The WSJ points out the home ownership wasn’t supposed to be a get-rich-quick scheme. I very much agree. Too many home owners today are obsessed about turning a profit on their home should they eventually sell. Homes were being sold by realators and mortgage brokers as a financial investment. And, yes, they are, but they’re more than that. And their value is deeper than simple monetary value.
So do I regret owning a home? Heck, no. It’s not a get-rich scheme, and Americans never should have viewed it as one. Owning a home has given my family a series of anchors to cling to as we’ve moved around the country for my job. It’s allowed us to live in pleasant neighborhoods where it would have been tough to find a rental house. And paying down a mortgage is a form of forced savings, which should help us in retirement.
Emphasis mine.
A home is a place where you establish roots. You grow relationships and create new ones. You create stories you’ll pass down for years. Where you laugh, cry, and live the thing we call life with the people you love. Home ownership is deeper than money. It’s a signpost in our life where we can mark our progress like a parent might track their child’s growth by marks on a wall.
The biggest value you derive from home ownership isn’t appreciation. “It’s being able to live in it,” Prof. Mayer says, and avoiding the rent you would otherwise have to pay.
The wife and I are moving into a new apartment two weeks from today. We’d much rather be moving into a house. Not because it might be worth, on average, 1% above inflation when we sell, but because it’ll represent growth in our life together. We don’t want one because we might make money. We want one because it’ll be a milestone in our relationship together. We want one because we want to have children and running up and down the halls one day, have their own room the next, and move out and on with their lives out from under our protection and the familiar roof the following.
So, if you’re lamenting the loss of equity in your home, try to look at it from a different perspective. Even if you take a loss, even if you, God forbid, happen to lose it, those memories, those experiences that can only come from living in your own home, can never be taken away and will never depreciate.
You will find a longer version of the linked WSJ in today’s print edition.
{ 19 comments }
i know literally hundreds of people who have bought a house, not because they wanted to “get rich” but because they wanted, you know, a HOUSE for their children and family.
i dont know anyone aside from a few people who already have homes, and a lot of excess cash lying around, and great credit besides, who have the means to go out househunting for profit. In fact i know a lot of people who do buy houses as investments, but not to “flip” (which at most nets you a few ten grand) but instead to rent out (which gets you a regular income of a thousand dollars a month for decades).
the very premise of flipping homes for profit requires a housing market where homes are in short supply, as opposed to reality where they are in excess.
i’m basically skeptical of the whole article, WSJ or no. it doesn’t jibe with reality, economic facts, or my own extensive anecdotal experiences – in the hottest housing market in the US, btw, in Houston where I lived for nine years, and my in-laws being realtors. sounds like a strawman to me.
Aziz,
You and I travel in different circles. I sat next to a guy for two years working for Comcast with me an all he talked about was getting into the house flipping business.
And as far as renting homes, most I know of only do so because they cannot find buyers and want to make some kind of money from the property – most would rather not deal with the headache of landlord-ship.
And I don’t know why you’re attacking the article as a “strawman.” The author isn’t trying to say not to get into home ownership because you don’t want to make a profit when you sell it. He’s simply pointing out that prior to the 90′s people didn’t expect a huge return on their house when they sold it. But now everyone seems to expect thousands upon thousands back when they do today.
It’s about adjusting your expectations to more realistic levels. It’s about looking at a home not primarily as a money-making endeavor, but a place to have life experiences.
If you think there’s something wrong with that, Aziz, then I don’t know you like I thought I did.
As with most things, there are lots of different perspectives on home ownership.
I bought a home for two main reasons. First, I wanted to have a place to call “home” that I could decorate and modify to my own desires. Second, I wanted to have a financial “anchor” so that I could build equity and provide a means for financial options.
I think my approach is, well, conservative. Most of the people I know actually used homes as a way to either “flip” to buy larger homes, or else used their equity to fund a lifestyly their income didn’t really support.
My guess is that the “norm” for the past decade or so has been more of the “flip my house to buy a bigger house” or “cash in my equity to buy a ski boat” approach.
I only know one person who actually tried to flip multiple houses as a source of income. And he did very well until a few years ago.
CC,
I think your approach is the correct approach. And one that is level-headed enough to be a safe harbor from the times we’re experiencing today. Too many people, as you note, are obsessed with flipping their home for a large profit and, as history shows, this was unsustainable and, now, we’re seeing the fallout of a system that should have never existed.
