5 ms·

The drop in net worth is caused by people not buying homes? Huh?

whenchamenia 7y ago
I have half a million I can liquidate, because I bought instead of rented. Many friends said it was a 'bad investment', but when the money gets spent either way, even a bad investment is better than none. It has never been easier to buy a home that you can afford thanks to loan programs and historically low rates, although now rising... But yeah, even though in many ways a home is a liability, it has equity you can leverage. In many countries, homeownership conveys other perks. In the usa, homeownership is also a strong sign of being a 'good neighbor' as you have skin in the game, while renters see little reward or penalty for being poor neighbors. There are of course shades of grey and other factors, but in general, the modern marketing to milennials that homeownership is futile or worthless is partly its own downfall.
- argv_empty 7y ago
  when the money gets spent either way* The core of the "bad investment" argument is that the money doesn't necessarily all get spent either way. renters see little reward or penalty for being poor neighbors "We have chosen not to renew your lease."
  - patrick5415 7y ago
    > The core of the "bad investment" argument is that the money doesn't necessarily all get spent either way. Yes but that is part of the problem with the argument: it basically assumes perfectly rational actors who never cheat contributing to their index fund so they can go do/buy whatever. It’s a lot harder to just not pay your mortgage one month.
- unityByFreedom 7y ago
  A home is an investment, and depending on the market, it may make more sense to rent and invest the rest in an index.
  - vturner 7y ago
    It definitely it, I'm shocked at the never ending cycle of costs. If you can't buy new, don't buy something middlebofbthe road, too much sunk costs.
  - Falkon1313 7y ago
    Right, but it's really only an investment property if you already have somewhere else to live. It's more of a consumable asset with a tightrope walk between transaction costs, upkeep costs, depreciation, and inflation vs market price increases. And if you live there, it's different because to sell it you have to become homeless and/or use the money for new accommodations. