you pay down the loan of the landlord. That’s better, how?
I didn’t say you shouldn’t buy if you need a place to live. I said they’re a terrible investment. Also keep in mind that while you may be paying down the landlord’s loan when renting, you are also paying a massive amount of interest when buying. At today’s rates, you’ll give the bank $565,000 in pure interest over 30 years to borrow $400,000, making your total outlay $965,000. Either way, a large amount of money is going up in smoke.
This opinion doesn't take into account the optionality of the mortgage and the opportunities provided to the borrower. American mortgages generally allow prepayments - if the value of your house increases rapidly, you can sell, pay off the mortgage, and pocket the profit. You can pay additional principal at any time to reduce interest payments. If rates fall, you can refinance. If the economy is great, you're borrowing at 7 percent while your investments are earning 10+.
If the value of your house rises rapidly, you cannot just sell because then you have to buy another house to live somewhere, which has also appreciated. See the other comments about this.
Not if it's an investment property, which is part of the reason real estate isn't, as the OP states, a "terrible investment."
Further, your claim isn't universally true. You could rent for a while, you could downsize to a smaller house, you could move to a location which hasn't experienced as dramatic price growth, or just an overall lower-priced region (i.e. Californians moving to Texas, Nevada, Montana, etc)
It’s not. This trope is repeated on this forum all the time.
Some people prefer the freedom of not being stuck in one place. Super duper. That’s excellent, they prefer renting.
Trying to convince the rest of the world that it is a sound financial decision in lieu of buying a home and establishing equity is where the argument over “renting is better than buying from a financial perspective” falls apart and the absurdities start getting thrown about.
Its heavily market-dependant, but assuming rent expenses = the cost of interest, from a financial perspective they are close to equivalent. If you take the money that would be paying off the mortgage to invest, you should be in a similar financial position at the end.
1-1 compariaons are hard, though, because in practice houses are huge levered bets on a RE market, so they can have huge returns if chosen well. Those are usually the kinds of markets where rents tend to be lower than the mortgage payment, however, so things might net out more even than you'd expect at the end.
Depends on the country I guess. Mortgage interest in AU is not tax deductible unless it's an investment (ie. owner-occupiers don't get a deduction). Consumption is not generally tax deductible, was my understanding (and living in a house is basically consumption)
The issue is that you are approaching this from a financialization perspective. The point of homes is not to be an investment. The point of homes is to provide shelter and a place to live.
I meant sub 10% of 28%, which is what the other FB founders got but you’re right that could be low 8 figures even after taxes.
Except you also take a pay cut for several of those years so your benefit from a billion dollar IPO over non startup really can be 6 figures if you’re not the CEO.
Too many of us are attached to our intelligence. I love this story bc it's a reminder that we should value personal excellence over intelligence. By personal excellence I mean making the most of the intelligence you’re given.
The arc of intelligence in Flowers of Algernon is the same arc we’ll all experience over our lifetime. With old age, we all lose our mental faculties. If we value intelligence, in and of itself, that loss will be very painful. But, if we value making the most of our intelligence, we are resilient.
Applying this framework to Charlie, there’s much less to be sad about. He made the most of the intelligence he was gifted, and that’s what really matters.
I think Alzheimer's is scary because it's not just about intelligence. If it was just that you become dumb(er), I wouldn't mind it that much. I must be an exception, but beyond a certain threshold (I wouldn't want to be drooling idiot) I'm not that attached to my intelligence. I'm painfully aware that I'm average and that I had the luck of having an education and a stable home that other, more intelligent but less fortunate people than me, didn't.
I think Alzheimer's is scary because your whole personality goes. Cognitive functions. Memory. You stop being independent. You cannot do the simplest things by yourself. Things become scary and you're not sure why. You are alone, surrounded by strangers.
If there was a progressive illness where you got less intelligent, but still able to function and tell who your loved ones are, remember things, and at least understand where you are and your new place in the world, to me it wouldn't be half as scary as Alzheimer's.
I can corroborate your insight from personal experience. I had a stroke a few years back and, while I was recovering, my intelligence was drastically reduced. I always derived a great deal of my identity and self-worth from being "smart", and would have predicted that operating at maybe 25% capacity would be devastating. In fact, it wasn't. I was aware (certainly!) that I was operating at a deficit, but I still felt like myself.
