Housing in Ten Words

By James Kwak

“Housing Fades as a Means to Build Wealth, Analysts Say.” That’s the title of a New York Times article by David Streitfeld. Here’s most of the lead:

“Many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.

“The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.

“More than likely, that era is gone for good.”

I’ve been telling my friends for a decade that housing is a bad investment. These are real housing prices over the past century, based on data collected by Robert Shiller:

Housing is generally a worse investment than either stocks or simple U.S. Treasury bonds. Then why do so many people think it’s such a great investment?

  1. Leverage. Housing is the one area where ordinary people can get 5x, 20x, 30x, or even (during the boom) infinite leverage on their capital at a decent interest rate. With that kind of leverage, even a modest real return on the underlying asset turns into huge returns on your capital. Of course, we all know the dangers of leverage.
  2. Price illusion. People remember the nominal price they paid for their houses. When they sell them thirty years later, they look at the difference between the nominal purchase and sale prices and think they made a ton of money. This is especially true of the generation that bought houses in the 1960s and early 1970s before inflation hit; they saw their home prices go up by a factor of ten and thought it was due to high real returns.
  3. Bubbles and optimism bias. Every now and then we have a huge bubble like the one at the right-hand end of the chart above. For a while, people think that’s the new normal. For a while after that, they continue to think it’s the new normal, because they are biased toward optimistic expectations about the world. (Note that during the first half of the decade that I was advising friends that housing was a bad investment, housing was actually a great investment, assuming you could get out in time.)

OK, so now we all now the real story. Or do we? “In an annual survey conducted by the economists Robert J. Shiller and Karl E. Case, hundreds of new owners in four communities — Alameda County near San Francisco, Boston, Orange County south of Los Angeles, and Milwaukee — once again said they believed prices would rise about 10 percent a year for the next decade.” There’s that optimism bias.

But I don’t think it’s correct to say that an era is over–an era when housing appreciation was the key to the economy. The chart above shows simply that that era never existed; housing was flat for a long time, and then there was a bubble. Instead, we had the illusion of an era of housing appreciation, produced mainly by leverage and price illusion. For every homeowner who made a killing because she got a fixed-rate mortgage in 1970, there was a new family that couldn’t afford a house in 1980 because interest rates were too high, or a savings and loan that failed because it was weighed down by those fixed-rate mortgages. That whole phenomenon was just a transfer of wealth within society.

One last caveat, however. When “analysts say” one thing, they are usually wrong. Remember back in 1999-2000, when most analysts were saying that stocks were the best investment for everyone, all the time? Generally the best time to buy an asset class is when conventional wisdom has shifted against it. So while I still think housing is overpriced–and we should slowly remove the props on that price, like the mortgage interest tax deduction–maybe in the long term it’s not such a bad idea after all.

Update: An earlier version of this post had some incorrect calculations of the return on a hypothetical housing investment. Sorry–I’m out of practice at this blogging thing.

217 responses to “Housing in Ten Words

  1. Then why do so many people think it’s such a great investment?

    I think favorable tax treatment deserves a place on that list, both for mortgage interest and for capital gains. The former is frequently cited and ridiculous. The latter is less frequently cited and utterly ludicrous.

  2. I could be being dense here, but isn’t there another reason why people think housing is a good investment:
    – Because you are going to spend money on housing one way or another?

    If the house you buy has a mortgage that comes roughly around the same amount as what you’d pay in rent, it’s a decently good move to buy. Because if you make ANYTHING on that investment, you’ve gotten what you would have paid in rent back whereas if you paid it in rent it just goes down a hole, right?

    It’s not like you pay the rent money into rent or you put it in stocks. You are going to pay for a house one way or another, so it’s kind of a good move.

    Now, that said, if you buy MORE house than you need, or more than you would pay in rent, then it is kind of a crappy move.

  3. Some points:

    1) You don’t need positive real home prices to make a boat-load of money on a house. Flat real prices combined with high inflation (a la the 80’s) creates significant real returns as the inflation shrinks the real value of the mortgage (i.e. creates more equity).

    2) When you take out a mortgage, part of the deal is that the homeowner has implicitly bought a put option on interest rates, and one way people “make money” on their house is by refinancing when rates fall. I’d argue that with 30yr mortgage rates at all-time lows, it’s unlikely they fall further over the next 30 yrs (and if they do, we will have BIG problems).

    3) Favorable tax treatment is an illusion, on average. The tax deduction is factored into the selling price. To make money on the tax front, you have to already own a house when NEW favorable tax policies are introduced (i.e. the recent 1st time homebuyer credit supported prices for the seller of the home, and when it expired, prices fell).

  4. Bingo!
    The construction and real estate industries have been subsidized by US tax policy for decades. Do we have the courage, or will, to address that?

  5. Immigration patterns impact the Shiller index, IMHO. For instance, what about extended families sharing homes, which I have observed in poor neighborhoods in the California central valley as well as the MSFT zone in Redmond.
    Driven by costs, cultural norms or enmeshed families, groups of people under one roof, with potentially more than two adult wage-earners, could change this calculus permanently.
    Eliz. Warren has noted the dangerous (in her view) trend in middle-class America, where it takes two incomes to supply a decent lifestyle that one used to provide. In some expensive areas, including Silicon Valley and Seattle, it almost seems as if it takes three or more.
    Also, the very NYC-centric media often posits pros and cons of ownership and renting in financial terms. In “the city” there are a host of rental options, including very high end. This is not true in most other areas and it is a falsehood to state that families may be better off renting in the same area and not risking home ownership.
    That is not a realistic option in many communities. The well-documented scrum for good schools forces many people to strive for ownership, when there are few or no rentals near schools they want. This cannot be underestimated.

  6. i don’t see that housing is a poor investment in general. sure there are markets that remain overpriced (i think i live in one, brooklyn nyc) and it’s always possible to overpay for a piece of junk. but there are two things to keep in mind. a lot of the housing built in the bubble doesn’t even count as housing stock, because it was built in stupid places or to stupid specifications. the other thing is that right now and for the next few years very little new housing will be built. therefore we’re likely to have a housing shortage in the medium term.

  7. What a mortgage does is provide a “nudge”-like institution that forces people to save at all. I suppose a rational actor would compare the yield of renting an equivalent home and saving and wisely investing the amount that would have gone to “principal” in a mortgage, but, for some people, that regular mortgage bill forces a kind of passive (though low-yielding) savings rate that would otherwise go into consumption.

    Maybe you could do something similar for renters. Call it Rent+. If you don’t have the discipline and a mortgage would help you in this manner – then you find some financial intermediary (or mint.com-like website) that sits between you and the landlord. The landlord charges X, and Rent+.com charges, say, 1.3X. It pays X to the landlord and puts the remaining 0.3X in long-term bonds.

    Add, per Nemo, add some mechanism that makes this tax equivalent and then you’ve got something…

  8. “Of course, we all know the dangers of leverage.”

    Huh??!!??!!

    I wish I had kept a record of all the articles by big-name economists I read back during the bubble years stating authoritatively that home prices weren’t excessive because low interest rates made payments affordable.

    As it seemed to me obvious that these were claims that homes should trade like bonds, prices varying inversely with interest rates, I deemed them equivalent to saying that financially unsophisticated people should be allowed to trade bonds with 30:1 leverage.

    I find it puzzling how anyone can become a professor of economics at a major university, or on the staff of the Federal Reserve, without any awareness of the possibility that interest rates might rise, and of what the consequences of such a rise would be for people speculating in real estate with 30:1 leverage.

    Perhaps its just that big-name professors of economics have such stable employment prospects and are so insulated by tenure from reality that they are unaware that many people are forced by employment needs to move every so often, and may need to sell at a time when interest rates are higher than when they bought.

    Perhaps in the case of the Fed economists its that they knew that the Fed would be setting all interest rates by fiat at all maturities in the future, and even buying MBS in Brobdingnagian quantities to ensure that mortgage rates would never rise.

    And, of course, they all knew that home prices could never fall — that the worst that could happen would be that they might flatten out for a while. Ben Bernanke himself told us that, IIRC.

  9. Indy,

    You’re spot on and I rarely hear people bring this up: a mortgage forces financial discipline on you. This is an often overlooked benefit of buying a house.

  10. Housing is a great investment for those whose incomes are likely to grow. These days, that includes very few people other than professionals. Today’s problem is artificial support for bubble prices which makes the price of desirable housing too high. Sooner or later that support must end to avoid destroying the real estate industry which is nearly ten times the size of the auto industry in terms of employment. Meanwhile, the most sensible option for most people is living in one’s car.

  11. Home ownership is a savings plan. What might make sense for a REIT investor, who is looking for ROI and nothing else, might make much less sense for the ordinary home buyer, and this is realized by the home owner. All else being equal, it eliminates the rental expense, which is, in the Boston area, pretty much the same as a mortgage payment. Home owners realize this and looks to get value appreciation through improvements.

    You can’t get too far away from this market dynamic, though it’s a gamble, like any other. The pressures of supply and demand affect the return on “investment” in a home as much as it will in any other market, and is totally beyond the home owner’s control.

  12. While that’s a rationale frequently used to support the decision to buy rather than rent, I think it’s too simplistic. If you only compare monthly rent to the mortgage payment (i.e., principal and interest), it’s not an even trade because of property taxes. If you compare rent plus renters insurance to mortgage plus escrows, then it’s more even but the house you can get will generally be much less especially if you put less than 20% down and have to buy mortgage insurance. The final factors that in my mind keep buying from being attractive financially in comparison with renting are the cost of utilities and the ongoing maintenance cost. Utility costs are usually greater for a house, and some utility costs (trash pickup, for example) often are included in rent. With respect to maintenance, a homeowner is responsible for cutting the grass, taking care of the landscaping, replacing appliances and carpeting, upgrading to keep the value up, etc. Those costs are part of rent, and while rent will go up over time, so will the cost of maintaining your home as well as your property taxes and homeowner’s insurance. For me, the only reason for most people to buy versus rent is that they want a house and property of their own. The exceptions (aren’t there always exceptions) are things like distressed sales where the price is well below the market, or a fixer-upper for someone willing to put in some sweat equity.

  13. Ooph, Allen. Don’t I know it!

    I am somewhat afraid to run the numbers because I am worried I won’t like what I see at all.

    I bought a very modestly priced house several years ago in a very underprivileged neighborhood in North Philadelphia (the boom never made it here, I don’t think). I pay less in mortgage than I would in a nicer neighborhood in rent, but… I don’t think it has probably been worth it, on balance.

    Especially when you consider other elements of utility, like convenience and lack of worry.

    I’ll be moving out of my place in a year, tho I am not 100% sure that I’ll sell it. That said, I will be renting when I go to my next spot.

  14. “Generally the best time to buy an asset class is when conventional wisdom has shifted against it.”

    At what point would you say that conventional wisdom has shifted against housing?

  15. I guess it depends on what value one puts on quality of life. We enjoy our life much more because we can tear down a wall, dig in the dirt, paint a room any color we want… ad nauseum. Owning a double lot in a desirable area, we could make some serious money by building a house on the second lot – we would only give up seeing the deer, wild turkeys, coyotes, pumas, foxes an bobcats wander through – not worth the price. What is the point of making lots of money if there is minimal quality of life?

    Al

  16. James – I may have learned this incorrectly so please correct me if I have erred. I think “Master of None” touched on this, too.

    I was taught that the cost of borrowing money (e.g. mortgage) was:

    loan interest rate minus both the inflation rate and the tax-write off/tax deduction.

    For residential Real Estate, real cost of borrowing = fixed mortgage rate – (CPI + tax deduction).

    In the future, if CPI increases, then will real estate purchased at these record and other low rates prove to be a great investment? The numbers certainly suggest this.

    Also another person mentioned the favourable “investment” incentive put into play by the change in its capital gains treatment back in the mid-1990s.

    All of these issues, along with the ones mentioned, help make real estate an attractive investment and, thereby, lead to bubbles. Rent seeking and low interest rates once again distorting the market.

    Aside: this is the tax change that some right wingers do not account for when they point to a graph of housing purchases/prices and spuriously correlate it to a change in the Community Reinvestment Act – these dimwits are unacquainted with the notion of spurious correlation but are masters of specious argument and demagoguery.

  17. I bought my house to live in it. I wasn’t about to buy something I really couldn’t afford. I’ve paid off the mortgage. The house next door to me with the identical floor plan sold for less than I paid for my house 8 years ago. At that point I knew I wasn’t going to put any extra money into remodeling my house beyond keeping up with basic wear and tear. It’s shelter. It’s home. One day far into the future, I hope I’ll be able to sell it for at least what I paid for it. In considering the value of the house, I have to take into account all the years I’ve lived in it. If I were paying rent, that’s money I would for sure never get back one day in the future.

  18. Another thing people rarely account for–in fact, would be hard pressed to even estimate–is the total cost of ownership, including maintenance. A house should properly be thought of as a land component and a depreciating physical asset: this relationship is clearly understood in places like Japan, where tear-downs are the norm.

    That said, with the possibility of major currency debasement within the next 10 years, a 5x- or 10x- leveraged real asset (with the tax deduction gift) may be the best protection available to non-investors.

  19. I think the National Association of Realtors (NAR) may play a “small part” in people thinking real estate is a good investment. A first time home buyers tax credit that only benefits realtors and those with a second home they want to sell but is marketed by jack_a.ss politicians and realtors as a favor to new home buyers, might play a small part in it. And the fact that it gets repeated 5,000,000 times like a mantra.

