Holy crap - what a misleading link title! Not only is the headline on HN right now not in the article, the very end of the article states there are many reasons to buy a home, but investing isn't a good one.
Right, this title breaks HN's submission guidelines hugely.
Submitters: the guideline is "Please use the original title, unless it is misleading or linkbait." Rewriting to make something more misleading or linkbait is driving the wrong way down a one-way street.
I tried bringing up the fact that prices and things simply cannot always go up in value... and got treated like I was insane. At the same time, I generally thought it was crazy that some people bought homes for investment purposes. While you might gain some things, you lose out on things like being able to get the landlord to fix the leaky roof and flexibility in moving if the local housing market turns sour. All in all, it seems one comes out nearly even in the best of times.
Now, alternative reasons for buying or building a house, however, is understandable so long as one can afford the payments. The want for privacy or doing what one will is a bonus. Those I've known that bought a cheap house and got it paid off in a short time wound up the best - even if their house lost value, it wasn't so important during selling time (if they even move). No house payments makes life easier.
I agree with your point as it applies to much of the USA in 2016. Of course, there are always exceptions. Specific markets defy the general rule.
Warren Buffet has said that he never invests in trends or industries, but only in specific companies. Likewise, we could apply a similar rule to real estate. If you are allowed to get into a time machine and go back to New York City in 1985, then you should definitely buy up some buildings in Soho. They might look like burned out derelicts now, but this neighborhood is going to turn around in an amazing way. Likewise, a few years later, in Williamsburg. Also Berlin circa 1995, after the initial surge of investment had stopped, and people were having second thoughts about whether integration would ever work. Likewise much of Florida in 1924. Likewise Tokoyo in the 1970s. And I would argue, right now in Krakow, Poland. The idea is to buy real estate when most people think a city is semi-dead, before it rebounds. As Warren Buffet has said "Be greedy when others are fearful, and fearful when others are greedy.
In the USA, a combination of low interest rates, government subsidies, foreign money seeking safety, and pure hype has managed to keep many cities in a situation where they seem to have permanently over-valued real estate. Anyone buying a home there runs the risk of losing money.
Then there are the places like Detroit, which are either dead forever, or the turnaround is so far in the future that you could probably find better places to invest your money.
But overseas, I believe there are places where you can invest in real estate, and see the kinds of amazing returns that you would have enjoyed if you could go back in time and invest in any of the turnaround cities that I mention above.
Of course, it does take courage to invest in a city that most others are still betting against.
lose out on things like
being able to get the
landlord to fix the leaky
roof
For me, the impression renting took care of building maintenance was illusory. As I discovered when it took two months for my landlord to fix broken heating, shower and hot water.
Buying a home on a mortgage is an even worse investment, because you're essentially investing with a 5-10x leverage. It absolutely terrifies me when people so easily put their entire life savings behind a down payment on a home mortgage without ever realizing how risky the investment they're making truly is.
Yes, in general home prices can and should keep going up. This is because of inflation. Unfortunately you get bubble situations like 2005 and right now where the prices get out of whack. But it doesn't take away from the fact that the Federal Reserve will do whatever it takes to maintain and keep house prices going up.
> I tried bringing up the fact that prices and things simply cannot always go up in value
My observation is that house values usually don't go down. Since people refuse to sell at a lose. But values can go up really slowly. Like it may take years and years.
Is this the furthest act of burying the lede of any article? Because it's literally the last sentence: "Shiller's work, however, says that you shouldn't buy a house simply because you're hoping to pump money out of it in the long run."
Even if your home never appreciates... one day when you are too old to work you will really appreciate a place to live that you only have to pay property taxes on.
However there are reasons not to own a house like wanting to be very mobile, not wanting the responsibility, wanting to live in more of a "group" environment, etc. If you live on the edge and can't save money then you shouldn't own a house because if you loose your job you won't be able to continue making the payments.
Just keep in mind the costs of home ownership. Roofs and HVAC systems and plumbing don't stop deteriorating because the owner has retired... Aside from "normal" maintenance of course.