I was able to love and feel loved, experience joy, and humour, and enjoy good food, and watch movies and sports on TV. About all I couldn't do was read (well, I could read, but I couldn't follow complex prose), which sucked, but nearly all of what made me me, and made life worth living, was unaffected. Intelligence is overrated.
Your description of dementia, however, is only true from the outside. Prior to that stage, I passed through a period of about a week where I was completely absent. I was able to behave coherently for short periods of time, but I wasn't creating any memories. It's a blank. (I have text threads saved with friends where I tell them what's happened and where I was, carry on for a bit, and then loop back to the beginning.) If identity is a pattern both stable and self-modifying over time - which, based on this experience, I believe it to be - then I had ceased exist.
I've made an agreement with my wife that, should I become demented in old age, she should feel no moral compulsion towards any course of action. She's welcome to keep whatever is left of me around so long as it gives her joy, but "I" will no longer be present, and whatever happens to whatever is left no longer matters. As far as I'm concerned she should warehouse, or (better, though unfortunately not legal where we live) euthanase my body, and get on with doing something useful with her time.
Thanks for the kind wishes. I have some residual neuropathy in my right hand, and I have to take anti-seizure medication every day or my brain tries to kill me. Either the medication or the brain injury has reduced my brain-power and ability to articulate my thoughts by about 10%. There are some things that were easy before that aren't possible now, but all in all I've had an amazing result. The experience has entirely removed my fear of death, so it may even have have been a net positive. I can't complain!
As another reply has stated, losing some intelligence is not so terrifying.
Alzheimer's is. I've seen it up close over its course twice. It's as bad as people imagine. You never forget the sound of someone drowning in their own saliva.
Well said. The more I read and attempt to understand LLM and AI the more interesting the parallels to the human mind. Our conscience mind is similar to a model and weights are applied in the training of our model in a variety of ways. Parents, school, environment, illness, books, video games , relationships, religion, etc all work to help fine tune our model and in essence develop our presented conscience self (well maybe … ). Breaking down of the neurons leads to the model itself breaking down and the conscience person we know is lost.
Perhaps there is more than us than just our conscience personality and the essence that vibes with the larger pattern of life and reality itself is more than our little personalized highly tuned version of “me”.
I thought it was well understood that your mental/physical potential peak when you are young and degrade thereafter? E.G. comparing 26 year old self to 86 year old self.
But a saving grace is the degradation can be combated with exercise both mental/physical.
I am not sure how much of aging is understood, so I hesitate to mention stuff like DNA damage.
I think that's a total misconception. I think the myth that "the brain stops developing at 25" was an apocryphal conclusion from a study where they simply stopped measuring past 25 and that either the same study or other studies found many brain faculties don't plateau, ever, even in advanced age. I also heard that it's highly variable from person to person how the brain develops, like some 8-year-olds had faster development in some regions than some 30-year-olds.
One thing's for sure though: we're still in the stone age of neurology.
so primitive. but we're finding things out, from ultrasound surgery to cut out the addiction center of the brain, to influencing motivation/treating depression with magnetic/electrical fields with TMS and tdcs, we're ever so slightly making sharpened stones and crude axes of the stone age we're in
There's a difference between slowing down and losing cognitive abilities. It's one thing to not be able to solve very complex problems anymore and another to not remember how to use a toothbrush. I don't think anyone's really disputing that we're on average more capable in 20s-40s.
In medical school we were taught that basically everyone gets alzheimers, or would get it if aged up to a certain age (200, 300, etc). You could make the same argument for cancer - actually in that vein prostate cancer is a big one people die with but not of. When you study the body enough you realize that every system at every micro/macro level is failing slowly with age, but we can only pick on one of them as the cause of death.
Re: citation needed : failed literature search link needed as pre-requisite
I imagine there are many parties interested in taking over WeWork. Given how much commercial real estate has cratered and the shift towards hybrid work, the business model is promising once they reset their cost base through bankruptcy.
I'll be amazed if Neumann manages to come out on top of this deal given how much incentive Softbank has to stonewall him. They've already been fooled two or three too many times by Neumann.
