Despite the fact that house prices crashed, wiped out millions of loanowners, and wiped out the illusory equity of an entire generation, people persist in believing owner-occupied housing is a good investment. Most people believe house prices appreciate 5% to 10% or more each year and by simply owning real estate they can become wealthy. It doesn’t work that way. Over the long term, house values increase with wage inflation as buyers bid up prices with their increasing incomes. An amortizing loan is a forced savings account — assuming the owner doesn’t refinance or HELOC this money out and piss...
Shiller explains why owner-occupied housing is a poor investment
By golfplan18 Follow Fri, 8 Feb 2013, 7:23am 4,536 views 157 comments
In Irvine CA 92620
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Getting a loan on a house is one of the only ways to get low cost money, that is the main reason for buying a house. You than use inflation to your advantage to pay back the loan. You get a raise each year for 30 years and at the end of the loan term you have a super low payment versus your current pay. The tax code also gives you incentive to buy a home by subsidizing your cost of ownership. It is also a place for you to live.
Now there is no question that the physical property has depreciated. If you have not spent any extra money you have a 30 year old shit box, with a leaky roof. You have also spent a ton of money on taxes and insurance.
Shiller is correct. I know that bothers many of you because you have your own thesis or personal beliefs and biases, but it does not change that fact.
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David Losh says
In other words... long winded unnecessary words... as I claimed above, you didn't buy...
Mistake. BIIIIIG Mistake...
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robertoaribas says
Not according to my buddies in the business. I make more than they do.
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yup1 says
There are two things about that, that I'm not convinced about. Number one is the inflation, or expansion of the economy being a good thing. Second it would be if, I mean if, rents increase, if your payment is much lower than the rent you would pay.
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David Losh says
david, you are clearly a big liar on here. Your post goes on and on how that, basically, because you were late paid on a house cleaning job... you chose not to buy. BULLSHIT.
Second, prices are up since then, so not buying was a mistake. PROVABLY SO.
YOU claimed earlier in this thread, that "today is not the time to buy... 2008, 2009, 2010 were" I point out that you almost certainly didn't buy then, for some silly excuses. What do you do? provide a long narrative of silly excuses why you didn't buy then!!!!
This couldn't get funnier! You have contradicted yourself all over the place. I am now quite convinced that your claimed business success is fictional as well. Get over it. You aren't a housing expert, you never were.
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David Losh says
Who said inflation was a good thing? It's just what is inevitably occurring. Also, what do you mean "if rents increase?" Long term, rents always increase.
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robertoaribas says
Oh how we know how much Roberto hates being called a liar! He threatens lawsuits.
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JFP says
Stop using the term always.
Do you not understand how horribly broken the entire financial system is for average Joe. Their entire paycheck is captured, rent or mortgage, food, energy, insurance. Food and energy costs climbing when they have no available disposable income.
With all these things happening you think that rents will always increase. The slumlords that think that they bought a SFH on the cheap and have super cheap financing and they are charging double the PITI in rent, do they actually think that they won't be lowering rents? Really. With all other costs now rising and some schmuck like roberto buying up 15 properties in one local area, I believe that rents will be coming down.
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yup1 says
Believe what you want, but historically rents have risen in line with inflation just like house prices. It is incoherent to say that long term there will simultaneously be inflation and falling rents.
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KILLERJANE says
He has the money and it's convenient. He often states there are helpful reasons for buying a house, like that you get to live where you want or put your kids in a school where you want.
You just want to be careful, because the purchase is (typically, probably, statistically, usually-pick your favorite word) not an investment. Getting back equal or less money than you spent when adjusted for inflation is not investing.
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Raw says
Tell him the total amount you've spent and he'll be able to tell you very well.
When you say "worth more" are you referring to the purchase price of the house?
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robertoaribas says
No Roberto, it's because some idiot paid $225K for a property that at peak was selling for $250K. The buyer thought they were getting a bargain by comparing the $225K to the $430K the bank lent on the property.
Idiots are over paying for properties all over the place.
You brought up Chico then went along with your same tired stories about Phoenix Arizona as a comparison.
You're here blogging for business the same as I am. You have a worn out business model. Even you say you aren't buying today. Why? If buying more properties with cheap money is such a great thing, then you should still be buying. Right?
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robertoaribas says
Would have been great thinking to the SFBA folks that paid top dollar in 2007 don't you think? In SFBA things are just as bad now as they were then. Salary inflation is nill, but yet housing keeps rising. It'll only end bad again. I can rent two places now for the price of one ownership shack. Silly beyond reason.