As you say, a home is a place to live your life and provide you financial options.
Not quick riches.
If you think there’s something wrong with that, Aziz, then I don’t know you like I thought I did.
doesn’t my entire comment indicate that I don’t think home flipping is a sane policy? especially given the current economic climate?
I am not disagreeing with you on the issue of home ownership. I am disagreeing that home flipping is the primary, or even a major, motive for home buyers. maybe we do move in different circles, but the circle i move in is mostly middle-to upper-middle class families, with 2-3 kids, in their mid-30s. the ones who can afford a house are looking for a home, not profit.
the strawman in the article is precisely that “everryone” “expects” a huge return on their home. Thats absolute nonsense. people are deathly afraid to even buy a home because they are worried they wont be able to sell it at all when they outgrow it. The only houses people can afford are the small 2-3 bedroom ones that will work fine if you have one child, but when you get to having 2 kids or more you start needing a 4bdrm, 2-story number. But those arre usually an extra $100 – $200k more than the smaller homes. A couuple with a kid on teh way out looking for a home just cant come up with teh extra cash, so they buy the smaller home, and then they want to move again in 5-6 years. Yes it woudl be nice to at least break even on teh first house but thats not even close to guaranteed let alone some kind of expectation.
this is the trajectory that virtually everyone I know in Houston went through. and like I said, my inlaws are rrealtors so ive been privy to the trends for almost a decade.
frankly, the author sounds like an academic with no real experience of what ordinary folk are going through or what they are looking for. he’s got this idea in his head that consumers are greedy little buggers and that everyone wants some kind of entitlement. i found his article deeply insulting and offensive.
How the heck did you get that idea? Please show me where in the article you got that impression.
Really, Aziz, I’m starting to wonder if you and I read the same piece.
And if the article doesn’t apply to you or anyone you know, how are you offended or insulted? Clearly you and the people you know are doing what the author thinks is best! No insult was directed at you.
EDIT:
Also, CC and I both know a lot of people that flip houses to make money. Heck, I can point you to television shows that promote just that!
Flipping homes, people buying homes just to turn a tidy sum, is more common than you realize.
I think I’m squarely between Aziz and Kevin on this one.
I don’t think people flipping houses is common. The fact that there’s a TV show about it doesn’t really mean anything; there are TV shows about lobster fishermen and repo men and bounty hunters too, but offhand I only know one person of any of those three professions, and that was me. ;-)
(I used to be a repo man, for anyone who doesn’t know.)
I also think Aziz gets it right when he notes that a lot of people get mortgages on “starter homes” for their families, and then hope to sell and move on to something bigger as their family expands. But there’s where I think Kevin’s point starts to get stronger.
Let’s say God blesses Kevin and his beautiful wife with a child (and I’ll say a prayer for you on that, Kevin, I think you’ll be WAAAAAY a better father than even you suspect, and get joy from it you can barely imagine right now, and I truly hope for it for you). A temptation right now–indeed, a social expectation seems to be–that Kevin and his wife “turn respectable” and buy a house. With the expectation that if their family continues to expand, they’ll sell it and get a bigger, better one.
And for a long time, that really was something you could expect: buy a little house, get some equity, turn a profit (maybe a small one, but a profit), and get a bigger one. I think that’s been a common expectation in this country for a long time.
It’s a bad move. It’s a bad move on multiple levels. And in part, the mortgage industry has encouraged this–with Congress doing its part to inappropriately encourage it, in my opinion.
Having been a homeowner twice now (and currently being a renter, just for full disclosure’s sake) I am pretty strongly of the opinion that it is very BAD advice to suggest that families need to own a home, or make that a top priority. I don’t know if that comes down on Kevin’s side or Aziz’s (a little of both I guess), but:
If you want to own a home, your overwhelming priority should be that you feel that this is truly where you’re going to set down roots and have no plans to move any time in the next decade, if not longer. You are essentially staking a plot of land and saying “this is where me and mine will live and truly call it our home.”
In fact, I’m not sure a decade is enough. I think you probably shouldn’t buy the home unless you plan to be there decades–plural. Otherwise, you probably shouldn’t buy. Maybe you do buy thinking you might retire and sell it once the kids are all gone, but maybe not even then.