    I can tell you after living in China for some time with state run media, people will swear to you the sky is red if it’s been repeated to them enough times. You can’t tell them any different.

  20. Yea, I’m saving my old vans. Reminds me back in the 70’s car salesman asking me what I was looking for. “Something I can sleep in.”

  21. Someone wrote recently about job security vrs. 30 year mortgage. Or maybe it was job security vrs. moving flexibility. But the times are changing. Best to get with the program.

  22. Housing is a lousy investment for the same reason gold is a lousy investment. Your chances of a substantial capital gain are slim (absent a bubble), and you incur holding costs of keeping your investment in good shape for a future sale. Both, however, are good hedges against inflation. The only advantage of a house is that you can live in it (avoiding your own rental costs) or rent it out, with either activity providing about the same return.

    Presumably, if interest on loans for the purpose of buying gold bricks had preferential tax treatment, and those loans were securitized, we might view gold brick wealth as driving the economy. Perhaps we need to figure out a way for people to live inside of gold bricks….

  23. Every comment here appears to deal with whether housing is a good investment. I’d like someone to take on what seems to me to be a bigger question given the included quote:

    “The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.

    “More than likely, that era is gone for good.”

    If that era is indeed gone for good, and the wealth it generated is gone for good as well, what’s going to replace it? The powers that be – and most of the posters on blogs like this one – seem to be content to accept “nothing” as an answer. Certainly the will to bring back the jobs and wages that supported the building of that wealth is nowhere in evidence. The social consequences of a radical economic re-structuring to a much lower standard of living – which would IMHO be severe – seem to be simply shrugged off. While understandable by the overclass – “let them eat cake” was/is always their attitude – I’m surprised by the level of apparent acceptance of this state of affairs without an apparent willingness to even so much as object, from the people who are going to impacted.

  24. General Problems with housing as an investment:

    1. You never know exactly what it’s worth.

    2. You can’t always sell it when you want to.

    Specific Problem to this market:

    The financial establishment is propping it up as to not unleash a flood of foreclosures. As an investor, there’s no way to tell how this story will play out.

  25. Another key reason that the federal government is propping up housing — because a lower property tax base would implode city/local and state budgets.

  26. James,
    In your Leverage calculation at top, it looks like you’re subtracting 6% interest costs as if the loan were equal to the downpayment (but it’s 9 times larger than that), so the resulting leverage is much less.

  27. I believe the “dimwits” link the Community Reinvestment Act with the foolish, yes, I said foolish, notion of loaning money to people that could not afford to repay it and/or had no means of proving that they could. If that common sense thinking is now considered “dimwit” than we indeed are in a very sorry state. Even Barney Frank has come clean on this sad episode in social engineering. The CRA,like most well intentioned but misguided liberal policies proved disastrous in the end. That’s not demagoguery my friend, that’s common sense. A lesson we are all learning the hard way now.

  28. mondo pinion

    Housing as investment has this advantage — you are personally overseeing maintenance your own property. You are not helpless to prevent your returns from being milked by high management salaries and bonuses. No corporate takeover can come in and suck the machinery out of your basement. You are able to keep an eye on the neighbourhood, and even influence events which affect your property value. And you don’t have to worry about being lied to by a property manager until things have degenerated beyond repair –because you are the property manager.

  29. Mr. James Kwak quoted NY Times, August 23, 2010 at 10:04 am:

    Housing In Ten Words

    “Housing Fades as a Means to Build Wealth, Analysts Say.”

    Mr. Dean Baker wrote, August 23, 10 03:45 PM:

    Housing In Five Words

    – Huff Post – excerpt

    ” …values will never catch up. ”

    “Dean Baker, who “estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.”

    http://www.huffingtonpost.com/2010/08/23/real-estate-boomtime-wont_n_691240.html

    “Basing his outlook on house-price data-sets produced by the US government and Yale economist Robert Shiller, Baker was among the first economists to assert there was a bubble in the US housing market in 2002,[7][8][9] well before its peak in late 2005[10] and one of the few economists to predict that the collapse of this bubble would lead to recession.[8][9]

    He has been critical of the regulatory framework of the real estate and financial industries, the use of financial instruments like CDOs, and the incompetence and conflicting interests of US politicians or regulators, such as Hank Paulson.[11]

    http://en.wikipedia.org/wiki/Dean_Baker

    Housing is a viable prudent long-term investment for those who understand, deferred gratification.

  30. That’s not a crazy argument. But you have to take into account your cost of capital, and of course all of the extra costs you pay over and above your mortgage as a homeowner (property taxes, insurance, maintenance costs, etc.).

    Then there’s all the risk you’re taking on my investing so heavily (usually, several times your net worth) not only in one asset class, but in one asset. Even if housing tends to go up in general, that’s less reliable when it comes to an individual city, let alone an individual house. Risk should have a price, but most people don’t figure it into their calculations.

  31. That’s true–there is some utility to being able to do whatever you want with your house. But there is also disutility that comes with being responsible for your house. Which one you prefer depends on the kind of person you are.

  32. All this churning churning churning still going on TODAY is sickening.

    Damaging the housing market brought down the INFRASTRUCTURE of the USA.

    What point don’t the pinheads GET about it?

    And is anybody reading any of the links provided by posters who are having a conversation here on this blog with each other?! READ the link about the FBI warning in 2004!

    Family values without a family home? You betcha!

    The MERCENARIES planned getting paid their booty from UNFUNDED WARS by manufacturing a housing bubble,

    not to mention all that building going on in the Middle East where Blackwater Prince has moved to…

  33. Fred in Cinci

    Treating home ownership as an “investment” makes about as much sense as investing in food or investing in clothing. Homes are shelter. Renting is shelter. Living on a boat is shelter. Don’t over think it.

  34. and everyone will need a band aid or an antibiotic, but that is a good investment

  35. Buying the house you live in is not an investment. At best it can be an inflation hedge. I have owned a house since 1972, which was good when I relocated in 1978 since the I could now afford a house in my new environment due to the inflated value of the original house. Now I am selling my current house, so I have been invested for 38 years. The selling price will be roughly 300K, but my basis and transactions costs will be roughly 160K. So my “investment” of 38 years has not even doubled–a pitiful return. But even if I had sold at the peak of the boom, at best my return would have been no more than 250% over 35 years–still rather pitiful.

    Now I have not included maintenance, non-capital improvements, taxes, or the effects of 18 years of imputed rent, so I cannot do a direct comparison to renting and do not know if I came out ahead or not.

    The only reason to own the house you live in is to control the property, which is getting harder with today’s restricted covenants.

  36. With all due respect, James, think about “responsibility” in a bigger context. It can also lead to intelligent loyalty for the land – good stewardship. Most people won’t be dumping toxic waste on their home’s doorstep because it’s “cheaper”.

  37. Fred in Cinci wrote:

    “Treating home ownership as an “investment” makes about as much sense as investing in food…”

    Canned Food Study One

    “A Food and Drug Administration Article about a shelf life test that was conducted on 100-year old canned foods that were retrieved from the Steamboat Bertrand can be read at the following link:

    http://web.archive.org/web/20070509153848/http://www.fda.gov/bbs/topics/CONSUMER/CON00043.html

    Following is a brief summary of a very small portion of the above article:

    “Among the canned food items retrieved from the Bertrand in 1968 were brandied peaches, oysters, plum tomatoes, honey, and mixed vegetables. In 1974, chemists at the National Food Processors Association (NFPA) analyzed the products for bacterial contamination and nutrient value. Although the food had lost its fresh smell and appearance, the NFPA chemists detected no microbial growth and determined that the foods were as safe to eat as they had been when canned more than 100 years earlier.

    The nutrient values varied depending upon the product and nutrient. NFPA chemists Janet Dudek and Edgar Elkins report that significant amounts of vitamins C and A were lost. But protein levels remained high, and all calcium values ‘were comparable to today’s products.'”

    “NFPA chemists also analyzed a 40-year-old can of corn found in the basement of a home in California. Again, the canning process had kept the corn safe from contaminants and from much nutrient loss. In addition, Dudek says, the kernels looked and smelled like recently canned corn.”

  38. While the view in your blog is true in general it probably is not in the particular. There is a distribution of real rates of return on housing but luck could leave you in the positive rate of return end of the distribution.
    We purchased our house in London in the Spring of 1984. It was in a very attractive area – South Kensington. And it was a fortunate time to buy. Over the next 20+ years property prices rose so that at the peak the house had a selling price potential about eight times its “all in cost” including that of a major renovation. When the crisis hit the first impact was on rental values which fell in this area between 12% and 20%. But sales activity pretty much dried up in the face of falls in value as evidenced by sales of 20% plus.
    South Ken responded relatively quickly to the steps taken to cushion the worst of the crisis; but perhaps more important a new group of buyers emerged – Russian, East European, a growing number of buyers from the Middle East and Asians.
    For houses over 1MM Pounds Sterling prices have approached their previous highs and for the very top of the market – homes over 5MM Pounds – the old highs have often been exceeded.
    Elsewhere, in Sweden prices are up 10% year on year. Prudent banking policies constrained the severity of the crises there. The market is not bubbling but an active market has reemerged.
    In some limited locations in the US damage has not been as severe as in the diagram you provided. Perhaps not as good as Sweden but not as bad as the general data in the chart.
    So, as I suspect in most all asset classes, where we are in the distribution of house value growth (or decline) tells the story and like shares the timing of the buy and the holding time is critically important in the long term growth or fall in real values.

  39. I wasn’t aware of a lot of renters doing that, especially ones with a landlord holding their security deposit.

  40. Brad Thrasher

    One of things I find entertaining about this site is all the book smart, street stupid people, including the sponsors, Johnson and Kwak.

    Four things you need to know about real estate.

    1. Real estate is subject to the local economy. Macro studies are meaningless.

    2. Demographics prove that Western economies are contracting as the Boomers age and die off. For the book smart, this means demand is adversely impacted.

    3. Give yourself an atta-boy or atta-girl if you guessed that the housing market is already over supplied, in part as a consequence of reduced demand.

    4. Be very careful which inflation measure you use. I prefer the pre-1981 calculated and published by John Williams Shadow Stats website.

  41. Are you including foreclosure in those distributions??? The people who payed 25%+, 50%+ the value of the home plus interest and walked away with nothing??? What I find fascinating is when these things are tabulated I don’t think they include the amount people were underwater on the loans for the averages on rates of return. It’s like a foreclosure is counted as a “zero return” (0% return), but it’s not a zero return, it’s a negative return. I think counting that as a “zero return” in the statistics is rather convenient for the bankers, don’t you think???

    I’m not certain on this, I’d be happy for someone to correct me or inform me together with a link, if the % paid and lost in equity and interest after foreclosures is in fact included in the averages of rates of return.

  42. Hillbilly Darrell

    I find it interesting that 50 comments into this discussion, there has merely been passing reference to the illiquid nature of housing, and no reference whatsoever to the very expensive transaction costs associated with liquidating an illiquid housing investment asset. Obviously, the transaction costs-REAL ESTATE BROKERAGE SALES COMMISSIONS, recording fees, appraisal costs, etc. must be factored in to any meaningful analysis. Housing has been clearly shown to not be fungible. And, the illiquid reality of houses on an individual or macro level is both in large part responsible for, and symptomatic of the current downturn in the real estate market. Couple this with the fact that it will cost anywhere from a low rate of 5% (max short sale bank negotiated rate) to 7% (standard brokerage sales commission) to liquidate an illiquid housing assets. And, one objectively finds that housing performs like used cars. As soon as one “drives one off the lot”, one has immediately lost 7%. Thus, a $500K house, not much to write home about in many markets, the next day is worth $465K net merely of the commission required to liquidate it, and without consideration of additional costs. Therefore, in this scenario, in rough terms, one must experience a 7% appreciation to $535K to merely break even and recoup ones $500K. Add increasing illiquidity, and you have our current malaise.

  43. Bayard Waterbury

    I always feel concerned when someone cites a “fact” that is what they say is what “analysts” say, or “experts” say. I guess that’s because if we took a poll of all analysts and all experts, we might never know what to do. This is kind of like the old saw that we can only trust a one-handed economist, because they can never say “on the other hand…” With most things we invest in, we must look at the very longest term trends, or just become gamblers, trying to time the markets. No one is successful at timing all markets all of the time regardless of to whom we listen. But, the very first thing we must ask ourselves always is: does the “analyst” or “expert” have a stake, and if so, what is it?

  44. I think we’re all missing something here. As for calling it an “investment” and comparing it to renting, buying a house wins hands down. But most people won’t reap the benefits of buying a house because they’ve been brainwashed (by the very banks and credit companies themselves) into how they are “supposed” to pay it off.
    And that is “monthly” payments of a socially acceptable amount, and how they make.you think they’re trying to save you money by telling you that just one extra payment a year saves you 4 years off of your 30 yr mortgage. Woo hoo.

    In reality, you should never buy a house, regardless of the economy, unless you can pay at LEAST double the mortgage each month. Isnt that interesting that that sounds so extreme? That’s the brainwashing working. I make just under $70k/yr, and am not the most efficient bill payer, and because I am paying a little more than double my mortgage, my 30 yr loan will be paid off in less than 5 yrs. The house payment has an “end” in right, and there’s no rent payments after 5 yrs. I’ll take the house over the apartment any day as long as I am paying at least double my mortgage. And for those who think that’s a bit extreme, you’re why I can do this.

