Why houses are like dishwashers

By Felix Salmon
September 2, 2010
lot of people have been quoting this passage from Chip Case's op-ed on housing as an investment:

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A lot of people have been quoting this passage from Chip Case’s op-ed on housing as an investment:

For people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.

I read it a lot of times, and couldn’t really understand what it meant. So I decided to phone up Professor Case to ask him.

There are two things here which are easy to misunderstand. Firstly, when Case says “think of it as an investment”, he’s not using the word “investment” to mean “something which holds its value over time and which with any luck will actually appreciate in value”. Instead, at least in this passage, he’s thinking of an investment in much the same way as you might consider a dishwasher, or any other durable good, as an investment. You pay a sum of money up front, and then you get a stream of valuable services more or less in perpetuity. In the case of a dishwasher, that means clean dishes; in the case of a house, that means shelter in the place you want to live.

(Incidentally, that’s why I think Ryan Avent’s criticism of Case is misguided: the location is just as much a part of the service that you’re receiving as the shelter is.)

Secondly, when Case talks of this part of the investment being “constant over time in real terms”, he means something almost tautological: the value of any given service is constant in real terms by definition. What he doesn’t mean is that you’re going to get a constant 6% return on your investment after maintenance and repair. That number, he’s happy to admit, can rise and fall over time, and fluctuates mainly with the market rent for your home.

Essentially, what Case is saying here is that once you own a house, you’re guaranteed to be able to live there as long as you like, and that guarantee has real value. If what you want from any investment is an annuity — the ability to get constant real value out of it indefinitely — then in that sense a house is an investment. But that’s emphatically not the same as thinking of a house as an investment in a mark-to-market sense of how much you could sell it for.

Case is a long-term bull on housing: “sooner or later”, he says, prices will rise. Well, yes. But if it’s later rather than sooner, and if they fall a lot from current levels before they start rising, then you might not take much solace in the fact that you’re still getting the same kind of value out of your home that you’re getting out of any other durable good.


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So what he is really saying is that a house is first and foremost a place to live.

It’s important to focus on the ownership part to be able to realize your statement “once you own a house, you’re guaranteed to be able to live there as long as you like.” That’s only true if you own 100 percent of it; not 3 percent and the bank owns 97 percent. And you can still get ousted if you can’t pay the taxes or utilities.

Posted by Curmudgeon | Report as abusive

The amount of people involved in capital markets who don’t have the first clue on what ‘equity’ means. It never fails to amuse.

Posted by ottorock | Report as abusive

Finally somebody who gets it!!! Thank you, Professor Case!

A house is durable real property. It provides a constant necessary service for which many people have a predictable demand. (Easy enough for me to project my housing needs 5, 10, 20, or even 30 years into the future.) It is so incredibly durable that (when properly maintained) it is likely that you will be able to sell it in 30 years for more than you paid to purchase it. Long-term capital losses on housing are very rare.

Buying and selling houses is inefficient, expensive, and generally ought to be avoided unless your needs (job location or family size) change. And only a fool would count on either short-term price appreciation or long-term price appreciation in excess of inflation when making a decision.

Renting a property comparable to what I own would cost at least $2000 a month, a figure that is likely to increase with inflation. Using the 4% rule (wildly generous in today’s low-return investment climate!!!) a $600,000 nest egg would be required to provide an annuity to cover that rent. Factor in 30%+ taxes and the situation gets even uglier. If I prefer renting to owning, I’ll need a million dollars in present-value savings (or the equivalent in income) to cover that portion of my expenses.

Alternatively I could use $350,000 of that nest egg to purchase the property outright and spend $500-$700 a month on taxes, insurance, and maintenance. Half of which is tax-deductible, reducing the income stream necessary to support it. Now I only need present-value savings of $300,000 or so to sustain my residence.

It is truly an obvious choice… Spend $1M on your housing needs by renting or spend $700k by owning. Anybody with sufficient cash savings to buy a house outright will recognize that it dramatically improves their financial picture.

