Homeownership is Overrated

[Ad Orientem]

http://www.washingtonpost.com/opinions/ ... story.html

[craigr]

Yep. Homes are consumption items, not an investment.

[Pointedstick]

True, but it's one of those consumption items you need to live, like food.

[doodle]

I think homeownership would make a lot more sense if we could begin to apply some new technology to the industry and get past our culturally conceived ideas of what a "home" is supposed to look like. There is no reason why a weathertight, pest resistant, comfortable, safe 2 bedroom 2 bath house should cost more than 50 grand. Right now that amount of money will buy you a fancy shed....it's nuts! Even though the modular housing companies have the right idea their prices are waaayy ridiculous.

Here is an example of a well designed small house with a big price tag....:-(

http://www.gizmag.com/edge-green-modula ... ign/15843/

[craigr]

True, but it's one of those consumption items you need to live, like food.

Quite true! But if I told people I was investing in groceries I was going to eat that week they'd think I was nuts!

Now if I told them I was instead investing in grocery stores and agriculture it would make more sense.

Which is why I tell people that owning REIT index funds are a much better idea than owning real estate:

https://web.archive.org/web/20160324133 ... -directly/

1) Index funds don’t call you at 3AM complaining about the plumbing.
2) Index funds don’t sue you when they slip and fall on a broken sidewalk.
3) Index funds don’t trash your place after you try to evict them.
4) Index funds don’t use the court system to squat in your home after not paying rent.
5) Index funds don’t engage in criminal activity from your home.
6) Index funds don’t pick up and move out in the middle of the night stiffing you with large rent due and damages.
7) Index funds pay you dividends constantly without having to place ads looking for new tenants.
8 ) Index funds don’t get the cops called on them by the neighbors for causing problems.
9) Index funds don’t need criminal background checks.
10) Index funds don’t write bad checks.
11) Index funds don’t sell crack cocaine, trash your home, and leave behind a flea-infested druggie flophouse after the police kick in the door.

I'm not saying don't buy a home. I'm just saying don't buy one as an investment. They are not investments!

[Ad Orientem]

My view is that everybody needs a place to live. But for most people, whether to own or rent should be a lifestyle choice, not an investment. Real estate is at best a speculative investment. Yes, some people have made money. Talk to anyone who bought property in Tribeca (Manhattan) circa 1974, and held onto it. But a lot haven't.  Ask anyone who bought a house in Detroit in 1974. It's a myth that land doesn't lose value over the long term. It can and it has. It all depends on what land we are talking about, and what goes on over the time frame in question. My crystal ball isn't sufficiently reliable for me to play that game.

[edsanville]

I think homeownership would make a lot more sense if we could begin to apply some new technology to the industry and get past our culturally conceived ideas of what a "home" is supposed to look like. There is no reason why a weathertight, pest resistant, comfortable, safe 2 bedroom 2 bath house should cost more than 50 grand. Right now that amount of money will buy you a fancy shed....it's nuts! Even though the modular housing companies have the right idea their prices are waaayy ridiculous.

Here is an example of a well designed small house with a big price tag....:-(

http://www.gizmag.com/edge-green-modula ... ign/15843/

That looks like a neat little house.  It has "experimental" in its name, though, so I'm not too surprised it's expensive.

[Pointedstick]

I think homeownership would make a lot more sense if we could begin to apply some new technology to the industry and get past our culturally conceived ideas of what a "home" is supposed to look like. There is no reason why a weathertight, pest resistant, comfortable, safe 2 bedroom 2 bath house should cost more than 50 grand. Right now that amount of money will buy you a fancy shed....it's nuts! Even though the modular housing companies have the right idea their prices are waaayy ridiculous.

Here is an example of a well designed small house with a big price tag....:-(

http://www.gizmag.com/edge-green-modula ... ign/15843/

The problem is that most people don't want very small, efficient, affordable houses. You do, and I do, and other FI/ERE people do, but the average American wants 2,400 sf, 5 bathrooms, 2.5 bathrooms, and a 45 minute commute…

If I thought there was money to be made building modest yet desirable $50,000 insulated cinder block houses, I'd change careers and do it.