  45. MANY renters leave ‘pets,’ especially cats, behind when they leave, and in general have less of a stake in their communities than homeowners. I’m a homeowner of 23+ years, and wouldn’t have it any other way.I’M the master of my (living situation) destiny, and I invest in my community.

  46. Back to Investing

    I just bought an investment townhouse in a short sale. Positive cash flow as a rental. Renters are paying the mortgage and there’s $200 a month left over. So what if I have to send a repairman over every now and then? If market stays down or even goes down, I make $200 a month (and rising with inflation as rents increase). I also get to depreciate it on my taxes. If market goes up, which I think it will before I retire, then I’ll be making money. Remember when inflation occurs, you pay your mortgage back with smaller dollars that are easier to come by. Real estate a bad investment? Hardly.

  47. Patricia de Boer

    If owning houses is a poor financial idea, then one would also assume that landlords are losing money on those who are smart enough not to own. Yet this isn’t so. Something isn’t adding up here, exactly.

    Plus, even though a modest “well within financial means” home may not work great as an”investment” strategy, it is still a method for the middle-class to retain a bit of authority in a society that has increasingly become about power to those with all the possessions.

  48. All these arguments for housing, pro and con, resolve themselves in roughly the same way as the arguments for and against marriage: home ownership (marriage) is great under the right conditions, but these days EVERYTHING about the society conspires to destroy those conditions. Specifically, home ownership (marriage) is great if you can find the right house (partner) and you can afford to keep it (her), which pretty much requires either that you make (or have made or inherit) a good deal of money, and that nothing unexpected goes seriously wrong over a period of time in which nearly everything you once thought you knew turns out to be dead wrong.

    Of course, any sensible man who understands this does the sensible thing and avoids both home ownership and marriage. In thus contriving to come out ahead, he ends up with NOTHING, but at least he can afford it.

  49. You miss a very critical point of buying a house, it’s insurance against inflation, i.e. you have one of the most human needs (shelter) upon retirement paid for.

    Is insurance a ‘bad’ investment, of course until you wish you had it.

  50. Thank you BradyDale. When I was reading this article I was getting pissed because these analyst neglect the fact thet you need to live somewhere. You can’t compare a house to a mutual fund in the sense that you can’t live in a mutual fund.

  51. I agree but in my case I’d have to add “quality of life.” My mortgage payments are higher than what I paid in rent two years ago but the upside is NOT having 1/ a toxic neighbor, 2/ cramped quarters with no storage for essentials like a bike, and 3/ a dining room large enough to host friends for dinner.

    The way I see it, either way I have to pay for housing. When I finally sell, I figure I’ll get back at least what I paid into my mortgage and lived the way I want to live. Once you pay rent, the money is gone.

  52. As you can see from the graph, the housing market was stable until year 2000 and then it went wild – houses became grossly overpriced by 2006 and now they are STARTING to come back down to what they should be. In a couple of more years of price declines the prices of houses should be back to normal and then the market will again be a great investment like it always was before the boom and bust of 2000-now.

  53. Per Kurowski

    The more a house stores value, the less useful it is as a house… as easy as that!

  54. Buying a house may not be the best way to “build wealth,” which is what the article argues. However, I just paid off my house last week and I feel like the wealthiest person in the world. No economist can convince me that there is no value in owning my own home. My home’s value has not risen much in the past nine years that we have lived here, but neither has the value of my stocks and mutual funds. It’s all a gamble when it comes to “building wealth.” However, with my city’s very low property taxes, I know I’ll always have a place to live…a place that’s all mine!

  55. And don’t forget:

    pride of ownership

    a higher work ethic (that may the same as financial discipline)

    a higher respect for (and care of) the property
    stability of homelife (no fear of evictions or rent increases)

    freedom of choice (to paint, to plant, to pet…)

    improved credit rating (which factors into insurance rates, credit card rates, job hiring, etc)

  56. I have never considered my home an investment. My wife and I bought our house, a modest one we could afford, with a 15-year fixed rate loan. Even though I have been unemployed, I always found enough part-time work to help make the payments. We can do whatever we want to the place. It came with four acres of land which isn’t going anywhere. When I turn 65, formerly a magic year, the loan will be paid off and we’ll have no housing payments except maintenance and taxes, which we can easliy handle. Oh, I know that, even though the value has doubled in the past seven years, it is unlikely that it will ever be worth all of the money we have paid in principal and interest. However, that money would have been paid to a landlord instead.

  57. kudos! Teach others!

  58. I just sold my house and moved into an apartment, I totally agree with the idea that owning a house is a luxury not an investment. After taxes and up keep in today’s market it is probably a losing proposition. So it comes down to a defined loss in rent or an undefined loss in home ownership. Reality all the money you would spend on a house can be invested and at least offset some of the rent. I love renting, should have done it all my life. 4 houses later!!!!

  59. “Housing Fades as a Means to Build Wealth” DUH! Just looking at the graph shows that it’s only good for that for short periods of time. The American public has been tricked for decades into believing housing values never go down. Almost as if some powerful interest came up with that myth so people would be convinced to take out more loans on their houses. *cough* banks *cough*

  60. Introducing reality (the absence of alternatives to buying single family detached housing in the ‘burbs) into this abstract discussion is very bad manners. Please cease such behavior, immediately.

  61. We paid cash for our somewhat-depressed houses and small apartment buildings and renovated them as we could. The communities improved. Years later, it’s been a great strategy and we have had trouble with only one building: the one we secured a credit line to purchase. It’s very old fashioned, but if you save for the full price, rent to decent tenants, and keep the place up…you’re making a great living. The friends we’ve seen crash and burn were flipping.

  62. I think the author is trying to point out there is an illusory benefit of owning a home as a sound investment, not that we should all be living in caves. The housing boom that occurred after the war was due to people who needed a place to live, not as an ‘investment opportunity’. It wasn’t until much later that the dream of homeownership was perverted and poisoned by Wall Street.

  63. Per Kurowski

    A room is a still a room, even when there’s nothin’ there but gloom
    But a room is not a house and a house is not a home
    When the two of us are underwater
    And we´re facing default…

  64. Well you hit the nail on the head when you call it an inflation head. I know here the apartments we lived in 30 yrs ago have more than doubled in rent since then.

    You had to live somewhere. So really your “investment” is the fixed mortgage payment+expenses vs. the increasing over time rent. You really need to add all this money over time in your consideration of your expected return. The question is what did you do with this extra money.

    Also the real “investment” in housing doesn’t really kick in until you’ve completely paid off the house.

  65. For thousands of years, non-property owners were called ‘Peasants’ and paid rent in the form of labor or goods or money. These peasants had no power due to being peasants who ended up losing more and more political power. Land owners got this way via killing peasants in wars or marrying those whose ancestors killed people to gain land.

    I come from the Norman ruling class and trust me, we were and still are very intent on owning land. When one has too many sons, the ownership of land was so vital, the laws and customs of Norman ownership was for the eldest son to inherit the estates and the younger ones had to marry estate-owning daughters or…go forth and find land themselves. This involved invading other places and killing people.

    Land ownership is great power and millions of people have died in wars over land ownership over the centuries, in this century, many millions have died this way so trust me, owning real estate is hyper-important to those people who understand what real power is.

    Guess why owning land is called REAL estates rather than simple wealth being ‘real’? Well, it is all about owning the peasants who rent from the owners.

    Now, the modern housing thing is all about the middle class: to escape the clutches of the ruling landlord upper class, you own your own home so some lout can’t bang on your door and order you out so he can turn it into a sheep pasture or rent it to someone else. This is a very significant thing indeed.

    For centuries, the middle class took in servants who were nearly always the children of renters who were ruled by the great landlords and many middle class people not only had servants (non property owners) but often took in tenants themselves which is why many old homes are so huge.

    When I owned and renovated some of these older Victorian buildings, I too, took in tenants, etc. And thus, paid off the loans with other people’s money and lived rent-free AND made money on the sales of the properties and now live on an estate which is free and clear which takes me to the last thing here: inheritance.

    Tenant children inherit NOTHING. Children of property owning parents inherit a lot! If you parents keep the property out of debt, this is CONSIDERABLE. This is a boon, a boost, a great help to the grandchildren. So not only do you not pay a landowning lord rent, you not only are free and clear of debts while living fine, you also boost the health and welfare of your heirs. A very, very, very significant consideration.

    My college years were paid for by my grandfather’s property, for example.

  66. I was actually thinking about “corporations” dumping toxic waste, not renters, but I guess renters would, also.

    Which is the point about owning land/house…

    If architecture and renewable energy are not good “investments”, then why were so many schemes set up to rob people of the money they put into both through massive and unnatural unemployment by the global predator class?

    I guess now we should ALL switch to “investments” in “weapons” that blow up architecture and renewable energy contraptions…chase the mercenary money?

  67. Michael Turner

    Maybe when home prices fall *below* their historical norms? Hasn’t happened yet — if anything, ATM, we’re in a Dead Cat Bounce, at least in the U.S.

  68. Would this plan work?

    Ending the foreclosure & Unemployment Crisis
    Quickly, Fairly and Cheaply

    Millions of retirees and near-retirees have seen their retirement savings decimated by the recent stock market crashes. Many had been dreaming of buying a primary or second home. Why not let them realize their dream and jump start the economy at the same time?

    Instead of borrowing from China and increasing our national debt, let those 50 and over withdraw their retirement savings TAX FREE if:
    1. Funds are used to pay CASH for a primary or second home costing less than $500,000.
    2. They must keep the home for at least 3 years or pay back the tax free incentive.

    This would greatly reduce the foreclosure blight, put cash in the economy, increase consumer confidence and provide much needed employment as well as state and local real estate taxes. Taxes paid by the newly hired would more than make up for the tax incentive for seniors.

  69. Michael Turner

    Though Kwak refers to “housing”, his pull quote is about “home ownership.” I thought that was understood.

    Your earnings on the property will be “rising with inflation as rents increase”? Eh? Rents were pulled up slightly by the housing bubble, and there’s general disinflation now.

    “If market goes up, which I think it will before I retire, then I’ll be making money ….”

    The real crisis is in the boomer cohort. Retirement is (or was supposed to be) just around the corner.

  70. Bad investment? Not in places like Nantucket , many buyers are purchasing value today. Are we having a correction ? Yes. But there still is tremendous value to be earned.

  71. Michael Turner

    “My college years were paid for by my grandfather’s property, for example.”

    Wasn’t that back when housing was a way to build wealth?

    (I just love arguments that beg the question, especially when they come from people descended from Vikings — when you call them on the blatant circularity, you get that thrilling frisson of adrenalin, from the fear they’ll pull their broadsword and try to lop your head off.)

    We were discussing owning your own *home* as a way to build wealth. How did this turn into the apples/oranges equation of the ROI on being a landlord (much less about being of the landlord class?)

  72. I was thinking about corporations dumping toxic waste on land they don’t own….they’re “renters” in a way, eh?

    If architecture and renewable energy are not good “investments” anymore, that could only be because the predator class has done a great job of stealing all the wealth that people have put into “housing” through a prolonged and unnatural level of “unemployment”and other creative financial shenanigans.

    Creative war funding for the “mercenary” corporations…is it too late to chase death and destruction as “investments”?

    Women and children sacrificed first…we’ve come a long way, Baby. Shall we get into the shadows of RELIGIOUS “beliefs” about who DESERVES to own a house, which is how CNBC framed the conversation when the massive theft began as one 8 year cabal handed over the reigns to the next 8 year cabal…

  73. I may not be too bright, but I think the landlord has to do all the things you say a homeowner has to do. He has to pay taxes, pay insurance, pay utilities and for trash collection (if they are furnished), pay maintenance costs, etc. PLUS he has to make a profit doing it or he would quit being a landlord.

    Keep renting and put food on the landlord’s table. I love it because I am the landlord.

  74. The boat is being missed here because the only consideration is that one is buying the home for appreciation only purposes.

    What about buying and holding investment property for income?

    Throw leverage and tax benefits and you’ll have a fleet of people paying for your retirement. Does that mean “land-lording”? In a sense, maybe. However, there are full service firms that can help you, buy, own, and manage investment property. Further there are REIT’s, private equity firms, etc. I know people that own several rental properties that are financially free through real estate investments and they have below average to average incomes.

  75. good post. was thinking the same thing the other day. Read somewhere, during the boom, that when buying a home you will, on average, spend $8,000 the 1st yr for carpeting, paint, improvements, furniture, etc. Basically your purchase/investment as a homeowner supports a lot of workers and businesses. And if it’s a NEW home you’re supporting a whole industry.

    The consequences could be a real shift (downward) in the American “way”.

  76. I totally agree with you. These analysts act like everybody is living in a relative’s basement for free.

  77. Johnny the Bank

    Ok landord, I might be too honest with this. “buy” a home which is not buying as it is not yours untill you possess the dead that I have along with thousands here in my vault. Take all the responsibility for paying the house and renting out as many as you want. Something breaks you fix it. You get a heart attack and stroke from this while I sit make and reap the benefits of the loan you signed where I do nothing and I make a profit. Thanks for putting LOTS of food on my table. Oh and if you miss a payment give me back my house to so i can do it again to the next sucker.

    Renting is smarter period. Fools who are under the illusion they “own” a home are so enslaved.

  78. If traditional buyers chose to rent, then it is ripe market for real estate investment for those who want to rent. Another bi-product of a collapsing middle-class. I think banks and the rich do not want owners. The would prefer control over land and assets.