As for mortgaging the property, that can be a reasonable option as long as your post-tax returns on savings are comparable to your post-tax expenses from the mortgage. If the savings are in an IRA while the expenses are tax-deductible, this is a pretty easy bar to hurdle.

Posted by TFF | Report as abusive

I should note that I own (not rent) a dishwasher. I own (not rent) a car. In both of these cases I own because the cost of renting would be at least 50% higher.

Houses are very much like dishwashers, just more durable. I don’t intend to sell either one.

Posted by TFF | Report as abusive

Case get at the core of why I had a problem with Kiviat’s Time article about the case against home ownership and using Germany and Switzerland as examples (both are countries with far more extensive retirement benefits and social safety nets than the US).

As the recent NYT article pointed out a house is a forced savings vehicle. You may not make a huge return but if it’s worth what you paid for it when you go to sell (20-30 years down the line) you get at least the cash you put in. You might make more interest elsewhere – but only if you have the discipline to invest the difference and enough cash flow.

Once the house is paid off you continue to live in it rent free – taxes, etc. still apply. Most people won’t have enough savings/income to be able to continue affording rent after retirement, much less nursing home care if it’s needed and having been down this road with family – social security and medicare alone are not enough. A house may not make most people wealthy but it can be the difference WRT to real poverty in retirement.

From a personal POV – initially renting would have been a better deal than buying my house. I’ve owned long enough – my morgtage(15 year) is just over 50% of what the market rate rent for my house would be. So I live in my more than 50% paid off house for about half the market rate rent. I don’t even need to do that math – TFF covered most of it above.

Posted by jobo | Report as abusive

TFF – your simplified math doesn’t add up according to my rudimentary Excel spreadsheet or NY Time Buy / Rent calculator (http://www.nytimes.com/interactive/busi ness/buy-rent-calculator.html)

Based on your figures ($2000 rent, $600k house, 5% mortgage rate, 1.35% taxes, 20% down payment, 2% home price appreciation, 3% rent increase) it still pays to rent vs. buy over even 30 years.

Posted by bjacobs103 | Report as abusive

I found this post odd, I have to say. All investments, or at least proper investments, should be like dishwashers, giving off a regular stream of income. What you describe as an investment, ie hope of a capital gain, is what I would term speculation.

A dishwasher is a great investment, and one I would suggest people buy before they buy equities. So is central heating. Equities are kind of the investment you buy when you’ve ran out of better ideas.

Posted by mjturner | Report as abusive

Also, on housing specifically, it’s a great pension asset. There are two ways of maintaing your living standards without working – consuming alraedy purchased goods and services or relying on other people’s work (either through taxes, dividends or coupons). The former has the problem of not knowing what your tastes will be in advance, and that most goods are not storable. The latter has the problem of being reliant on other people’s goodwill. Housing is the only real consumption good you can realiably predict in advance but but now, and so simply on diversification grounds it makes sense (I don’t see any case on capital gains grounds, but not sure that is relevant).

Posted by mjturner | Report as abusive

If you have a have a house that isn’t saddled with an underwater mortgage and you can afford that mortgage be very grateful

Posted by STORYBURNthere | Report as abusive

bjacobs, my apologies for not being clear. The market value is around $350k, not $600k. The additional $300k of savings (or comparable income stream) is necessary to sustain ongoing expenses including taxes, insurance, and maintenance. I would have a very hard time arguing for a $600k purchase price over a $24k/yr rent. Happily you can almost always buy for less than a 25:1 price:rent ratio.

That said, you ought to also analyze it as a cash purchase rather than assuming a mortgage, and you cannot ignore the tax implications!!!

If you want an inflation-adjusted income stream that continues indefinitely, you ought not be withdrawing more than 4% of the principal (with an additional 2% going towards inflation). The government immediately grabs 20% to 30% of that income stream, leaving you with (roughly) 2.5% to spend on the rent. So a $1 million nest egg will support a $2000 monthly rent indefinitely.

The alternative is to spend a third of that nest egg on a cash purchase and a third of that on taxes, insurance, and maintenance. The remaining third can be used for other purposes.

Now I understand that most people, especially most young people, don’t have a million dollars sitting around in cash. Still, the logic works ESPECIALLY when you consider that retirement savings can be tax-sheltered while mortgage interest is tax deductible. Does it really alter the picture that much if I pay the bill over 15 years instead of in one big chunk?

Posted by TFF | Report as abusive

House? Best investment I ever used! errrr made. (and well said TFF) Just a few (dozen) additional thoughts and anecdotes, being I consider my home a great investment… (everyone else is gone Felix,so I am talking to you… some day you are going to have to look at a house and see it as a home)

I started investing early so by the time I was 30 I also owned my first house… and got to burn my first mortgage . Buy at the right time, buy quality and location and make it a home. If it is a home and not a house, pay down as much as you can and accelerate. I have never had more then a 15 year mortgage even when I was single. it is forced savings …I never saved a penny and suddenly with the same salary I was investing and buying a house.

The first house was old, I gutted the walls and tore out plaster and mortar to make it newer and remodelled the kitchen and ‘antiqued’ the pantry and kitchen. Although it was old, the maintenance costs were max 500 a year. The maintenance costs for homes are usually highly inflated, but if you don’t do your homework/inspections before buying it can be way more.

I rented to my sister. it was a 5 bedroom, so I could have rented more. Great investment for a young person… (apartments have their own rooms, we had our own floors) Because I was the only home owner of the friends, I held 3 wedding parties in it (it was full of solid oak pillars and winding staircases) My parties were legendary and my neighbours knew me all too well. (yes that can happen in an apartment, but when you move inside after the complaints, you can’t be evicted.

It had 6 oak trees with hammock on them and a huge deck. I hated parting with it, but I lost the 2-home marriage toss. Cost when selling? None. made big bucks because I maintained myself, upgraded and modernized myself and detailed for sale myself…also sold it myself so no commission. I considered it an investment, treated it like and investment and so it became one.

Although we split after our second home, my half was still a healthy down payment on a custom built home. I made sure it was built with screwed in wood floors and not just glued and that the wood was fir, extra solid construction and materials. Crappy homes are not good investments … good ones ensure low maintenance.

I made a huge veggie garden, 2 apple trees, plums 4 flower beds, flowers in pots. I enjoy it, but it keeps the neighbourhood prices up too. I do most of my own maintenance that is simple and only now is it needing some work. I would have owned it 2 years ago, but I had renovations and had to re-mortgage to afford it. The renovations were entirely aesthetic, but also added value to the home.

Me in an apartment= unhappy watching the money fly away. restricted to location paint, size, structure, noise levels, comfort, windows & light and would be 1/3 the space for the same monthly cost.

Me in a house= home, my son is out on the trampoline (used to be a swing set, then a climber in our private ‘playground.’) we have a movie theatre and gym in the basement and the apples are nearly ready. But I realize that isn’t an investment, but when I resell, someone is going to pay me more I paid for it (right now it is more then 3 times here in Canada, but as we all know that changes) renovations included.

Oh and I park in my garage for free and have room for 5 more vehicles, plus canoe, camp supplies, bikes and sports equipment up the whazoo. (where do you keep all your stuff Felix? in the dishwasher it seems! heheh)

I will own this home too as I am accelerating payments, just in time to collect my pension and have no worries. A home is something you can enjoy for a lifetime. It is like having kids. It’s hard to see the value until you have them!

Nah it isn’t really an investment with cash flow as you financial whizzes might see it, unless you are a superb flipper… but compared to renting it damn sure is investing in my future ! Homes have given me far greater returns and less headaches then the financial investments I’ve had since that first house.

And as I said before if times get bad, I could be the renter again… just no more parties!

PS just wanted to remind that prices for renting will soon go up quickly in the US. people are not going to be able to get loans after walking away from mortgages and someone is going to buy those homes and rent them. Once that happens, a few more people will be back in homes, even if it is to rent out some of it to others. None will be renting dishwashers, however.