I dropped $400 on a new lawnmower this spring, $7K on a new roof a couple years ago, $800 on a new kitchen stove last year. Two years ago it was a washer and dryer for $1500 or so. It adds up.
My mom is retired and on SS and her rental is cheaper than her income and is the same every month. I worry about my retired MiL living in her house, she's one furnace replacement away from a panic sale or having to take out an heloc.
This title needs to change because it completely misrepresents the original article.
And it's wrong, too. "Never pays off" is simply stupid. My parents bought their house for $250k and sold it 20 years later for $1.4M cash. To say it didn't pay off is simply ridiculous. My own house is worth 50% more in 3 years, obviously unsustainable, but nonetheless worthwhile, especially given rents.
How does the return compare to the market overall? Instead of putting a down payment on a house, what if that was invested in the market along with the other savings from not owning a house?
Going from $250K to $1.4M over 20 years sounds good, but it's only a ~10% annual return.
And my anecdotal experience is losing ~100K selling a house in the down market of 2009.
As for whether a condo makes its money back - suppose someone doesn't plan to sell it? A place to live is more than a profit/loss or investment decision. As the article mentions at the end.
That was the trend for some time. Unfortunately, I've known some that lost a house due to lack of being able to sell it for the loan amount and known others that just barely broke even (they might have had to pay fees out of pocket).
My aunt and grandmother made money on a condo some years back - but that was before the bubble burst.
I own a condo in the DC area, near a metro stop. Made up to about 100k in five years of ownership. Buying a condo in a walkable, urban area can work out very well.
I think he means don't buy a house at the wrong time.. which is now because the gov't continues to over subsidize housing post crisis because america is a consumer economy and consumers only consume when they feel rich. How do you make a homeowner feel rich? Tell him that his house has doubled in value - sweet HELOC city - what could go wrong? (AGAIN) - Everyone and there mom should watch Jim Grant's speech at Google, the Keynsians are running a crazy world.
Obviously "never" is false. As with every type of investment it "sometimes" pays off.
I think the point of the article is just that it won't ALWAYS pay off (especially at a 10% growth per year thing). This should be common sense but maybe isn't. Lots of things should factor into a purchase decision. If timed right, a home can very much be a good investment, but is absolutely not without risk.
I'm not an economist, but if the Fed is printing money to pay off its debts faster than the economy grows, then I'm betting (and it could be misguided) that a hard asset like a house and land is worth more than quickly devaluing cash due to inflation. I wonder if his advice was more true 20 years ago than now.
Buying a house is making a calculated risk that you will stay in one area. While it will cost money in the short run, rent (in most places) tracks with inflation but a mortgage doesn't.
Now, it doesn't make sense to keep moving/upgrading every 5 years. If you do that (as I have over the last decade), don't buy a house.
Maintenance costs and taxes also track inflation (taxes will often exceed inflation). It's quite possible to spend more than the purchase cost of a home in renovations and maintenance before a 30 year mortgage is paid off.
[+] [-] djrogers|9 years ago|reply
[+] [-] dang|9 years ago|reply
Submitters: the guideline is "Please use the original title, unless it is misleading or linkbait." Rewriting to make something more misleading or linkbait is driving the wrong way down a one-way street.
https://news.ycombinator.com/newsguidelines.html
[+] [-] Broken_Hippo|9 years ago|reply
Now, alternative reasons for buying or building a house, however, is understandable so long as one can afford the payments. The want for privacy or doing what one will is a bonus. Those I've known that bought a cheap house and got it paid off in a short time wound up the best - even if their house lost value, it wasn't so important during selling time (if they even move). No house payments makes life easier.
[+] [-] lkrubner|9 years ago|reply
Warren Buffet has said that he never invests in trends or industries, but only in specific companies. Likewise, we could apply a similar rule to real estate. If you are allowed to get into a time machine and go back to New York City in 1985, then you should definitely buy up some buildings in Soho. They might look like burned out derelicts now, but this neighborhood is going to turn around in an amazing way. Likewise, a few years later, in Williamsburg. Also Berlin circa 1995, after the initial surge of investment had stopped, and people were having second thoughts about whether integration would ever work. Likewise much of Florida in 1924. Likewise Tokoyo in the 1970s. And I would argue, right now in Krakow, Poland. The idea is to buy real estate when most people think a city is semi-dead, before it rebounds. As Warren Buffet has said "Be greedy when others are fearful, and fearful when others are greedy.