  79. Michael Turner

    I wonder: might total cost of ownership (TCO) change a lot over the next 30 years, because of energy cost increases?

    Even the home as a place to eat routinely might be a luxury, if food-related energy prices start to matter a lot more.

    But aren’t most food-related energy sinks related to cultivation, transportation and storage? Apparently not. Being a “locavore”,

    http://www.nytimes.com/2010/08/20/opinion/20budiansky.html

    it turns out, is rather silly: most of a meal’s fossil fuel hit is in driving to the grocery store and back, then cooking the meal.

    Living in an apartment in a district full of reasonably priced restaurants, close to a subway station, might be the ticket in 2030, if we’re really going into Peak Oil and permanently increasing fossil fuel prices. Restaurants prepare meals in batches and in continuous processes, a lot more energy-efficiently; they enjoy the cost advantages of bulk purchase and the energy efficiencies of bulk transport.

    So maybe Real Locavores are people who walk or bike to a neighborhood restaurant. And maybe they’ll increasingly do it not just to Save the Earth, but to keep their apartment TCO down.

    It occurs to me: I live in an enormous city (Tokyo) that very much fits this True Locavore pattern already. It’s a lot more energy-efficient than any megapolitan region in the U.S. The detached family home out in the suburbs might start to seem decidedly silly. If carbon gets priced higher to make up for The Lost Years (GW bush era) and The Foreseeable Future (China et al. balking at Kyoto *and* Copenhagen), it’ll start happening even sooner.

  80. Some points on your points:
    1. Explicit in your argument is that real prices remain flat, which means your real return is also flat, or 0%. Actually, it’s worse than flat because you’ve paid interest, fees and taxes on an investment that has netted zero real return. Though the nominal price of your home may have increased from, say, $100K to $300K, when you go to sell your home, your future dollars would only be able to buy an equivalent house to the one you already own, but you will have spent more than that when you include interest and taxes.
    2. People do not “make money” when the refinance into a lower interest rate. They’re simply lowering the cost of their borrowing. It’s still an expense.
    3. While it’s true that on some level tax policy factors into housing prices, in reality, it’s effect is relatively minuscule. It’s like saying that a stock price reflects all possible known information about that stock. Yes, that’s true, but the price also reflects the Market’s collective “bet” about how that asset will perform relative to its peers over time. When evaluating a home purchase, buyers look at the relative value of their various housing options and make the best choice amongst their limited options, while making implicit assumptions about what that house will be worth in the future. The overall “mood” of the real estate market has a much greater effect on prevailing prices than tax policy.

  81. All of which goes to show why Donald Trump is working so desperately hard to become a renter, eh?

  82. The point is to PAY OFF the mortgage!

  83. Don’t forget that two big advantages of buying over renting: (1) with a multi-year mortgage, the monthly payment stays the same for the life of the loan. By contrast, rental rates rise with inflation. For this reason alone, buying is an advantage: it’s a huge inflation hedge. Even if the house doesn’t rise in value, that inflation protection is still worth it. (2) At the end of the mortgage repayment period, you actually own something which is worth a considerable sum, and selling through a reverse mortgage can go a long way to funding your retirement. By contrast, if you rent for thirty years, you own nothing at the end; you’ve poured 30 years of your money into someone else’s pocket, not your own.

    The secret hazard of buying? Homeowners inevitably end up fixing up their house and buying furnishings, spending far more than they ever anticipated. Some of what they spend increases the home’s value, but much of it does not. People also don’t always sufficiently take into account the cost of home maintenance, which is about 10 percent of the mortgage payment on average. Still, for the first 15 years, the mortgage interest rebate covers most of the cost of maintenance.

    In short, home ownership is still beneficial; it just shouldn’t be conceived as a high-yielding investment, and it’s only beneficial if your mortgage amount is safely within your means (people tend to buy more house than they can afford–most people should not buy a home where the mortgage is higher than what they would pay in rent).

  84. If building wealth is one’s long term goal then what you said makes a lot of sense. ‘Land’ ownership, however, is somewhat different than ‘home’ ownership. Since probably most Americans bought too much home in the last decade it is possible they could bequeath a mortgage to their heirs resulting in situations where debt is simply transferred from one generation to the next…yikes!

  85. Renting leaves one at the mercy of a landlord who may raise rent as he see fits, as well as not maintain the property well. I’ll switch to renting when Warren Buffet does. Otherwise, an “ownership” class may be created, giving the “haves” undue power over the “have nots.” I’m decidedly middle class, but will not have to pay rent nor a mortgage when I retire. My house will have been paid for well before then. Imo, ownership = power.

  86. Housing has never been a good investment excepting for those who know how to run a rental property business.

    The main advantage to owning a home is the freedom to maintain and modify it as one chooses and, with fiscal discipline to own it outright long before retirement.

    In my youth, a fifteen year mortgage was considered long. no thirty year mortgages are commonplace with refinancing along the way.

  87. I do not look at our home as an investment. Our home is simply the place we live in.

    If we wish to invest in real estate, we need to be able to participate in an economy of scale. That is, we need to be able to own an apartment building.

    By contrast, most of us may have to content with a single family home. When we bought our first home, the interest on the mortgage compounded to a bit more the equivalent of the price of our home.

    Therefore, the most frugal decision is to tailor the price of our home to our assets and pay as much as we can toward the price of the new home. We would get the best deal, if we were able to pay the price in full at acquisition. Of course, if we had bought our home at bubble price, we would have to live in it for a decade or more to break even at sale, and we shall be unable to gain relief from inflation.

    Regardless, if we had had a more prudent appreciation of what we could realistically afford in the past decade, the bubble would not have happened.

    If our home lost half its value two years ago, it might take two decades of monthly payments to recoup the loss. We must love where we live.

    Read more here:
    http://brainmindinstrev.blogspot.com/2009/05/immobility-calculator-negative-equity.html

  88. So long one owes a bank, one is a renter. Only after paying off does one become an owner. If the house is totally in debt when the person servicing this debt dies, the bank gets its property back and can sell it and keep any profits or eat the losses.

    This is why a 30 year mortgage is bad: nearly impossible to pay off. I am old enough to remember when no one had 30 year mortgages! The rise of ‘eternal debt’ has masked the loss of wealth of the US middle classes.

  89. Not that many years ago, TV shows were pushing the idea of *house flipping*. I was amazed that homes with 1 car garages and 1400 sq. ft. were $750,000 in CA. Those are signs of a housing bubble. I’m glad to live where housing prices did not get out of control.

    That does not mean that people around here did not get caught up in some part of this bubble. Home equity loans became the enticement and ended up in many of the foreclosures locally.

    We put down $7,000 on our first house in 1973 with a 30 fixed mortgage. The banker tried to talk us into a variable rate mortgage as the way to go. My husband had the common sense to say no. Mortgage rates went thru the ceiling!

  90. Even today, imagine this, people pay off their mortgages and then leave good properties for heirs.

  91. You can slice it or dice it, spin it anyway you like, if you buy more house or more attractive a location than you actually need and I mean NEED, you do yourself a disservice. Buy only what you require and pay it off as quickly as possible, say 10 years on a 30 yr note. If you’re gainfully employed it can be done but it takes sacrificing some of the niceties, the wants but you can generally meet your needs. How fast did the last ten years slip past you? Once you’ve paid off your mortgage you’ll have insurance and taxes only to pay; far less typically than insurance and rent.

  92. The asset “house” or “home” is not a homogenous class.

    ANY thing that is sold can be sold or bought at a price that creates a profit or not, both short and long-term.

    The pricing graph of a Century above, collapsed across America…does not show the extreme drop in price at which time I bought 2 foreclosed homes for the equivalent of “20” and “50” on the graph. Now a year later houses are selling again at “130.”
    Indeed, as the author admits at the end of the article, the time to buy may be now, but it depends on what you are buying at what price, just like anything else.
    Buy low (when everyone panics and blood is running in the streets) and ….rent it out for 30 years…then sell high.

  93. You actually quoted from that lame ‘locavore’ op-ed.
    That guy is lame!

  94. Looking at that data it appear that housing costs still have a long way to go to normalize again…

    What I want to know is the real percentage or number of a cost of a house against the real average salary or buyer income. For instance what was the average cost of a house in the 1970s or 1980s vs the average yearly income in dollars vs now?

  95. This is an excellent and often overlooked or ignored aspect of the total return on one’s primary residence. Your primary residence provides you with imputed income that is equal to what the same house would cost to rent.

    That return, the ownership dividend, must be added to arrive at the total return. So, let’s take the author’s own number and assume 22% — now you need to add to that the value of the ownership dividend realized by avoiding the cost of rent.

    Here we need to make an assumption that rent would be equal to one percent of the market value of the house per month. So, $200,000 equals $2,000 a month dividend. The total return might, in fact, be doubled!

    So even if there was ZERO appreciation on that $200,000 house and assuming a 10% down payment ($20,000), your annual return based simply on that dividend alone is over 100%! (More than that, really, but I reduced it to compensate for maintenance costs.

    You can only do actual analysis with real numbers but to leave the free-rent dividend out of the equation would be wrong and wildly understate the return and, so, the value of the investment, as well.

  96. Best comment so far! Very well said.

  97. Fairly? The 50+ have it all. Social Security, pensions, houses, etc. In fact, some of these obligations are the very thing crushing businesses, municipalities and governments. Unreasonable promises that should have never been made in the first place. What about those of us with student loans working our butts off and who will never see a pension or social security program again? We have student loans high unemployment and are all stuck footing the bill for you. Perhaps there should be some help for those actually paying the bills for the next 50 years.

  98. James,

    Your leverage calculation has at least three basic errors in it.

    1. You get 28% by subtracting percentages (not a mathematically valid thing to do.)
    2. You subtract percentages of different things – inflation rate and a leverage ratio. This is just meaningless.
    3. You take the mortgage percentage and apply it to the down payment not the amount borrowed.

    Do it in dollar space (e.g. $10K down on a $100K house, $3K ROR, $2K of inflation, 6% on a $90K note,) and you will get a reasonable leverage number.

  99. Bravo. What kinda nitwit ever looked at housing as an investment? It’s just not a story that someone now claims housing is not a good investment. Wow, what a genius!

    I love my house and it has nothing to do whether I can sell it for 20% more or 20% less in 5 years. I don’t get it, is it just a bunch of New Yorkers who rent apartments that don’t understand what a house is?

  100. Most multi-unit rentals will employ lawn care services. The chemistry they use to minimize labor costs has real negative impact on local ecosystems.
    Not to put words in Anne’s mouth but I took her to mean that a renter would simply leave an area where corporations had dumped toxic waste whereas the potential for such an event to decrease a homeowners ‘investment’ would provoke a movement to limit any entity from such activity.

  101. Jacques Rigaut

    What about quality of life, which you can’t exactly put a price on. I’ve rented and owned, and believe me as far as I’m concerned owning your own, detached, single-family home, free from the sub-woofer in the next apartment, reaps many dividends that can’t be measured in cold, hard cash. Not everything in life can be reduced to a digital equation the answer to which begins with the symbol: $.

  102. Correct. I could not rent an apartment for what I pay for my house- including taxes, escrow and insurance.
    I will be paying even less in 15 years when my mortgage is paid off.
    Buying for me is like putting rent money in a savings account – which right now would bring a fraction of a percent in interest anyway.
    If there ever was a time to buy a home it’s now. Mortgages cost 4% and prices are depressed. Just like in the 70’s people bought homes and made out, this is a similar period of time.
    Oh and this quote from the article above: “One last caveat, however. When “analysts say” one thing, they are usually wrong.” is very true. The author is the proverbial analyst.
    If you can afford to – buy a home now and get a short term mortgage.

  103. Exactly!!!

  104. If it makes you feel any better, I’m 52 and have known I would NEVER see a penny of SS as I am a late member of the baby-boomers.

    Please do not encourage a “generation war” along with the Dem vs. Repug and all the other “hate movements.” Remeber, I have at least 13 years until I can retire, and my career has been nothing but an endless series of peaks (where I do OK) and recessions (where I’ve been economically ruined several times).

    The only generation that’s profited from the housing appreciation boom is my parents generation who rode the MASSIVE housing appreciation that occurred during the MASSIVE inflation period of the late 70s and early 80s. It was another of their historic “gift of the Gods” that allowed their generation’s worst need for endurance being having to live their youths in the social and cultural prison of the 50s and early 60s.

    I have 2 kids who are young adults (college) and my worry and grief for what their future’s hold for them is the worst of the pain I am feeling in this horrible situation our country is in. Please remember that, historically speaking, YOUR generation (today’s youth) has THE RESPONSIBILITY for voicing your outrage and anger at the system that is crushing you and me. My generation did it, and successfully got us out of Viet Nam as a result (and, believeme, it took A LOT of dangerous and violent protest to accomplish it.

  105. You can live in your car, but you can’t drive your house!

  106. This is very interesting

  107. gabbagabbawill

    EXACTLY! How many folks refinanced with a second loan borrowed against the overinflated equity of their house during the bubble and already spent all of the money? These folks aren’t paying off just mortgages, now they’re paying off (or defaulting on) debt borrowed against equity that isn’t even there anymore. Much of the economic crisis was due to this kind of “financial planning”.

  108. gabbagabbawill

    I feel you there. I think the author of this article is looking at housing from an investment standpoint only. From that point, housing may not be the best FINANCIAL investment (like certain stocks would not be, etc). But from the standpoint of a NON-FINANCIAL investment, owning your own house has A LOT to offer. I do not wish to ever rent again. Owning property in the land of the free… you can’t beat that feeling.