Posted by hsvkitty | Report as abusive

Until around 1965, houses weren’t seen as an investment. The dominant observation when one told others of a price paid was ‘you’ll never get your money back’.

But as long as the population was growing like topsy, the emergence of the house as (literally) a pension pot seemed a never-ending, rising curve – especially in my own nation, the UK.

It’s been a fifty+ year cycle, but it is now quite clearly coming to an end. Ultimately, assets like that are driven by credit availability and demand – two mutually dependent divers.
Foreclosure is going to swamp the market with supply…in a sector already lacking demand.

Most Anglo-saxon consumers are repaying debt. They will keep on repaying and pulling in spend-horns until the balance between job security/salary and amount borrowed is in the relationship of roughly 2.5 to 1. I estimate that will take most people a good five years minimum.

The outlook for assets beyond precious metals is awful. If you have a buyer willing to pay anywhere near the asking price for your property, sell now. By end 2012, its value will be circa 35% less.
http://nbyslog.blogspot.com/2010/09/amer ican-qe2-obama-team-reported-to-be.html

Posted by nbywardslog | Report as abusive

a house, like all temporary structures, is a dpreciating asset, just like a car, albeit with a longer time horizon, which is usually beyond the homebuyers ability to envision…

Posted by rjs0 | Report as abusive

Professor Case is correct that home prices will eventually stage a comeback and it will likely happen sooner than most people expect but not for all properties.

Several forces are in play that will drive energy prices (particularly the cost of petroleum) sharply upward.

Consider the vast streams of vehicles that clog up major highways during rush hour in the morning and again in the evening. If your car is on the road every day during rush hour, the value of your home will increase or decrease in direct proportion to the amount of time you spend driving at that time of day.

The value of homes in “bedroom communities” will plummet and the value of homes in or near the city will skyrocket.

Posted by breezinthru | Report as abusive

A house may be an investment and it is much better if the owner can build it as his/her own contractor and principal workman. It can be done on cash and the work can proceed at a comfortable pace. It lasts longer than an appliance. But most American homes are not that substantial and are prone to rot, mold, insect invasion and destruction, water damage, flood damage and fire. The insurance – for property and liability – should also be factored in for the cost of living in a home. It the home is a condominium, than an additional level of maintenance fees has to be added in. Those tend to rise as well.

If one occupies a house for 20 to 30 years, than one is likely to have to replace roofing or siding, flooring etc, because those have a life of about 20 to 30 years.

But the property tax rates tend to rise over time. If the house is built in a new area that is growing, the local taxes can rise over time. If new schools are being built for the new arrivals – you can see a substantial increase. The water and sewer hookups also tend to rise regularly. As the property rises in value in a neighborhood, municipalities also tend to want a higher assessment value on the property and a larger tax per year. I am sure that there are many people with underwater mortgages and yet all the other fees and taxes have stayed at the peak. Distance from urban centers or major employment is a cost that should also be factored in. Commuting time is getting more expensive with the higher fuel costs. That is likely to rise and the value of the house is likely to fall if it is in an area far from most employment opportunities.

The appliance however – tends to be bought outright or on short-term credit and isn’t likely to last 20 years or so. There are no taxes or fees that can be assessed annually but it operating cost is based on the cost of the water, sewer and or gas/electric fees. When it is too old to function it is thrown out. That is not what happens to hosues.

But I find the last comment by rjs0 – “Houses- like all temporary structures” – a little puzzling. If a house isn’t a permanent structure that what is? And unless the unit is a rental unit – I thought it wasn’t possible to claim depreciation by an owner occupied house. An owner of a commercial property can. If it is a “temporary structure”, than its price should also be factored into the cost of living index that is used to gauge inflation. Me. Greenspan never included housing prices and I always thought that a little strange. The inflation figures he used to claim showed such a healthy economy left out the rapid rise in housing prices because that would have made the inflation rate far too high for his or anyone else’s comfort. The structure may not be temporary, but the occupants and their financing arrangements certainly are.

