I was just going to make a very similar point. A mortgage may be forced savings, but only for the subset of the population that won't just tap into their equity and spend it frivolously or on endless upgrades (which might be considered frivolously by some, including myself). A renter may spend his/her excess savings over buying an equivalent location frivolously as well, rather than saving and investing it. There are behavioral traps to both consumption choices, and I think that one should either acknowledge them all, or reject them all, rather than choosing just the traps on one side of the equation.Rodc wrote:
Many in this thread in the pro-rent camp believe they have the discipline to invest any and all savings rather than spend it. If so, they should also be in the camp that has the discipline to not go crazy with renovations. Or conversely, those that own and go crazy spending on their houses are likely to do a poor job of capturing any savings from renting and investing those savings.
So the fact that some people go crazy with expensive upgrades to a home seems a red herring to the whole discussion.
Shiller Thinks Owning a Home is a Terrible Investment
Re: Shiller Thinks Owning a Home is a Terrible Investment
Retirement investing is a marathon.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Completely agree. It's not any different than using the well documented poor returns of the "average" mutual fund investor as a generalized indictment of investment in equities.kenyan wrote:I was just going to make a very similar point. A mortgage may be forced savings, but only for the subset of the population that won't just tap into their equity and spend it frivolously or on endless upgrades (which might be considered frivolously by some, including myself). A renter may spend his/her excess savings over buying an equivalent location frivolously as well, rather than saving and investing it. There are behavioral traps to both consumption choices, and I think that one should either acknowledge them all, or reject them all, rather than choosing just the traps on one side of the equation.Rodc wrote:
Many in this thread in the pro-rent camp believe they have the discipline to invest any and all savings rather than spend it. If so, they should also be in the camp that has the discipline to not go crazy with renovations. Or conversely, those that own and go crazy spending on their houses are likely to do a poor job of capturing any savings from renting and investing those savings.
So the fact that some people go crazy with expensive upgrades to a home seems a red herring to the whole discussion.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Other than providing a truism that must hold over the long run (otherwise pricing economics break down) I stayed away from providing hard numbers, making projections, or even saying whether buying or renting was better. Since we’re not covering housing costs over the long run (we’re all dead then) the buy/rent decisions we each face will vary wildly depending on individual markets and situations. Likely one will have a better financial outcome than the other, and as with almost any investment we make – we don’t necessarily have any idea beforehand which way it will go.lostInFinance wrote:I'm not convinced that some of your theoretical assumptions are close to accurate in the real world.
The point of my posting really was to address the pervasive misconception that renters are foolishly throwing away rent money and homeowners are savvily building up equity in amounts equal to what renters are throwing away (with a secondary shot at the incorrect “mortgage = rent” idea). That notion is demonstrably false, and we’d all be better off if people discarded that line of thinking. Neither buyers nor renters should need to feel superior to the other, and anyone facing the housing decision should be doing it using a sound financial basis.
Re: Shiller Thinks Owning a Home is a Terrible Investment
I didn't invest in it. Bought it with zero down and I pay a monthly mortgage that would be equal to what I'd pay for rent. Maintaining it cost me more than I would spend on a rental but in a few years that will equal out and I have a tax shelter, inflation hedge and asset appreciation for the next 24-years until it is paid for.
I don't know what others consider as a good investment but I'd categorize that as a great one. The only risk is to other people's capital (and my credit) and it is an expense that I'd have anyway.
I don't know what others consider as a good investment but I'd categorize that as a great one. The only risk is to other people's capital (and my credit) and it is an expense that I'd have anyway.
-
- Posts: 49032
- Joined: Fri May 11, 2007 11:07 am
Re: Shiller Thinks Owning a Home is a Terrible Investment
I live in a Victorian house, it's closer to 2% .Rodc wrote:I think it is reasonable to figure that you will spend 1-2% of the value of the home, pa, in repair, maintenance and improvement. It doesn't come smoothly, it comes in major lumps every few years: new roof, leaky basement, renovate kitchen etc.
I think this is about right, likely closer to the 1% level if (1) your home was in good repair when purchased and (2) you keep renovations modest and in keeping with the original level of opulence (or lack thereof).
If you don't do renovations to a standard that is comparable with other houses in the area, then you will feel it on the sale price. But in that 1-2% I wasn't really counting major renovations anyways.
The thing that pays off long term is more space, square footage. You won't immediately get back what that cost you (including finishings) but in the long run you probably will (unless there is something really odd about how you extended-- we looked at one house where they had clearly done it without planning permission-- you'd have to have knocked it down and started again).
Just about any other renovation the return is less than $1 for every $1 spent. Swimming pools can *reduce* the value of a home (I am sure that is quite dependent on what climate you live in- -I imagine it's not true in southern California, say).
Re: Shiller Thinks Owning a Home is a Terrible Investment
I imagine that is true. Older homes are rarely purchased in tip top all systems new form. I would also add that in general if you have an historic house you are trying to keep up in period form that probably adds to cost of upkeep.I live in a Victorian house, it's closer to 2% .
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.
-
- Posts: 49032
- Joined: Fri May 11, 2007 11:07 am
Re: Shiller Thinks Owning a Home is a Terrible Investment
Fashions change. Right now people are ripping out Victorian features (not all these houses are listed historic preservation, here) and putting in very modern open plan kitchens and family rooms etc. Personally I don't see why you own a Victorian house and do that. But it's what people like to do. Fusty Victorian reproduction is out.Rodc wrote:I imagine that is true. Older homes are rarely purchased in tip top all systems new form. I would also add that in general if you have an historic house you are trying to keep up in period form that probably adds to cost of upkeep.I live in a Victorian house, it's closer to 2% .
I also think Open Plan is a fad. I can see it working for young kids, but once you get to teenagers, I think it's really nice to have separate rooms. In fact, I love having a formal dining room (our kitchen is too small to 'eat in').