  109. Let’s say you have $2000.00 per month to pay for your housing and for investing. If you rent for $1000.00 and invest the other $1000.00 and you average 3% return on your investment over 30 years you end up with $588,000.00
    If you buy your property for $1200.00 in monthly mortgage/insurance/taxes payment (150,000.00 home) and invest the 800.00, you end up with 460,000.00 dollars in investments, and a house that probably appreciated more than 128,000 over 30 years.
    Also, now you own a home and don’t have to rent anymore, just pay taxes and insurance.
    During the 30 years you get additional money as tax write-off every year that can go toward investments or maintenance.
    Then there are the intangible benefits of owning a home and some head aches- but overall I prefer being the king of the castle than being the renter.

  110. The Feds will never remove the props beneath the housing market’s finance mechanism. Never.

    It was a good idea to reduce or eliminate those props 30 years ago when Japan Inc. was telling us that distorting our economy in favor of house ownership for the masses was bad industrial/economic policy — and we didn’t do it then either.

    As a nation, we are surgically joined at the hip to robust federal tax and financial support for housing just as we are to individual gun ownership rights, complete political dominance by the Republican and Democratic parties, farm subsidies, porous borders, support for big oil, our alliance with Canada, Britain, Western Europe, Israel, and Australia, our complicated income tax system and blowing crap up on the Fourth of July.

    Distorting the housing market is not some malleable aspect of American law or policy. It IS America.

    For God’s sake give it up, people. You’ll never change it. Don’t waste your lives in a meaningless dream!

  111. John Randolph

    Location, location, location! While I think the general proposition that housing is not a good investment is probably right, discussing it on the basis of aggregate US numbers can also be deceptive (as I know my good friend James knows). Some markets are historically boom-bust (Florida); others are simply always flat/relative decline; while others have steady growth related to local economies that are relatively stable (for example, university towns). They neither grow spectacularly, nor collapse spectacularly.

    Relative to an idealized stock market as predicted by investment gurus of the 1990s, such an investment is a loser in all three of these locations, in the sense that neither beats the “over 30 years the market always wins” spin a lot of us got when we opened our 401k’s back then (I’m in my 40s). But that conceals the fact that it matters a lot which periodization you’re talking about and when you need your money back. Most large cap stock investments are flat over the past decade, while my 401 k has been shoveling cash into an incinerator for the past 10 years as well. As James points out, housing looked a lot better for a brief time in hot markets.

    So the moral of the story I would suspect is that for most people in middle America a small but not luxurious purchase of a house is a way of diversifying their investment portfolio and hedging against certain losses. It can’t be INSTEAD of stocks, but neither can stocks be INSTEAD of it. Where am I wrong here?

  112. I agree with the argument that renting is probably better than buying, from a financial standpoint, and would probably start renting again except for one thing – I have kids. If you want your kids to go to good schools – and you can’t afford private schools – you need to live in an area with good public schools. Most good public schools are located in areas that are predominantly ownership markets. Sure, there are always some rentals, but stability is important and there’s always the risk of losing your rental . What if the owner decides it’s a good time to sell and it’s the middle of the school year?

  113. Not that it is not useful to reiterate these opinions, but Robert Shiller already mentioned in his book “irrational exuberance” about the lousy investment a house makes, you should give him more credit as you do use his figures.

    Personally I do think that for many homeowners Figure 6.1, with a real and not nominal house price index, is less relevant than for most investors. They own a house for living and as long as the nominal value of the house stays above the nominal value of the mortgage, most don’t care.

    If anyone is interested in a historic perspective at housing prices, please read my master thesis about the American and Dutch housing market at scribd: http://www.scribd.com/doc/34544358/An-investigation-into-the-housing-market

  114. Lots of philophising here but here is a real world example.

    My family was renting a 1700 sq ft house that I had occupied for 17 years so my rent was very inexpensive due to rent control. A comparable house would cost 3x our rent in monthly expenditures. But the owner did not take care of the place and it was collapsing around us; our utilities bills were also very high. We needed more space with the arrival of a third child and we needed to move before the building could no longer provide shelter and comfort (it will be a gut rehab in 5 years).

    Although we live in an area with very expensive housing compared to the national median, we bought something that will cost us net/net/net of all taxes, deductions, maintenance, etc 20% more than renting a similar property. We bought the cheapest property that met our simple needs; we don’t consider it an investment; we don’t expect it to do much beyond provide shelter and be an effective “machine for living”. By that I mean it contributes to making life easier. For example, we have an extremely large garage that makes it easy to maintain and repair our cars, build furniture and cabinets for the home, etc. The kitchen is large enough to be the family focal point for our extended family. The location virtually eliminates the need to drive in a car. The play areas allow our toddlers to play lots of games with no risk of entering the street, despite being in an urban area. Our utility bills are lower. The list of advantages goes on. Our lives have improved immeasurably, but neither of us had a drive to own property in and of itself.

    There are good reasons to own and bad reasons to own.

  115. And the boom of the late 1970’s early 1980’s came from both the truly illusory condominium boom and the liberalization of lending laws and practices that made it easier for single people (especially women) to get into the game. We’ve since had no particular expansion in the real estate market, aside from a modestly growing population, so the last bubble was blown, so to speak, by speculators.

    Where I live in Chicago a modest existing home built near the turn of the century would have cost $100,000 or less 20 years ago. Now we have new construction that has been sitting empty for the last year and a half or more with $2 and $3 million listing prices. An uncle of mine who made and lost a lot of money as a builder and architect throughout the boom and bust explained that “we all looked like geniuses for so long we thought we were geniuses.” That about says it all for me.

  116. While the idea of home ownership might be comforting and financially profitable at times, the older I’ve become, the more I’ve questioned home ownership.
    By way of contrast, only 20% of the Swiss own homes, apparently. In the U.S., government has encouraged and promoted home ownership in different ways. Home ownership seems to have been a driving force behind what I’d term a parasitic approach to an economy. Whole industries and related enterprises have depended on U.S. homeowners: banking, real estate development, lumber and materials, heating and cooling, roofing, electric, home appliances and tools, plumbing, lawn products and chemicals, etc.. When we’ve had wise limitations from the Glass Steagall Act and stringent environmental regulations, some of the more destructive consequences could be contained. 30+ years of flat-line wages and deregulation have had painful and frightening consequences for middle class homeowners, the environment, the economy, future generations. In my view, systems rooted in personal interest are inherently misguided and immature.

  117. you can't handle the truth

    What’s stuck in BradyDale’s head is the “Why are you still paying rent?” canard, innumerate nonsense used to gull sucker homeowners into accepting their debt-shackled fate. This complex question pretends that rent is an expense but interest is not. All these unquantified slogans are useless because rent v. buy is an empirical question. Empirically, housing as an asset class yields the rate of inflation. You could get lucky, especially if you use leverage to magnify your luck. But comparing an illiquid, undiversified, highly leveraged asset to a safe investment is insane.

  118. Much as I like to think that I have been smart in terms of (UK) property ownership, I really know I was just lucky.

    This article from James just highlights the power of luck and 20:20 hindsight!

  119. P.S. When I was a young man (a long time ago!) the rule that seemed to apply was that the price of a house was roughly 2 to 2.5 times average annual salary.

    I think that this ‘rule’ is reasserting itself, with the added ‘fun’ that average salaries in both the US and the UK are probably declining.

  120. StonerBoehner

    Rent for a $1000 per month or Own for $1000 per month?

    Sure I pay property tax and insurance and have pay for things when they are broken. Taxes and insurance are included in that $1000. Why do those saying it is better to rent deceive on this point? My interest and tax payments have been tax deductible. I have as much storage as I can afford and a garage for my vehicles with the closest possible parking. I can fully enjoy my home theater and any type of music as loud as I wish. I do not have to deal with noisy neighbors learning Irish step dancing in the apt. above. I have only one set of rules to live by, the law. I can change anything I want in the house at anytime in any way as many times as I wish. I do not have to go out of my way to empty the garbage or carry the groceries more than 20 feet. Laundry is done when I want in equipment that will not destroy my clothes. When I die, the asset is handed down.

    I will take the freedoms allowed in ownership over the freedoms in renting. The one often sited is ease of relocation. I can rent my house in a heartbeat at a profit if I want. Especially so with all this propaganda trying to dissuade ownership in favor of renting by people who stand to make more money from people who decide to rent. At the same time, homes experience more downward pricing pressure making for a lower cost as these same people buy up property.

  121. Just a not things were not bad in the 20th century. According to the chart, it is primarily a 21st century problem.

  122. I live with a friend of mine in an nice comfortable home in a safe area. He recently divorced and invited me to stay at the house basically because he wanted some company and didn’t want to be in the house all by himself. He charges me $200 a month rent total includes utilities. I have been staying here for over two years and have been able to save up $30,000 in a savings account because of this wonderful deal. Am I better off using my savings and buying my own home or staying with my friend? We get along great and have never been in an argument about anything.

  123. Thank God for renters. They pay my principle, interest, taxes, insurance, and homeowner’s dues. I pay maybe $750 a year for maintenance and in 15 years I’ll have a home free and clear of a mortgage and an asset worth at least $250,000 that I didn’t pay for.

    Homeownership is key to financial security. I save approximately $300 in federal taxes monthly due to mortgage interest and real estate tax deductions. That cover the maintenance on my rental property and primary residence. After taxes I pay $1,200 a month for a $290,000, 3BR, 2.5 bath, home on .50 acres. I could rent that home for $1,800 no problem.

    If you think renting is better than owning you are a sucker. Wake up!

  124. The Other Hand

    There is another factor to consider. Buying a house with a fixed rate mortgage enables you to lock in your housing costs, for the most part, over a long period of time. Maintenance expenses may escalate over time, but your big payment is fixed.

    Rents can rise (or fall) with the strength of the market and overall economy. The rent on an apartment I had in NYC rose almost 40% between 2002 and 2007. When I gave it up in 2008, the rent was falling but still 25% higher than when I signed the original lease.

    It is easier to manage your budget when your primary housing cost is fixed.

  125. one more thing

    Don’t forget, you had to drop $30K in order to buy the $150K home (assuming you’re avoiding mortgage insurance). That’s $30K you could have invested over 30 years as well.

  126. Compare USA with Russia, not itty bitty Switzerland. Size matters (man to land ratio) when discussing ARCHITECTURE (definition of architecture is “the art and science of designing and erecting buildings). So, yes, “whole industries” evolve out of “architecture”.

    “Lawn products” belong under the heading of “agriculture”. Almost all of EU single family dwellings have gardens, not “lawns” – it’s lovely to get fresh raspberries and spinach from your own garden.

    Agreed that unlike the “personal interest” the Pharaohs took in evolving architecture in “top 1% owning ALL” economies of the past,

    the modern GLOBAL elite have managed to evolve a novel situation in history using “architecture” (a single USA family home) to fund perpetual war against a perpetual shape-shifting definition of “terrorist”, an eternal enemy.

    The “destruction” power and politics economy with ITS “whole industries and related enterprises” also depended on “architecture” to evolve itself, no?

    Watch who you “lease” your house to…

  127. “Please remember that, historically speaking, YOUR generation (today’s youth) has THE RESPONSIBILITY for voicing your outrage and anger at the system that is crushing you and me. My generation did it, and successfully got us out of Viet Nam as a result (and, believeme, it took A LOT of dangerous and violent protest to accomplish it.”

    Am I reading you correctly? Are you trying to stoke the anti-government, anti-tax, selfish, “use our 2nd amendment rights” teaparty attitude in our children?

    My worry for my children, 33 and 29, is that they will end up in a country where all republican dreams come true, those fine old Dickensian times.

    SS would be in decent shape if we would remove the cap.

  128. I just bought a house for cash — a cheap foreclosure in a great neighborhood. It appraised for more than I’m paying for it. I will have no mortgage. I believe as I’ve seen my stocks tank, that the money is safer in this small, high-value home than with the evil geniuses on Wall Street. We water our own plants and can fix faucets and wiring. Yes, I’d love to rent, just walk in and be responsible for no repairs or upkeep. But that money’s down the toilet, flushed into someone else’s pocket. But I’m also a landlady. I’m renting out my other house to a nice couple for a small profit. I feel pretty good about all this.

  129. Where we live is both highly subjective and objective. Can’t comment on the former, I’m as emotional as the next chap!

    But if one was to run up a spreadsheet with perhaps worst, average and best scenarios, it would give you some way of pondering your objective options.

    But if you have the advantage of a great friend, and building cash, in what is certainly a ‘cash is king’ period, and have the inherent flexibility of going wherever job or personal motivations take you, then I know what feels right to me!

    My two-cents worth!

    Best wishes to you,

  130. There you have it, folks, the single “women” owning homes RELIGIOUS hatred…we all know how uppity women can become (think Rachel Carson and her book Silent Spring) about the purity of the land (“responsibility” or nagging?)

