Shiller Thinks Owning a Home is a Terrible Investment

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Rodc
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Rodc »

It is all local.

Zillow happened to send me an email today and the numbers strike me as about right.

If someone bought my house today, paid 20% down and got a mortgage at a shade over 4%, interest, taxes, insurance would be about $500 a month less than renting. With principle it would be a bit more than $100 more, but ultimately I still own the principle (subject to house price fluctuations).

The house is in excellent condition so upkeep should be very modest for at least several years, hopefully longer. Most likely rent would increase in time, as would taxes and insurance, but interest will slowly go down and is the main cost.

The house in modest though nice. So for most families is in the ball park of "right sized".

I do not know the future, but it looks like a decent balance point where someone who wants to live in our town for some longish time would likely do just fine to buy vs rent.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by billyt »

RodC:
You are forgetting about your opportunity cost. What would that money that you have invested in the house be providing as an income stream if it were invested?
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

Shiller never uses the words "terrible investment." The journalist took some liberties with his measured comments.

Victoria
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Rodc
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Rodc »

billyt wrote:RodC:
You are forgetting about your opportunity cost. What would that money that you have invested in the house be providing as an income stream if it were invested?
Good point to bring up, and only applies in this case primarily to the down payment.

Since rent is $500 more per month than buying in this case, if I could invest that down payment in something earning about 5%, renting and buying is a wash to start, then as rent increases it if favors buying.

For a few years there is the money going into principle above the cost to rent (supposing rent increases over time, likely true), but it is very modest so not much of an issue in this regard.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
eucalyptus
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by eucalyptus »

Shiller never uses the words "terrible investment." The journalist took some liberties with his measured comments.

Victoria



Yep. See my post, above. Headline writer didn't help.
billyt
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by billyt »

The opportunity cost increases every month until the house is paid off.

The easiest way to look at it is as a cash deal. If you spend $500k for a house, you are out at least 20k a year ($1,667/ mo) in opportunity cost (4%). Add your taxes, insurance and maintenance to this number and compare to a rental.

Don't let the fact that you can get long term financing blind you to this reality.

If you do finance rather than pay cash, the expenses will be even higher than those estimated for a cash deal.
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VictoriaF
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

eucalyptus wrote:
VictoriaF wrote:Shiller never uses the words "terrible investment." The journalist took some liberties with his measured comments.

Victoria
Yep. See my post, above. Headline writer didn't help.
I am making sure that this point is not lost in the dozens of technical discussions.

Victoria
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rec7
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by rec7 »

billyt wrote:The opportunity cost increases every month until the house is paid off.

The easiest way to look at it is as a cash deal. If you spend $500k for a house, you are out at least 20k a year ($1,667/ mo) in opportunity cost (4%). Add your taxes, insurance and maintenance to this number and compare to a rental.

Don't let the fact that you can get long term financing blind you to this reality.

If you do finance rather than pay cash, the expenses will be even higher than those estimated for a cash deal.
I was wondering if the opportunity was 8 to 10% because of the market averages?
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by FinancialDave »

dbr wrote:I own a home.

It is most definitely an investment.

It is not a very good investment.

I own a home anyway.

The above is true for a very large number of people.
+1

In real terms it will generally keep up with inflation and that is about it.

3-4% long term in absolute terms, before factoring in maintenance items, less when you factor them in.

fd
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by FinancialDave »

billyt wrote:The opportunity cost increases every month until the house is paid off.

The easiest way to look at it is as a cash deal. If you spend $500k for a house, you are out at least 20k a year ($1,667/ mo) in opportunity cost (4%). Add your taxes, insurance and maintenance to this number and compare to a rental.

Don't let the fact that you can get long term financing blind you to this reality.

If you do finance rather than pay cash, the expenses will be even higher than those estimated for a cash deal.
What you are forgetting is that if you do finance the opportunity cost goes essentially to zero and you get to do something more useful with your money.

If it turns out that this something nets you 10%, while your mortgage costs you 4% then you have essentially bought stocks on margin which will magnify any gains. Or if you want to look at it differently you have bought the house on margin, which will magnify it's gains (or losses).

In any event if you buy the asset on margin and the asset goes up, you have magnified your gains -- simple math.

Sure you can also magnify your loses, but I am not aware of many assets, either homes or stock market that have not gone up over 30 year time frames.

My point is not to say that all debt is good, but in the case of home buying, it is usually the less costly option, if you stick it out for 30 years.