Why on earth would you want to let someone know that you had a big payout? It's none of anybody else's business how much money I have and if nobody knows you can walk downtown in peace, go to restaurants, hang out with your same friends, and still have lovely ski or yacht holidays in peace.
The Bay Area and Seattle have quite a few "unknown" billionares. For example if you had less than 5% of Microsoft when it IPOd you were not listed in the S-1, and if you hung on by the mid 90s you could have been worth 8-9 figures.
> Why on earth would you want to let someone know that you had a big payout?
One reason is that it can help attract talent & useful connections. If you're a known billionaire, I imagine it's pretty easy to get a meeting with anyone, which could lead to educational & enriching conversations that you otherwise wouldn't have access to.
I'm curious if there's information from ppl who've experienced this type of publicity, where they thoughtfully evaluate the pros & cons, and evaluate how they net out.
The concept of profit itself means you are beating the market by taking advantage of someone else or extracting value through arbitrage. In a perfectly competitive market with zero barriers to entry, profit margins will converge on zero as new entrants capture market share or competitors leave overcrowded markets.
Edit: this is classical economic philosophy, not my personal opinion
Just because you dislike it doesn’t mean it’s not a useful framework. And yes, it does come up in first year econ classes, as well as in advanced courses that study the history of economic thought. If you bothered to read the linked page or do your own research on “economic profit” you would realize that the “normal profit” you’re thinking of is a distinct subject.
Edit: also keep in mind that literally all of economics up until relatively recently relied on broad assumptions like the rational consumer. Kepler thought the sun was the center of the universe, does that invalidate his laws of planetary movement?
> Just because you dislike it doesn’t mean it’s not a useful framework.
You've got your arrow of causality backwards. People dislike it because it's a useless framework when taken in the simplistic way you've presented it.
The actual concept doesn't say that you can only make a profit by stepping on people's heads. It says you can't profitably do the same thing in a market forever. You have to introduce new and better products, which you can profit from until your competitors catch up.
The implicit assumption you seem to have here is that building the “machinery” to get to the point of a “frictionless”/perfect markets is not fundamentally valuable to everyone.
The implication in fact is that it’s immoral to be ‘paid’ for doing so?
I’d argue that just makes the world a poorer place overall, as there is no direct incentive to do things better. In the typical environments this plays out, there is actually a lot of incentive to do things worse.
Cost plus is one way of doing this kind of thing, and that gives strong incentives to inflate costs, for instance.
gov’t budgets are another, and anyone who has worked in the government or other large organization knows you’d better spend your budget each year or you’ll lose it. So no one ever has any left over short of something crazy happening.
> Fifteen months into the regulatory review process, Figma and Adobe no longer see a path toward regulatory approval
How in the world did it take fifteen months for regulators to reject this? That’s an absurdly long time to be operating a business in limbo, and I have to assume it’s the regulators dragging their feet since the companies have every incentive to move quickly.
I don’t have an opinion on whether or not the merger should be approved, but regulators need to make up their minds quicker or else you can expect a serious chilling effect on M&A. Can you imagine agreeing to get acquired knowing that it can take up to 2 years to close? Anyone operating a real business would be crazy to sign on for the distraction.
I would argue that the regulators made their point pretty clear early on when the DOJ opened a lawsuit against Adobe. The people most responsible for keeping this in limbo were Adobe’s lawyers.
I'll admit when I'm wrong. The DOJ announced back in February that it was "preparing to sue", but appears to have never officially filed that lawsuit. My mistake.
Nonetheless, I think my point still stands in that the FTC and DOJ made how they felt about the deal pretty clear.
Your comments are straight up factually misrepresenting what happened. There were plenty of news reports early this year that DoJ was preparing to file suit against the merger. I guarantee they were in close contact with Adobe's lawyers, and the normal process here is that Adobe's lawyers/execs come back and say "hold up, let's see if we can make a deal" - that's essentially what happens in the vast majority of lawsuits.
Adobe (and Figma) knew full well this deal wasn't a slam dunk from the beginning.
Threatening a lawsuit is better than nothing but it definitely didn't lead to a quick resolution. At a certain point the answer to whether they can make a deal needs to be "no", not "we'll wait".