Stainless steel in kitchens is already starting to date.
We compromised. Our extension (2nd floor loft ie attic into a 3rd floor in US-speak) is modern and boxy (you can't change the street side appearance but you are fine at the back). Rest of the house we have tried to renovate in keeping with Victorian norms (which has involved a degree of fake reproduction cornicing, dado rail (halfway up the wall) etc. Also Victorians did *not* paint their houses white (the coal smoke and dust would have blackened it) they used bright colours, and we've tried to duplicate that. But we haven't gone for the full Restoration Hardware look in the bathrooms etc-- they are pretty modern.
You kind of accept that whoever gets hold of it next will have completely different ideas. But one of the reasons we bought it was because the previous restoration had had a 'quirky Victoriana' look about it. Conversely bathrooms just get redone, the best you can do is not have something that will date too obviously.
The downside is the cost of all this in a historic home. The upside is it has lived well over 100 years, and that gives me some comfort it will live another 100. I don't feel that about the Teardowns and Monster Homes that I saw built in the 1980s and 2000s.
All of which reminds me that a house is consumption, not an investment. Even though I have made money on property. But the cash outgoings are significant. And there is no diversification. Like most Brits, probably, I have *way* too much of my capital in my principal residence (nicely tax sheltered from capital gains, and with low property taxes, but still).
- Epsilon Delta
- Posts: 8090
- Joined: Thu Apr 28, 2011 7:00 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
You of all people should know about survivorship bias. Just because it survived 100 years with a foundation 2 bricks deep doesn't mean the next leylandii to come along won't knock it into next week.Valuethinker wrote: The downside is the cost of all this in a historic home. The upside is it has lived well over 100 years, and that gives me some comfort it will live another 100. I don't feel that about the Teardowns and Monster Homes that I saw built in the 1980s and 2000s.
Re: Shiller Thinks Owning a Home is a Terrible Investment
You are comparing apples to apples, when you should be comparing apples to oranges. (I have always wanted to say that.) You are pointing out one of the advantages of owning over renting. You are correct that the $1,000 payment is $400 toward the end, inflation adjusted. That means that as the renter keeps paying the higher and higher rate, the owner is getting the advantage of paying less and less money for their housing consumable (not investment, I concede it is a consumable). So, instead of $1000 current day rate plus inflation, they are paying $400 inflation adjusted. The way you describe it, though, you are comparing the mortgage being paid off to having a mortgage (apples to apples), whereas you need to compare it to the rent one would pay if one did not own. That is, if you are comparing own vs. rent, you need to consider that rent payments will NOT be reduced on an inflation-adjusted scale, and the renter must pay the $1000. If the owner has $400 in payment inflation adjusted, he can invest the remaining $600 (to put it in your terms rather than my original idea that he would invest the difference between rent and own as rent became more expensive.FinancialDave wrote:
While it is noted above by Dulocracy that once the mortgage is paid off that frees up at least the principal & interest part of the mortgage, this will not usually be significant, especially for someone who took out a 30 year mortgage, since a $1000 P&I payment will be worth somewhere in the neighborhood of $400 at a 3% inflation rate.
In contrast your investments that you have been compounding for 30 years will dwarf anything you can do with the freed up mortgage payments, even over the next 30 years.
fd
Further, you indicate that the investments compounding over 30 years will dwarf the freed up mortgage payments, yet 97% mortgages are common and not difficult to get right now. On a $200,000 house, that is $6,000 down. To have the continuously dropping payment for your housing consumable on an inflation-adjusted rate, a tax deduction (for those who will use it, as was pointed out), and the ability to live without paying mortgage or rent, this is a pretty good return.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Important to note for this discussion:
1) Renters are not bad people or unintelligent. I once was one when that made more sense for my situation.
2) As I have stated before, my comparison is for long-term ownership. I am an owner of a law firm, and I own the commercial building where it is housed. I am not going to be moving to a new location. My opinion about own/rent changes dramatically if we are talking about short term living situations. My statements about owning being the winning strategy presume that the individual is staying in the area permanently. Moving over and over, thereby resetting the mortgage at new rates and paying closing costs multiple times would be a very BAD strategy.
1) Renters are not bad people or unintelligent. I once was one when that made more sense for my situation.
2) As I have stated before, my comparison is for long-term ownership. I am an owner of a law firm, and I own the commercial building where it is housed. I am not going to be moving to a new location. My opinion about own/rent changes dramatically if we are talking about short term living situations. My statements about owning being the winning strategy presume that the individual is staying in the area permanently. Moving over and over, thereby resetting the mortgage at new rates and paying closing costs multiple times would be a very BAD strategy.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
Re: Shiller Thinks Owning a Home is a Terrible Investment
You can't be serious?!Dulocracy wrote:Important to note for this discussion:
1) Renters are not bad people or unintelligent. I once was one when that made more sense for my situation.
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)
-
- Posts: 218
- Joined: Sun Mar 03, 2013 2:57 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
Starter homes in my area sell for around $85k, while I pay $700/month in rent. If I was sure I was going to live the next 30-years in the same location, what's one set of assumptions you consider realistic where I would come out ahead at the end of 30-years by continuing to rent? I do agree that homeowners suffer some loss of liquidity.Harold wrote:Other than providing a truism that must hold over the long run (otherwise pricing economics break down) I stayed away from providing hard numbers, making projections, or even saying whether buying or renting was better. Since we’re not covering housing costs over the long run (we’re all dead then) the buy/rent decisions we each face will vary wildly depending on individual markets and situations. Likely one will have a better financial outcome than the other, and as with almost any investment we make – we don’t necessarily have any idea beforehand which way it will go.lostInFinance wrote:I'm not convinced that some of your theoretical assumptions are close to accurate in the real world.
