Author Topic: Author of Article Claims, "A Home Is A Lousy Investment"  (Read 1311 times)

William

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Author of Article Claims, "A Home Is A Lousy Investment"
« on: March 13, 2013, 07:27:24 PM »
http://online.wsj.com/article/SB10001424052702304259304576375323652341888.html

1) He doesn't factor in renovating a home to make it worth much more
2) I'll be his numbers for home ownership are hardly mustashian
3) He doesn't discuss investment properties

This article got me thinking.  It's a long but would make a neat discussion.
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mpbaker22

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #1 on: March 13, 2013, 07:31:04 PM »
His analysis is also geared towards the average person who buys a home to live in for himself and pays someone else to do any renovations.

arebelspy

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #2 on: March 13, 2013, 07:55:39 PM »
As is said, you can't live in a stock certificate.

Comparing stock returns to house returns is stupid - you have to have somewhere to live, so the correct comparison is comparing renting to owning.  Count the opportunity cost of your purchasing down payment (i.e. that money you bought a house with could be in stocks, sure but then you'd need to be renting.)

In some places it makes sense to rent.  Others, to buy.

A home is a place to live.  Compare all costs of a place to live (rent vs own), including opportunity cost, and see which is the best option.

The fact that if you could be homeless and invest it all in stocks is irrelevant for most people.

Also, an anecdote to show why renting in some places is silly: tell my tenants who pay 1000/mo rent while I pay the bank a PITI of $340 that owning is a bad investment.   I'll let you run the numbers.
« Last Edit: March 13, 2013, 07:57:57 PM by arebelspy »
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James

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #3 on: March 13, 2013, 08:10:42 PM »
His conclusions aren't too bad, but he builds and destroys a lot of straw men getting there.  We don't need such overreaction, the best answer is just what arebelspy said, do what makes sense for you in your market.
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JohnGalt

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #4 on: March 13, 2013, 08:33:15 PM »
Also, an anecdote to show why renting in some places is silly: tell my tenants who pay 1000/mo rent while I pay the bank a PITI of $340 that owning is a bad investment.   

I bet you don't really want anyone to tell them that...

Nords

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #5 on: March 13, 2013, 09:18:46 PM »
His conclusions aren't too bad, but he builds and destroys a lot of straw men getting there.  We don't need such overreaction, the best answer is just what arebelspy said, do what makes sense for you in your market.
The date on the article is July 2011.  I wonder how the author feels today.

Quote
At the risk of heaping more misery on the struggling residential property market, an analysis of home-price and ownership data for the last 30 years in California—the Golden State with notoriously golden property prices—indicates that the average single family house has never been a particularly stellar investment.
In a society increasingly concerned with providing for retirement security and housing affordability, this finding has large implications. It means that we have put excessive emphasis on owner-occupied housing for social objectives, mistakenly relied on homebuilding for economic stimulus, and fostered misconceptions about homeownership and financial independence. We've diverted capital from more productive investments and misallocated scarce public resources.
I'm pretty impressed with his ability to generalize three decades of California to an entire nation for the future of mankind.  But, hey, he wrote a great attention-grabbing headline.
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arebelspy

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #6 on: March 13, 2013, 09:52:34 PM »
Also, an anecdote to show why renting in some places is silly: tell my tenants who pay 1000/mo rent while I pay the bank a PITI of $340 that owning is a bad investment.   

I bet you don't really want anyone to tell them that...

They know buying is smart in this market, and would love to buy, but can't afford cash, and can't qualify for a loan.

I may owner finance it to them.
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Kazimieras

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #7 on: March 14, 2013, 10:20:12 AM »
Owning a house is just a hedge on your future costs (assuming you are not one of those people who use it as a forced savings account). When you have paid off the house your costs become very predictable. Sure you have a large assets sitting there doing very little, but you don't have to worry about the landlord suddenly increasing the rent, or you being forced to move at a bad time, etc. So as a home owner you have less risk of unpredictable costs and events in the future. The downside is that there is a cost-benefit for that reduced risk, which is the money in the home could have been doing something else, possibly earning you more money. And you have the added risk of having to pay for repairs or replacements to the house, whereas the landlord would normally be responsible. Since homes 'tend' (I use that word loosely) to track inflation, they make really crappy investments. If they aren't tracking inflation, you end up in bubble territory and 2008 happens all over again.

Note - this is just the financial aspect of owning. Many people, myself included, get a lot of joy of actually owning something and being able to do whatever I want to the property. And that is very valuable and is hard to put an actual price tag on.

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #8 on: March 14, 2013, 10:52:50 AM »

I've personally never seen a home as an investment.  I've always thought if I could live somewhere for X years and sell it for approximately what I had in it, I was okay with it.

It's really cold outside in the winter and I hate standing out in the rain.  I have a home because I don't care for those situations.  If I wanted a real estate investment, I'd have rental property or commercial property.

mm31

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Re: Author of Article Claims, "A Home Is A Lousy Investment"
« Reply #9 on: March 14, 2013, 11:39:38 AM »
I'm all for destroying the myth of house-as-investment. Buying makes sense for some, but definitely not for all