[dualstow]

I don't normally have cable tv, but here in the apartment we have FiOS and thus access to such wonderful shows as "I Hate My Hair" and various Real Housewives. It's hard not to check on some of these home buying and home renovation shows once in a while.

The other day, I saw a couple shopping for their first house. It was an American guy and new Russian wife. She had breasts that looked like they were fashioned by Boris Vallejo and absolutely no concept of a budget. The husband, for his part, was "cast" as the sensible one, pressing for used appliances instead of new ones. Meanwhile, they were buying a $650,000 home with many bedrooms and bathrooms (plus guest rooms) despite the fact that they didn't have children yet. It soon became clear that they didn't have any money beyond the down payment, hence the token budget measure of used appliances, although he would later acquiesce and spring for new appliances anyway.

What are these people thinking?

[MachineGhost]

What are these people thinking?

They're not thinking.  They're going with the emotional American flow....  conspicious consumption uber alles!  It's probably impossible to talk restraint and frugality into a Russian woman who's had it all of her entire life.  Same for all the other mail order brides from East Asia.

I hate houses.  They are nothing but money pits.  No one that looks at the issue objectively will conclude they are anything but a cookie-cutter lifestyle choice, i.e. an excuse for boring surburban domesticity and breeding.  If you don't breed or don't have children, there is no reason to live in suburbia unless you can't stand how skanky and/or elitist urban centers are.  Heck, in SoCal, the urban sprawl has extended all the way into suburbia, so there's little net difference in the end.  Might as well live urban and actually be located close to businesses.

I don't know what the ultimate answer is...  but I do know one thing for sure.  I'm not the only one that feels this way and things are going to change in the future further with 10K Baby Boomers retiring every day beyond white people moving back to urban centers and gentrifying them (which doesn't really solve any of the pre-existing problems).  If Vegas could get its act together and stop being corporate casino whores and maybe develop an gigantic adult theme park connected to everything, it would be a much more interesting place to live than it is now with the stark reality of old fart losers on Social Security desparately gambling away every day.  Nothing can top that for depressing.

[blackomen]

I think homeownership would make a lot more sense if we could begin to apply some new technology to the industry and get past our culturally conceived ideas of what a "home" is supposed to look like. There is no reason why a weathertight, pest resistant, comfortable, safe 2 bedroom 2 bath house should cost more than 50 grand. Right now that amount of money will buy you a fancy shed....it's nuts! Even though the modular housing companies have the right idea their prices are waaayy ridiculous.

Here is an example of a well designed small house with a big price tag....:-(

http://www.gizmag.com/edge-green-modula ... ign/15843/

The problem is that most people don't want very small, efficient, affordable houses. You do, and I do, and other FI/ERE people do, but the average American wants 2,400 sf, 5 bathrooms, 2.5 bathrooms, and a 45 minute commute…

If I thought there was money to be made building modest yet desirable $50,000 insulated cinder block houses, I'd change careers and do it.

Well, I'm Chinese and I think Americans have a much more reasonable view of home ownership, relatively speaking.

There's this preconceived notion in our culture that a man NEEDS to buy a house before he can get married.  Or if he doesn't have enough money, then both the bride and the groom's families pool together their money to buy a home for them.

Not surprisingly as a result here in Southern California, housing prices in many Chinese communities are through the roof..  which is tragic because multiple family pool together earnings from decades of hard work on houses that could have been had for a fraction of their current market value if they didn't engage in this practice.

I've resisted this pressure for many years in my pursuit of FIRE but I eventually decided to buy a condo in a safe lower-middle class area where the mortgage plus hoa and other misc fees is comparable to renting.

[WildAboutHarry]

[quote=Pointedstick]The problem is that most people don't want very small, efficient, affordable houses. You do, and I do, and other FI/ERE people do, but the average American wants 2,400 sf, 5 bathrooms, 2.5 bathrooms, and a 45 minute commute…[/quote]

That's 7.5 bathrooms!  I agree that is excessive.  That is one bathroom for every 320 square feet! 