The people who bought houses in an area and stayed there for 30 to 40 years saw the best return on investment. But the general rule for American homeowners is that they move at least every 7 years. That ruins their ability to see the legendary property increase. But realtors are notorious pimps. It is in their own interest to puff their wares and make exaggerated claims about the advantage of home ownership and to understate the costs.

Posted by paintcan | Report as abusive

hsvkitty, I think you’re conflating homeownership with living in a home. My vision is of a country where you can rent houses as easily as you can rent apartments: where renting doesn’t automatically mean renting an apartment. But sadly the conflation is basically true for the time being.

Posted by FelixSalmon | Report as abusive

Like lambs being led to the slaughter- yes historically it WAS an OK idea for home ownership (though the real percent return IS much smaller than people think over the last 50 years- just slightly above break even). But one should remember a simple axiom- if it appreciates, buy it. If it depreciates, lease it. And having just broke even at best historically over the last 50 years, not to mentione the 30% drop over the last year, it is far better to lease.
To those who think it’s such a terrific idea to own- let’s see what your thoughts are when a life event requires you to sell.

Posted by mynamehear2 | Report as abusive

Felix, a key part of your vision of homeownership is an exceptionally high price:rent ratio. A normal price:rent ratio is between 10:1 and 15:1. I bought at around 12:1 and have had no regrets. Somebody who buys at 25:1 (possibly the situation in NYC but not in most markets) is going to have a much harder time making homeownership work.

Your other major misconception is that invested capital ought to see double-digit returns. If you believe that you can invest money at an 8% annual real return, then it is illogical to tie up your capital in a home when you could be making a killing in the stock market. (At least I assume that is how you intend to make a killing on your investments.) If you believe that small-time investors have no investment options that project to be better than a 4% real return (and even that requires a fair amount of risk), then it makes a lot more sense put your money into a piggy bank …er… home.

I bought ten years ago, and have steadily paid down the mortgage since then. You, presumably, have been applying your own savings stream to the stock market. I’m willing to bet that I’ve seen the better returns over the last decade.

Finally, you are ignoring tax considerations. Depending on your tax bracket, the federal and state governments grab 40% to 50% of your wages. The situation is even worse in retirement, as not only do you pay tax on income received but that ALSO triggers tax on Social Security benefits. Your $2000 in rent costs you $3000 in income to support. My $2000 in mortgage interest and taxes (though it is actually under $1000 now) costs me $2500 in income to support. When running these calculations, include not just the direct cash flow but also the taxes triggered. You’ve likely never seen that consideration included in a calculator, but it gets truly ugly!

I believe our Social Security statement promises around $50k in annual benefits upon retirement. If we own our home mortgage-free, that will sustain a very comfortable lifestyle. (Richer than what we lead now.) If we had a mortgage in retirement, or (horrors!) were renting, then we would need much more than that.

Posted by TFF | Report as abusive

Paintcan, it is important to remember that statistics do not control your personal choices. Statistics don’t force you to move after seven years. Statistics don’t force you to get a divorce. Statistics don’t demand that you max out your credit and borrow against home equity to fund a lavish lifestyle.

We bought here ten years ago, the perfect home in the perfect location, easy walking distance from dozens of small businesses and the commuter rail. The mortgage will be fully paid off in another five to ten years. We are highly likely to live here for another fifteen years, and perhaps longer than that.

Telling me, “other people move after just seven years” means little to my personal situation. I agree that it is bad to buy if you will be moving frequently, since the cost of selling/moving/buying/financing can easily be 10% of the property value! You don’t want to run up THAT bill any more often than you must.

Posted by TFF | Report as abusive

“If you have a buyer willing to pay anywhere near the asking price for your property, sell now. By end 2012, its value will be circa 35% less.”

Confusion here… The VALUE of your property isn’t going to change. (Actually, the value of my property steadily increases as I slowly customize it to my taste.) The MARKET PRICE of your property might easily drop 35%, or not, but that is only relevant if you sell.

