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Economist Who Won a Nobel Prize Thinks Owning a Home Is a Bad Investment (2013)

21 points by soham 10y ago

wpBenny 10y ago
Correction. Don't buy a condo. You'll never make the money back. Everyone in my family has made money on selling their home, including me.
- 94media 10y ago
  Exactly plenty of people have made money buying and selling homes.
- Broken_Hippo 10y ago
  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.
- thoth 10y ago
  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.
- ebiester 10y ago
  It depends on the area. In San Francisco or Boston, buying a condo is fine. In other areas, buying a condo may be a bad idea.
  - Apocryphon 10y ago
    It's probably also fine in other high-growth markets like Seattle, Austin, Portland, Boulder, Raleigh, etc.- so essentially most places HN'ers live in.
  - zardo 10y ago
    It's also fine if you want to live in it for a few decades.
  - pxue 10y ago
    agreed. depending on the area. take Toronto for example, detached home prices are growing by 15%+ YoY.. soon young couples looking for a place of their own will have no choice but to look towards a condo.
- pwthornton 10y ago
  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.
Broken_Hippo 10y ago
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.
- huherto 10y ago
  > 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.
  - ap3 10y ago
    >My observation is that house values usually don't go down. Since people refuse to sell at a lose. Where were you between 2009-2012? When you have to sell you sell. You got divorced, or transfered, can't make payments, neighbor got foreclosed? You are taking a loss. >But values can go up really slowly. Like it may take years and years. This is just inflation - subtract taxes, maintenance and opportunity cost
- lkrubner 10y ago
  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.
gscott 10y ago
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.
- VLM 10y ago
  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.
  - revicon 10y ago
    | and is the same every month That's nice if you can get into a rent controlled house and don't have a landlord that decides to "reoccupy" the property for whatever reason. Renters in most areas do not have these assurances.
pfarnsworth 10y ago
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.
- refurb 10y ago
  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.
zirpderp 10y ago
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.
- zirpderp 10y ago
  here https://www.youtube.com/watch?v=KAWxhdPGJfU https://www.youtube.com/watch?v=KAWxhdPGJfU
rayvd 10y ago
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.
huherto 10y ago
TL;DR >| 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.
Apocryphon 10y ago
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."
ebiester 10y ago
This is silly. 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 10y ago
  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.
xrd 10y ago
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.
jasallen 10y ago
Article is from 2013
djrogers 10y ago
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.
- dang 10y ago
  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. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - soham 10y ago
    Hi Dan, I apologize for this impulsive post. I am not able to modify the title anymore. Do you mind taking it down or editing it?
    - dang 10y ago
      Ok, we edited it.
tmpanon1234act 10y ago
NYT put out a great calculator for this exact tradeoff http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc.... I personally have my own spreadsheet model as well, but the NYT calculator suffices for most purposes.

21 points by soham 10y ago

Correction. Don't buy a condo. You'll never make the money back. Everyone in my family has made money on selling their home, including me.

94media 10y ago
Exactly plenty of people have made money buying and selling homes.
Broken_Hippo 10y ago
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.
thoth 10y ago
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.
ebiester 10y ago
It depends on the area. In San Francisco or Boston, buying a condo is fine. In other areas, buying a condo may be a bad idea.
- Apocryphon 10y ago
  It's probably also fine in other high-growth markets like Seattle, Austin, Portland, Boulder, Raleigh, etc.- so essentially most places HN'ers live in.
- zardo 10y ago
  It's also fine if you want to live in it for a few decades.
- pxue 10y ago
  agreed. depending on the area. take Toronto for example, detached home prices are growing by 15%+ YoY.. soon young couples looking for a place of their own will have no choice but to look towards a condo.
pwthornton 10y ago
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.

Broken_Hippo 10y ago

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.

huherto 10y ago
> 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.
- ap3 10y ago
  >My observation is that house values usually don't go down. Since people refuse to sell at a lose. Where were you between 2009-2012? When you have to sell you sell. You got divorced, or transfered, can't make payments, neighbor got foreclosed? You are taking a loss. >But values can go up really slowly. Like it may take years and years. This is just inflation - subtract taxes, maintenance and opportunity cost
lkrubner 10y ago
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.

gscott 10y ago

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.

VLM 10y ago
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.
- revicon 10y ago
  | and is the same every month That's nice if you can get into a rent controlled house and don't have a landlord that decides to "reoccupy" the property for whatever reason. Renters in most areas do not have these assurances.

pfarnsworth 10y ago

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.

refurb 10y ago
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.

zirpderp 10y ago

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.

zirpderp 10y ago
here https://www.youtube.com/watch?v=KAWxhdPGJfU https://www.youtube.com/watch?v=KAWxhdPGJfU

rayvd 10y ago

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.

huherto 10y ago

TL;DR >| 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.

Apocryphon 10y ago

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."

ebiester 10y ago

This is silly. 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 10y ago
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.

xrd 10y ago

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.

jasallen 10y ago

Article is from 2013

djrogers 10y ago

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.

dang 10y ago
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. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- soham 10y ago
  Hi Dan, I apologize for this impulsive post. I am not able to modify the title anymore. Do you mind taking it down or editing it?
  - dang 10y ago
    Ok, we edited it.

tmpanon1234act 10y ago

NYT put out a great calculator for this exact tradeoff http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc.... I personally have my own spreadsheet model as well, but the NYT calculator suffices for most purposes.