There are different kinds of home ownership.  A paid-for home is vastly different from a heavily leveraged home.  A very low-rate mortgage is vastly different from a high-rate mortgage.  A fixed-rate mortgage is different (may be better, may be worse) than a variable rate mortgage.  And so on.

Having a fixed cost for a substantial portion of your housing costs is not possible with renting and does constitute an investment of sorts.  Not very liquid.  Not always a good idea.  But if an investment is buying something that you have a reasonable expectation of a zero to positive real return on, then a home is an investment.

And it is a consumption item too!  Nothing says that an item has to be an investment item or a consumption item but never both.

[Pointedstick]

Heh, whoops.

Let me of course say that I'm not against home ownership. I own a mortgage-free home that I very much enjoy living in and working on. It brings me a lot of pleasure and satisfaction… but I don't think of it as an investment. When I have the roof redone soon, I'm thinking of the money I'll have to pay as gone. Vanished. Poof! Transformed into a new roof that will hopefully last 50 years. Will it raise the value of the house? Maybe, but I'm not counting on it, and I don't particularly care if it does. To realize that gain, I would have to sell the house, and then I would need another house to replace it.

[Pointedstick]

I don't normally have cable tv, but here in the apartment we have FiOS and thus access to such wonderful shows as "I Hate My Hair" and various Real Housewives. It's hard not to check on some of these home buying and home renovation shows once in a while.

The other day, I saw a couple shopping for their first house. It was an American guy and new Russian wife. She had breasts that looked like they were fashioned by Boris Vallejo and absolutely no concept of a budget. The husband, for his part, was "cast" as the sensible one, pressing for used appliances instead of new ones. Meanwhile, they were buying a $650,000 home with many bedrooms and bathrooms (plus guest rooms) despite the fact that they didn't have children yet. It soon became clear that they didn't have any money beyond the down payment, hence the token budget measure of used appliances, although he would later acquiesce and spring for new appliances anyway.

What are these people thinking?

Keep in mind that as a TV show, it's trying as had as it can to create tension, or else it would be terribly boring. What would be the fun of watching a careful and responsible couple of low-key, hard workers purchase a modest house close to their workplaces? Booooooring! Roll out the mail-order brides and pussywhipped beta males!

So now we've got a clearly irresponsible couple. Tension. The husband and wife have opposed desires. Tension. Their plan is clearly ridiculous. Tension. Money-wise, they are playing straight into 1950s gender stereotypes that modern society tells us to reject. Tension. But the power in their relationship goes in the opposite direction. Tension. Ya hooked yet?

But here's the kicker: at the very end, they show you the happy couple in their nice new house, and doesn't it ever look beautiful? This is doubly true for the home renovation shows where people sink $100k into "upgrading" their 1999 vintage kitchens. Suddenly, after all the smug superiority the show has carefully nurtured in you throughout most of the episode, they pull back the curtains and SURPRISE! Look what the result is! Gosh, isn't that gorgeous? Now don't you just feel like a shit for making fun of these happy people? Who could criticize them for doing what makes them happy, you fascist douchebag? Tension tension tension tension tension tension!

[dualstow]

Ha! Two very valid points.
I would think there could be plenty of tension with one truly sensible person in the couple and one spendthrift, but even so, you're right that it would be boring if they got a simple house at the end. The Waltons it ain't. ;-)

[barrett]

What are these people thinking?

Dualstow, did you see the one with the Hawaiian couple that had a $1,000,000 budget? His priority was "quality countertops" and hers was a "shower with no door" (so that she could move her mop around in there unobstructed). One would think that for a cool million they would have higher aspirations.

I am with PS on this... that owning your own place can give you a lot of satisfaction if you enjoy the projects that inevitably crop up. And that one needs a place to reside. Good to know that you can't be kicked out as well. I have been thinking a lot about having our home be a relatively low percentage of our overall assets eventually. Can't do that now due to various constraints, but listening to Harry Browne definitely made me realize that having a large part of our assets in home equity is a bone headed move.