The point of my posting really was to address the pervasive misconception that renters are foolishly throwing away rent money and homeowners are savvily building up equity in amounts equal to what renters are throwing away (with a secondary shot at the incorrect “mortgage = rent” idea). That notion is demonstrably false, and we’d all be better off if people discarded that line of thinking. Neither buyers nor renters should need to feel superior to the other, and anyone facing the housing decision should be doing it using a sound financial basis.
Re: Shiller Thinks Owning a Home is a Terrible Investment
5 pages and rolling. My wife and I were perfectly happy in a 2/2 condo that required very little maintenance and was in the back part of a development on the fringe of a heavily wooded area. It was nice and quiet and had a deck on the second floor facing the woods we enjoyed. Then a 85 lb Doberman entered our life and the nice, quiet neighbor moved out of her unit and the guy that bought her place sucked as a neighbor and we decided to buy a house in the area with a fenced yard, etc. Made over a 60% gain in just over 2-years (the person we bought it from held it for 12-years and we paid him what he had paid for the unit back then), rolled it into the house we have been in for 13-years and put a decent amount of money into refurbishing it over the years and had it appraised last month, the appraiser said "You guys will sell this house quick if you ever decide to sell", which has value to me. On a .75 acre with a decent amount of trees it takes roughly 30 minutes max to cut the grass, which is the primary labor involved outside the house and at least it is some exercise. The interior would have to be cleaned regardless of renting/owning so that's a wash.
Two of the best investments I have made are RE related, one a lot that was bought in 2009 and sold for almost triple the amount in just over two years and the other a partnership in a commercial RE property we invested $20k in 5 years ago and have received $7,200 net cash flow/distributions per year since then. It's easy to find good and bad real estate stories, the real requirement is applying some objective foresight and number crunching skills prior to a purchase decision and deciding what is acceptable.
We are on our 3rd and 4th dogs, we are happy in the house and will likely get our money out when we sell and we don't have to worry about loud neighbors or unresponsive landlords or poorly run home owner association who may have many non-paying owners, it's all what you value in the living experience.
Two of the best investments I have made are RE related, one a lot that was bought in 2009 and sold for almost triple the amount in just over two years and the other a partnership in a commercial RE property we invested $20k in 5 years ago and have received $7,200 net cash flow/distributions per year since then. It's easy to find good and bad real estate stories, the real requirement is applying some objective foresight and number crunching skills prior to a purchase decision and deciding what is acceptable.
We are on our 3rd and 4th dogs, we are happy in the house and will likely get our money out when we sell and we don't have to worry about loud neighbors or unresponsive landlords or poorly run home owner association who may have many non-paying owners, it's all what you value in the living experience.
-
- Posts: 746
- Joined: Tue Apr 24, 2007 1:24 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
VictoriaF wrote:You can't be serious?!Dulocracy wrote:Important to note for this discussion:
1) Renters are not bad people or unintelligent. I once was one when that made more sense for my situation.
Victoria
[OT comments removed by admin LadyGeek.]
I am a repeat homeowner and part owner of a business that develops residential real estate, and for many years I have wanted to write a book called "Your House Hates You." Some of Victoria's comments made perfect sense to me, especially those relating to the time cost of ownership; we recently moved from a large house on 4 acres to a smaller house on a quarter acre because I was spending too much time as groundskeeper and handyman and not enough as traveler and music student and etc. Many a 50ish homeowner I meet wants to get rid of a large suburban home and move into a walkable place that demands less time and money. I like owning for a variety of reasons, but I'll happily admit it's just a preference and perhaps not the best choice financially. I fear my fellow owners may be kidding themselves about ownership costs.
[OT comments removed by admin LadyGeek.]
Re: Shiller Thinks Owning a Home is a Terrible Investment
I guess by looking at the numbers, owning a home is not a good idea.
For me, owning a home has always been good. Maybe I can't quantify it, but I'd rather own a home rather than rent. Perhaps it's because when I did rent, I had no choice. I would like to try non home ownership again, but my wife would not have it. It does seem one would have more freedom.
I'd bet Shiller owns his own home too.
For me, owning a home has always been good. Maybe I can't quantify it, but I'd rather own a home rather than rent. Perhaps it's because when I did rent, I had no choice. I would like to try non home ownership again, but my wife would not have it. It does seem one would have more freedom.
I'd bet Shiller owns his own home too.
-
- Posts: 746
- Joined: Tue Apr 24, 2007 1:24 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
eucalyptus wrote:VictoriaF wrote:You can't be serious?!Dulocracy wrote:Important to note for this discussion:
1) Renters are not bad people or unintelligent. I once was one when that made more sense for my situation.
Victoria
[OT comments removed by admin LadyGeek.]
I am a repeat homeowner and part owner of a business that develops residential real estate, and for many years I have wanted to write a book called "Your House Hates You." Some of Victoria's comments made perfect sense to me, especially those relating to the time cost of ownership; we recently moved from a large house on 4 acres to a smaller house on a quarter acre because I was spending too much time as groundskeeper and handyman and not enough as traveler and music student and etc. Many a 50ish homeowner I meet wants to get rid of a large suburban home and move into a walkable place that demands less time and money. I like owning for a variety of reasons, but I'll happily admit it's just a preference and perhaps not the best choice financially. I fear my fellow owners may be kidding themselves about ownership costs.
[OT comments removed by admin LadyGeek.]
If you must remove good natured, self deprecating, mildly humorous comments, why not remove the whole post?
-
- Posts: 49032
- Joined: Fri May 11, 2007 11:07 am
Re: Shiller Thinks Owning a Home is a Terrible Investment
Well it has survived 2 world wars: Gotha bombers and Zeppelins in WW1, Heinkels and Dorniers in WW2. And of course V1 and V2 bombs. There was at least one significant bomb hit on the street in 1940-41-- but most of the houses survived. The bombs don't seem to have led to structural damage (although one wall is bowed).Epsilon Delta wrote:You of all people should know about survivorship bias. Just because it survived 100 years with a foundation 2 bricks deep doesn't mean the next leylandii to come along won't knock it into next week.Valuethinker wrote: The downside is the cost of all this in a historic home. The upside is it has lived well over 100 years, and that gives me some comfort it will live another 100. I don't feel that about the Teardowns and Monster Homes that I saw built in the 1980s and 2000s.