Billy, it seems you were implying that not paying cash would be more expensive, which would be true only at the "point of impact," (the sale date.)

fd
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Ungoliant
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Ungoliant »

Caduceus wrote:Since the conversations (two or three months ago) about housing on Bogleheads, I've gained much more experience with what goes into maintaining a house, and good financial investment or not, it takes up way more time than I thought it would. I had always thought about the issue in terms of the opportunity cost of money but not of time, and I've come to the conclusion I'd be quite reluctant to own a home if it means pottering around yards, gardens, basements and fixing stuff up (or worse, paying people to do them) endlessly :) I was perfectly happy in a tiny apartment in graduate school, so I don't see why that should change now. On the plus side, I don't have space for stuff, so I don't buy as much stuff.
This matches my way of thinking very well. I'm not sure which is better financially, renting or owning, though the many viewpoints in this thread suggest it's dependent on at least a dozen variables and therefore difficult to make any blanket statements one way or the other. For me though, I value my free time above just about anything. When I get home from work, I don't want to spend countless hours on yard work and home repairs and maintenance and snow removal, nor do I want to deal with the hassle and expense of finding someone do those things for me. I also appreciate not living with the constant specter of unexpected chores and large expenses that can pop up at any time with any home. I'm single with no kids, I don't need a lot of space, I don't care about a yard, and I have no interest in being a handyman. When you add in the flexibility of knowing that I can much more easily pick up and move anytime I want, whether for a new job, or because I grow unhappy with changes in the neighborhood, or just for a change of scenery, I find it much more appealing than committing a massive chunk of my time and net worth to any particular location. I also strongly agree with the idea that having more space for stuff directly leads to spending more on unnecessary luxuries. It wouldn't surprise me if most calculators understate the real-world increase in expenses incurred by average home owners for that reason. That big new sofa or dining room table or treadmill might not seem like a cost of home ownership, until you realize you never would have bought them (and yet still been perfectly happy in life :happy ) if you didn't have that big empty space to fill.

I don't find any fault in those who have different priorities in life, but just thought I'd add a different perspective from those espousing the opinion that, even setting aside the financial question, home ownership still has certain intangible benefits. One person's benefit is another's burden. :beer
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VictoriaF
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

Ungoliant wrote:
Caduceus wrote:Since the conversations (two or three months ago) about housing on Bogleheads, I've gained much more experience with what goes into maintaining a house, and good financial investment or not, it takes up way more time than I thought it would. I had always thought about the issue in terms of the opportunity cost of money but not of time, and I've come to the conclusion I'd be quite reluctant to own a home if it means pottering around yards, gardens, basements and fixing stuff up (or worse, paying people to do them) endlessly :) I was perfectly happy in a tiny apartment in graduate school, so I don't see why that should change now. On the plus side, I don't have space for stuff, so I don't buy as much stuff.
This matches my way of thinking very well. I'm not sure which is better financially, renting or owning, though the many viewpoints in this thread suggest it's dependent on at least a dozen variables and therefore difficult to make any blanket statements one way or the other. For me though, I value my free time above just about anything. When I get home from work, I don't want to spend countless hours on yard work and home repairs and maintenance and snow removal, nor do I want to deal with the hassle and expense of finding someone do those things for me. I also appreciate not living with the constant specter of unexpected chores and large expenses that can pop up at any time with any home. I'm single with no kids, I don't need a lot of space, I don't care about a yard, and I have no interest in being a handyman. When you add in the flexibility of knowing that I can much more easily pick up and move anytime I want, whether for a new job, or because I grow unhappy with changes in the neighborhood, or just for a change of scenery, I find it much more appealing than committing a massive chunk of my time and net worth to any particular location. I also strongly agree with the idea that having more space for stuff directly leads to spending more on unnecessary luxuries. It wouldn't surprise me if most calculators understate the real-world increase in expenses incurred by average home owners for that reason. That big new sofa or dining room table or treadmill might not seem like a cost of home ownership, until you realize you never would have bought them (and yet still been perfectly happy in life :happy ) if you didn't have that big empty space to fill.