You’ve posted this about me twice. I haven’t shown any ire and I think it’s counter to the spirit of hacker news to suggest bad faith in my posts based on my proximity to the topic.
Have you mentioned at all in this thread where you are vociferously and borderline disingenuously defending your employer that you are in fact a figma employee?
Speaking for myself and not for Figma and I wouldn’t want to muddy that fact or imply that I have meaningful non-public information. I don’t think anything I’ve said is either vociferous or disingenuous.
I actually haven’t even said whether or not I agree with the decision or whether or not I think the timeline is reasonable (in the sense of whether the benefits and needs of the timeline justify the cost of it), so that doesn’t seem vociferous to me.
If I was being disingenuous I’d post on a throwaway, not an account that you can trivially connect to my identity.
This deal already has fallen through. What I type here has no possible impact. So idk what the motive here really is.
I have a bunch of different feelings about it of course, but I think what I have said here has been factual and verifiable against public information.
One of the things I’ve always enjoyed about hacker news is that it isn’t purely a peanut gallery and people involved in the companies and technologies we talk about do post here. Attributing bad faith to those people when they do participate seems antithetical to the spirit of this place.
The Broadcom & VMware merger took similarly long and was approved. The duration is completely unacceptable and poison to business. I'm general against mergers and think it's better for consumers and the market if competitors fight to the (metaphorical) death instead, but if we do something, let's do it smoothly and right.
That said, for mergers like that a ton of countries are involved which makes things even more complicated and makes it harder to point out where we need to make things smoother.
> Broadcom & VMware merger took similarly long and was approved. The duration is completely unacceptable and poison to business
The number of such mergers, globally every year, is countable on two hands. They involve the wealth of nations (this one’s similar to Malta’s GDP [1][2]).
It would be unreasonable to permanently staff the regulatory force that would be required to quickly review such deals in any industry.
Do they though? People often compare rich people or companies to a country GDP's, but GDP is based on a single year. The size of a company's bank account is not. A year is pretty arbitrary. In some sense it's like saying the distance between New York and Washington is 200 miles which is not that long, because a Ferrari's top speed is 200 mph.
> it's like saying the distance between New York and Washington is 200 miles which is not that long, because a Ferrari's top speed is 200 mph
It’s saying the distance is within a class negotiable by a Ferrari.
In the GDP to value case, we’re saying that the consideration at hand is comparable to all of the work of a small country for a year. So the care the latter gets is in the same class as the care the former should receive.
I don't understand. If there are several per year, and they're going to take a couple months even at maximum speed, then permanently staffing the regulatory force sounds very reasonable to me! (For the US and EU which are going to weigh in on a big fraction.)
Why would you want to be hiring and firing constantly?
> permanently staffing the regulatory force sounds very reasonable
There are permanent staff. There are also legions of industry experts contracted on a case by case basis. Full staff on standby would mean having, on retainer, experts in every industry where a merger might happen.
There are permanent staff. The issue of time isn't any individual regulator - it's that there's regulators in every country they operate in. And the company is negotiating with them all simultaneously - figuring out what would make the EU say yes, and then taking that to the US and see if that will let them say yes, then going to Japan and making sure they'll say yes, then going to India - and you don't want some of them knowing that everyone else has already said yes, because then they'll hold out to get some last special thing.
These are complicated negotiations, in many complicated jurisdictions.
How quick do you think they should be? For everyone to understand the potential ramifications and consult appropriate industry experts? Let competitors et al file briefs?
Once they get working on it, I would think they could get consultation and competitor briefs back within a month. Then have an initial answer within two months of the announcement, and if that answer is a "no" they'd have a good idea of what would need to be changed.
And I don't see a great reason that negotiations should more than triple that amount of time. If they're not budging, make the "no" final. So two months initial, six months max, would be good numbers.
If the company wants to negotiate with everyone in serial... that's their problem.
> and you don't want some of them knowing that everyone else has already said yes, because then they'll hold out to get some last special thing
Wasn't the thesis of this comment line that government regulators are being slow or being a problem? This supports that idea, I think.