And in October 1987 we had the worst winds, apparently, since 1702. We have had a couple 'worst drought in 100 years' in the last 20. There's no sign of dry rot or significant damp.
Agree that if it is a *new* risk then we don't know. And yes the foundations are probably the weak point.
With the houses I have seen built in the last 20 years, I really do wonder about the build quality.
Re: Shiller Thinks Owning a Home is a Terrible Investment
mikefixac wrote:I guess by looking at the numbers, owning a home is not a good idea.
For me, owning a home has always been good. Maybe I can't quantify it, but I'd rather own a home rather than rent. Perhaps it's because when I did rent, I had no choice. I would like to try non home ownership again, but my wife would not have it. It does seem one would have more freedom.
I'd bet Shiller owns his own home too.
I don't doubt some people decide between owning and renting according to some financial metric. I think most people decide between owning and renting for good reasons that are not financial, in most cases with little debate one way or the other. After that it is just a question of understanding and managing the financial consequences.
That means owning vs renting is a false debate because people are trying to argue financial criteria for decisions that are not based on financial criteria.
Mr. Schiller, of course, has a much narrower point, which is that people who think buying a home is a superior route to wealth accumulation are on average mistaken. More than that. during a bubble it is a big mistake, and it is a big mistake if the investment is mismanaged, such as by spending down the equity. To extend that fact to conclusions that deciding to rent or deciding to buy is in general a stupid thing to do,on either side, is not what Mr. Schiller is talking about.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Many of you would enjoy reading this from the wall street journal about how houses eat money. Keep in mind that this was written in 2005 at the height of the boom. The numbers would be worse today.
http://online.wsj.com/news/articles/SB1 ... 9690557157
http://online.wsj.com/news/articles/SB1 ... 9690557157
Re: Shiller Thinks Owning a Home is a Terrible Investment
My current cost of renting: $434 a month which includes internet and all utilities. And no I don't live in a dump.
If I bought a property of my own, yes I could pay less than that per month via a 30-year mortgage for a $90,000 house (housing is cheap where I live), but then I'd be saddled with paying all utilities-water, sewer, internet, cable tv, property taxes, repairs, and the stress and time. Oh not to mention all the extras I would need, like a lawn mower and other yard toys that burn gas and costs money to maintain as well. Buying a house now would cost me several hundred more dollars per month to live and I would lose my freedom of time to travel and pack up and move whenever I want to another location. I'll invest those savings I would otherwise spend on a house for my retirement and other long-range goals. After all, the more I save in my early years, the more compounding will work to my advantage, I'll continue enjoying life in my small one bedroom apartment.
If I bought a property of my own, yes I could pay less than that per month via a 30-year mortgage for a $90,000 house (housing is cheap where I live), but then I'd be saddled with paying all utilities-water, sewer, internet, cable tv, property taxes, repairs, and the stress and time. Oh not to mention all the extras I would need, like a lawn mower and other yard toys that burn gas and costs money to maintain as well. Buying a house now would cost me several hundred more dollars per month to live and I would lose my freedom of time to travel and pack up and move whenever I want to another location. I'll invest those savings I would otherwise spend on a house for my retirement and other long-range goals. After all, the more I save in my early years, the more compounding will work to my advantage, I'll continue enjoying life in my small one bedroom apartment.
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
Congrats on that!crowd79 wrote:My current cost of renting: $434 a month which includes internet and all utilities. And no I don't live in a dump.
If I bought a property of my own, yes I could pay less than that per month via a 30-year mortgage for a $90,000 house (housing is cheap where I live), but then I'd be saddled with paying all utilities-water, sewer, internet, cable tv, property taxes, repairs, and the stress and time. Oh not to mention all the extras I would need, like a lawn mower and other yard toys that burn gas and costs money to maintain as well. Buying a house now would cost me several hundred more dollars per month to live and I would lose my freedom of time to travel and pack up and move whenever I want to another location. I'll invest those savings I would otherwise spend on a house for my retirement and other long-range goals. After all, the more I save in my early years, the more compounding will work to my advantage, I'll continue enjoying life in my small one bedroom apartment.
I love simulated data. It turns the impossible into the possible!
- Birdie Num Nums
- Posts: 60
- Joined: Sat Jan 02, 2010 6:26 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
It also looks like, generally speaking, the more square feet (space) a home is, whether owned or rented, the more stuff one seems to accumulate. And that stuff costs !
Re: Shiller Thinks Owning a Home is a Terrible Investment
The mortgage is paid off but if it was such a terrible investment, I'd borrow money on the house. I don't ever see that happening.
-
- Posts: 49032
- Joined: Fri May 11, 2007 11:07 am
Re: Shiller Thinks Owning a Home is a Terrible Investment
The article however ignores the rent the writer would have paid.rec7 wrote:Many of you would enjoy reading this from the wall street journal about how houses eat money. Keep in mind that this was written in 2005 at the height of the boom. The numbers would be worse today.
http://online.wsj.com/news/articles/SB1 ... 9690557157
His house went from $165k to $500k. He then adds up $130k renovations + other expenses and concludes he's made very little money on it in 13 years.
But he ignores the rent he has saved over that time period.