I don't find any fault in those who have different priorities in life, but just thought I'd add a different perspective from those espousing the opinion that, even setting aside the financial question, home ownership still has certain intangible benefits. One person's benefit is another's burden. :beer
I use the same logic and can add a few more points.
1. Long-term travel is much easier when you don't worry about your property.
2. The time not spent on house work can be used for enhancing one's skills and credentials leading to higher income and better career opportunities.
3. The "secondary home-ownership expenses" are not limited to purchases such as treadmills and dining room tables. These also include home remodeling, electric wiring modernization, kitchen enlargements, and other activities that are not necessary but are very common.
4. A home is a concentrated risky asset. It may lose all or most of its value due to rare but possible events not covered by insurance, e.g., an act of terrorism, a local epidemic, soil or water contamination, rise of gang activities, and other Black Swans.
5. Renting enables one to live in a cheaper and smaller place than owning. When buying, it's important to keep in mind the next buyer; people buy bigger houses in better areas to capture the resale value. Renters can focus on satisfying their own needs and moving on when these needs cease being met.

Victoria
Last edited by VictoriaF on Mon Oct 21, 2013 1:16 pm, edited 2 times in total.
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sscritic
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by sscritic »

Houses allow for bigger amps, larger speakers, and higher sound levels. My apartment neighbors used to complain about Twisted Sister. My house neighbors don't.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by rec7 »

sscritic wrote:Houses allow for bigger amps, larger speakers, and higher sound levels. My apartment neighbors used to complain about Twisted Sister. My house neighbors don't.
When Twisted Sister said "we not going to take it anymore" were they talking about owning or renting? Or maybe it was something completely different like their asset allocation?
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

sscritic wrote:Houses allow for bigger amps, larger speakers, and higher sound levels. My apartment neighbors used to complain about Twisted Sister. My house neighbors don't.
Woodstock was cheaper, albeit without Twisted Sister.

Victoria
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by sscritic »

If you rent a 10,000 sq ft house, you still have to clean it. Depending on your rental agreement, you also might be responsible for all the yard work. Being a renter doesn't absolve you of all responsibilities.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

sscritic wrote:If you rent a 10,000 sq ft house, you still have to clean it. Depending on your rental agreement, you also might be responsible for all the yard work. Being a renter doesn't absolve you of all responsibilities.
If you rent a 100,000 sq ft house it cost you more than buying a 10,000 sq ft house. Once you realize it, you don't rent a 100,000 sq ft house. On the second thought, you don't rent a 10,000 sq ft house either. You suffer in a 700 sq ft apartment and relieve your pain with trips to Europe.

Victoria
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Rodc
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Rodc »

billyt wrote:The opportunity cost increases every month until the house is paid off.

The easiest way to look at it is as a cash deal. If you spend $500k for a house, you are out at least 20k a year ($1,667/ mo) in opportunity cost (4%). Add your taxes, insurance and maintenance to this number and compare to a rental.

Don't let the fact that you can get long term financing blind you to this reality.

If you do finance rather than pay cash, the expenses will be even higher than those estimated for a cash deal.
For the vast majority of us the mortgage vs rent is all that matters in real life as we don't have $500K sitting around before deep into middle age if ever.

But if I did, and I was looking to buy my house a lot would depend on assumptions such as rate of return on real estate, stocks, and bonds, inflation in rent and property tax, and maintenance.

Suppose house is $500K (not too far off from the zillow value for my home, BTW) and the scaled zillow rent for my house is $2300/month.

Further suppose the variables are inflation rates in tax, insurance, rent and house values, which could be different one from the other. Then too there is the rate of return on investments. All rates relative to background inflation such as CPI.

I made a spread sheet.

Nominal investment returns 4% real (might be as low as 2% if one thinks the right comparison is to something very safe or as high as 6%).

Nominal house inflation 2% real and nominal tax increase also 2%.

Nominal rent inflation zero.

Maintenance starts at $5000 a year, nominal inflation 0% to track CPI.

Under these conditions buying with cash wins for the first 8 years. While in year one you would earn $20,000 from not buying, you also pay $27,000 in rent, while if you buy you earn $10K in home value increase which balances against taxes and maintenance for close to a wash.

But if you make modest changes, say you think lower risk (but not all the way down to 100% bonds) investments are proper and you should use 3% returns, buying wins for 22 years before investment returns win out. On the other hand if you think 4% is ok, but you think rent inceases will track with home price increases, you get a similar result.

On the other hand if you think a stock heavy investment is proper so you think 5% return is fair, renting and investing your cash wins after year one.

If you think real price increases of 3% on housing is in play and rent will track, buying the house always wins out the 30 years I looked at. Under most other scenarios renting eventually wins.

Any projection out more than a few years is Highly Suspect since errors in assumptions grow exponentially with time.

