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>Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment. Can you expand a bit more on this? Usually i

by SubuSS 10y ago

>Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment. Can you expand a bit more on this? Usually it might not directly turn into an investment, but it does act as a 'savings vehicle' in many cases. For example when I moved to US a long time ago, the choice was between a 1200 rent and a 1600 mortgage (assuming I put a down of 25k or so). At that point it felt like a very reasonable investment and the market worked out afterwards where in it turned in a great ROI. If it wasn't for that move, I would've still been pissing off money in rent. Also the actual investment options today are not as cut and dry as it seems either: There is no real 'assured' gain anywhere even though I do see the 3.5-6% returns number touted in the reddit personal finance circles. In the long term, I would ideally split money between these, not eschew home as an investment vehicle. With the right amount of thought and reasonable location choices, it can indeed turn out into a great investment. This is not to ignore the risks people take by overextending themselves / doing 'home flipping' but to each their own.

chillingeffect 10y ago
It's an illiquid investment that appreciates at a rate that varies in conjunction with inflation. You might win or lose, but it's tough to predict, varies with geographical area and in relation to inflation and wages. There are many graphs that show aspects of this, here is one useful one I found: http://lesjones.com/2008/11/25/inflation-adjusted-us-house-prices-1975-2008/ http://lesjones.com/2008/11/25/inflation-adjusted-us-house-p...
John23832 10y ago
You don't typically consume an investment. If I buy a house and live in it, how quickly can I reasonable divest myself from the house? For the average American, not quickly at all. Why is that? Because I need to a home to live in. If not this one, another. And generally the equity in my current home will be used to secure my future one. A house that you buy and don't live in (or is easily divested) could be seen as an investment because you don't live in (consume) it. If you need to sell it, that money could easily go to other things. And you can sell in a timely manner. Edit: I was trying to be layman about it, but chillingeffect did a good job on the technicals.
- jholman 10y ago
  If you agree with chillingeffect that one's home "is an illiquid investment that appreciates at a rate that varies in conjunction with inflation", then you think it's an investment, albeit one with some drawbacks. Yes, it's illiquid, absolutely. (Although not much more so than any other home one buys, say an apartment block; I can move on less notice than I can sell a property.) Yes, there are some concerns about the ROR, relative to inflation (although I note that world population, and population in most markets one cares about, is increasing, and they're not making more land, so one should expect real estate to appreciate somewhat, relative to inflation, although perhaps not enough to be interesting). But why on earth would you say that it's "not an investment"? Why does illiquidity and poor RoR disqualify something from being an investment? Do you also claim that buying negative-rate bonds is not an investment? What about buying gold against inflation (for those who see gold as an inflation hedge)? What is the definition of "investment" that you're using? It must be a pretty compelling one, for you to use the phrase "not an investment" so confidently in so many comments. Me, I thought that the nature of investing was allocating capital, the opposite of divesting (selling).
  - John23832 10y ago
    Alright, we can get down to technical definitions and splitting hairs. In an economic sense, you don't consume an investment. In economics, an investment is the allocation of capital that will essentially be "put away" until some time in the future. You don't touch it. In finance, an investment is purely about the possibility of appreciation/depreciation (or making money on the buy sell spread). If I buy a candy bar wit hope that it appreciates in value, it's an investment. If I short that candy bar, and the value of the bar depreciates, that's an investment. I do understand that the two different usages of the term (combined with the fact that a house can be consumed and still be intact enough to sell). However, I stand by the statement that your home is not an investment. It's a bad financial one. It's not an economic one.
    - jholman 10y ago
      Both of those definitions are wrongly stated, and that's why you're producing this wrong belief about primary residences. An an economic sense, an investment is an allocation of capital. Certainly consumer purchases of durable goods are not investments. The most common type of capital to invest is money, but other types might apply. By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner. Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing. Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one). If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice.
jdmichal 10y ago
Everyone is born short housing. Buying your first house is covering a short position. Renting instead of buying is maintaining a short position. Buying your second house is taking a long position. (Copied directly from my other post in this thread [0], though if you do a search I've said the same thing several times.) [0] https://news.ycombinator.com/item?id=13376763 https://news.ycombinator.com/item?id=13376763
- SilasX 10y ago
  Others have elaborated further; here's Felix Salmon and Nick Rowe: http://blogs.reuters.com/felix-salmon/2009/07/17/who-cares-about-future-house-prices/ http://blogs.reuters.com/felix-salmon/2009/07/17/who-cares-a... http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/07/we-are-born-with-a-short-position-in-housing.html http://worthwhile.typepad.com/worthwhile_canadian_initi/2009...

