Im bowing out

[AvidIndoorsman]

There are a few good points, but I heartily disagree with well over 50% of the article content.

On one hand there are government messages and government programs promoting homeownership, and on the other hand is the potential homeowner making their own homeownership decisions.

In regards to the latter, there is a very strong case for homeownership being the preferred option in terms of overall financial benefit if you can swing it.

There are many things I CAN do, but choose not to: dip into home equity, buy more house than I can afford, keep a mortgage for decades, overspend on furnishing, buy in a poor location, etc. It is no one's responsibility but my own to make wise decisions in this regard. Just because some homebuyers do the opposite and cannot stay in their homes does not mean there is a problem with the goal of homeownership. It means there are persons making poor decisions. The author of the article seems to infer that just because the messaging is problematic, or that sketchy homeownership programs exist, we are beholden to them.

Real estate should be treated as consumption, not investment.

It's a bit interesting that folks are injecting their own preconceived feelings about homeownership into the article, and missing the point entirely. Above is the subtitle of the article and the authors argument.

"I don’t know if you should buy a house. Nor am I inclined to give you personal financial advice. But I do think you should be wary of the mythos that accompanies the American institution of homeownership, and of a political environment that touts its advantages while ignoring its many drawbacks."

Right off the bat the author is saying this isn't about renting versus buying, it's about unpacking and reexamining the idea of homes as an investment.

@BrentD and @AlaskaHunter both mention intangibles benefits of home ownership as important. That's irrelevant, to the thesis, a consumable good can have those benefits. Vehicles are consumable goods, we have pages and pages of threads talking about the intangibles benefits of various types of cars and trucks. There is no argument that homes and trucks don't have lifestyle benefits, they absolutely do.

This paper is also not about renting versus buying. It touches on renting, simply because the benefits to homeownership are most often discussed when folks are extoling why homeownership is so much better than renting. These are the myths to debunk.

Homeownership is a guarantee against a lost job(1), against rising rents(2), against a medical emergency(3). It is a promise to your children that you can pay for college or a wedding(4) or that you can help them one day join you in the vaunted halls of the ownership society(5).

I'm not going to rehash all of them, I think the author does a decent job of poking some holes and demonstrating why these ideas aren't universally true.

The central argument here is that our society has tried to turn homes into investments, not the colloquial meaning i.e. a worthwhile expenditure of time/money (which homes assuredly are), but the fiscal definition; the process of committing money explicitly for the creation of profit. (@SAJ-99 has also made this argument repeatedly.)

Just because some homebuyers do the opposite and cannot stay in their homes does not mean there is a problem with the goal of homeownership.

Isn't Dave Ramsey always arguing that credit cards are evil because people can't trust themselves with their own money

The author is agreeing with you, homes shouldn't be seen as a piggy bank. They shouldn't be viewed as an investment portfolio where one periodically harvest the gains. That view, homes as an investment portfolio, is the problem, not ownership itself. I think some folks are missing that point a bit because they are saying... "wait duh".

So if "duh" then what is the point. The first point, there are way better ways to invest, for instance a Roth 401K/403B/IRA is far better, after 5 years your principle can be withdrawn with zero penalty, gains aren't subject to tax not just your first 250k (@AlaskaHunter 500 is married filing jointly, and remember only applies if that house was your primary residence for 2 of the last 5 years, doesn't count for second homes), and more importantly you don't have to liquidate your home and therefore move to have access to your money or alternatively pay interest on the money via a home equity loan.

The second point, and the central thrust of this entire thread, affordability. Because homes have been turned into investment vehicles there is incentive to keep demand high and therefore supply low. Folks "portfolios" crater if the value of their home declines, to even be an "investment" in the first place it has to beat inflation. Home prices have beat inflation in lots of areas and this means that home ownership by design will be more and more difficult for each successive generation. Basically what we were discussing here. The authors argument is that this value increase isn't natural it's a product of policy, the policy is to keep housing as expensive as possible.

I agree with the author this is a bizarre paradox of America

"in a statement last year lamenting how “inflation hurts Americans pocketbooks,” President Joe Biden also noted that “home values are up” as a proof point that the economic recovery was well under way. "

So as the author pointed out...inflation is bad, well except the inflation of most folks #1 expenditure... that's good?


TLDR: homes as investments are problematic because people are crappy at calculating their actual ROR because they lie to themselves about how much they "invested", by trying to "make fetch happen" we've hosed people at the bottom of the economic spectrum and made it difficult for each successive generation to stay in the middle class.