So if modest changes around the nominal assumptions results in different answers to is it more financially advantageous to buy with cash or rent and invest, I am back right to my OP:
I do not know the future, but it looks like a decent balance point where someone who wants to live in our town for some longish time would likely do just fine to buy vs rent.
:)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Birdie Num Nums »

sscritic wrote:Houses allow for bigger amps, larger speakers, and higher sound levels. My apartment neighbors used to complain about Twisted Sister. My house neighbors don't.
Quality headphones are just as good, to my ears, at a fraction of the cost. :beer
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Home values in Miami, Florida

Post by Taylor Larimore »

VictoriaF wrote:Shiller never uses the words "terrible investment." The journalist took some liberties with his measured comments.
Victoria:

Thank you for pointing out an important fact.

This article contains an interesting interview about housing with Professor Shiller:

http://pragcap.com/robert-shiller-dont- ... in-housing

I won't dispute a Nobel Laureate about nationwide housing as an investment, but in our area (Miami, Florida), most homes (especially waterfront homes) have gone up in value faster than the S&P over long periods of time.

Pat and I bought our first home in 1952 for $10,000 It was a no-down payment, 2 bedroom, 1 bath house bought with the GI Bill for WWII Veterans. If I remember correctly, we sold it 5 years later for about double what we paid.

In 1975 we put $11,000 down on the $110,000 sale price of a pre-construction condominium (Grove Isle).. We sold 5 years later for $350,000. It was the best investment we ever made. I also like to think of all the rent we saved. :happy

Best wishes.
Taylor
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Re: Home values in Miami, Florida

Post by VictoriaF »

Taylor Larimore wrote:
VictoriaF wrote:Shiller never uses the words "terrible investment." The journalist took some liberties with his measured comments.
Victoria:

Thank you for pointing out an important fact.

This article contains an interesting interview about housing with Professor Shiller:

http://pragcap.com/robert-shiller-dont- ... in-housing

I won't dispute the advice of a Nobel Laureate about nationwide housing, but in our area (Miami, Florida), most homes (especially waterfront homes) have gone up in value faster than the S&P over long periods of time.

Pat and I bought our first home in 1952 for $10,000 It was a no-down payment, 2 bedroom, 1 bath house bought with the GI Bill for WWII Veterans. If I remember correctly, we sold it 5 years later for about double what we paid.

In 1975 we put $11,000 down on the $110,000 sale price of a pre-construction condominium (Grove Isle).. We sold 5 years later for $350,000. It was the best investment we ever made. I also like to think of all the rent we saved. :happy

Best wishes.
Taylor
Hi Taylor,

You have many good reasons to be proud of your homes, especially the one that "Jack has built." But I think my story is also instructional.

- In the 1990s not having to take care of a house has provided me with opportunities to continuously advance my professional expertise, present at conferences and publish papers.
- In the early 2000s, I was able to relocate easily for a job in the D.C. area, whereas my former colleagues could not find jobs in New Jersey but were tied to the location by their houses. The reason I was offered that job in D.C. was that my hiring manager has read two of my papers written in the 1990s.
- In the early 2010s, my Agency has moved, and I relocated to a short walking distance from my work. Many of my colleagues have over 1.5-hour commute, each way.
- For the past ten years, I used the time "saved" from the home ownership to get the 2nd Masters degree and several professional certifications. I published a paper in 2012, and another one will be coming out in January 2014.

These activities and the flexibility to move have significantly contributed to my wealth and life satisfaction.

Victoria
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by CaliJim »

The wife and I just sold our SF Bay Area home in June. I ran the ROI. Including basis, maintenance (plumbing,roof, paint,floor), property tax, transaction fees (commissions, etc), and sale price, the annual rate of return from 1998 thru 2013 was 4.5% per annum. This does not include the home mortgage tax exemption, which is icing on the cake.

And we lived rent free and raised 2 kids.

So I figure the break even rate of return is around 8 to 9%

An alternative investment to buying the home would have needed to provide greater than an 9% return to make it better than buying the house.... in our case.

I don't know what the std deviation of home prices is.

Certainly it is location dependent. As they say - the three most important things in real estate are: LOCATION LOCATION LOCATION We have been fortunate to be able to afford good locations...

But... in my experience... a home adds personal and family stability, and it worked for us... and it was an investment that was probably about equal to a stock portfolio.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by JoeTaxpayer »

I look at the long term Shiller house price graph and would offer this remark - If you take the median income (about $50K?) and assume using 25% of it for the mortgage, at 9% 30yr fixed, you can support a mortgage of $129K, drop the rate to 4% and you get $218K.