Re: Shiller Thinks Owning a Home is a Terrible Investment
That is a good point. I think like you do in a house the money you make is from saved rent the rest around here is nothing to get excited about. If a person makes any money on the part that is not saved rent at all. I liked it because he talks about a lot of house expenses most people forget. Many people walk around thinking they made money on a house when they really lost money.Valuethinker wrote:The article however ignores the rent the writer would have paid.rec7 wrote:Many of you would enjoy reading this from the wall street journal about how houses eat money. Keep in mind that this was written in 2005 at the height of the boom. The numbers would be worse today.
http://online.wsj.com/news/articles/SB1 ... 9690557157
His house went from $165k to $500k. He then adds up $130k renovations + other expenses and concludes he's made very little money on it in 13 years.
But he ignores the rent he has saved over that time period.
-
- Posts: 198
- Joined: Sun Mar 03, 2013 4:40 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
That wsj writer is somehow assuming he gets to live in the house for free. Of course interest and maintenance and insurance ate up his profits. That's what you pay when you own vs. rent. Should have judged it against paying rent for the same period for an identical property.
-
- Posts: 198
- Joined: Sun Mar 03, 2013 4:40 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
IMO, one should hope that the carrying costs over time are the same or lower than rent and that your equity at least keeps up with inflation.
There are intangible factors too. Unless you live in a renters market like NY or SF, it's sometime impossible to find a property with the quality level and amenities you would want that's available for rent.
There are intangible factors too. Unless you live in a renters market like NY or SF, it's sometime impossible to find a property with the quality level and amenities you would want that's available for rent.
Re: Shiller Thinks Owning a Home is a Terrible Investment
I am dead serious, but please take that comment in context with the rest of the thread. A previous poster was commenting that it seemed people were saying renters were somehow unintelligent. I was assuring the person that I did not think so. It once made more sense for me to rent, so I rented. I have a friend in a group that meets monthly where we give advice to each other, and I think renting is best for his situation right now. I think you took the comment to be condescending, which it absolutely was not. It was a response to a sentiment raised in an earlier post on the thread.VictoriaF wrote:You can't be serious?!Dulocracy wrote:Important to note for this discussion:
1) Renters are not bad people or unintelligent. I once was one when that made more sense for my situation.
Victoria
I think that the math comes down to this: in most circumstances, it is financially beneficial to buy if you are staying in the same home for a long period of time. In most circumstances, it is not financially beneficial to buy for the short term.
I hope that clarifies a statement that had less than the desired effect.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Thank you for clarifying. I agree with your reasons and conclusions.Dulocracy wrote:I am dead serious, but please take that comment in context with the rest of the thread. A previous poster was commenting that it seemed people were saying renters were somehow unintelligent. I was assuring the person that I did not think so. It once made more sense for me to rent, so I rented. I have a friend in a group that meets monthly where we give advice to each other, and I think renting is best for his situation right now. I think you took the comment to be condescending, which it absolutely was not. It was a response to a sentiment raised in an earlier post on the thread.VictoriaF wrote:You can't be serious?!Dulocracy wrote:Important to note for this discussion:
1) Renters are not bad people or unintelligent. I once was one when that made more sense for my situation.
Victoria
I think that the math comes down to this: in most circumstances, it is financially beneficial to buy if you are staying in the same home for a long period of time. In most circumstances, it is not financially beneficial to buy for the short term.
I hope that clarifies a statement that had less than the desired effect.
I consider several distinct cases:
1) people who rent because they want but are not able to buy
2) people who buy because they see ownership as validation of their self-worth, or buy into the realtors' propaganda, of both
3) people who buy because it's a better choice for them from the financial and lifestyle points of view
4) people who rent by choice, because they have better things to do with their time than ownership-related responsibilities and longer commutes.
Renters in groups (1) and (4) are very different, probably more so than owners in groups (2) and (3). I am in group (4). I am aware of the higher lifetime cost of renting and I budget for it. I am paying the price for my convenience and my preferences, and I can afford to pay this price.
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)
Re: Shiller Thinks Owning a Home is a Terrible Investment
I would add:VictoriaF wrote:
I consider several distinct cases:
1) people who rent because they want but are not able to buy
2) people who buy because they see ownership as validation of their self-worth, or buy into the realtors' propaganda, of both
3) people who buy because it's a better choice for them from the financial and lifestyle points of view
4) people who rent by choice, because they have better things to do with their time than ownership-related responsibilities and longer commutes.
Renters in groups (1) and (4) are very different, probably more so than owners in groups (2) and (3). I am in group (4). I am aware of the higher lifetime cost of renting and I budget for it. I am paying the price for my convenience and my preferences, and I can afford to pay this price.
Victoria
5) people who rent by choice, because of the financial pitfalls of purchasing in a bubble-inflated market or for a short-term residence (they recognize their living situation is - or may be - temporary)
I have been:
1995-2005: (5)
2005-2007: (1)
2008-2011: (5)
2011-early 2013: (4)
late 2013-current: (3)
For much of ~2003-2013, many people were advising me to become (2), but I declined.
Retirement investing is a marathon.
Re: Shiller Thinks Owning a Home is a Terrible Investment
True. On the later there is an apartment building across from where I work and renting there would reduce my commute by a large percentage by reducing my 1.5 mile commute by 1.3 miles. Not nearly as nice a place to live though.I consider several distinct cases:
1) people who rent because they want but are not able to buy
2) people who buy because they see ownership as validation of their self-worth, or buy into the realtors' propaganda, of both
3) people who buy because it's a better choice for them from the financial and lifestyle points of view
4) people who rent by choice, because they have better things to do with their time than ownership-related responsibilities and longer commutes.
5) might read something like "some people rent due to an irrational fear of home ownership", just make a properly balanced and less biased list.