I don't know anything about the Adobe / Figma situation, but "If you just don't question the government they won't make your life so hard" doesn't seem like a very strong response to accusations of overreach.
Your completely correct if you mean the norm since the 80's when antitrust enforcement was abandoned. Her stances completely align with the standing anti-laws and regulations that have existed for over 80 years. The anti-trust bar and big business have been trying to redefine what anti-trust is for the past 30-40 years which is what got us into this mess of giant firms and too big to fail economics.
The perspective that bringing back regulatory action is outside the norm shows just how skewed economic thinking has been in the US.
It's not just "regulatory action" that the FTC under Khan is embarking on - it's outright hostility and refusal to even work with companies she personally doesn't like.
There is a difference between enforcing laws and then just trying to burn down everything you touch. Khan is embarking on the latter quest (see the way she tried to handle the Within Unlimited acquisition.)
It would be different if the FTC actually attempted to engage in good faith. As someone that has seen them in action recently, they do not.
I agree there. We seem to be recovering from a cycle of not caring about monopolies at all, and corporations are now as strong as they were in the late 19th century. I am not surprised that anti-trust is slow and unpredictable today. I hope that we settle into a more predictable regime, no matter which political party is in power.
For historical references, anti-trust filings began against Standard Oil in 1906, and it was broken up in 1911. [0]
The AT&T breakup took four years, from 1978 to 1982. [1]
When the powers that be decide to block a merger, they have to make the case. There's looking at the proposed merger and being able to say "this is bad and may be antitrust," and then there's actually making the case when it comes down to it. That takes time. And you can expect companies like Adobe to fight rather than just saying "oh, you don't like this? OK. We'll withdraw."
The DOJ and other bodies voiced opposition early on. They signaled quickly that they were not in favor of this. The interim between those actions and today were the regulatory bodies actively making cases against it and/or negotiating with Adobe & Figma how they could proceed in a way that the regulatory bodies would want to approve of the deal.
The whole idea that this was "half-assed" in some way is misguided.
Note that I worked for Red Hat while IBM was acquiring it. It took from (IIRC) October 2018 to July 2019 without strong opposition. When you're talking about companies that have that much impact on a market, it takes a while.
And it should -- the larger market doesn't benefit from waking up to find out that a major software supplier has been gobbled up overnight. You can see the pain that VMware employees + customers are going through right now and they've had a lot of time to process the idea.
> it's better for consumers and the market if competitors fight to the (metaphorical) death instead
I never understand why this is the only other option. If you're in a town and open a coffee shop, and someone else opens a coffee shop, if the town is big enough, you can both thrive. You don't have to try to take out the competition. But every big corporation decides it's the only option.
VMW-AVGO was held up by the Chinese and South Korean regulators - it gets geopolitical. sure would be nice if everything was clear and clean for businesses but also it would be nice if I had a pony and magic shoes.
> That’s an absurdly long time to be operating a business in limbo, and I have to assume it’s the regulators dragging their feet since the companies have every incentive to move quickly.
Your understanding here is fundamentally wrong. Regulators in the US said very early on they were against this merger and were going to fight it. So most of what goes on in the meantime is Adobe and Figma (a) seeing if they can give something up to appease regulators (e.g. it's common for regulators to only sign off on a deal if one of the companies sells off some assets) or (b) decide if they're going to fight the regulators in court.
Your idea of the regulators just "dragging their feet" is incorrect
The regulators moved fast. I had detailed conversations with regulators about this merger weeks after it was filed. They moved extremely quickly to signal that they were going to block it.
This is a really inaccurate factual understanding of the sequence of events here: I would urge you to look at the actual timeline of events around the CMA and the DOJ before you keep spreading it.
The idea, proposed by the comment I was responding to, that regulators were just twiddling their thumbs and then only gave a thumbs down to Adobe after 15 months is wrong and completely misunderstands how the regulatory process for merger approval works.
It also said the lawsuit would be filed “in February or March”, but it was never actually filed, so what factual relevance do you think that article really has? Moreover, the DOJ wins less than one in three of these kinds of cases: the US system is an adversarial one where the courts decide so it makes no sense to immediately abandon in the face of DOJ opposition.