by SubuSS 10y ago

chillingeffect 10y ago

It's an illiquid investment that appreciates at a rate that varies in conjunction with inflation. You might win or lose, but it's tough to predict, varies with geographical area and in relation to inflation and wages. There are many graphs that show aspects of this, here is one useful one I found: http://lesjones.com/2008/11/25/inflation-adjusted-us-house-prices-1975-2008/ http://lesjones.com/2008/11/25/inflation-adjusted-us-house-p...

John23832 10y ago

You don't typically consume an investment. If I buy a house and live in it, how quickly can I reasonable divest myself from the house? For the average American, not quickly at all. Why is that? Because I need to a home to live in. If not this one, another. And generally the equity in my current home will be used to secure my future one. A house that you buy and don't live in (or is easily divested) could be seen as an investment because you don't live in (consume) it. If you need to sell it, that money could easily go to other things. And you can sell in a timely manner. Edit: I was trying to be layman about it, but chillingeffect did a good job on the technicals.

jholman 10y ago
If you agree with chillingeffect that one's home "is an illiquid investment that appreciates at a rate that varies in conjunction with inflation", then you think it's an investment, albeit one with some drawbacks. Yes, it's illiquid, absolutely. (Although not much more so than any other home one buys, say an apartment block; I can move on less notice than I can sell a property.) Yes, there are some concerns about the ROR, relative to inflation (although I note that world population, and population in most markets one cares about, is increasing, and they're not making more land, so one should expect real estate to appreciate somewhat, relative to inflation, although perhaps not enough to be interesting). But why on earth would you say that it's "not an investment"? Why does illiquidity and poor RoR disqualify something from being an investment? Do you also claim that buying negative-rate bonds is not an investment? What about buying gold against inflation (for those who see gold as an inflation hedge)? What is the definition of "investment" that you're using? It must be a pretty compelling one, for you to use the phrase "not an investment" so confidently in so many comments. Me, I thought that the nature of investing was allocating capital, the opposite of divesting (selling).
- John23832 10y ago
  Alright, we can get down to technical definitions and splitting hairs. In an economic sense, you don't consume an investment. In economics, an investment is the allocation of capital that will essentially be "put away" until some time in the future. You don't touch it. In finance, an investment is purely about the possibility of appreciation/depreciation (or making money on the buy sell spread). If I buy a candy bar wit hope that it appreciates in value, it's an investment. If I short that candy bar, and the value of the bar depreciates, that's an investment. I do understand that the two different usages of the term (combined with the fact that a house can be consumed and still be intact enough to sell). However, I stand by the statement that your home is not an investment. It's a bad financial one. It's not an economic one.
  - jholman 10y ago
    Both of those definitions are wrongly stated, and that's why you're producing this wrong belief about primary residences. An an economic sense, an investment is an allocation of capital. Certainly consumer purchases of durable goods are not investments. The most common type of capital to invest is money, but other types might apply. By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner. Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing. Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one). If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice.

jdmichal 10y ago

Everyone is born short housing. Buying your first house is covering a short position. Renting instead of buying is maintaining a short position. Buying your second house is taking a long position. (Copied directly from my other post in this thread [0], though if you do a search I've said the same thing several times.) [0] https://news.ycombinator.com/item?id=13376763 https://news.ycombinator.com/item?id=13376763

SilasX 10y ago
Others have elaborated further; here's Felix Salmon and Nick Rowe: http://blogs.reuters.com/felix-salmon/2009/07/17/who-cares-about-future-house-prices/ http://blogs.reuters.com/felix-salmon/2009/07/17/who-cares-a... http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/07/we-are-born-with-a-short-position-in-housing.html http://worthwhile.typepad.com/worthwhile_canadian_initi/2009...