 

[BigHornRam]

Good article, wllm- thank you for posting. I found this graph particularly interesting:

View attachment 257536

When you are wealthy, you don't have to concern yourself with appreciation of the 5 million dollar graduation gift apartment you bought for your daughter. Duh!

Inside Jennifer Gates' NYC home as Bill Gates slashes price on pregnant daughter's apartment

Jennifer Gates, who is reportedly having a baby girl, has likely grown out of the home that overlooks Central Park

meaww.com

 

[BigHornRam]

TLDR: homes as investments are problematic because people are crappy at calculating their actual ROR because they lie to themselves about how much they "invested", by trying to "make fetch happen" we've hosed people at the bottom of the economic spectrum and made it difficult for each successive generation to stay in the middle class.

Hard to believe a boomer wrote this almost 40 years ago.

 

[AvidIndoorsman]

Hard to believe a boomer wrote this almost 40 years ago.

Indeed 40 years ago he was noting the failure of the American dream and the two realities of our society... that of the wealthy and that of the poor.

Lot of factors demonstrate that gap has expanded.

 

[BigHornRam]

Indeed 40 years ago he was noting the failure of the American dream and the two realities of our society... that of the wealthy and that of the poor.

Lot of factors demonstrate that gap has expanded.

I will still take the American Dream over the Russian, Chinese, Iranian, Indian, British, or Venezuelan Dream, any day of the week. Bet Mr. Mellencamp would agree.

 

[AvidIndoorsman]

I will still take the American Dream over the Russian, Chinese, Iranian, Indian, British, or Venezuelan Dream, any day of the week. Bet Mr. Mellencamp would agree.

False dichotomy, other counties being worse doesn’t mean we shouldn’t fix the problems with our own, or at least try to understand what the problems are…

 

[BigHornRam]

False dichotomy, other counties being worse doesn’t mean we shouldn’t fix the problems with our own, or at least try to understand what the problems are…

I think we are doing better today, than we were when Pink Houses was in the top 40. Unless you bought into crypto.....

 

[Treeshark]

or at least try to understand what the problems are…

I do agree with you overall, but I think one of the main “problems” with home ownership is the same problem sinking US healthcare: unreasonable expectations.

 

[Marshian]

I do agree with you overall, but I think one of the main “problems” with home ownership is the same problem sinking US healthcare: unreasonable expectations.

Another interesting read. And a big can of worms.

12 Hours in a U.K. Ambulance

Britain is experiencing an ambulance delay crisis. We saw the challenges during a 12-hour shift with paramedics from north Wales.

www.nytimes.com

 

[Treeshark]

That article is behind a paywall, but Im guessing the title and brief description speaks for itself.

 

[Pucky Freak]

Right off the bat the author is saying this isn't about renting versus buying, it's about unpacking and reexamining the idea of homes as an investment.

The lede is buried: "we need to fix renting" and "Policy makers should...make their focus a housing market abundant with cheap and diverse housing types able to satisfy the needs of people at every income level and stage of life." The author proposes far-left-leaning and dramatic shifts to existing housing policies. The premise of owning a home as a consumable good is predicated on these changes coming into being. But we don't live it the world the way the author would like it to be, we live in the real world. Before our society goes de-incentivizing homeownership and moving away from it as an investment for the lower-middle class, there needs to actually be something better in place to transition to, something that currently does not exist.

Homeownership is a guarantee against a lost job(1), against rising rents(2), against a medical emergency(3). It is a promise to your children that you can pay for college or a wedding(4) or that you can help them one day join you in the vaunted halls of the ownership society(5).

I'm not going to rehash all of them, I think the author does a decent job of poking some holes and demonstrating why these ideas aren't universally true.

Agreed that using home equity as a piggy bank for many of the common things people actually use it for is risky and foolish. Those uses really stretch the definition of "investment" IMO. The author highlights many poor uses of equity, but fails to list other more conservative investment aims such as generational wealth, security in retirement, and most significantly, becoming debt-free in a relatively short period of time while axing monthly housing cost from the budget...permanently.

Isn't Dave Ramsey always arguing that credit cards are evil because people can't trust themselves with their own money

The opposite is true. People tend to spend recklessly when it's Other People's Money.

TLDR: homes as investments are problematic because people are crappy at calculating their actual ROR because they lie to themselves about how much they "invested", by trying to "make fetch happen" we've hosed people at the bottom of the economic spectrum and made it difficult for each successive generation to stay in the middle class.