What is also true is that the uk finished its phase 1 review (where they decide to send it for further phase 2 review) in June, so 9 months after the deal was announced. Phase 2 leads to changes in about 50% of deals. The phase 2 deadline was late February 2024, about 18 months later.
I don't think any of this is indicative of anyone sitting on their hands or twiddling their thumbs, but it’s clearly a slow process and that uncertainty clearly isn’t good for the parties involved.
That's a little over a month after the announcement was made. That is "very early on" in the 15 month "sequence of events."
Keep in mind, this was the announcements. FTA: "The DOJ has been contacting customers and competitors of Adobe and Figma, as well as Figma’s venture capital investors, in recent weeks, the people said. According to one of the people, the DOJ has already issued civil investigative demands — information requests similar to subpoenas — an unusual move at this early juncture in the probe."
So, we are talking about significant action being taken less than a month after the announcement.
I'll grant you "very early on" is subjective, but I feel any reasonable person would say that this constitutes "very early on".
In short, I would urge you to look at the actual timeline of events around the CMA and the DOJ before you keep spreading an inaccurate factual understanding of the sequence of events here.
It seems wrong/illegal that they can just "decide they're against the merger" and sink it by dragging their feet. Its either legal or not. I haven't dug into the details, but based on this one line alone it sounds like this is abuse of power.
They literally indicated they were against it from early on, but Adobe tried to brute force it through and after careful review they said, “still no.”
Also, it’s not as if Figma has been sitting around all this time waiting for their dear Adobe to close. My understanding is that more than 500 new people have been hired since the deal was announced (total is now like 1300+) and growth continues.
I’m just glad Figma can now move on without having to do some “roadmap alignment exercise” or doing the “gradually falling apart” that so many Adobe acquisitions have done.
The real thought should be why Adobe was willing to pay twice the recent valuation to take Figma out as a competitor, and why only European regulators had a problem with it. They have a tendency to kneecap anyone who’s a substantive threat to their market, and we need viable competition in the space.
It may not have been particularly timely in terms of review, but it was never inconsistent. And we have no idea what kinds of delays were put on the deal, including delays from the Figma and Adobe teams.
Another way to say "decide they're against the merger" is "evaluate the situation and make a timely ruling that they oppose the merger as illegal."
Which is exactly what they were supposed to do. Adobe and Figma tried to argue with the regulators or find a compromise, but couldn't come up with a solution that satisfied all parties.
If you try to extract subtle implications from the phrasing of a commenter on HN, you're likely to jump to the wrong conclusion.
But that's the point: it's not timely. It's a massive millstone to Figma, who now have to figure out what to do with their pixel-perfect UI designer collaboration tool in a world of an and coming Adobe Firefly.
It seems they are saying the merger as is will be illegal, however they give both companies some time to do something that will make the deal work. 15 months is a short time if you have to sell enterprise assets or let competition emerge to show the merger isn’t a danger to the market.
If companies want a fast answer they can ask for one and it will be no.
All said I do not worry about if billion dollar companies are being fairly treated. They have the capital and expertise to protect their own interests and it’s not worth it to preemptively fight on their behalf.
Perhaps I should introduce you to the legal system? Adobe proposes the merger, DoJ says they will sue to stop it. At that point, if the parties can't come to an agreement, it goes to the courts.
I think it's fine to argue our legal system is too slow, but again, this idea that regulators are just "dragging their feet" to slow things down is fundamentally incorrect. Regulators announced quite quickly they would fight this deal.
Welcome to the world of antitrust, where almost everything is in a grey area and vibes-based. Never seen anyone who studied this area (and who didn't already work for a related Federal agency) who didn't conclude that this was a big mess, no matter their opinions on how it should work.
we have no idea when they filed what papers where ... and when regulators answered and what, and then how the companies reacted, and when, and ...
on the announcement, Sep 15, Adobe stock fell by 17%. the FTC opened some investigation on Nov 2. some EU thing started its process in February (based on filings by refering countries, and of course we have no idea of the details of those country-level processes)
so, all in all, it's likely that relevant authorities quite soon signaled that Adobe-Figma is facing an uphill battle, and now, as they announced, they backed down.
we have no idea of the negotiations, who was fast or not, who recommended what, asked for what guarantees, and so on.