    Betcha Colorado Springs AZ faith-based funded enclave, won’t utter a peep about the mining operation…

  131. For every renter of a house there must be an owner of that house (landlord), I am sure the landlord love to buy properties and rent it out to lose their money and get bad headache, they don’t have anything better to do. Are people in this forum nuts…!! If you buy your house and sell it 20 years later at least you get your money back if no make a good profit, by getting your money back you just got 20 years of rent free leaving. (everybody think different and that is why there alway be poor and rich)(bad decissions and good decissions) You probably know of a lot of rich people renting and a lot of poor owners with one or more houses, right?! :-)

  132. @ John Randolph – the location thing is a red herring. My folks loved their small house, in a good area about six miles from downtown – a short express bus ride to work. We were broken into three times, and had terrible “city” schools.
    On the other hand my in-laws are 40 miles from the outer ring of their city (40 clogged miles) and they think *their* location is great (fresh air, bigger low crime, etc.) My parents, had they lived to see their spread, would have (silently) thought “this is Green Acres, and they waste their free time stuck in traffic.”
    To each their own. But any happy homeowner can tell you, at length, why *their* location is good and would probably be surprised someone else would fault the property on that basis.
    Buy or rent in the location you need, do not assume lots of others share your view.

  133. Here’s another story. I own a home now for 28 years. Bought in 1982 for $365K in one of L.A.’s best neighborhoods. It was a stretch but it paid off. I can sell my home tomorrow easily for $1.4M. I have refinanced 4 or 5 times over the years and have reduced my monthly mortgage payments to a manageable $1990 a month. To rent an equivilent home in my neighborhood would cost $4 to 5K a month. Just yesterday I saw an APARTMENT for rent in my neighboorhood, 2 BR 2 Bths for $3,100 a month. Even with maintenance of approximately $5K a year (plumbing problems, electrical, landscaping, painting, etc.) I am so way far ahead if I had been renting this home for the past 28 years (not that it was available). We live in paradise. Thank you, real estate investment world.

  134. I have to say, I find your outlook interesting. I agree that if you can’t do better buying than renting, renting is the better option (if you like having to go through a landlord for every little repair to the house, even if you can do it yourself and it only requires a screwdriver to tighten a little screw). However, I just bought my first house and am doing better than in rent. Combining utilities, principal, interest, mortgage insurance, homeowners insurance, and taxes, I am saving–yes, SAVING–at least a hundred dollars a month. And no, I didn’t buy a distressed property. I bought a better home than the one I left, and in a better neighborhood.

    True, there is maintenance on a house, but instead of paying increasing rent for maintenance on a property you have no control over (which means you can wind up living in a house that isn’t maintained because you can’t get the landlord to repair anything, and you can’t move because all your money is going for rent), it makes more sense to put that money in the bank for when you need a new hotwater tank or new flooring. If you put that extra cash into a savings account, one day you will make money on when banks start actually paying interest again.

    But no matter what, whether I die in this house or sell it and move in a few years, I will have done better than staying in rent.

  135. Oh, and our property taxes, thanks to Prop 13 are less than $4K a year. If one bought my home today for $1.4M and did not have carry-over tax equivilency, they would pay in the neighborhood of $15K a year. That’s an additional 2.5K a month added to their already expensive mortgage payment. It would probably be less costly to rent this property (I it were available) As I could only charge, at best, $5K rental (which would more than cover MY expenses) and probably be 3 or 4K less a month than purchasing.

  136. Your dammed if you do – your dammed if you don’t…ref: @ google…Dodd-Frank Reform Bill Includes Extensions of Protecting tenants at (7-20-10) and @ google…Home Builders will benefit from tax loss carry back extension. (11-11-09). http://www.realestaterama.com/2010/07/20/dodd-frank-reform-bill-includes-extension-of-protecting-tenants-at-foreclosure-act-additional-housing-provisions-ID09541.html http://www.examiner.com/economic-policy-in-chicago-/home-builders-will-benefit-from-tax-loss-carry-back-extention

  137. Your dammed if you do – your dammed if you don’t…ref: @ google…Dodd-Frank Reform Bill Includes Extensions of Protecting tenants at (7-20-10) and @ google…Home Builders will benefit from tax loss carry back extension. (11-11-09). http://www.realestaterama.com/2010/07/20/dodd-frank-reform-bill-includes-extension-of-protecting-tenants-at-foreclosure-act-additional-housing-provisions-ID09541.html http://www.examiner.com/economic-policy-in-chicago-/home-builders-will-benefit-from-tax-loss-carry-back-extention

  138. MichaelofMinneapolis

    Mortgage is a latin phrase, so to speak.
    “Mort” is latin for death. “Gage” is latin for grip.
    Mortgage means death grip.

  139. Julie Grimme

    Mortgage deduction. $300 billion a year. Quite a prop.

  140. Smartest comments so far. Paying rent is a waste of money as you get nothing for your return. Unless the tax laws are rewritten to provide incentives to rent, its a double loss. Take advantage of low interest rates and don’t count on your home as a retirement account. Also take advantage of foreclosure sales and the problems others created for themselves during the bubble and then take advantage of energy upgrade incentives. I haven’t seen anything in the last year that I would label as a growth investment. My kids are relating hugh rent increases, plus utility expenses.

  141. Stu Simpleton

    One reason is that people like to have pets, and apartments rarely allow them at all. Not living under the boot heel of a landlord or a property management firm is a fundamental freedom that is underappreciated by economists, but is the greatest thing ever for those who have lived in rental housing for any length of time. Not having to put up with other people’s behavioral quirks and habits is a big one.

  142. Nice post. I had posted about this same graph from Case-Shiller, but I even found once one in a Dutch paper with prices dating back over 300 years… check it.

    http://theblogbyjavier.wordpress.com/2010/05/25/highest-house-prices-in-300-years/

  143. The caveat is it is a great investment if it is rental property or has a rental attached i.e a two family house.
    No other investment pays as well, even if the market stays flat or goes down and even if you need to supplement the mortgage and or repairs occasionally.
    It may not be the best investment for everyone still, as it takes more than a little responsibility and can be time consuming on occasion.
    However at the end of the day someone else is paying of a $100,000.00 or greater investment for you. One which you may only have put 10% down on.

  144. http://www.examiner.com/…/home-builders-will-benefit-from-tax-loss-carry-back-extension Sorry about the trigger-finger submit___Please note that the trade off for the Extented Unemployments(UMP) Benefits was a wash – the irresponsible homebuilders that speculated – Yes,..the very entity that helped feed the housing collapse are once again being rewarded at the feeding trough by both the Dem’s and Gop! This is a windfall of ~$34bn thats being extended from 2 yrs. to 5yrs. from the IRS via the taxpayers?

  145. there's the rub

    True, that $30K from two years ago might be worth a whole $18K today. In all seriousness, just after we liquidated some stock a few years ago to buy our house, the value of it went down. Lucky timing, I guess.

  146. Saying that investment in homeownership isn’t really a good deal without the leverage involved is kind of like saying banking would be a bad business if banks couldn’t borrow from depositors. You can’t ignore the value of mortgage leverage anymore than you can ignore the risk. There are very few investments that can be safely levered 4-1 (like safe conventional mortgage financing is w/ proper cash flow underwriting, 30 year fixed rate amortization and 20% down). Leveraging other investments can be a total disaster at 2-1 (due to price volatility and liquidity risk associated with uncapped liability and shorter term financing). It’s part of the deal, and it makes homeownership a better investment, unless the leverage opportunity is taken to far, which is how we got here in the first place.

    P.S. What BradyDale said.

  147. I bought my house for 250K in 1992 and at the bottom of this market it’s worth at least 850 to 1M and I’m sure thing will swing and it will be worth even more. Yeah what a bad investment. Meanwhile my stock portfolios continue to take a hit and in the same period of time I’ve lost money in the market. Thank god for real estate

  148. Every projection of the social security “crisis” shows the system will be solvent for at least several more decades. Whoever told you that you won’t be getting your share in 13 years was buying into and/or perpetuating a deliberate propaganda campaign to privatize social security.

  149. If you rent you are still paying property taxes, maintenance and upkeep, insurance, etc … it’s just folded into your rent rate.

  150. The internet has been slow to find ways of tackling these costs, but it will happen. When all the documents exist ONLY in electronic form, they won’t be much for agents to do. Making a standard transaction with standard dates and standard moving parts can eliminate a lot of the friction. No one has done it yet but the riches are too vast for them to remain hanging out there.

  151. Buy as little as you need but please buy a premium property that has broad appeal in the market. Some defects can be fixed, but a property that has unfixable defects will be hard to sell. If you are in a family area, minimize steps to the street and make sure you are near a playground or have outdoor playspace; if you are an area where these is an emphasis on entertaining, look for good entertainment spaces, etc; nowadays always look for energy efficiency; mobility probably won’t go down in price so walkability is good; etc. Buy premium – not size, but quality and amenities.

  152. Our rental allows pets…

  153. Ozarkhomesteader

    Mortgage (15-year), taxes, insurance, etc. all cost us less on our home than renting. And when we rented, we threw hundreds of dollars down the drain each month. Now, we are building equity, and since we bought within our means, it should be ours free and clear in less than ten years. How is that a bad a investment?

    A bad investment is paying too much for a house, assuming the price will go up. A bad investment is getting too big of a mortgage, or taking out a second mortgage.

  154. Articles like this do a great disservice in trying to apply a blanket assessment of the benefits of owning vs. renting. Only by assessing your OWN individual situation/goals/resources/etc can you determine which will be most beneficial(in both the short and long term).

    Obviously we are in the midst of a massive housing correction. Of course higher return can be made with other investment vehicles. But ask anyone who lost 100% of their principle in a BK company whether they would trade their worthless stock certificates for a house(even if they have to wait 30 years).

    There is also a difference between buying a home and buying an investment property. When buying a home – there are many more variables to consider then just Cash on Cash return.

    Beware those who do not consider this when doling out “advice”. They are probably the same people who bought everything at walmart yesterday because it “cost less” – but wonder why they no longer have a job today.

  155. Well given this discussion, in which a lot of relatively literate and numerate people can’t even figure out whether buying or renting gives a better return, or whether the average person makes money on a house bought with a 30 year mortgage, I think we can put the “rational actor” theory of economics to bed. How can we behave rationally when we can’t even work out whether we are making or losing money on the biggest financial decision most of us ever make?

  156. “in a very underprivileged neighborhood”

    Not only is a house not an “investment” (man oh man, the banksters and rich really fooled us middle class shmucks there, didn’t they?), from the sound of it you also violated all three rules of real estate: location, location, and location.

  157. curious steve

    when the basic necessities, such as housing, food, and clothing, medicine, and education, stop being the commodities to trade for maximum private profit, they will stop being an object of investment.

  158. curious steve

    sorry to state the obvious and redundant and circular.

  159. I think really all he’s arguing against is the sales job that was done convincing the middle class a house was a good financial investment. I won’t argue that buying a house is always a crappy deal from every perspective. In fact, it’s very nice that by retirement you can be paying no rent, making it easier to calculate and control expenses. Just don’t look at it as a financial investment like we’ve all been told for so long. It’s not and it never was, unless you were a realtor making 3% on the sale or a banker making 6% on the loan.

  160. i agree. i bought my house almost 10 years ago for less than $200k. because of the substantial deposit i put down at purchase time (close to 20%), my mortgage on a 2 bedroom house with large backyard is substantially less than what one would pay for a studio apartment-especially since i did a refi recently with a much lower, fixed interest rate.

    moreover, my income has increased substantially since the time i purchased my house so the mortgage payments are becoming a less significant drawdown from my salary.

    to that end, buying a home was a pretty good investment for me.

  161. Re: @ Charles____”Funny…did you ever hear the phrase, “You Can’t Eat Fringe Benefits”? Now…let me ask you why Walmart became so powerful? Was it the Clinton’s from Arkansaw – Hillary being a front runner for the Walton’s – NAFTA which was blessed by both parties – or the very fact if you didn’t sign the bottom line with Walmart as a vendor you were “Null-N-Void” as a viable enterprise? Funny how all three parties came together as the divine trinity and no-where Bill was elected. Beware of the disservice of ignorance when your fate is already mapped by a fine-tuned oligarch,…?

  162. QUOTE: “The 50+ have it all..” I’m 56 and you bet I have it all. I have my almost 90 year old parents whom I provide assitance to on an almost daily basis so they can remain in their home instead of going to a nursing home. I have my 23 year old son who lives at home rent free while he completes his college education. We provide him with a car and car insurance, health and dental insurance and pay all his medical bills. We couldn’t afford to pay for his education but we will help repay his loans as much possible when he graduates. Since he choose to pursue an undergraduate degree in psycholgy I’m sure he’ll need that help for a long time. We are limited in the amount of help we can give since we are a middle income, one income family. I’m unable to work outside the home since I care for my 38 year old severely disabled daughter full time and probably will until I die since the funding has dried up for programs to aid the disabled in my county.

    Sure we own home and we have a stack of bills and a mortgage to prove it. Aging homes like ours require constant upkeep and repairs. I live in fear that a major household calamity requiring extensive repairs will wipe out our savings. We just found evidence of termites in our basement so I think that calamity may have arrived. This is particularly bad news since I have been trying to convince my husband to put our house on the market even though housing prices have totally bottomed out here. I would love to return to apartment living and leave homeowner worries and costs behind forever.

    This post wasn’t meant to be a rant about my personal problems. It’s meant to open your eyes to the fact that we baby boomers aren’t all living in high on the hog, planning our next cruise to Hawaii. There are plenty of us struggling to get by, all without the prospect of things ever getting any better.

  163. Could it be that the answer isn’t always cut and dry? Young couples often buy because of the investment angle. Then, their family starts to grow. They need a bigger place and often find themselves trying to sell into a weak market.

    In that case, they would’ve been better off renting.

  164. “Beware of the disservice of ignorance when your fate is already mapped by a fine-tuned oligarch,…?”