There is no shame–none, nada, zip–in being a renter. Being a renter is perfectly honorable, perfectly acceptable, and not a good damned thing wrong with it. Even if you’ve got kids. Hell, it would be stupid if you have kids to send them a message that there’s something WRONG with being a renter, because there’s nothing wrong with it at all. It is perfectly honorable, perfectly acceptable, and even praiseworthy because it is often the smart move economically.
Bugger any claims that money you pay to rent is money you’re flushing down the toilet, and that money paid to a mortgage is not. Indeed, money you pay to a mortgage might well be money you’re just as surely flushing away. Because you may NOT be able to sell that house (I’ve been in that position) or you may have to sell it at a loss, in which case you’ve flushed your mortgage payments down the drain WITH INTEREST.
Indeed, you could quite possibly find yourself in a situation where you have to abandon the home you’ve mortgaged, and wind up owing not just a month or two of back rent, but owing tens of thousands (or even hundreds of thousands) that you would never have owed if you’d just been renting all along.
Break a lease, and you may be embarrassed and owe your landlord a month or two or maybe three of back rent. Break a mortage, and you’re facing possibly years and years of debt, maybe even so much debt you’ll owe it for the rest of your life. Or have to declare bankruptcy just to make it go away.
And, home ownership can really suck. Especially if, like me, you’re just not the handyman type. There are men (and women, but let’s not be too PC about this, it’s mostly guys we’re talking about here) who love doing their own plumbing, carpentry work, etc. They dig it. They get a thrill out of grouting their own bathrooms and fixing up their basements and redoing their own electrical work and all that. If you’re one of those guys (or chicks), great. My experience is that most of us aren’t like that, and in any case I damn well am not one of them. I cannot think of anything more tedious than fixing my own toilet when it’s backed up.
“Ooh, yeah, but it’s YOUR toilet Dean, doesn’t that mean anything to you?” Uh, no. It’s a fracking backed up toilet and I can think of at least fifty million things I’d rather be doing than fixing a backed up toilet on any given day. Maybe a hundred million.
I also know how to change the brake pads and change the oil on my car. I’ve done both. I’d really rather not if I can avoid it, because I don’t enjoy it. It’s a tedious task I may have to do, but getting joy out of it is not part of my makeup.
Home ownership is hard. Home ownership, in many ways, sucks. In most cases, I’d really rather call the landlord and say “hey, we got a backed up toilet here” or “hey, we’ve got ants” and let the landlord deal with it, with me doing whatever I have to do to put a band-aid on the problem until the owner deals with the issue more thoroughly.
I really think we were better off as a people and a nation when we were back in the situation we were back 50 or 60 years ago. Sort of like George Bailey’s world in the movie “It’s a Wonderful Life.” Yes, home ownership is a worthwhile goal, and helping people who are struggling to achieve that goal–if that’s what they want–is totally worthwhile. IF it’s the smart move for them. And they have to meet the rest of us halfway: work hard, save money, and put down money–20% or so–on a home that they aren’t just buying for an investment, but where they intend to SET DOWN ROOTS, where they’re in effect saying, “yes, this is where me and mine will live, for the foreseeable future and possibly until we die.”
I honestly believe that if you aren’t buying a home with that in mind–you’re going to scrimp and save for years to put down a sizeable downpayment, with the goal of possibly staying in that place forever–then you probably ought to rethink and plan on continuing to be a renter and keeping the flexibility that comes with renting.
A “starter home” is a crappy, crappy idea. It’s a gamble, but it’s more than a gamble: you’re in effect saying “I’ll pay my rent to the bank rather than a landlord, without the benefit of leaving major headaches to the landlord.” That’s all you’re really doing.
Never buy assuming you can sell later at any sort of profit. Never stress yourself financially to make a mortgage payment just because you think it’s better than rent. Only buy if you can really, truly, in your heart of hearts, can say “I could live right here forever, for the rest of my life.” Otherwise, just don’t do it.
Thus Spake The Dean.
Good points, Dean. If a little scary.
But, then, I think it should be scary. It’s a huge decision. It’s a huge responsibility. And, yes, I think if you’re going to buy a home you’re doing so because you plan on being there for a good long while. I know that’s what I’m doing.