> How in the world did it take fifteen months for regulators to reject this?
They didn't. They started seriously investigating it less than a month after the announcement and publicly shared this information just over a month later.
> but regulators need to make up their minds quicker
They did. Adobe and Figma were trying to appease regulators by figuring out if there was a way to handle their concerns. They aren't willing to divest themselves enough from their existing portfolio or offer concessions.
If you want them to make up their minds quicker, then the default answer should be No. With weeks not even being an acceptable time frame for action, anything other than No is harmful.
It is not a simple yes/no response from the regulators. First, they will request additional information. That will take some time to prepare. Then they would offer some changes to the proposal. I.e. we cannot approve this deal until some additional requirements are met. Then parties involved evaluate these requirements and counter. At some point business will decide that there are too many constraints and abandon the deal.
The DOJ already signaled it wanted to block this on antitrust grounds almost a year ago. If "regulators" had immediately rejected the deal, there'd be a similar "oh, this will have a chilling effect" complaint because they slapped it down without adequate due diligence.
This is one M&A deal out of many. The vast majority -- even some that shouldn't be approved IMO -- sail through or squeak through due to persistence. I just can't find it within myself to feel bad for Adobe in this, since the most likely outcome was to just solidify Adobe's grip on the market and reduce competition. I know quite a few people who use Figma who were absolutely dreading this merger.
Not a good thing when it's taken to absurd lengths. See Lina Khan's attempt to block the Within Unlimited acquisition. The problem with the current administration is that there's no good-faith path forwards to get anything done. If you have worked with the FTC recently you'd understand what a hostile clusterfuck it is.
you should really link to something about it that your specifying. Cause it really looks simiar to blocking Microsoft from buying Activision.. A company that makes the hardware trying to buy up all the independant software vendors and have them only make software for their hardware is getting really, really old. I think the only people that would complain are the ones who would directly benefit.
I want it to be taken to absurd lengths. If and/or when the negative ramifications of discouraging mergers/acquisitions even begin to approach the damage that encouraging them has done to our economy and society, and only then, we can consider slowly reducing the pressure against.
Seems like regulators didn’t reject it, but tarpitted it?
And with market conditions having changed so much in 15 months, this could just as easily be buyer/sellers remorse before the deal actually closes. For a 15+ month closing, it wouldn’t be the first time!
Actually completing mergers/buyouts takes years anyway.
> How in the world did it take fifteen months for regulators to reject this?
Presumably regulators in a few countries were interested, each with their own processes, and presumably there's some fairly significant back and forth between the regulators and adobe/figma as adobe/figma tried to convince the regulators that the deal should go ahead.
15 months seems very believable for a deal of this size.
> How in the world did it take fifteen months for regulators to reject this?
I agree with your overall point that the current regulatory process related to anti-trust M&A very much needs to be improved. While the delay may be the proximate cause, focusing on that risks failing to address the fundamental root cause of the problem, which is A) lack of clarity in regulatory policies and the underlying laws authorizing them, and B) their inconsistent application across different industry contexts and between different international jurisdictions.
The lack of clarity can be improved by regulators adopting clearer public guidelines about how they will interpret and apply the rules (and then establish credibility by actually sticking with those guidelines over time). Improving consistency across jurisdictions is more challenging but still possible if regulators in the largest domains (US and EU) collaborate to harmonize their policies (as is done in many other regulatory contexts).
Recently, Lina Khan in the US has made this problem far worse by aggressively pursuing quite extreme interpretations of anti-trust law, and worse, doing so without establishing any corresponding framework or justification. As a result, this bungling has caused her agency to lose several high-profile cases. So far, much of this bungling seems to be "just for show" (ie political posturing) since it's not working.
Unfortunately, it also has the effect of nerfing the market for entrepreneurial exits via acquisition. While it's true that acquisitions large enough to attract anti-trust scrutiny are outliers, much of the money invested in earlier stage startups (which drives most new job creation in the US), is justified by average returns substantially propped up by a few such >100x acquisitions. Half the extreme high-end outliers being lopped off by regulatory uncertainty around large acquisitions is one reason capital for new business creation and growth is getting scarcer and more expensive. The point being, this matters to our industry and jobs.