I think it's fair to look at goods in terms of 'median hours work' to buy them. This is just a high level look at end product one would buy and a way of seeing if they are more or less affordable. Since rates fell from the late 70's till now, a good amount of that spike can be normalized out by looking at this factor, i.e. the 'hours work' needed didn't really rise the way the price itself did.

Toward that end, I think that nothing happens in a straight line. Housing gets cheaper than trend, and gets more expensive. For the very long term, I agree with Shiller, and I'm sure that he'll acknowledge prices falling to a level where buy/rent decisions lead to buying.

One point to ponder - if you rent, will you save/invest the difference? Or will it get spent? Even when a house is not a good investment, it represent forced savings. (This is when we can agree the numbers prove otherwise, but I'm told I can be right with a spreadsheet, yet the translation to real life doesn't happen.

To close, I believe home prices will rise and fall, but the trend line is based on the house the median earner can afford based on the rate at the time. When people are squeezed out, prices fall. When the median home is much below this, buyers come in.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

JoeTaxpayer wrote:One point to ponder - if you rent, will you save/invest the difference? Or will it get spent? Even when a house is not a good investment, it represent forced savings. (This is when we can agree the numbers prove otherwise, but I'm told I can be right with a spreadsheet, yet the translation to real life doesn't happen.
Are you asking about people in this Forum, or this is a general question? The public may not be able to save with or without a home; people here save either way.

Victoria
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Harold »

VictoriaF wrote:gang activities, and other Black Swans
The Black Swans could actually be a good gang name.

If I were to join a gang, my first order of business would probably be to beat some sense into those who consider mortgage payments pretty much the same thing as rent, except mortgage holders build equity and renters throw money away.

But I'm not going to join a gang, so things aren't about to get violent -- and people are free to continue viewing this however they'd like, whether their perspective leads to sound financial decisions or not.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

Harold wrote:
VictoriaF wrote:gang activities, and other Black Swans
The Black Swans could actually be a good gang name.

If I were to join a gang, my first order of business would probably be to beat some sense into those who consider mortgage payments pretty much the same thing as rent, except mortgage holders build equity and renters throw money away.
A gang of prosperous homeowners beating sense into clueless renters would, in fact, be a Black Swan.

Cheers,
Victoria
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by JoeTaxpayer »

VictoriaF wrote:
JoeTaxpayer wrote:One point to ponder - if you rent, will you save/invest the difference? Or will it get spent? Even when a house is not a good investment, it represent forced savings. (This is when we can agree the numbers prove otherwise, but I'm told I can be right with a spreadsheet, yet the translation to real life doesn't happen.
Are you asking about people in this Forum, or this is a general question? The public may not be able to save with or without a home; people here save either way.

Victoria
Posters in this group are atypical, almost by definition, all above average. I was simply offering one point that shouldn't be ignored. A Boglehead rents, and in 30 years has accumulated a fortune in excess of what they'd otherwise have had they bought a home.
I was rhetorically asking if most people would do this. It seems the house is a forced savings, and at retirement, a downsize can unlock some funds to add to savings and social security.
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Re: Home values in Miami, Florida

Post by lindisfarne »

Taylor Larimore wrote:
VictoriaF wrote: I won't dispute a Nobel Laureate about nationwide housing as an investment, but in our area (Miami, Florida), most homes (especially waterfront homes) have gone up in value faster than the S&P over long periods of time.
Best wishes.
Taylor
Sell fast. Those waterfront homes may be under water (literally! I don't mean in the sense of the financial metaphor) in 30 years.

But I agree that in many areas, homes have gone up in value. My sister purchased a home for 71,000 in 1993. Currently it is worth 190,000 (about $20K less than 6 years ago). It is paid for - she now only has homeowners insurance & taxes (plus, of course, maintenance) to cover monthly. She's happy and never wanted mobility. She's worked at the same employer for 20+ years, lives within a few miles of numerous family members (including our family home), and enjoys all the benefits of having lived in the same area, near family, all her life. She could not have rented a decent 2 bedroom apartment in that area for less than her mortgage was at any time while she owned the house.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by madbrain »