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.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Sure, there must be some irrationalities among renters. Some can't buy and convince themselves that they don't want to buy. Others can and should buy but convince themselves that they don't want to. But the home ownership issue itself is not balanced. There are many special interests--realtors, mortgage brokers, home-improvement businesses, media--that forcefully drag people into ownership in contrast with a lonely Shiller who tells people to look at the numbers first. The likelihood of developing an irrational fear of the thing that everyone wants you to do is much lower than the likelihood of succumbing to the pressure.Rodc wrote:True. On the later there is an apartment building across from where I work and renting there would reduce my commute by a large percentage by reducing my 1.5 mile commute by 1.3 miles. Not nearly as nice a place to live though.I consider several distinct cases:
1) people who rent because they want but are not able to buy
2) people who buy because they see ownership as validation of their self-worth, or buy into the realtors' propaganda, of both
3) people who buy because it's a better choice for them from the financial and lifestyle points of view
4) people who rent by choice, because they have better things to do with their time than ownership-related responsibilities and longer commutes.
5) might read something like "some people rent due to an irrational fear of home ownership", just make a properly balanced and less biased list.
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)
-
- Posts: 746
- Joined: Tue Apr 24, 2007 1:24 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
"4) people who rent by choice, because they have better things to do with their time than ownership-related responsibilities and longer commutes."
You can't be serious!
I own, don't commute and pay someone else to take care of almost everything.
I hear that owners, like renters, also are not bad people ....
You can't be serious!
I own, don't commute and pay someone else to take care of almost everything.
I hear that owners, like renters, also are not bad people ....
Re: Shiller Thinks Owning a Home is a Terrible Investment
eucalyptus,eucalyptus wrote:"4) people who rent by choice, because they have better things to do with their time than ownership-related responsibilities and longer commutes."
You can't be serious!
I own, don't commute and pay someone else to take care of almost everything.
I hear that owners, like renters, also are not bad people ....
You are a good person, and you are in group-3. Peace,
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)
Re: Shiller Thinks Owning a Home is a Terrible Investment
I skimmed most of this article and if it has already been mentioned I apologize.
Granted this is a financial site, and I do read quite a bit on financial websites, books, and magazines, but the idea of placing an investment value on everything you buy on a daily basis is getting a little board. I read the Tobias book, The Only Investment You Will Ever Need, and while I thought it provided very good insight on certain matters, the idea that I could save money by buying clippers and cutting my own hair was absurd. The length that some people will go to save a minimal amount of money can get comical. Back to the whole home investment topic. When you break in down it is an investment, probably the largest investment most people will ever make. But I think it goes much farther than being a cut and dry topic.
I own my home. Zillow says it is worth more than I paid for it but that is just noise. I am going to worry about how much my house is worth when my wife and I start thinking about moving. Then it is only worth what someone else is willing to pay me. I am sure we both have a number that if someone came in and offered we would take it and walk away tomorrow but that isn't happening. There was a time where our house was valued about 15% lower than what we paid for it, I looked one day, said that stinks, and went on my daily life. I don't feel a need to place a value on maintaining our lawn. It probably costs me $15-$20 in gas a year to cut my lawn but I enjoy doing that. My wife and I both enjoy doing yard work and we have spent money on it in the past. Whether it be trees to add privacy or replacing shrubs because they died or our dog destroyed them, it is something that we always like doing. Should I place a value on it? Or is that an intrinsic value that really has no true dollar amount.
Currently we are finishing part of our basement, adding a room/office and a shower. With out of town family and the potential that another kid would occupy the guest bedroom it was something we needed. So far I am about $3K in with paint, tile, and carpet left. Right now I don't really care if we get X% back on the project. It is something we wanted and may need in the near future. It is something we will use and enjoy, and hopefully our kids will use and enjoy it. In the future we will probably add on to our deck and renovate our master bath. I know you get X% on renovations, but if I redo my master to my liking, enjoy it every morning and evening for 10 years in the house, does that really take away from my investment?
I am sure that you could go back, look at what I paid for my house and added in every expense but that wouldn't really get to the point. I didn't buy my house for a return on my original investment. I hope that when I go to sell I will be able to sell it for more than I paid, but that is about it. There is a value you can't place for being happy and content with a home. If I come home from work and my yard looks good that makes me happy. Cooking a good dinner in my kitchen makes me happy. To be honest on a daily basis I don't care how much I have put into my house. Unless I am planning on buying and selling within a limited period of time, looking at your house as any type of investment is a terrible idea.
Granted this is a financial site, and I do read quite a bit on financial websites, books, and magazines, but the idea of placing an investment value on everything you buy on a daily basis is getting a little board. I read the Tobias book, The Only Investment You Will Ever Need, and while I thought it provided very good insight on certain matters, the idea that I could save money by buying clippers and cutting my own hair was absurd. The length that some people will go to save a minimal amount of money can get comical. Back to the whole home investment topic. When you break in down it is an investment, probably the largest investment most people will ever make. But I think it goes much farther than being a cut and dry topic.
I own my home. Zillow says it is worth more than I paid for it but that is just noise. I am going to worry about how much my house is worth when my wife and I start thinking about moving. Then it is only worth what someone else is willing to pay me. I am sure we both have a number that if someone came in and offered we would take it and walk away tomorrow but that isn't happening. There was a time where our house was valued about 15% lower than what we paid for it, I looked one day, said that stinks, and went on my daily life. I don't feel a need to place a value on maintaining our lawn. It probably costs me $15-$20 in gas a year to cut my lawn but I enjoy doing that. My wife and I both enjoy doing yard work and we have spent money on it in the past. Whether it be trees to add privacy or replacing shrubs because they died or our dog destroyed them, it is something that we always like doing. Should I place a value on it? Or is that an intrinsic value that really has no true dollar amount.
Currently we are finishing part of our basement, adding a room/office and a shower. With out of town family and the potential that another kid would occupy the guest bedroom it was something we needed. So far I am about $3K in with paint, tile, and carpet left. Right now I don't really care if we get X% back on the project. It is something we wanted and may need in the near future. It is something we will use and enjoy, and hopefully our kids will use and enjoy it. In the future we will probably add on to our deck and renovate our master bath. I know you get X% on renovations, but if I redo my master to my liking, enjoy it every morning and evening for 10 years in the house, does that really take away from my investment?
