News, Americans think owning a home is better for them than it is. (2013, housing)
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I built my house in Douglas County, Colorado (southern suburb of Denver) for $259k in October 2009. Now, 30 months later, Zillow lists it worth at $315k, and I've had multiple e-mails in the last week (literally, 4 e-mails in 7 days) about people wanting to see our house if its for sale.
So you were saying?
My thought is if you were to sell your house, and try to buy another house right away. All the houses out there with your same specs are now going to be 315K. It would be a wash for you to sell.
I think the only way it would be an investment is if you sold your house for 315 and then move to say Houston where the housing market is significantly cheaper.
I built my house in Douglas County, Colorado (southern suburb of Denver) for $259k in October 2009. Now, 30 months later, Zillow lists it worth at $315k, and I've had multiple e-mails in the last week (literally, 4 e-mails in 7 days) about people wanting to see our house if its for sale.
So you were saying?
So, let's just say you were able to sell that house for $315k and you never spend a dime on any upgrades or maintenance (because nobody ever does that). You basically "earned" 4.3%/yr for 5 years in a really good market.
I just sold a pile of Apple stock which had jumped almost 70% since I bought it. That roughly equates to ~22%/yr with zero maintenance and upkeep.
I've always looked at houses as a privilege and a luxury. If you can afford to buy a house in the long term by all means do it. Otherwise, houses are not a right, privilege, or entitlement.
This is really a stupid article. This guy is an economist?
Why is he comparing owning a home to investing? It isn't either-or.
You need a place to live. So you are either owning or renting. Compare the relative returns from owning to renting, and you will see why owning generally makes more sense (unless you are highly transient).
So, let's just say you were able to sell that house for $315k and you never spend a dime on any upgrades or maintenance (because nobody ever does that). You basically "earned" 4.3%/yr for 5 years in a really good market.
I just sold a pile of Apple stock which had jumped almost 70% since I bought it. That roughly equates to ~22%/yr with zero maintenance and upkeep.
But that's not a good comparison.
The comparison is whether or not it would have made more sense to rent instead of own during that same time period. You can't rent the same thing and then take extra money to invest in Apple; renting generally costs as much as owning in most U.S. markets, and the return on renting is 0.
While everyone needs a place to live it is an investment that may go up, or down. The 2008 crash was unlike anything our generations have ever seen with real estate losses at 50% plus dependent upon location. However, the equities market also saw a 40% plus loss, so it was somewhat relative. We all need a place to live, and for some it may be cheaper to rent, and for a retired carpenter like me to own. It really depends on each individuals circumstances. Sure, i've made money since i bought my current home in 2011, but to replace it is relative now isn't it. Some have to pay $500 plus for a hot water heater when I do it for the cost of the heater. Some may like living in a 1 bedroom apartment in the city, and others do not.
repeat after me children: single family homes are not investment vehicles.
PERIOD.
home prices don't actually appreciate over the long term (averaging only 0.3%). values are merely a function of unemployment, interest rates, etc. they're an atrocious return on investment.
at the end of the day, who wants to be tied up in an illiquid asset that generates zero cash, wasn't purpose-built to make money, has ongoing maintenence costs, large acquisition/transaction fees, etc? plus you have very few entry/exit points since you're at the mercy of the market. it's laughable.
in the long term, renting is a FAR better option if you didn't flunk out of economics 101.
i'd rather pay a tiny fraction of ownership costs out of pocket in rent, let someone else worry about fixing things, and invest my capital elsewhere and get a real return: in a business, stocks, commercial real estate, etc.
1) Most of us are not children. School is not in session and you are not the professor.
2) Just once, I would like to see someone with this set of values about renting start their post off with:
"I started with nothing and made $75 million in the stock/bond/commodity/forex markets, investing only what my paycheck allowed while renting the entire time, and I'm here to tell you that home ownership is for suckers."
I know people from every walk of life in every economic bracket -- from the homeless to the 1%. Every wealthy person I know owns at least one house (usually several) and considers real estate to be a useful investment. Contrasting, most of the renters I know barely have two nickles to rub together. They talk a great story. But they don't have the net worth to back it up.
repeat after me children: single family homes are not investment vehicles.
PERIOD.
home prices don't actually appreciate over the long term (averaging only 0.3%). values are merely a function of unemployment, interest rates, etc. they're an atrocious return on investment.
in the long term, renting is a FAR better option if you didn't flunk out of economics 101.
I agree with what some of the posters have said. Many people, myself included, automatically assume that owning a home is cheaper and/or a better option than renting. That's simply not the case. Sometimes it is, sometimes it isn't. I do believe owning is a better option if you plan on living in the area for several years at least and real estate values tend to remain high. I have learned the hard way the massive problems that result when you buy the wrong house in the wrong location. My husband purchased a "fixer upper" (that's being generous) in a bad neighborhood before he married me, and quickly ran out of motivation to fix it. A few years after he moved in, with the neighborhood steadily deteriorating, I INFORMED him we were selling while the market was hot, when we still had a miniscule chance of unloading it. $16K in repairs later, we sold the lemon, taking a small loss. I have never been so relieved in my life.
Quote:
Originally Posted by MJ7
I agree with the article 100%. I would never pay anyone money for an old house that I did not have a part in construction/planning. It baffles me as to why people move into houses with poor construction materials, zero planning and ultimately a house that is old and not worth what it was years prior. Sure, someone can always change the cosmetics and appliances and flooring in a home, but you can't go in and fix the structural integrity of the walls and foundation. Over time subsidence will occur thus shifting the wall, it's similar to shifting the framing on your car...definitely do not want.
Most homes sell due to their locations/yard. You have no control over the neighborhood or the quality of the location, it could go bad it could become better, it's a gamble like any invest. HOWEVER, most invests do not require constant maintenance and could careless about style/deterioration of the "asset".
I've noticed new construction seems to be pretty lousy quality. It's all looks and no substance. I'd rather be in a house built in the 1990s that one built in 2005+ anyday. Also, newer construction sacrifices a lot of the space, particularly yard space, that I find quite important. And I've never been a fan of the cookie cutter identical suburban home look. But that's about all that's available in my area. At least, that's all that is affordable. One thing I really hate about owning a home is having no control over your neighborhood's deterioration. That is a big factor in the value of your home, and your enjoyment of it even if you're not selling.
I don't see it as a way to invest cash. I see it as a way to save money. We just paid off our home. We have no rent payment; we have no mortgage payment. That's incredibly freeing. That money can now be saved for retirement, or put in a vacation fund, or whatever. I plan to do a little of both.
If I had unlimited funds, I'd prefer to rent and move around wherever I felt like living. Since I don't have unlimited funds, it's nice to know that I can retire in 5 or 10 or 15 years and not have to worry about making a rent or mortgage payment.
Owning a single-family house over the long term, vs. renting the same house, would indeed in most markets give the nod to owning. But this isn't really a fair comparison. The more fair comparison is renting a small apartment in a high-rise, and all of the lifestyle choices and budgeting issues that that entails, vs. buying a large-ish house on a large yard in the suburbs, and the lifestyle choices and budgeting issues thereof.
when you have to make it an apples to oranges comparison though, that's where it makes less and less sense.
what about a owning a small apartment in a high-rise vs renting a small apartment in a high rise? then it becomes a rent vs own local market situation. in many parts of NY metro right now, renting is sky-high, and ownership wins.
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