Agreed. If you play by the "playbook" provided by the bank, the National Association of Realtors, and the federal government, you are setting yourself up for failure. If you write your own playbook there is a lot of success to be had. I'd be in support of HS curriculum on navigating real estate, calculating ROR, and risk assessment. I'd rather people become wiser/more knowledgeable over making the whole system dumber, easier, and more tightly controlled by a grossly incompetent federal government.

 

[Treeshark]

I didn’t go through all 58 pages of this thread, but did just go back to the beginning to see how it started. The original premise on the first page wasn’t “housing is unaffordable,” it was “we can’t afford a house in nice parts of Colorado/Montana.”

These are not the same, and the latter has a much simpler solution than the former.

 

[SAJ-99]

Homeownership has been a great investment for me. Especially since I build them. Ever hear the old builder saying, "build 3, the 4th is free" ?

It was your job. Working and saving it typically what makes people wealthy.

The most common problem I see with the whole buying RE to rent or ABNB is that people don’t value their time in the equation. Managing and improving property can take considerable time. People also don’t take into account alternative investments for the money. All markets are pretty efficient. If stocks compound at 8% and RE at 3-4%, it makes the math hard for RE. But RE is (or has been historically) much more stable, and less risky. The lower return is justified for the risk and requires cheap borrowing to generate the returns people expect.

The article points out that renting gives a person flexibility. All optionality has value. Doesn’t mean it is better or worse, just means the American dream isn’t the only or best answer. Having the majority of your wealth tied up in an illiquid asset when you hit retirement might bite some in the ass.

Our housing problems have a lot to do with this image of ownership and the incentives we created to make it possible. Americans are unlike many countries in that we have long tenured, fixed-rate loans. In UK, most loans reset every few years. That is going to be messy for them over the next 18months. We also know that past policies, like VA loans post WWII specifically excluded minorities from the program. This has exacerbated the wealth divide. No easy solutions for where we stand now.

 

[Sytes]

If stocks compound at 8% and RE at 3-4%, it makes the math hard for RE.

The common person let's other, "professionals" manage their 401 type plans. However, the housing market has always been a staple of retirement, by the person him/herself.

To buy and sit, to buy and rent, to buy and VRBO, etc... holding property over the long term is simple and predictable beyond understanding the ever evolving 401 plan. If a person is a builder, then that's even greater. I disagree with the premise because it's someone's job, it doesn't count. Our job is hopefully designed around retirement. If a job sits in line with a historically predictable retirement, it's +1, or, IMO, +10.

 

[Nick87]

The lede is buried: "we need to fix renting" and "Policy makers should...make their focus a housing market abundant with cheap and diverse housing types able to satisfy the needs of people at every income level and stage of life." The author proposes far-left-leaning and dramatic shifts to existing housing policies. The premise of owning a home as a consumable good is predicated on these changes coming into being. But we don't live it the world the way the author would like it to be, we live in the real world. Before our society goes de-incentivizing homeownership and moving away from it as an investment for the lower-middle class, there needs to actually be something better in place to transition to, something that currently does not exist.


Agreed that using home equity as a piggy bank for many of the common things people actually use it for is risky and foolish. Those uses really stretch the definition of "investment" IMO. The author highlights many poor uses of equity, but fails to list other more conservative investment aims such as generational wealth, security in retirement, and most significantly, becoming debt-free in a relatively short period of time while axing monthly housing cost from the budget...permanently.


The opposite is true. People tend to spend recklessly when it's Other People's Money.


Agreed. If you play by the "playbook" provided by the bank, the National Association of Realtors, and the federal government, you are setting yourself up for failure. If you write your own playbook there is a lot of success to be had. I'd be in support of HS curriculum on navigating real estate, calculating ROR, and risk assessment. I'd rather people become wiser/more knowledgeable over making the whole system dumber, easier, and more tightly controlled by a grossly incompetent federal government.

 

[SAJ-99]

If a person is a builder, then that's even greater. I disagree with the premise because it's someone's job, it doesn't count.

I didn’t say it doesn’t count, I am trying to say it needs to be split out of ROR calc. Example.
A) BHR can buy an empty lot and then over the next six months build a 3000sq ft house on it, then resell it.

B) Random guy buys a lot and hires BHR to build a 3000sq ft house on it.

If the number are all the same in the end - the amount of purchase, the cost of building, the amount BHR collects, the value when finished, etc. In B, the IRS would classify the payments to BHR as income, not capital gains. In A, BHR can go down to the local bar and tell everyone about the great investment made. I would point out he worked his ass off for 6months on the “investment”, so that needs to be put in the equation.