I am sure that you could go back, look at what I paid for my house and added in every expense but that wouldn't really get to the point. I didn't buy my house for a return on my original investment. I hope that when I go to sell I will be able to sell it for more than I paid, but that is about it. There is a value you can't place for being happy and content with a home. If I come home from work and my yard looks good that makes me happy. Cooking a good dinner in my kitchen makes me happy. To be honest on a daily basis I don't care how much I have put into my house. Unless I am planning on buying and selling within a limited period of time, looking at your house as any type of investment is a terrible idea.
Re: Shiller Thinks Owning a Home is a Terrible Investment
FWIW, I think this is a very enlightened perspective. Ultimately, it's not all that different than someone that knowingly invests in a very conservative portfolio, in full consideration of the long term trade-offs. Some have put forth irrational fear of ownership, but this just simply gets lumped into the broad category of risk, flexibility, and liquidity preferences. I don't think it is reasonable to assume that these benefits come without an expectation of some sort of cost.VictoriaF wrote:I am aware of the higher lifetime cost of renting and I budget for it. I am paying the price for my convenience and my preferences, and I can afford to pay this price.
Victoria
Re: Shiller Thinks Owning a Home is a Terrible Investment
[Santa Barbara, CA]
I rent a 1 br apt for ~$1200 after utilities (and its a good deal!).
The cheapest 1 br condos start at ~$200k. After looking at how much $ you loose to HOA fees also, it just wouldn't be worth stretching myself that thin. For me, renting provides freedom...
... I love being gone on the weekends for various adventures - living in a 'crappy apt' helps one want to leave (plus allows me the budget to do so) and not spend time at home doing yard-work, etc
I rent a 1 br apt for ~$1200 after utilities (and its a good deal!).
The cheapest 1 br condos start at ~$200k. After looking at how much $ you loose to HOA fees also, it just wouldn't be worth stretching myself that thin. For me, renting provides freedom...
... I love being gone on the weekends for various adventures - living in a 'crappy apt' helps one want to leave (plus allows me the budget to do so) and not spend time at home doing yard-work, etc
Re: Shiller Thinks Owning a Home is a Terrible Investment
No one has mentioned the potential impact of homeownership on labor mobility. While causation hasn't been proven, there is strong evidence to suggest a link between high levels of homeownership in a geographical area and high subsequent levels of joblessness in that area. Further, young folks trying to grow a career, can significantly limit opportunities by purchasing too soon when factoring in commuting limits.
"A new truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it."-MP
Re: Shiller Thinks Owning a Home is a Terrible Investment
No one has mentioned the potential impact of homeownership on labor mobility.
Are you sure? That is usually addressed in these beating a dead horse threads on own vs rent. Of course with 5 pages if you did not read every post that would be understandable.
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.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Can anyone guess who owns that home in the background?
Sometimes a cigar is just a cigar, not an investment.
Sometimes a cigar is just a cigar, not an investment.
-
- Posts: 49032
- Joined: Fri May 11, 2007 11:07 am
Re: Shiller Thinks Owning a Home is a Terrible Investment
Isn't that Bob Shiller?tadamsmar wrote:Can anyone guess who owns that home in the background?
Sometimes a cigar is just a cigar, not an investment.
Re: Shiller Thinks Owning a Home is a Terrible Investment
beating dead horse you say?Rodc wrote:Are you sure? That is usually addressed in these beating a dead horse threads on own vs rent.
[animated Victorian (Georgian?) print of dead horse being beaten removed by admin alex. you can see it at http://imageshack.com/a/img823/2967/zvi.gif if you are so inclined]
Re: Shiller Thinks Owning a Home is a Terrible Investment
Of the 240 messages, 15 are yours. Perhaps, the horse is not that dead.Rodc wrote:No one has mentioned the potential impact of homeownership on labor mobility.
Are you sure? That is usually addressed in these beating a dead horse threads on own vs rent. Of course with 5 pages if you did not read every post that would be understandable.
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)
-
- Posts: 844
- Joined: Sat Apr 10, 2010 6:02 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
IMO mortgages are not relevant in own vs rent financial considerations - that's just a loan (currently, partially government-subsidised), if you want to take one, for your real estate investment. What is relevant, is to compare rent vs sum of regular non-equity-building-related expenses, including: insurance, property taxes, maintenance over time (~2% of house price / year?), yard maintenance / snow removal services, gutters cleaning, etc., and TIME it takes for all these activities.
Anecdotally, in comparisons I had done, rent was one to a few hundred higher than these expenses (per month). So, I think the decision is either
(a) to save this money and take on risks of ownership, dealing with house maintenance, insurance, tax payments, buying and eventual sale process, etc., or
(b) hire a landlord to do these things for you / carry relevant risk(s) / spend time on these at that effective one-to-few-hundred dollars per month price
Anecdotally, in comparisons I had done, rent was one to a few hundred higher than these expenses (per month). So, I think the decision is either
(a) to save this money and take on risks of ownership, dealing with house maintenance, insurance, tax payments, buying and eventual sale process, etc., or
(b) hire a landlord to do these things for you / carry relevant risk(s) / spend time on these at that effective one-to-few-hundred dollars per month price
Last edited by learning_head on Wed Nov 06, 2013 11:34 am, edited 1 time in total.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Okay, so this thread inspired me to build a calculator to see how much I am paying a month in home ownership expenses. A similar one probably already exists somewhere, but I made my own.
So, I have lived in a condo/townhome type home for 6 years. I combined all of my of my monthly expenses: insurance; interest and taxes (after deductions); HOA dues; maintenance (only 1% because I'm in a condo and my HOA dues presumably go toward maintenance as well). I also included an Opportunity Cost which is how much I lose by not having my money in another, better yielding investment. I considered that historically home values only match inflation, and the money in home equity could earn a bit more in another similarly conservative investment. All of this combined gives me a rent baseline of $1772. Consider that my house would probably rent for $2300, and the $528 would be a monthly profit if I chose to rent it out.
