You assume the 5% per annum is going entirely to equity. Consider that property taxes, HOA fees, utilities, mortgage interest and maintenance all contribute to the ~8% figure, and your p/a equity looks closer to 3%.
Now let's compare if you were to purchase stock/ETFs with that equity investment instead of investing in your house.
Let's do a housing-optimistic comparison. Let's say you get a 2% dividend (nothing special) on the stock and the stock price declines at 0.5% per year. For the house, let's say you gain 3% equity per year and the home price stays flat. Rent costs are 20% higher than your expenses for the house, so you can only gain equity in the stock at 80% the rate you do in the house.
Over the same time period that you would pay off your mortgage and get 100% equity in a $100,000 house, thanks to compounding interest, your stock is now worth $107,000. That means that you have 7% MORE value in stock--even though you paid 20% more rent for the entire period of investment AND the stock price tended to decline (slowly) over time.
If we adjust to something more balanced (3% equity per year, 3.5% dividend, stock price stays flat, rent costs are 15% higher) the result is even more dramatic: 53% more value in the stock option.
Of course, all these numbers would be better if backed up with real-world statistics, but it's something to think about.
I don't make any assumptions about that 8% - I used the figure and the assumptions from the original article.
If you rent, and put the difference into a savings account, then using the assumptions from the article, you'll be able to buy a house outright in 20 years.
I think you're pretty much agreeing with that..?
I am of course assuming that interest rates (or other return on investment), house prices, inflation and salary increases are all sensible, going in the same direction at the same rate, or near enough.
If you put your money in a pure tracker (e.g. tracking the Dow Jones, FTSE 100, or similar index), then you'll probably be better off in the long term, perhaps able to buy outright in a little less time.
Now let's compare if you were to purchase stock/ETFs with that equity investment instead of investing in your house.
Let's do a housing-optimistic comparison. Let's say you get a 2% dividend (nothing special) on the stock and the stock price declines at 0.5% per year. For the house, let's say you gain 3% equity per year and the home price stays flat. Rent costs are 20% higher than your expenses for the house, so you can only gain equity in the stock at 80% the rate you do in the house.
Over the same time period that you would pay off your mortgage and get 100% equity in a $100,000 house, thanks to compounding interest, your stock is now worth $107,000. That means that you have 7% MORE value in stock--even though you paid 20% more rent for the entire period of investment AND the stock price tended to decline (slowly) over time.
If we adjust to something more balanced (3% equity per year, 3.5% dividend, stock price stays flat, rent costs are 15% higher) the result is even more dramatic: 53% more value in the stock option.
Of course, all these numbers would be better if backed up with real-world statistics, but it's something to think about.