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CaptainShuddup says
I question how many houses as you describe exist and whether I want to live there.
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Be honest want to live in, or want to live in the neighborhood?
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RentingForHalfTheCost says
No you can't.
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David Losh says
Although, I don't think a hypothesis that a small percentage of people living in the San Francisco Bay Area will retire in Chico is a hypothesis that people will be living the high life.
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David Losh says
I've never asked for, or got business from pat.net, so no, I'm not doing 'the same as you' on here. David Losh says
If by worn out you mean, making lots of money... I buy homes where the mortgage is less than half the rent. You have to be very very bad at understanding investments to not see the value in that. Apparently, you are that bad at understanding investments.
It really is this simple. You will pay for a place to live. Do you want to pay more or less? at the Chico prices, you will pay more renting. For a long term resident, paying more which you advocate is actually stupid. You can use the new york times rent versus buy calculator, and find out how much you will lose each year by that choice.
FunTime says
Tell me the total of the rent over those 25 years too. Fair is fair.
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robertoaribas says
Given the number of people who recently short-sold and got the government benefit of forgiven debt, you'll find them. A close buddy of mine did this recently and his credit situation now will keep him from being elibible to buy a house for a couple of years he says. He has some other debt, so not sure how much of a person's credit rating is changed by short sale versus other stats.
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CaptainShuddup says
Well, I wrote "live there" which seems to encompass both. I actually had "city" or "town" in my mind more than neighborhood. I have found places in which I would love to live built in neighborhoods in which I would not.
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Then you'll always be a victim of location.
Be prepared to pay up. But what you pay, is not based in the reality of the Median home price. At least they shouldn't.
That is what went wrong in the bubble years. They grouped all houses together which raised the median home price across the board in America.
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David Losh says
They can only "recede" if rents recede. If rents recede, that indicateS true weakness in the economy as it represents purchase power that day by the population. However, in Bay Area- the rents have anything but "receded." Over last 2.5 years, up by 25% easy.
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robertoaribas says
You're writing the e-book.robertoaribas says
I have a no debt business that makes much more than your rents.
robertoaribas says
It's actually very smart not to take on debt, especially at the end of your financial viability.
and we are talking about Chico California. You're attempting to take your business model in Phoenix, and apply to Chico California. That is a very big mistake. Location is everything.
Which is why you don't understand my premise of people paying too much for property in Seattle Washington.
Sure I could have gone to Tacoma to buy $50K condos, but even those that are up to $110K in price are hard to sell, but they rent great, just be careful.
I know my market, and know my business. I'm really good at it. I was in the Real Estate gold rush of the 1970s, 1980s, 1990s, and 2000s. This just isn't the time for buyers.
You have your formula, it worked for you, but you have to keep going, and keep it going. You bought a job, best of luck.
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dublin hillz says
Housing prices will recede first, then rents will follow. Once the speculation for quick profits is done, Real Estate is done.
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CaptainShuddup says
I get what you're saying. My primary interest is living where my spirit thrives. At this point, I pay a lot of money to live there. Maybe I'll find a less expensive place that still works at some point. I feel sad when I see the levels of conformity that seem to take over a lot of places outside of big cities. Not all, though, so maybe I'll find/look for one at some point.
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David Losh says
Speculation on RE will keep going as long as the Fed is able to push out cheap money. There are several senarios may force Fed's hands:
1. We breach the "government debt limit." Where is that? Nobody really knows. Japan's government debt is 200% of their GDP and keeps going.
2. Europe blows and brings down the world. Europe will probably start to dis-integrate in 5 years. But I suspect US banking system can still stand on its own even that happens.
3. Lower class gets squeezed to a point to induce serious social unrest.
These things won't happen overnight. You shall see the writing on the wall.
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David Losh says
But you're sane and rational and like yourself too much...
Tacoma! Ack!
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Mobi says
There has never been a time in history without risks... 20 years ago it was the first gulf war.. don't buy real estate now, who knows how the war will turn out? The middle class has been squeezed by tough economic times many times before in history. hell in the 60's we had social unrest... I'd say whoever had the cajones to buy the home I live in for under $30k then (1968) did alright, given its current worth of way over $300k...
yeah, some terrible things could happen... Or not. Or, the next five years could be like 98% of every five year period in history: homes bought with a mortgage less than rent do fantastic, the sky doesn't fall, the north koreans don't nuke us all... Bap33 doesn't develop superpowers and come out of the closet going on a rampage on all single young men in the country...