And if you sell and buy another at the same time, you only get burnt if you sell into a localized housing dip. I suspect that nbywardslog envisions a national trend.

Posted by TFF | Report as abusive

Just calculated my costs going back ten years… Included mortgage interest, mortgage fees/points, maintenance and upgrades, insurance, and taxes. Approximately 74% of the total is tax-deductible on Schedule A.

2001 $3128/mo (boosted by closing costs)
02-03 $2480/mo (several major repairs/upgrades)
04-05 $1379/mo
06-07 $1511/mo
08-09 $1224/mo

The cost for a similar space (without the yard or deck which I very much enjoy) was over $2000/mo when we bought and has gone up slightly since then. When the mortgage is fully paid off in a few years, the ongoing expenses will be between $500 and $750 a month, though I presume they will tend to increase with inflation.

Go ahead, knock yourself out trying to convince me that homeownership is for fools…

P.S. Note that NOWHERE above have I made any mention of price appreciation. Isn’t really relevant as long as I live there.

Posted by TFF | Report as abusive

@TFF – I didn’t make up that statistic (but I may not have stated it very well) but I remember it as a rule of thumb from a class I took in real estate while in Grad school in NYC.

Statistics may not rule our personal choices but, apparently, they can figure us out fairly predictably.

I haven’t moved in over 22 years. But I am self employed and could work out of my home at a small job I made for myself. The rest of my relatives and many of the people I have met have been very and bewilderingly mobile. On my street only two of us are old time residents or more than 20 years. One other has been here perhaps 15 years, two other houses contain people here less than ten years and one less than five. Two are here less than two. One is vacant and has had two owners in the last ten years. Of the 8 houses on this street – 4 are older than 20 years. the rest are younger than 10 years.

I am nearly 60 and have moved about 2 dozen times. My sister is 2 years younger and has moved about 25 times. Each of her last five moves entailed buying a new house in a different city in a different state. I only built mine on the last move. I hope to die here actually.

The turnover in the occupancy of the established post war neighborhood I left before coming here seemed to be about 10 years. But the time I moved – hardly any of the 50 houses were occupied by the people who were there when I moved in. Some were on third owners since I moved there.

It is fairly well know that the USA is a very mobile society in general. What’s your point? Are you a realtor by any chance?

I also forgot to mention the higher fuel bills for the big houses. Those are not likely to ever come down. Not even renewable energy will bring prices down because they need higher conventional fuel prices to make them competitive at all.

What might make much more sense than the state of the conventional residential “appliance” is to start creating communities of truly appliance like quality or at least more mobile. The conventional mobile home is not really mobile. It is a form of prefab home on residual wheels once it is set on its site. I can imagine that there are people who would gladly cash out of their current money pits and might require little more than a room or two and a yard. In some climates this would work. I could easily adapt my life to a Bedroom-bathing “module- a self contained living-eating “module” and a work or Office place. Sheltered porches, patios or garden areas could provide the rest of my living space. More people in the family would require more modules. When it is time to move, all of it is folded up, taken down and shipped like a household furniture move.

What would be so terrible about investing a fraction of the money people spend on the conventional house, for a product that could actually move like luggage with the very mobile population of this country? They are trying things like this in Haiti. Whether or not a neighborhood becomes slum like depends on the efforts expended to maintain it and the services provided to guarantee that the residents do not live in filth and squalor.

There is something silly about a country that has so many people with conventional homes, who then take vacations with RVs. There must be a middle ground in there somewhere?

Posted by paintcan | Report as abusive

Felix, the problem is a lot of homeowners, bankers and the Government were conflating (did I use that correctly? A melding of terms that do not necessarily have the same meaning in this instance?) the American dream of home ownership with house renting. (by offering a no down long term mortgage to people with no credit and no ties to the mortgage…they walked away burdenless from a rather cushy ‘rent to own.’ )

Now I do understand that there are lot of vacant homes in the USA and you wonder why they are not being bought as investment property to rent. (as per the previous discussion on vacant homes) There will be few willing to take on the risk when the property value might plummet. (I think they still will) That is not for the faint of heart.