In the USA, a combination of low interest rates, government subsidies, foreign money seeking safety, and pure hype has managed to keep many cities in a situation where they seem to have permanently over-valued real estate. Anyone buying a home there runs the risk of losing money.
Then there are the places like Detroit, which are either dead forever, or the turnaround is so far in the future that you could probably find better places to invest your money.
But overseas, I believe there are places where you can invest in real estate, and see the kinds of amazing returns that you would have enjoyed if you could go back in time and invest in any of the turnaround cities that I mention above.
Of course, it does take courage to invest in a city that most others are still betting against.
[+] [-] michaelt|9 years ago|reply
[+] [-] lewisl9029|9 years ago|reply
[+] [-] pfarnsworth|9 years ago|reply
[+] [-] huherto|9 years ago|reply
My observation is that house values usually don't go down. Since people refuse to sell at a lose. But values can go up really slowly. Like it may take years and years.
[+] [-] Apocryphon|9 years ago|reply
[+] [-] gscott|9 years ago|reply
However there are reasons not to own a house like wanting to be very mobile, not wanting the responsibility, wanting to live in more of a "group" environment, etc. If you live on the edge and can't save money then you shouldn't own a house because if you loose your job you won't be able to continue making the payments.
[+] [-] VLM|9 years ago|reply
I dropped $400 on a new lawnmower this spring, $7K on a new roof a couple years ago, $800 on a new kitchen stove last year. Two years ago it was a washer and dryer for $1500 or so. It adds up.
My mom is retired and on SS and her rental is cheaper than her income and is the same every month. I worry about my retired MiL living in her house, she's one furnace replacement away from a panic sale or having to take out an heloc.
[+] [-] pfarnsworth|9 years ago|reply
And it's wrong, too. "Never pays off" is simply stupid. My parents bought their house for $250k and sold it 20 years later for $1.4M cash. To say it didn't pay off is simply ridiculous. My own house is worth 50% more in 3 years, obviously unsustainable, but nonetheless worthwhile, especially given rents.
[+] [-] refurb|9 years ago|reply
Going from $250K to $1.4M over 20 years sounds good, but it's only a ~10% annual return.
[+] [-] wpBenny|9 years ago|reply
[+] [-] thoth|9 years ago|reply
As for whether a condo makes its money back - suppose someone doesn't plan to sell it? A place to live is more than a profit/loss or investment decision. As the article mentions at the end.
[+] [-] ebiester|9 years ago|reply
[+] [-] Broken_Hippo|9 years ago|reply
My aunt and grandmother made money on a condo some years back - but that was before the bubble burst.
[+] [-] pwthornton|9 years ago|reply
[+] [-] 94media|9 years ago|reply
[deleted]
[+] [-] zirpderp|9 years ago|reply
[+] [-] zirpderp|9 years ago|reply
[+] [-] huherto|9 years ago|reply
>| Shiller's work, however, says that you shouldn't buy a house simply because you're hoping to pump money out of it in the long run.
[+] [-] rayvd|9 years ago|reply
I think the point of the article is just that it won't ALWAYS pay off (especially at a 10% growth per year thing). This should be common sense but maybe isn't. Lots of things should factor into a purchase decision. If timed right, a home can very much be a good investment, but is absolutely not without risk.
[+] [-] tmpanon1234act|9 years ago|reply
[+] [-] xrd|9 years ago|reply
[+] [-] ebiester|9 years ago|reply
Buying a house is making a calculated risk that you will stay in one area. While it will cost money in the short run, rent (in most places) tracks with inflation but a mortgage doesn't.
Now, it doesn't make sense to keep moving/upgrading every 5 years. If you do that (as I have over the last decade), don't buy a house.
[+] [-] mywittyname|9 years ago|reply
[+] [-] jasallen|9 years ago|reply