I’m not as cool with renting as you are, I feel right now that, yeah, paying rent is like throwing money away. But, that could be because I want to own a home right now. You’ve, on the other hand, have already done that. So, you know what’s best for you.
I’m not the handyman type but, thankfully, my wife is. She likes doing stuff to the home. So, let her I say!
Anyway, we signed a 12-month lease and we’ll be using that time to fix our credit and save up 5%. Hopefully this time next year we’ll be moving into our new house.
Just to clarify:
I don’t know a “lot of people” who flip houses.
I know a “lot of people” who have either moved through a series of houses in a short time using each house to pursue a larger house, OR who have repeatedly cashed in their growing equity to pursue a lifestyle they could not otherwise afford.
I don’t know if moving every 18 months into a bigger house really qualifies as “flipping” houses or not. The end result in BOTH of these cases though is that now that home prices are falling, MOST of the people I know have found themselves with greatly reduced equity, and many have ended up owing more than the house is worth now.
That’s what I was trying to say.
My own case is that I live in my second purchased home. We purchased it nine years ago. At one point we had quite a lot of equity in the home, but with a daughter in college we refinanced to help pay for that. Currently we still have a decent amount of equity even with the reduced prices and the one refinance that we did do. We are looking to move now, not to get into a larger house, but because I am convinced that my lifestyle (I live fifty miles from my work) simply is no longer acceptable to our political elite and they will punish me financially until I either go bankrupt or move into the city and drive a tiny little car like all the good sheep do.
Just to make clear something I’ve been trying to say:
It would be terrible to teach your children that there is something dishonrable or “less than good” about renting.
It’s OK. There’s nothing wrong–nothing, nothing, nothing–about renting. Indeed, it is quite honorable, and entirely normal.
You have a covenant with the landlord: we will live here, and you will allow us to live here, because we’ve paid you and you’ll deal with the everyday problems that come with the property. That’s our compact.
There’s nothing wrong with that, is there? Should your children feel shamed by it? I think not.
Dean,
I grew up as a child in an apartment. It wasn’t until I was 12-13 I lived in my first house. I can tell you, I felt a different. You’d see other kids go home to a house and, well, you knew you were different.
Maybe that’s also because we were living off welfare, roaches running across the bed at night wasn’t uncommon, a few times we had to dive into the dumpster at the grocery store across the street for food.
I didn’t know there was anything wrong with this. But I did know there was something different about me and other kids.
When we finally moved into a house it felt like we achieved something. Like we were better now than we were then. We had a home now. A real home. No one living above us, no one connected to us by a thin wall of plaster. We had a backyard. A front yard. Even a dog.
Should a child feel ashamed if they live in a rented space? No, I don’t think so. But that doesn’t mean they don’t realize they’re different than other kids.
Did I miss anything? Did anyone suggest that renting was less than honorable?
I rented for a long time before I bought. There are some arguments that renting is a better financial deal than buying. Looking at the tens of thousands of dollars I need to fix the roof, the driveway, the gutters, the paint and the landscaping of my house, I can sympathize.
Kevin: I’m not sure how you’re example is an example of renting vs. owning. You can rent houses. You can own apartments. All of the examples you listed are of the apartment vs. house variety, not of the rent vs. own. Yes, it’s more common to rent an apartment and to own a home, but there’s nothing unusual about the other way around.
CC,
Yes, you can rent houses and buy apartments. But, in my experience, that’s not the norm and, when I grew up, unheard of.
You lived in an apartment because, for whatever reason, you couldn’t get a house. That was that.
Hmm… when I was in high school I lived in a rented apartment and my best friend lived in a purchased “townhouse.” There was no physical difference between the two residences other than his family shared a parking area with only one other family while we parked with the hoi polloi. The actual living arrangements were virtually identical, including the thin plaster walls between the neighbors. Neither of us had a roach problem, but down in Louisiana roaches were at least as common in houses as in apartments or townhouses.
I think I’m older than you, and neither of us thought anything about our living arrangements.
Well, that’s not entirely true. I definitely considered the apartment a step up from the enlisted men’s “houses” we lived in on the Air Force base…
Hmm, coming in late here, but I’ve done some real estate investing, and I actually agree with both Dean AND Kevin….
First, on the rent vs own thing, in many cases, it makes much more sense, financially at least, to rent instead of own. IMO, we are in one of those situations now. It’s better to rent in times of economic uncertainty, where laws and taxes are changing, and jobs come and go (just like now).