It is already a huge risk to rent property as you have no idea how much a renter will depreciate your investment. A house owner of investment property will try to cover costs and make a profit and so the cost to rent will be substantially higher then a mortgage.

If a person was buying for speculation and renting at cost (which many did) until the market turns, this would obviously be a bad time to do that. If the economy turns, as it has the owner has no other option then to sell or lower rent. (This economy is an incentive to sell not buy)

I would consider that type of house ownership a noose around the neck. unlike renting apartments where most will be rented out in good economy and bad, free rent can be given to the building maintenance person and super and the building would be paid off well before a single home unit would pay for itself.

Renting a house IS perfect for the renter, but it is doubtful there are too many chomping at the bit to buy to rent in a bad economy. Those who had the knowledge and fortitude to do it have probably already been unloading the baduns and buying bargains or houses with more then single dwellings to replace them.

As the cost of renting goes up and the economy stabilizes, that will change, but in the meantime … I wouldn’t wish for more propping up as it can’t instill confidence which is badly needed and merely prolongs the agony.

Posted by hsvkitty | Report as abusive

paintcan, I’m a teacher/tutor/father, not a realtor. Realtors would hate what I preach, since they make their living off churn while I’ve consistently counseled AGAINST churn. If people followed my advice, the average period of ownership would be measured in decades.

I don’t doubt your statistic, but you need to remember that it is an AVERAGE. Everybody has to judge their own situation on its own merits. We didn’t buy until we could reasonably expect to be in the same location for at least ten years, and we planned ahead. Since then all of our inlaws have bought and moved at least once. Not my game.

Not sure how durable your modular homes would be? We’re in a 1600 sq ft home, perfect for a family of four, with enough upgrades on the carefully-maintained 110+ year old frame to insulate it reasonably well. It works for us, and I hope to retire here. If energy costs skyrocket, our house may increase in value due to its efficient design and proximity to public transport. But that’s neither here nor there, because those are exactly the traits WE value in a home, so we’re not about to sell just because the price has gone up.

Posted by TFF | Report as abusive

hsvkitty, I think you got it right…

Much less risky to play landlord with a condo or multi-unit building than with a single-family house.

Posted by TFF | Report as abusive

Two other quick thoughts…

In an unstable world, demonetizing your life increases your security. Rent is an ongoing monetary obligation, as is a mortgage. No rent, no mortgage, less cash needed.

People sometimes pine for the fifties, but most of the instability of the modern world is taken on by choice. If you eschew the freedom to shoot yourself in the foot financially, practice a simple lifestyle with a bias towards saving, you can do very well today.

Posted by TFF | Report as abusive

paintcan, I had been reading that many people who are having difficulty finding a place to live are buying mobile homes… so that is a wave of the future that was most unexpected.

Your example of the house/RV couple made me laugh and almost snort my coffee, but you really do having something there… Not sure that is where Felix might want to live while he decides where to rent live but you could surely save a bundle living like that and be ‘mobile.

Posted by hsvkitty | Report as abusive

Of COURSE a house is an investment. What else would it be? You have cash flows out (down payment, principal, interest, taxes, upkeep) and cash flows in (imputed rent and sale price). You make your best guesses, plug in the numbers, and it’s a perfectly ordinary, Finance 101, time value of money computation. That is what an investment looks like. That is what an investment is.

Owning your own home is precisely equivalent to being your own landlord. Take a rent payment out of your right pocket and put it in your left pocket on the first of every month if it helps with the visualization.

The problem is that people have expected the return on housing to come from one part of the equation–resale value–and have expected that return to be very large and absolutely certain, when it is neither. The return comes mostly from the imputed rent: putting that money into your right pocket instead of someone else’s.

Now, housing may not be a GOOD investment–but that’s a different kettle of fish entirely. The S&P500 wasn’t a good investment over the last decade, but only a fool would say that it was therefore not an investment at all.

Posted by ckbryant | Report as abusive