    AKA Homeland Security in USA…

    They CAN put the screws to you – “one person at a time” is their motto – as bad as they do when launching weapons of mass DISTRACTION – tell me oh great earle :-)

    what do Blago and Martha Stewart have in common?

    Funny how elite wannabee brown noses like to shoot down, not up :-)

  165. I forgot to add one of the many reasons I am so cynical about the “joys” of home ownership. Our pre-purchase home inspector did a good job in my opinion but the unethical people who sold us this house withheld facts about many things, like the presence of a bat colony in the attic. This was discovered soon after we moved in when a bat flew into our bedroom one night. We consulted a lawyer about this (and other home defects that weren’t disclosed) and he basically said it wouldn’t be worth the time or trouble suing over these things since we have no iron clad proof they knew (although neighbors confirmed to us the previous owners knew about the bat issue). We have fought the bat problem for years at a cost of nearly two thousand dollars. Last month I captured a bat in the house, had it tested and yep, it had rabies. We’ve spend $5000 out of pocket to pay for rabies vaccines. At this point, home ownership is nothing to me but an endless burden. I can’t wait to be free of it forever.

  166. You mean a long-term mortgage, right?

  167. chucky cheese

    other than lowering the monthly costs, how does owning the thing help? obviously, it makes you feel more secure, but you’ve still got taxes to pay, upkeep, etc…

    and now instead of owning just a little bit of a sinking ship, now you own the whole sinking ship…congratulations, captain.

  168. To say that buying your own home is a bad investment is foolish. First of all, you need to live somewhere. Rent and mortgages are not that far apart in most parts of the country. In some areas, it’s cheaper to buy than rent.

    If you have a 30 year mortgage, eventually it will pay off. Then you only have to pay for upkeep, taxes and insurance – which will always be substantially lower than rent.

    It would be nice if the values keep up with inflation (and historically, they have), but even if they don’t, it doesn’t matter if the goal is to eventually have a home without a payment.

    Most retired folks who own their home free and clear will not sell it and will keep it till they die.

    So – buying a home to live in still makes a lot of sense. You are using money you’d have to pay anyway to invest in your future.

    Buying real estate as an investment rather than a place to live also makes sense, but you need some knowledge to make it work, just like you need knowledge if you plan on actively investing in the stock market. That knowledge, if you are willing to get it, will help you get a far greater return on your investment than any money market or bank account.

    Don’t throw out the baby with the bath water. Real estate is NOT dead.

  169. This describes a room mate situation like when a couple isn’t quite ready to be married or if an adult child moves back home to save money. When you leave this house, the owner will still own it and you will have paid off a good chunk of his mortgage or paid his taxes and when you leave, you have nothing whereas he has something which is probably more than $30,000 in the end.

    Once upon a time, before FDR, if you put $30,000 in a bank and the bank went bankrupt, you lost it all. We now have bank insurance thanks to the Democratic Party reforms but still, inflation can eat it all up pretty fast…like in the 1970’s. Real estate, once this bubble is deflated to realistic levels, is a great way to ‘grow’ wealth. Just think! Instead of paying your friend’s taxes or mortgage, you could pay your own! I hope you understand what I am talking about.

  170. You are so right. And if you do a renovation or improvement with “resale value” in mind, you are not focussing on doing what YOU like, and what makes YOU comfortable. An investment can be a house but not truly a home. I think a lot of people have never experienced how it feels to live in — and own — a HOME. Be it ever so humble.

  171. How can it be less secure/better than stocks considering the volatility of the markets though? Property values will eventually rise again – if you lose yoiur stocks, you’re done for…or am I missing something?

  172. A. Why is everybody assuming “renting” means “an apartment?”

    B. Why hasn’t anybody taken into account the fact that not everybody wants to live in the same place for 5 years, much less 30?

    I rent a house because it’s roughly the same as a mortgage payment, minus the fact that a house is an ANCHOR. And I still get the garage space, no Irish dancing neighbors upstairs, etc.

    Unless the market becomes shiny and ripe for selling anytime soon, renting to me is about being able to drop everything and go somewhere new at the drop of a hat.

    If that hat drops when my lease ends.

    But that’s beside the point.

  173. I see home ownership as a plus in 2 ways. First, you are hedging against the cost of rent. Your 30 yr mtg payment sets the amount you will pay for housing. Yes, you will have additional expenses for repairs and maintenance but those are the costs you pay to protect your investment. The second way home ownership pays off is that in 30 years, most likely when it is time to retire, you no longer have one very large expense, when your income is expected to be lower. I saw my grandmother do it the right way and she lived very well, albeit very modest in her final years. She never lived above her means and it paid off in the end.

  174. That is my life summed up. I’m one of the smart guys with absolutely nothing and no-one – except piles of cash, gold and other liquid assets.

  175. It definitely seems like the author is correct that housing is no longer the way to build wealth. Especially with the way the real estate market crashes in 2008, it just shows how quickly someone’s wealth can be taken away. I believe now that cash is king, put everything in something tangible that you can cash out, and not real estate.

  176. Per Kurowski

    The comments in this post are really amazing. I did not realize how hooked the US is on home ownership.

    There is nothing wrong with owning your house but, if society insists in making owning a house the safest and yet most profitable investments, you can bet that this comes at the immense costs of leaving much other economic development in the backwaters.

    There you will all sit in your pretty houses with no earnings to put food on the kitchen table and no money to pay for utilities.

  177. A possible fourth reason “so many people think it’s such a great investment”:

    People don’t accurately account for the cost of improvements in calculating their house’s appreciation. Many statistical series don’t either although Case-Shiller’s “Index Methodology” states that:

    “The indices measure changes in housing market prices given a constant level of quality. Changes in the types and sizes of houses or changes in the physical characteristics of houses are specifically excluded from the calculations to avoid incorrectly affecting the index value.”

    “Since the indices seek to measure homes of constant quality, the methodology will apply smaller weights to homes that appear to have changed in quality or sales that are otherwise not representative of market price trends.”

    But I don’t see how this weighting process will adjust for improvements in markets where virtually every house is being improved (try to find a kitchen in Greenwich or Scarsdale without granite countertops).

  178. Renting is a variable that cannot build wealth because its a contract weighted against the renter. And you don’t have property rights, which is the basic foundation right of the West, capitalism, etc etc and explains why historically the West is wealthier than the East based on economic out put. You need to own property,this fact has been accepted since the ancient Greeks first thought about a democratic state.
    Sometimes its takes 100 years to turn that realestate to advantage, you have to think long term and inter generational.

  179. Murray wrote:

    “I bought my house for 250K in 1992 and at the bottom of this market…”

    I bought my home about the same time, even with the real estate slump it’s appreciated nicely. I have a large comfortable bungalow which can generate extra cash if needed, by renting a finished basement apartment with a walkout sunroom.

    I yanked my stocks out a couple of years ago and parked most of them in medium-term fixed income securities – waiting till the spoke clears.

  180. Renting(again)

    Housing in ten words?:

    Market won’t recover until people can trust pricing is stable.

  181. I think this study is fundamentally flawed. The definition of a home has changed changed many times between 1890 and 2010. Home cost can not be just adjusted for inflation as it would not include cost per sq/ft and associated property taxes to provide necessary infrastructure. This model would need to be adjusted at various points in the past 100yrs for fundamental features not present in 1890…such as:
    1. Garage – autos
    2. Indoor baths/kitchen
    2. Electricity
    3. Communications
    4. Air Conditioning
    5. Regional/local code costs – fire/earthquake
    6. Landscaping – sprinkler
    7. Water filtration/softening

    Necessary infrastructure would be utilities, sewer, water, fire services, etc. Many not available in an 1890 community atleast in the same fashion as today. Again, any cost associated with this infrastructure would require like cost adjustments as new paradigms in service are implemented. One would then do inflation based on the revised cost per sq/ft and taxes to come up with what an apples to apples cost would be today. Without these numbers this study servers to mis-represent the actual cost of home ownership and cause nothing but irresponsible public angst.

    PM

  182. Per, “There you will all sit in your pretty houses with no earnings to put food on the kitchen table and no money to pay for utilities.”

    You’re right, of course. Let me go fire up the printing press – I’m in the mood for the $100 bills today.

  183. The biggest changes for a long time into the future will be the re-cycled materials that we must use to build with

    and the designs that incorporate energy efficiency and sustainability

    as well as new gardening techniques that attempting space travel to Mars, for instance, has brought about.

    Plastic is a biggie new material – especially since we seem hell-bent on extracting every last drop of crude oil before rich oil-men “libertarians” spend some money on PROGRESS…when lazy marries stubborn in the human mind, it’s stuck on stupid forever – yikes – lesson learned, huh?

    But hey, we are ALL “libertarians” :-))

    With you on this COMMON SENSE and PRACTICAL train of thought, Peter, but as we all know, the “devil” is in the details…

    They are LONG overdue in the crowded Far East, especially in the “religions of authority” countries, for some modern architecture – their ancient, McMansions stuff crumbles into dust vapor with an earthquake or a flood….

    back in Kansas, insurance companies should MANDATE the building of tornado-proof “homes” – can be done…

    Meritocracy NEEDS to replace theocracy :-)

    Just for the record, I am using definition #4 of “religion” – “Any objective attended to or pursued with zeal or conscientious devotion: example – A collector might make a religion of his hobby.”

  184. G54

    1. Only 3 of 12 Federal Reserve Board Governors (25%) were actually enforcing the CRA law according to a survey to which they responded.

    2. The economist Dean Baker has investigated this issue. Not only were the overwhelming majority of the CRA loans performing at the time of the mortgage meltdown, their terms were not as risky as the non-performing loans (interest-only, negative amortization, etc… products) and the majority of credit checks were genuine (minimal fraud).

    3. Barney Frank is hardly a honest arbiter of anything – he is owned by the Financial Services industry and a political hooker. It is not uncommon for him to speak out of both sides of his mouth.

    4. Rush Limbaugh told his listeners a few months back that Goldman-Sachs was forced by the CRA to issue sub-prime loans leading to their financial dire straits. LOL!!! There are so many things wrong with Rush’s prevarication it is hard to know where to begin – GS was not even a bank holding company until the Fall 2008 and, therefore, not subject to such Fed Reserve authority. Rush knows his audience is ignorant and will never fact check. Yet millions of right wing dimwits believe this well-known demagogue and his lies.

    Blaming the CRA for even a small part of this mortgage mess is simply not true and is another fine example of the radical right wing’s attempts to impugn the reputation of poor Americans – especially those of color.

    I am a fiscal conservative and am not fond of waste myself – especially corporate welfare. But any attempt to obfuscate the truth or make a specious argument to further racial bigotry, like Rush and his brothers/sisters under the skin routinely do, is intellectually dishonest and offensive.

  185. “Low Home Prices, Interest Rates Tempt Younger Buyers” – WSJ @ Anna Prior/Starting Out {(8/30/2009)(Better to Buy or Rent)} ref: http://online.wsj.com/article/NA_WSJ_PUB:SB125158404267969691.html

  186. We have some people here who are fans of Huffington website – I can’t find the link to the entrants and winners of this year’s “sustainable” housing contest – there was an entrant (modern, sustainable energy, efficient home with a food garden) that was so clever and beautiful that it made me feel like I’m currently domiciled in something utterly primitive…envy in keeping up with the Jones’s takes many forms – some positive competition is a good thing…

    Stories, whether true or not, stick in your head sometimes. Back in the deep “fog” darkness of the couple of years after 911 when no scabs were allowed to heal over because keeping them open and bleeding was part of the FEAR strategy,

    I read an article about the housing conditions provided for the females Osama had in his entourage (always a Bonnie with Clyde)

    …supposedly he wintered them (harem) in some hollowed out ancient ruin with no windows he found on the run.

    So I got to thinking about that…I believe I have the basic nature of someone from a progressive gene pool – probably first would have used rocks, spit and sand to cover up the drafts. Then the “charming” caviling strategy, “Osami-snookums, honey bear, can you please provide me with an “art” studio so I can make some glass…?” And there you go – off and running with “manufacturing”…

    It was a lady who invented windshield wipers for the car :-)

    Would snookums REALLY chop off my pretty head for wanting to make some windows…?

    HUBRIS is gonna get ‘em all in the end…playing god is FAR from actually being God…

    Link to the houses entered in the contest, anyone…?

    Pretty please snookums? lol

  187. Does anyone have the source for the numbers in this graph? All the Case Schiller numbers I can find only show estimates for 2007 onward, not the actual data. If you know where to find the most recent data, please post a link. Thanks.

  188. Right. When you rent a house, you get the freedom to do what you want (pets, gardening, use the garage as a shop) while being able to invest the money you would have spent on a down payment had you purchased. Every case is different, but it does make sense for a lot of people.

    Also, those folks who say that the mortgage interest and property taxes are rolled into the rent are not taking into account that the last sale of the house may have been many years ago, so the landlord’s obligations could be much lower than yours would be as a new buyer.

  189. Again, basic economic thought process is not within the mental caverns of US economists. The desperate action to launch QE2 will be quite evident in the coming weeks. It will even become a national priority. The bankers and politicians will rush to destroy whatever credibility remains in the US dollar, or any fiat paper currency. The challenge to banking leaders will be to conceal their desperation and panic. They have had no options or alternatives for almost two years, now painfully evident. The impact of the launch will be extremely damaging to the prestige of the US Fed in general and Chairman Bernanke in particular.