I was referring not to just valley tech startups but investing in new small businesses overall. Per the U.S. Gov Small Business Administration:
> "Despite the jobs lost during the recession, large businesses generated 6.7 million net new jobs over the past 25 years. During the same period, small businesses generated 12.9 million net new jobs, meaning small businesses have accounted for 66 percent of employment growth over the last 25 years."
> "18% of small businesses fail within their first year, while 50% fail after five years and approximately 65% by their tenth year in business. This information is as per the Bureau of Labor Statistics."
Combined with the long-term (25-year) data I cited further above, this indicates the majority of small businesses are started up recently. The pool of small companies is constantly turning over and refilling with new startups - of which the vast majority die in less than ten years and a very few grow to be large companies (thus no longer counted in the pool). By definition, the shape of the small business pool must be a very slender, very long curve when graphed by employee count.
I think the tech community has perhaps a different set of connotations associated with the term "startup" than the non-tech, non-valley populace. The vast majority of startups (ie small companies started in the past five years) aren't technology companies and aren't fast growth. Yet there are so many of them, they comprise two-thirds of new job creation. Even better, many of these newly created jobs are entry-level, don't require advanced degrees or rare skills and don't require relocation to costly and crowded urban centers.
I think this misconception of small businesses is pretty common in the high tech community. Before I was a tech entrepreneur in the valley, I started out as a non-tech entrepreneur far from the valley. Then I was a tech entrepreneur far from the valley, in a mid-western U.S. state. Despite being in the fairly large state capital, the largest regional newspaper wrote a story about "Tech Companies Here in the Capitol", citing my software startup and the local Radio Shack store as the only two :-). Yet the local Chamber of Commerce, Small Business Administration and entrepreneurship clubs were overflowing with pre-launch and just launched new startups ranging from a new kind of farm animal feed distributor to sandwich shops to (non-franchise) local restaurants to karate studios. Together these small businesses employed thousands of people in a city whose population could probably all fit within a few square blocks of NYC.
I also want to point out, the organic, diverse, self-renewing nature of small business reality outside the tech, valley, urban bubbles is incredibly encouraging. As much as I love tech (and how rewarding it's been for me personally), I'm thankful the fickle, boom/bust, incestuous nature of high-tech startups is statistically the rare exception of new companies being started which drive new job creation.
Well, I'd just call those new businesses, but dictionaries agree with you. I was using Paul Graham's definition of "startup", which is something more specific: http://paulgraham.com/growth.html. That's about growth, not tech, so feed distributors could qualify.
Keep in mind that you are reading a corporate press release/propaganda piece, not journalism. It is going to be inherently one sided and will not tell the whole truth. Never take these kinds of statements at face value.
The current administration has made it very clear they will block nearly all attempts at mergers and if they can't block it will drag the process out as long as possible to make it as unappealing as possible.
I'm going to guess regulators are plenty busy with a long list of things to do. When the acquisition gets announced it gets added to the list and they make their way to it.
I really doubt regulators are dragging their feet. They are most likely understaffed and overworked. Things this big should take time for all sides.
23andme is a public company and seems to already be headed towards bankruptcy. Their share price has fallen by 93% since going public, and they’re burning something like $400m per year on $240m of revenue. I wonder if this incident will be the nail in the coffin.
Oh man I wish knew sooner & shorted when they IPOed. Their employees are some of the laziest, most incompetent people I've met and I've yet to hear of a positive interaction with them in a businesses/research/engineering capacity.
The size of his streaming audience is largely predicated on his perceived skill though. So, he may hypothetically feel pressure to cheat in order to impress his audience.
I'm not sure that translates very linearly. Most of the chess YouTube "stars" are not even GMs. Most of the viewers are hardly good players, so what you can learn from an IM is astronomical. Charisma and good at teaching are much better skills than a 1000 ELO difference imo. To your point, beating Magnus might drag a lot of people to his stream.
They watch Hikaru because he is fun while he plays and wins.
Offline, he is #4 is slow chess and #1 in Blitz.
He's not facing strong challenges on Titled Tuesday, and (like all top players) he is so good that there simply aren't enough players and data to make the empirical Elo scale work for assessing his win probabilities.