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Mobi says
Europe is economically contracting. It's no big deal, the world, and global economy can contract without much economic harm because there is so much cash sloshing around in the system.
Banks will continue to make loans, the loan requirements will be less stringent, and more pressure will be put on the value of the asset. How much will it sell for? If we foreclose how much can we get?
That's why I say the foreclosure market is setting the pricing standards.
Life will go on without the housing market driving the economy. We are just waiting for the next big thing.
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David Losh says
I'm right here!
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JFP says
Um, yes I can. Two $2k rentals that each have an ownership cost of 4k/mth to carry. I didn't make up math.
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RentingForHalfTheCost says
Um, yes you did make up the math. In the Bay Area, houses that cost $4K/month to own, rent for at least that. You seem to live in some alternate Bay Area than the rest of us.
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I don't know about SF, but LA definitely has pockets where rent is 35% less, so you get close to *breaking even* with buying if you indenture yourself to the house for 10 years, take renovation/maintenance out of the equation, and rents inflate faster than house prices (not happened in LA in at least 13 years).
Frankly I find that many qualifiers distasteful.
Now, 2x the rentals (50% less) for the monthly on a comparable house? This sounds more like glib hyperbole.
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JFP says
I've not found that to be the case since I started to consider buying in 2003. Any rent/buy comparable amounted to a significantly increased monthly payment(not even considering total cost of owning), or an ARM to get them even close. I've not looked throughout the Bay Area though, only San Francisco, San Mateo, San Carlos, and Burlingame. The last year did see them get closer, but not when considering the total cost of owning. I don't know how anyone who won't just throw money away buys in those cities.
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FunTime says
Really? At no time since 2003 did you find it cheaper to buy than rent? Not even in 2008-09? I can only conclude you weren't doing any serious analysis.
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JFP says
We probably just don't have a shared understanding. Could I find any house that met that finanicial criteria? Sure. Did I want to live there? No. My day-to-day living matters a lot to me and any place that would meet my budgetary constraints of less than a third of net income would require me to travel hours a day to work. That would mean months or years of time away from my family and the house I paid so much for. That doesn't make any sense to me. Especially given that I'd be spending a huge percentage of my net worth just to pay the down payment. Especially given the unlikelihood the house would ever return any of the money I spent.
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FunTime says
That's totally different than what you said previously. You said that since 2003, you had neve found a time when buying was cheaper than renting. That was a ridiculous comment. More to the point, all your arguments against buying apply to renting when renting is more expensive.
And, for the record, had you bought pretty much anywhere in 2003, you'd be ahead.
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JFP says
I carefully wrote them to be exactly the same. I get that what I wrote is not working for you. I'm trying, but writing is a slow, difficult way to communicate sometimes.
What's the point of living somewhere you dont't want to live? For seven, ten, fifteen, or thirty years? That's a bid part of your life to live in misery. I'm more comfortable spending money on the stock market over that time and buying a house would have taken almost all of my money out of my hands on the day I took the loan.
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Renting to own is something that's either a great idea or an awful idea. Great idea if you literally have no other choice, because your finances or credit are completely blown. If you don't need it, DONT rent to own. It's really a last-ditch try at home ownership if everything else has been exhausted. This is a good read about it http://www.homestarsearch.com/when-to-rent-to-own
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JFP says
I'm not convinced. Today's Case-Shiller report states that national prices are now back to mid2003 levels.
http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldocumentfile&blobtable=SPComSecureDocument&blobheadervalue2=inline%3B+filename%3Ddownload.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1245347994960&blobheadervalue3=abinary%3B+charset%3DUTF-8&blobnocache=true
So you might say that San Francisco is a special market, to which I agree. I was looking at the time at these places, though and this one looks a lot like one of the units I actually took the time to walk through with an agent. I even had gone through part of the process with a bank to understand how much I'd be loaned. I considered these places out of reach, but was being told I qualified to buy them. At the time, they were listed somewhere between $429k and $479k. I remember both numbers from the visit. Who knows how good my memory serves. In hindsight, if I'd sold the place in a year or so, I'd have made money. If I was still living in one of these shittily constructed lofts though, I think I'd be pissed and broke!
http://www.zillow.com/homedetails/221-Clara-St-APT-4-San-Francisco-CA-94107/80741045_zpid/