    He has not understood much of any events, surely has proffered a string of errant views and obtuse forecasts. Witness the discredit of the central bank franchise system. Fiat paper money is dissolving before our eyes. Notice the assaults on sovereign debt in Europe, a trend which will hit the US shores, all in time. Economists do not expect it, since the American bankers possess the printing press. They will be blindsided by Gold, which pulls the carpet from under the US dollar-based foundation inside its very structure. The Gold bull market will outlast the US Treasury Bond bubble run. The key word to be heard in the next few months will be CONFIDENCE, as in the absence of it when viewing the US financial helm.

    The powers in charge will choose inflation over any combination of reform, restructure, and replacement of the helm. A recovery could have possibly been in our grasp, maybe in the future after much pain from adjustment. Unfortunately for the bankers in unchallenged power, the respect, prestige, and faith in the US Federal Reserve will fade like a sea mist after the QE launch. Its christening will be done in deep shame with a bottle of acid.

    The level of respect is approaching rock bottom, the lowest in decades. Even Alan Greenspan expects slippage and sputters as the housing market resumes its powerful decline. The next recession for the US economy could very easily result in a US Treasury default.

  190. Amen young n dumb! For those who do not feel the same, tell me then, how my grandfather could raise 10 kids on a single income and still afford a mortgage payment, food, and clothing for those kids? How did my neighbors, (alleged illegal immigrants) buy a house, add on rooms to it, and pay it off in SEVEN years, while the lady of the house was unemployed for 3 of the 7 years? How I ask you?!? What do they know that I don’t? You’d think that speaking, reading and writing English, knowing something of the history and politics of our nation, and having grandfathers who fought in wars and help build this country might give me some kind of advantage!? Not so. YES…my generation (I am 37) has SO much to look forward to! After making car payment sized student loan payments for 25 years and paying 30 year notes for ridiculously small houses, we may just be able to retire at the ripe age of 75, if only with a blurry vision of Medicaid! THEN, instead of traveling and enjoying my golden years, we can look forward to choosing between paying for medication and buying food! Next, after living another decade or two in poverty, everything we worked for our entire lives will be decimated in a matter of months to pay the $50,000 a month (right now $10K a month) it takes to house us at understaffed assisted living facilities. Then when BIG MEDICINE is satisfied that our lifelong dreams have been sufficiently exhausted, ripped from our spouses and stolen from what was meant to be our children’s inheritance, the state is then remanded to pick up the heinously priced tabs they have ALLOWED to be billed, borrowing from the very pensions we were promised and inevitably denied. Yet in the face of all this, the government continues to allow the health care industry and pharmaceutical companies free reign to charge as much as they like for medical services, with no regulation whatsoever. They will continue to do things such as paint teachers and human service professionals as scapegoats for high taxes and their unbalanced budgets. Currently, a grossly inexperienced and uninformed Wisconsin gubernatorial candidate is sharing such sentiments in his campaign commercials. That’s the ticket, blame innocents in low paying, thankless jobs for creating a mess years in the making by the banks, medical and insurance fields, and the Wall Street tycoons who consciously choose to allow innocent children to starve so that they can buy that 3rd jet, that 4th yacht, and that 5th mansion. Would socialism really be so bad? Less government = less taxes = fair & honest business practices(price regulation, caps on interest rates, food additives/processed food, how livestock can be raised, etc) = less corruption = MORE individual freedom = better quality of life for ALL human beings not just the richest!

  191. Quick point: Where you say “Price Illusion”, many people in the 70s experienced housing as their best hedge against inflation. It may not be an Investment, but it is an Asset.

    (And of course there’s a lot of silly absolutist arguing going on – at SOME PRICE, buying is a good deal. It’s not that buying or renting is better than the other in all situations.)

  192. Dear Sue,

    I have many years of experience with pest control, so I wanted to offer you my best advice.

    The key to bats is exclusion work. If they can’t get in, you don’t have a problem.

    As for termites, if they are subterranean, make sure you are treated with a chemical called Termidor. This is the best on the market.

    If you are in a warm weather state, and they are drywood termites, make sure to get a fumigation. It is a little bit of a pain, but the other methods are really a joke. Heat, freezing, microwave, electrogun, orange peel oil, etc have a rate of success not much greater than if you had an exorcism.

    I know this sheds no light on the topic at hand about home ownership, but I hate to see anybody suffer from pest problems, or be taken advantage of by people in the pest control industry.

  193. In the days of my parents and grandparents, housing was shelter i.e. consumption,not investment.

  194. There is some real “stuff” that was manufactured by all the spending, Barbara.

    Weapons.

    The hubris of “economists” sealed their “perception is reality” doom when they dared to use the USA military as a personal mercenary army.

  195. Re: @ Barbara____Caution…be very careful where you purchase your “Gold”…and extremely careful where you store it! When “FDR” confiscated all gold ( google @…”Roosevelt Confiscates Gold” & “Eminent Domain Laws Stricken”) during the early years of the “1st Great Depression” it was disastrous for folks (they lost big time because their was no place to hide this invaluable hard “Yellow” assets that the Gov’t. wasn’t aware of – no where! Just be sure too have no traceable fingerprints on your fully paid for, and already taxed hard asset – for the government can confiscate it – as easy as signing a piece of paper by the congress and president. Why? Because Nixon scrapped “Bretton Woods” and put us on the “Fiat” means nothing – the changes too the “Eminent Domain Laws” (Kelo vs. City of New London 7/05)(Supreme Court expands the power of eminent domain) makes it easy now for the government to circumvent the law to confiscation, period! PS. Not sure if even numismatist gold is safe. Thanks James and Simon:^)

  196. Might work for you, but most humans prefer to find purpose in life with the people they love and comprimise with and the people they create. Home ownership (prudent) and marriage (not just man and woman) are two institutions that help define and stabilize those goals. Perfectly sensible.

  197. Per Kurowski

    Yes but just as shotgun marriage might not be the best marriage, neither is overly subsidized house ownnership the best house ownership… someone is paying for it!

  198. ask the Russians to store it

  199. For perspective:

    According to Joe Stiglitz, we’ll have blown ten times that amount on the war in Iraq, when it’s all accounted for.

    Also, compare it to annual over payment by all of us for medical services in the US system.

    Finally, 300 billion is comparable to the annual unreported (but taxable) income from various businesses and individuals, according to the IRS and economist Steven Levitt.

  200. Per Kurowski

    Yes, a little relative perspective here and a little relative perspective there… and soon we will lose all real perspective everywhere.

  201. someone stopped the FBI from stopping the liar’s loans…so if those who stopped the FBI are “paying” for it now – well that’s just “karma”

    “over subsidized” is a problem across a lot of industries – Exxon gets a pant load and so do other CORPORATIONS.

    God forbid tax payer money should flow back to taxpayers through HOME BUILDING (wha’? not a “family value”?) instead of going to pyramid building and WAR…

  202. Per Kurowski

    Tax payers´ money flowing back to taxpayers… you mean through home building or through home ownership? … not exactly the same thing. Subsidies to home building might help to keep the price of homes down… subsidies to home-ownership might keep the prices of homes high!

  203. With the threat of a double dip recession, there is a stronger possibility that people’s real estate holdings will be worth less than they expect. This uncertainty will cause more people to file for bankruptcy protection. We are in a dangerous situation with the economy as we an just sink back into recession anytime and cause serious livelihood problem for many Americans.

  204. I mean through the MAINTENANCE of all the infrastructure that homes depend upon – for the time being – electricity, water, sewers, roads, natural gas, underground cables…

    We lost a large American city in 2005 and everything that happened 5 years ago – lack of enough national guards to evacuate and save the citizens and bad FINANCIAL timing since construction was happening in Middle East on a massive scale – is clearly evident today for analysis since everyone who lost the homes that they OWNED outright in the city have no chance at rebuilding anywhere else in USA – they’ve been thrown to the predatory class for a daily supply of blood and organs, so to speak.

    It’s sick, Per, to IGNORE such FACTS. I’m not saying that YOU are, but what is the point of “insurance” in the new world order…?

  205. And imagine programing the loss of all perspective for permanent enshrinement into a robot running on perpetual motion magnetism so that the Koch “idiot sons” have eternity in which to “retire” with enough $$$ since they will never “die” as they have transferred themselves into the “machine”.

    Scheesh…the stuff people get out of bed to accomplish in life :-)

    Maybe limit the consumption of comic books?

  206. Per Kurowski

    Precisely! “the MAINTENANCE of all the infrastructure that homes depend upon – for the time being – electricity, water, sewers, roads, natural gas, underground cables…” is one of those things on which tax-income would have been better spent than subsidizing directly or indirectly the ownership part of the homes.

  207. I believe we’ve found agreement among the voices in our heads :-))

    about NOT subsidizing CRIMINAL activity.

    More misery for others = More money for ME ME ME

    was subsidized in too many ways in order to become the ONLY “business model” criminals now know that works FOR THEM and they are NOT going to stop it, are they?

    We absolutely can’t go on like this…Spaceship Earth is being ripped apart from “subsidies”…

    My feathers are quite ruffled today because I actually watched TV for a few minutes yesterday in a public place and caught a piece that was shear PUERILE media madness – who is this “Glen Beck” person?! He has TRASHED the validity of a Declaration of Independence 2010 by proclaiming himself the “leader” who is getting directions from the voice in HIS head about how to do it!

    Seriously, there are no NORMAL adults in the room, are there?

  208. mountainaires

    Housing isn’t a good “investment.” But it’s a great place to live; it’s a wonderful place to use as “shelter.” That’s the extent of the value of “housing” and the sooner people realize that; the sooner they’ll make better financial decisions regarding “investments.” We’ve been propagandized so long about the “market” we’ve had CNBC-DNA injected into our souls. Fuggedaboudit. Save your money; get out of the market; only buy a house with cash you’ve saved for that purpose over the course of a lifetime. People should never–I repeat, never–buy a house on a mortgage. You’re paying at least 2X the price of the actual house. Have you ever really looked at the numbers? It’s such a waste of capital. When are people going to wake up to the “housing” scam, and just stop playing the part of the stooge in it? Credit is debt; debt is slavery.

  209. s Z XXFXwsDaadqqaeQDe

  210. I really think the person writing this kind of post should state up front whether they rent or own where they live. Two similar posts I read — both guys owned.

    I’ll only say for those who think going rental is such a charm, just get run out of your apartment because the lease is up but you can’t renew it because the building’s going condo or being knocked down — then have that happen to you maybe three or four times over the course of 10 or 20 years — till you’re pretty much priced out of the neighborhood you were born in — and then tell me renting is such an awesome option.

    The only thing I take away from posts like this is that it’s a hell of a great time to invest in property. Thank you very much.

  211. Actually. It is already pretty standardized. Real estate contracts are standard cookie-cutter forms that realtors just plug in price and date information.

    The transaction costs are only a few thousand dollars for an investment of hundreds of thousands of dollars and are well worth it.

    I am a lawyer and handle real estate transactions. I had a client a few years ago who didn’t use a realtor and overpaid by over $100,000 in her contract to buy a house. She was lucky an appraisal for the lender caught the overpayment and that I was able to get her out of the contract.

  212. Real estate investing cannot be compared to buying stocks, bonds or a CD. Real estate investing is actually a form of PRIVATE EQUITY, like venture capital and LBO investing, but open to the common person.

    In real estate, you:
    1. Purchase the asset with leverage (a mortgage)
    2. Use rent cash flow to pay the mortgage (or you pay in morgage what you would’ve paid in rent)
    3. In a non-bubble, the price of the asset moderately increases and at least will not decrease much (making it a low risk investment)
    4. Real estate investment is moderately difficult. This is a GREAT advantage. Any buffoon can buy stocks and track them on his computer. A real estate investor has to know about how to repair things, the market, how to deal with tentants etc. This is a barrier to entry which prevents most people from becoming real estate investors.

    An average person cannot easily start an LBO or venture capital fund; but she can successfully become a real estate investor.

  213. Key takeaway: “That whole phenomenon was just a transfer of wealth within society.”

    Yes indeed. Leverage and inflation cannot magically be converted to real returns for everybody in society. Those who won at that game did so at the expense of those who lost and, more importantly, those who didn’t play the game.

  214. Those who didn’t play the game are the people who created the kind of trust and security in society

    the “trust” that ended up being used as the smoke screen for their game.

    The Wrecking Crew has shape shifted into “gatekeepers” preventing people from getting jobs. So money for jobs is going instead to the “secret” mercenary army created by Patriot Act that completes the paperwork to foreclose, say no to loans, give health care paperwork jobs to their crack head buddies…that’s where the hedge hog money is going – into “recruiting firms” housed in the same offices as the sub-prime scum bags were in and their mission is to LOWER the wages of the “worker” to stay globally competitive – meaning $1 for the worker, $10 for themselves because they were SMART enough to get someone with 10-15 years of experience who already watched half of their age group lose everything from manufactured unemployment agree to the cut in salary!

    This cannot go on…seriously…WHAT IS THE POINT?

  215. the unpredictable drive-by-shooting foreclosures that banks are now doing to keep everyone making a payment to them instead of eating is a win-win for the economy

  216. derivatives
    exponential growth
    greed
    norms
    ignorance (it’s bliss though)
    disregard of values (shared by buyers and sellers)

    what could have been expected?

    Real Estate is a great investment, as long as someone else is paying for it. Other than that, it should be considered a “home” and secured properly. This takes prudence, a disregard of status needs and an honest assessment of practical needs.