It matters on a small scale too. Everyone I have ever talked to (including this thread) says “I bought it for $X and sold it 3yrs later for $Y.” They neglect to mention they built a shop, replaced the roof, replaced the water heater, retiled the bathroom, and all the other ancillary costs that come with home ownership.

 

[BigHornRam]

I didn’t say it doesn’t count, I am trying to say it needs to be split out of ROR calc. Example.
A) BHR can buy an empty lot and then over the next six months build a 3000sq ft house on it, then resell it.

B) Random guy buys a lot and hires BHR to build a 3000sq ft house on it.

If the number are all the same in the end - the amount of purchase, the cost of building, the amount BHR collects, the value when finished, etc. In B, the IRS would classify the payments to BHR as income, not capital gains. In A, BHR can go down to the local bar and tell everyone about the great investment made. I would point out he worked his ass off for 6months on the “investment”, so that needs to be put in the equation.

It matters on a small scale too. Everyone I have ever talked to (including this thread) says “I bought it for $X and sold it 3yrs later for $Y.” They neglect to mention they built a shop, replaced the roof, replaced the water heater, retiled the bathroom, and all the other ancillary costs that come with home ownership.

How about doing A and B at the same time. B during the work week and A during the weekends and evenings. While camping out or renting a dive apartment while building A. No time to go down to the bar and brag about how lucrative it it is. No time to feel sorry for yourself about how the man is keeping you down.

Pucky freak nailed it. Opportunity is there for those that want to take advantage of it. Those that don't can continue subscribing to the Atlantic Magazine!

 

[AvidIndoorsman]

The common person let's other, "professionals" manage their 401 type plans. However, the housing market has always been a staple of retirement, by the person him/herself.

Though this is less and less common, I don't know if this holds up for millennials + direct deposit into a retirement account buying VBTLX and VTSAX is something any person can easily do... hell 30 years ago to day trade you had to have a broker now all kinds of people are playing the market with robin hood. Times change.

 

[SAJ-99]

How about doing A and B at the same time. B during the work week and A during the weekends and evenings. While camping out or renting a dive apartment while building A. No time to go down to the bar and brag about how lucrative it it is. No time to feel sorry for yourself about how the man is keeping you down.

Pucky freak nailed it. Opportunity is there for those that want to take advantage of it. Those that don't can continue subscribing to the Atlantic Magazine!

Congrats. But to be clear, the investment payoff was in yourself, not necessarily RE. That just happened to be the industry you chose.

I’m not sure the source of your rant against the Atlantic, other than the normal they said something you didn’t agree with. I didn’t see any “leftist” solutions suggested. All I saw was the general idea to make housing cheaper, more varied and broadly available. We can agree that equal opportunity is a core American concept, but unfortunately there are still many ways in which opportunity isn’t equal. It is just easier to presume those at the bottom of the ladder just didn’t work hard enough than it is to fix the problems.

 

[AvidIndoorsman]

The lede is buried: "we need to fix renting" and "Policy makers should...make their focus a housing market abundant with cheap and diverse housing types able to satisfy the needs of people at every income level and stage of life." The author proposes far-left-leaning and dramatic shifts to existing housing policies. The premise of owning a home as a consumable good is predicated on these changes coming into being. But we don't live it the world the way the author would like it to be, we live in the real world. Before our society goes de-incentivizing homeownership and moving away from it as an investment for the lower-middle class, there needs to actually be something better in place to transition to, something that currently does not exist.

Are zoning rules liberal or conservative? I think in some areas you could make a good argument that if there was more of a free market in housing, no min lot size, no max number of units, etc etc that prices would come down.

If land is at a premium why not let a builder buy 4 lots, tear down the old houses and build a 40 unit building. Instead of selling 4 houses at $1MM a piece you know have 40 units at $500k... free market.

I think it's more a NIMBY thing than a political one.

Agreed. If you play by the "playbook" provided by the bank, the National Association of Realtors, and the federal government, you are setting yourself up for failure. If you write your own playbook there is a lot of success to be had. I'd be in support of HS curriculum on navigating real estate, calculating ROR, and risk assessment. I'd rather people become wiser/more knowledgeable over making the whole system dumber, easier, and more tightly controlled by a grossly incompetent federal government.

Absolutely, I mean end of the day we basically have the same risk assessment, and make similar personal decisions.

My position is just that the current system is just pretty dumb, and designed to encourage risky behavior. My preference here would be towards making it less dumb.