It’s also better to rent when you’re young, mobile, and willing and able to relocate every few years in search of a better job, greater opportunities, want to try out a “new scene”, etc.
And it’s almost always better to rent when we’re in a period of deflation (also like now). But that’s a very rare occurrence.
IMO, the biggest financial advantage of owning a house is as a hedge against inflation. Lock in a 30 year loan when rates are low, and that’s money in the bank when inflation raises its ugly head (as in most of the time). Renters are at the mercy of inflation.
Now from my peronal experience, I bought my first house in 1988 for $88k. I sold it when I got a job transfer in 1998 for $113k. The company I worked for subsidised a lot of my selling costs.
Sounds good, right? But after I did the math and included the cost of maintenance and taxes, I lost money on that deal. And that was in one of the highest growth areas of the country, during a generally good economic time period.
When I compared those numbers to what would have happened if I had rented, it was actually a very similar amount of money down the drain, with renting losing just a bit more.
But when I ran the numbers assuming I would have invested in the stock market the difference between my house payments and the rent I would have paid, I would have been MUCH better off renting!
And another factor that still pisses me off is the amount of time I spent (i.e., wasted) in home maintenance. Mowing grass, planting then trimming shrubs, fixing toilets, plowing snow, etc. Unlike Dean, I am a good handy man, and I LOVE some of that stuff.
But, damn, it took up a lot of time. And that’s time I will never have back. And those was good twenty-something year old hours! What a waste….
So bottom line, I really wish I would have rented for those ten years.
That being said, real estate can be a good investment. After I sold that house, I bought my current house for about $250k, and its worth about $600k today (down from maybe $700k a couple years ago). I learned a lot of lessons from that first one… But who knows where its price will go from here.
And I’ve got a family member who owns 90+ houses and rents them out. He stared out dirt poor, and even lost an arm in Vietnam. He came back and got a job as a truck driver (18 wheeler), and bought and rented houses in his spare time. His wife was a nurse, so they were a dual income couple. But they also raised 4 kids.
They both retired at age 55. And last time I talked to him, 70 of the houses were completely paid for, so they are obviously swimming in cash now. I don’t know how he did it, but it IS possible to make huge bucks in real estate.
I’ve got even more to say, but it’s a little OT from where this discussion went, so I think I’ll start a new thread for that.
I’ve owned 3 houses (currently buying 4th), “lost” money on 2 and in the balance still came out ahead of renting. I’ve also rented. The old house provided downpayment for the new, not flipping or even moving up — just moving. At this point I’ve not held a job more than 9 & 1/2 years. {Selling was the pits I think because of the times I moved on; double payments – new house & old – while doing marketing, owner financincg, & of course, didn’t get the price I wanted.}
2 points:
Even when the monthly notes were more than renting a (smaller) place, rental costs for places I could have lived (wife & kids) far exceeded notes within a couiple of years of closing. (i.e., “hedge against inflation”)
In long term planning, when the house is paid off my monthly expenses nosedive about when I can expect to retire & will need lower out-go.
P Mike,
Yes, that’s a good point. If you stay in your house “forever”, at some point your costs drop significantly. They won’t go to zero though, because of maintenance, taxes, etc. Plus when you reach a certain stage of feebleness, you need to pay people to perform some of the maintenance tasks you could handle yourself in the past. I’ve watched this happen with my grandparents and my parents.
I’m in an odd situation where I might be better off taking out a longer mortgage. Through a previous job, (back in the day when such things were common) I earned a bit of a pension. It’s going to be about $800 a month, until I die, with payments starting when I turn 67. In 23 years….
Considering the effects of inflation, that sum might buy me a couple pizzas a month by then. One way to counter that effect is to take out a mortgage on my house for whatever sum equates to an $800/month payment. Then invest the cash from that mortgage in an inflation indexed security. There’s a slight risk involved, but since the mortgage is federally guaranteed and federally guaranteed inflation indexed bonds are available, it can be done pretty safely.
But I’ve still got a few years to ponder it all….
Kevin: I think it’s the social mentality you describe that I’m arguing against.
I grew up in multiple houses that were owned by my family and which had roaches and mice.
The notion that the kids living in apartments were to be looked down on or pitied: really, I think that’s just wrong.
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