VictoriaF wrote: If you rent a 100,000 sq ft house it cost you more than buying a 10,000 sq ft house. Once you realize it, you don't rent a 100,000 sq ft house. On the second thought, you don't rent a 10,000 sq ft house either. You suffer in a 700 sq ft apartment and relieve your pain with trips to Europe.
Shouldn't that be relive your pain ? The hotel rooms we stayed in Europe last summer were all well under 300 sq ft .
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by cbeck »

I notice an effect among myself and friends and family, which I call the Pride of Ownership cost of owning a home. Those of us avoiding this pitfall find that we can be perfectly happy living in a house or apartment whose quality of construction, layout, etc. would not be acceptable if we were the owners. In my brother's last rental house, for example, no door in the place closed properly, the upstairs bathtub leaked water from the taps when the shower was engaged resulting in inadequate water flow when showering, the backyard had a jacuzzi hot tub that hadn't worked in years, etc. He and his wife would have felt compelled to correct these defects if they owned the place, but they weren't bothered by them at all since they were renting at a low rental rate for the area. It's remarkable when you think about it that the invisible quality of ownership/non-ownership should magically turn people's experience from satisfactory to unbearable.

Pride of Ownership adds an insidious and ongoing cost to owning a home that renters largely avoid.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

madbrain wrote:
VictoriaF wrote: If you rent a 100,000 sq ft house it cost you more than buying a 10,000 sq ft house. Once you realize it, you don't rent a 100,000 sq ft house. On the second thought, you don't rent a 10,000 sq ft house either. You suffer in a 700 sq ft apartment and relieve your pain with trips to Europe.
Shouldn't that be relive your pain ? The hotel rooms we stayed in Europe last summer were all well under 300 sq ft .
Who needs hotel rooms if you can stay in Jardin du Luxembourg or Jardin des Tuileries?

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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VictoriaF
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by VictoriaF »

cbeck wrote:I notice an effect among myself and friends and family, which I call the Pride of Ownership cost of owning a home. ...

Pride of Ownership adds an insidious and ongoing cost to owning a home that renters largely avoid.
Exactly! They have Pride and Prejudice of ownership.

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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pennstater2005
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by pennstater2005 »

Sometimes I like owning a home, other times not so much. Definitely not an investment for me.
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looking
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by looking »

I learned long ago not to look at my home as an investment, but rather as a lifestyle choice.

do you think he knows what he is talking about ,did you read sunday wall street" novel winner does not have crystal ball on economics
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kenyan
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by kenyan »

Everyone has their own anecdote or three. Guess what all of those anecdotes add up to? Shiller's numbers, more or less. The only thing is that most of the not-so-great anecdotes don't get told. People using their lucky house buying experiences as some sort of proof of the greatness of house ownership as an investment are little different from those who laud their stock picking prowess and are roundly chastised on these same boards.
Retirement investing is a marathon.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by bengal22 »

I think the whole point of this long thread is that you really need to treat buying a home as an investment and put a lot of thought into all of the factors that can either make your choice of a home/or no home that can affect your investment in a positive way. When ever I bought a house I always had in the fore front my future ability to sell that house.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by FinancialDave »

bengal22 wrote:I think the whole point of this long thread is that you really need to treat buying a home as an investment and put a lot of thought into all of the factors that can either make your choice of a home/or no home that can affect your investment in a positive way. When ever I bought a house I always had in the fore front my future ability to sell that house.
Except that it makes no sense to buy a house "just" as an investment - sure it IS an investment, but that is not usually the reason to pick a home, at least for most people.

A few of the real things that matter are the neighborhood, schools (if children are expected to be in the picture), and if you like the house.

If you want to buy real estate as an investment, that is what rental property is for.

If you buy smart, it may just turn out that the things you like, such as the quiet neighborhood, good schools, and a great house on a lake, are also things that make your house a great value when it is time to sell, but financial gain should not be the primary reason.

fd
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Rodc »

FinancialDave wrote:
bengal22 wrote:I think the whole point of this long thread is that you really need to treat buying a home as an investment and put a lot of thought into all of the factors that can either make your choice of a home/or no home that can affect your investment in a positive way. When ever I bought a house I always had in the fore front my future ability to sell that house.
Except that it makes no sense to buy a house "just" as an investment - sure it IS an investment, but that is not usually the reason to pick a home, at least for most people.

A few of the real things that matter are the neighborhood, schools (if children are expected to be in the picture), and if you like the house.

If you want to buy real estate as an investment, that is what rental property is for.