[barrett]

Roll out the mail-order brides and pussywhipped beta males!

Best line so far in 2014!

[dualstow]

What are these people thinking?

Dualstow, did you see the one with the Hawaiian couple that had a $1,000,000 budget? His priority was "quality countertops" and hers was a "shower with no door" (so that she could move her mop around in there unobstructed). One would think that for a cool million they would have higher aspirations.

Hah! I have not, but I'll keep an eye out for it. This is all very timely for me because we're renovating this year. Everyone asks us why we gutted the house and starting from scratch instead of simply moving. The answer: we like the neighborhood. Right in the heart of the city, but somehow in a nice quiet neighborhood that doesn't feel or sound like the city until you walk a few blocks, and then there are theaters, stores and businesses just a few minutes away.

I'm already bemoaning the loss of my beautiful granite and marble countertops which the wife wanted to replace, but at least I got to enjoy them for ten years. Money well spent. She nixed the idea of a doorless shower, by the way. ;-)  I just hope *this* renovation will be money well spent. The architect seems to think this is his house, and hiring him was our first boneheaded move. A lot less money than a million, but perhaps too much of our total wealth.

[moda0306]

I think the real problem is that people don't properly measure/contrast a couple competing aspects of home ownership against each other:

- The cash-flow/value advantages against its disadvantages, ALL included (negatives being: maintenance, insurance, higher utilities, furnishings, realtor fees, taxes, lack of liquidity of equity, lack of abundant RoR on home itself, etc).

- The intangible benefits/drawbacks of owning (negatives being: mowing, repair, snow-blowing/shoveling/roof-raking, landscaping, other chores).

People really, really love to focus on and over-exaggerate the positives (of which there truly are some), and down-play negatives.

Then once they make the decision, they double down on it by making bad follow-up decisions to either justify the original mistake, or try to paper over it in totally ineffective ways...

Shit is breaking?  Get a home-warranty (while probably totally under-insured in more catastrophic areas).

Payment is too high?  Get angry about debt and pay down mortgage (losing liquidity when you need it the most).

House isn't worth what you want it to be?  Remodel the kitchen and put a fancier deck on (getting 80 cents on the dollar if you sold tomorrow, no liquidity, and probably not appreciating over time without regular maintenance).


But you hear from people "throwing your money away on rent," and it's mind-numbingly annoying thoughts put in their head by other people who want to justify their own financial mistakes over their lifetime.  Maybe that sounds a bit harsh, but the amount of BS I hear coming out of people's mouths like it's a fundamental truth of financial decision making is staggering... and these are often pretty smart people, in general.

[Pointedstick]

There are infrequently-considered downsides to renting, too:

- Landlord selection is a crapshoot; could be or turn out to be a hardass, a crook, a jerk, or a psycho (oh the stories I have…)
- Have to abide by somebody else's rules; lack of agency
- Rents generally rise every year; in desirable places, the rate of increase is likely to significantly outpace a low level of inflation
- Can't make significant alterations to the rental unit; have to instead move and find a different one that matches your wants--if one is even available--and it will probably be more expensive
- Reliance on maintenance staff for things that you could easily fix yourself in a better way if permitted to (don't get me started on this one…)

I think the real point is that everybody needs to find what works best for their own tastes and preferences. Some people like giving up a certain amount of control for others to do things for them, even if it might cost more or the results might be worse. Other people prefer to do things themselves and have some space… even if it might cost more or the results might be worse!

[Kshartle]

I absolutely love renting.

I think a lot of buying is pressure from women who are naturally more inclined to want to nest for various biological as well as social reasons.

I don't put it all on them of course, but my married buddies have certainly been pressured by their wives and now regret it.


I have a small medical bill I am contesting for services not rendered but billed to me. I have argued with them up down and sideways, like talking to bricks.  I could write them a check and be done with it, but I refuse to pay as a matter of principle since I'm only receiving a bill (incorrectly) because they determined I have the means to pay.