Here's the thing, I didn't include transaction costs (I put it at 12% of present home value) nor any gain in home value since purchase (my house is worth the same as when I bought it ). I also refinanced to a lower rate twice, so I have to balance out my total mortgage rate over the six years of ownership. All of this combines to a rough monthly cost of ownership of $2628. Remember, this $2628 is pure expenses (just like rent). So in my case, over six years of home ownership, I'm currently paying $328 more a month owning my house than if I had rented a similar one. If I live in my house longer, I can further spread out the transaction costs, and hopefully my house appreciates some in that time... so that $328/month should decrease.
So, I have lived in a condo/townhome type home for 6 years. I combined all of my of my monthly expenses: insurance; interest and taxes (after deductions); HOA dues; maintenance (only 1% because I'm in a condo and my HOA dues presumably go toward maintenance as well). I also included an Opportunity Cost which is how much I lose by not having my money in another, better yielding investment. I considered that historically home values only match inflation, and the money in home equity could earn a bit more in another similarly conservative investment. All of this combined gives me a rent baseline of $1772. Consider that my house would probably rent for $2300, and the $528 would be a monthly profit if I chose to rent it out.
Here's the thing, I didn't include transaction costs (I put it at 12% of present home value) nor any gain in home value since purchase (my house is worth the same as when I bought it ). I also refinanced to a lower rate twice, so I have to balance out my total mortgage rate over the six years of ownership. All of this combines to a rough monthly cost of ownership of $2628. Remember, this $2628 is pure expenses (just like rent). So in my case, over six years of home ownership, I'm currently paying $328 more a month owning my house than if I had rented a similar one. If I live in my house longer, I can further spread out the transaction costs, and hopefully my house appreciates some in that time... so that $328/month should decrease.
-
- Posts: 844
- Joined: Sat Apr 10, 2010 6:02 pm
Re: Shiller Thinks Owning a Home is a Terrible Investment
I did not follow this part.boobinson wrote:I also refinanced to a lower rate twice, so I have to balance out my total mortgage rate over the six years of ownership.
In any case though, mortgage related stuff is unrelated to these calculations IMO - that's just related to your loan for the equity investment in your condo. This is unrelated to rent comparable costs like your others.
I also think opportunity costs you mentioned should not be included for same reason - you chose to invest in single real estate property as part of your portfolio. That's part of your investments. Unrelated to rentals costs vs costs of owning.
What you may NOT have included though in your comparison is how much extra time you spent due to being an owner vs time you would have spent as a renter. Maybe too little to mention, or maybe a lot if you had to do various fixups, hire anyone for related services, DYI projects around the condo, participate in condo association related activities, etc.
Re: Shiller Thinks Owning a Home is a Terrible Investment
As much as I love my house now, rarely a week goes by when I don't fondly remember my $900/mo studio near 154 from a few years ago. That was a killer deal, and I was 10 minute bike to the beach, 20 minute drive to bouldering, gorgeous bike rides ride out my back door. Alas, if I lived in SB, I'd probably never buy a house either. Friends of mine in SB saved diligently for about a decade and finally pulled the trigger on a house, which set them back about a million. Granted, overall better situation for me up here, but I'll be darned if ain't near perfection down there.surfstar wrote:[Santa Barbara, CA]
I rent a 1 br apt for ~$1200 after utilities (and its a good deal!).
The cheapest 1 br condos start at ~$200k. After looking at how much $ you loose to HOA fees also, it just wouldn't be worth stretching myself that thin. For me, renting provides freedom...
... I love being gone on the weekends for various adventures - living in a 'crappy apt' helps one want to leave (plus allows me the budget to do so) and not spend time at home doing yard-work, etc
An inconvenience is only an adventure wrongly considered; an adventure is an inconvenience rightly considered. -- GK Chesterton
Re: Shiller Thinks Owning a Home is a Terrible Investment
With the refinancing, I meant to convey that my present mortgage rate is not the same as when I originally purchased the home. Assuming I refinanced in equal intervals, I'm essentially saying that my interest costs are the average of the three mortgage rates.I did not follow this part.
In any case though, mortgage related stuff is unrelated to these calculations IMO - that's just related to your loan for the equity investment in your condo. This is unrelated to rent comparable costs like your others.
I also think opportunity costs you mentioned should not be included for same reason - you chose to invest in single real estate property as part of your portfolio. That's part of your investments. Unrelated to rentals costs vs costs of owning.
I feel that the opportunity cost is at least somewhat valid. As other home owners in this thread have stated, I purchased the home to live in and not to be part of my portfolio. Moreover, I wouldn't directly purchase any real estate otherwise. It still is an "investment" nonetheless, and the money in home equity should be valued against what it could earn in other investments.
I completely agree with the frustrations over the extra time spent as an owner, but there's no way to quantify it. What would I do with that time as a renter?... probably spending money on activities. So perhaps it's a similar cost in the other direction.What you may NOT have included though in your comparison is how much extra time you spent due to being an owner vs time you would have spent as a renter. Maybe too little to mention, or maybe a lot if you had to do various fixups, hire anyone for related services, DYI projects around the condo, participate in condo association related activities, etc.
Re: Shiller Thinks Owning a Home is a Terrible Investment
Yes that's Bob Shiller, he owns that home and uses it as a vacation home.Valuethinker wrote:Isn't that Bob Shiller?tadamsmar wrote:Can anyone guess who owns that home in the background?
Sometimes a cigar is just a cigar, not an investment.
Re: Shiller Thinks Owning a Home is a Terrible Investment
I've had too many of those "do yourself in" projects.learning_head wrote:DYI projects around the condo...
"A new truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it."-MP