If you buy smart, it may just turn out that the things you like, such as the quiet neighborhood, good schools, and a great house on a lake, are also things that make your house a great value when it is time to sell, but financial gain should not be the primary reason.

fd
I agree.

**********************

In the end I think what this thread shows is that there is no one size fits all answer to the ill posed question of is renting or buying better. It all comes down to the specifics of what house at what price vs what rental at what price, and what the unknowable future holds (how will the value of the house and cost of rental change in the future, how long do you end up wanting to stay which may be longer or shorter than you think today, how well will the quality of the schools hold, on and on).

If there is even a shred of efficiency in the housing market over time and subject to temporary anomalies there will be a rough balance between the value of owning and renting, and even at a point in time two people can be on opposite sides and both can be correct. Renting might be right for someone who wants to stay only a couple of years while buying is right for someone who wants to stay a couple of decades. Renting might be right for someone who does not mind renting a place that is sort of a dump with doors that don't shut and plumbing that does not work well and is a bit dingy, while someone with a different aesthetic sense (and/or an ability and pride in fixing things) might favor owning.

Frankly, the only reason we can have this debate is because of the near balance: otherwise the discussion would consist of everyone agreeing with each other and posting "+1 Great post dude!" :)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by tphp99 »

VictoriaF wrote:You suffer in a 700 sq ft apartment and relieve your pain with trips to Europe.

Victoria
Opposite for me. Upon returning from a European trip (or most trips) where accommodations are typically cramped, I come to appreciate the spaciousness of my home and its surroundings.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by dbr »

Here's another one: Owning a home is a terrible investment. So what?
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by smpatel »

VictoriaF wrote:But I think my story is also instructional.
It is very important to consider family aspects as well. If you are married and have young kids, owning a house is a good choice vs renting. It is the best asset we have owned after renting and my kids love it.
Of course, assumption here is the renting of small apartment not renting of house our size.

It provides good balance between professional and personal choices. It provides the feeling/experience of "settled". I don't think we could put a dollar figure to that.
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Re: Home values in Miami, Florida

Post by greg24 »

VictoriaF wrote: - In the 1990s not having to take care of a house has provided me with opportunities to continuously advance my professional expertise, present at conferences and publish papers.
- In the early 2000s, I was able to relocate easily for a job in the D.C. area, whereas my former colleagues could not find jobs in New Jersey but were tied to the location by their houses. The reason I was offered that job in D.C. was that my hiring manager has read two of my papers written in the 1990s.
- In the early 2010s, my Agency has moved, and I relocated to a short walking distance from my work. Many of my colleagues have over 1.5-hour commute, each way.
- For the past ten years, I used the time "saved" from the home ownership to get the 2nd Masters degree and several professional certifications. I published a paper in 2012, and another one will be coming out in January 2014.
You are bizarrely overestimating how much time it takes to care for a house. The same things can and are done by homeowners. This argument is bordering on a straw man.
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Re: Home values in Miami, Florida

Post by Rodc »

greg24 wrote:
VictoriaF wrote: - In the 1990s not having to take care of a house has provided me with opportunities to continuously advance my professional expertise, present at conferences and publish papers.
- In the early 2000s, I was able to relocate easily for a job in the D.C. area, whereas my former colleagues could not find jobs in New Jersey but were tied to the location by their houses. The reason I was offered that job in D.C. was that my hiring manager has read two of my papers written in the 1990s.
- In the early 2010s, my Agency has moved, and I relocated to a short walking distance from my work. Many of my colleagues have over 1.5-hour commute, each way.
- For the past ten years, I used the time "saved" from the home ownership to get the 2nd Masters degree and several professional certifications. I published a paper in 2012, and another one will be coming out in January 2014.
You are bizarrely overestimating how much time it takes to care for a house. The same things can and are done by homeowners. This argument is bordering on a straw man.
Indeed. The issue of being able to relocate is real. The rest is not.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Home values in Miami, Florida

Post by VictoriaF »