It's now in collections, the only mark on my otherwise exceptional credit.

My girlfriend is very upset. "how are we ever going to buy a house, what about your credit bladdy blah blah".

My response - "I like renting and don't like borrowing money anyway so I don't care, screw them".

[moda0306]

There are infrequently-considered downsides to renting, too:

- Landlord selection is a crapshoot; could be or turn out to be a hardass, a crook, a jerk, or a psycho (oh the stories I have…)
- Have to abide by somebody else's rules; lack of agency
- Rents generally rise every year; in desirable places, the rate of increase is likely to significantly outpace a low level of inflation
- Can't make significant alterations to the rental unit; have to instead move and find a different one that matches your wants--if one is even available--and it will probably be more expensive
- Reliance on maintenance staff for things that you could easily fix yourself in a better way if permitted to (don't get me started on this one…)

I think the real point is that everybody needs to find what works best for their own tastes and preferences. Some people like giving up a certain amount of control for others to do things for them, even if it might cost more or the results might be worse. Other people prefer to do things themselves and have some space… even if it might cost more or the results might be worse!

The thing is, people usually have a pretty good idea of these things when they are young, which is why they are all apt to buy into the "throwing money away on rent" mantra.  They don't like their rents rising, or their land-lord not fixing stuff, or not being able to upgrade their apartment.  These are the emotions resonating when they meet with a realtor or visit their friends' "beautiful new home."

I also think some of what we're talking about isn't a "rent vs buy" issue but a "buy small vs buy big" issue.  A 2-bedroom condo is VERY different than a 2,500 SF single-family home.  A 5,000 SF single-family home is something else entirely from a cash-flow standpoint, and almost certainly won't make you more wealthy by the time you want to retire.  Fooling ourselves operates in this dimension as well.

Getting into any big contractual arrangement without understanding the consequences is a bad idea.  People NEED to live somewhere, so they kinda go on autopilot when renting, and are reminded every day of the negatives of it.  I wish the disadvantages of home ownership were as obvious to us. 

[dualstow]

There are infrequently-considered downsides to renting, too:
...
- Reliance on maintenance staff for things that you could easily fix yourself in a better way if permitted to (don't get me started on this one…)
...

Waiting on them right now, as a matter of fact. I love these generous four-hour time windows. (Of course, that time window is an issue at the house, too, and I am not handy).

To your list, I would add that I don't like doormen watching when we come and go. I'm grateful for the sneaky side exit, even though they're all very nice and friendly. At home there's no guard other than the burglar alarm, no elevator and no waiting. (On the flipside, this building seems to be full of beautiful young women who are always getting ready to jog or are just coming home from jogging. But, I'd still rather be home).

I think a lot of buying is pressure from women who are naturally more inclined to want to nest for various biological as well as social reasons.
I don't put it all on them of course,

I guess my spouse is one of the exceptions, but that may be due to the clutter in the house when we met. I'm hoping to change her mind and maker her a house person.

[Kshartle]

People NEED to live somewhere, so they kinda go on autopilot when renting, and are reminded every day of the negatives of it.  I wish the disadvantages of home ownership were as obvious to us.

Rising interest rates and falling home prices will cement this lesson into a lot of younger people who observed the last housing bubble popping.

I think.

Part of the reason we have more people in single family homes than the market would allocate is because the government lowers the cost by interferring with the market. It subsidizes home ownership and spreads that cost over everyone. It does so with the FHA government back-stopped loans and mortgage interest credit. By backing the loans the interest rates are lowered and by getting a tax deduction on the interest paid it's lowered further.

Lower price = greater demand.

Getting the government out of the housing industry will go a long towards maximizing the resources spent here.

More people would choose to rent apartments and lower-cost housing options because they couldn't (unknowingly) pass off part of the costs of home-ownership on everyone else.

[dualstow]

Getting the government out of the______ will go a long (way)....

Hmm, there seems to be a theme here. ;-)