Rodc wrote:
greg24 wrote:
VictoriaF wrote: - In the 1990s not having to take care of a house has provided me with opportunities to continuously advance my professional expertise, present at conferences and publish papers.
- In the early 2000s, I was able to relocate easily for a job in the D.C. area, whereas my former colleagues could not find jobs in New Jersey but were tied to the location by their houses. The reason I was offered that job in D.C. was that my hiring manager has read two of my papers written in the 1990s.
- In the early 2010s, my Agency has moved, and I relocated to a short walking distance from my work. Many of my colleagues have over 1.5-hour commute, each way.
- For the past ten years, I used the time "saved" from the home ownership to get the 2nd Masters degree and several professional certifications. I published a paper in 2012, and another one will be coming out in January 2014.
You are bizarrely overestimating how much time it takes to care for a house. The same things can and are done by homeowners. This argument is bordering on a straw man.
Indeed. The issue of being able to relocate is real. The rest is not.
Not having been a homeowner I base my comments on what I've observed and what I've heard from homeowners. I've observed that in addition to the normal maintenance chores they always have some exceptional circumstances. The exceptions could be related to changing the roof, or DIY bathroom remodeling that drags on for four years, or storm after which a large fallen tree has to be removed from the neighbor's property, or fighting the county about tax assessments or fighting the home owners association about the color of the windows. There seems to be more regularity in the exceptions than in normal maintenance. I've heard from several people how they stopped having fun after they moved from an apartment or a condominium to a house.

It's not my intent to generalize my observations to all homeowners. But with my lack of experience and interest, if I became a homeowner it would use up all my free time. I suspect that there are others like me.

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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Bustoff
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by Bustoff »

Rent for $1000/month for 20 years = $240,000 vaporized.
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Re: Home values in Miami, Florida

Post by greg24 »

VictoriaF wrote:It's not my intent to generalize my observations to all homeowners. But with my lack of experience and interest, if I became a homeowner it would use up all my free time. I suspect that there are others like me.
There are plenty of people who start to obsess about updating and beautifying their home. But that is not a requirement of home ownership. I have owned a home for 12 years and spend very little time maintaining it.

I also have spent zero hours in the last 12 years shopping for a rental, preparing to move, boxing up all my stuff, moving, unpacking, calling my landlord, calling my landlord back because he ignored my previous call, arguing about a rent increase, banging on the wall due to my loud neighbor, determining which adjoining unit is the source of the stench, etc. etc. etc. Those hours add up, too.

I could create a laundry list of my career accomplishments that I have completed in that time, but that is pointless.
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Re: Home values in Miami, Florida

Post by Epsilon Delta »

Rodc wrote:
greg24 wrote:You are bizarrely overestimating how much time it takes to care for a house. The same things can and are done by homeowners. This argument is bordering on a straw man.
Indeed. The issue of being able to relocate is real. The rest is not.
As a home owner, I think Victoria has it right. Ownership does take time, either to do the work or to earn money to pay somebody else to do it. A homeowner is going to have to spend at least a couple of hours a week doing chores a renter does not. It's going to take a few years to earn a masters at that rate, but it does add up.
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Re: Shiller Thinks Owning a Home is a Terrible Investment

Post by rec7 »

Locations play a big part in this. Owning in Kansas makes sense CA. maybe not.
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Re: Home values in Miami, Florida

Post by greg24 »

Epsilon Delta wrote:
Rodc wrote:
greg24 wrote:You are bizarrely overestimating how much time it takes to care for a house. The same things can and are done by homeowners. This argument is bordering on a straw man.
Indeed. The issue of being able to relocate is real. The rest is not.
As a home owner, I think Victoria has it right. Ownership does take time, either to do the work or to earn money to pay somebody else to do it. A homeowner is going to have to spend at least a couple of hours a week doing chores a renter does not. It's going to take a few years to earn a masters at that rate, but it does add up.
I think Victoria is grossly overestimating. There is time involved, but, for me, its not much larger than renting. Then again, I spend almost zero time beautifying my home. I have friends who have painted their rentals and such, which is bizarre to me.

Bogleheads like to think they are different than the population at large. This is another case where you should ignore what the masses are doing.
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Re: Home values in Miami, Florida

Post by Rodc »

Epsilon Delta wrote:
Rodc wrote:
greg24 wrote:You are bizarrely overestimating how much time it takes to care for a house. The same things can and are done by homeowners. This argument is bordering on a straw man.
Indeed. The issue of being able to relocate is real. The rest is not.
As a home owner, I think Victoria has it right. Ownership does take time, either to do the work or to earn money to pay somebody else to do it. A homeowner is going to have to spend at least a couple of hours a week doing chores a renter does not. It's going to take a few years to earn a masters at that rate, but it does add up.
It is not nothing for sure. But millions do quite well professionally nonetheless. :)

It also helps if you view maintaining your home as something of a hobby vs a hated chore.

If building a new deck gives you pleasure, or maintaining a garden, it is not time wasted. If you'd rather have a root canal it is.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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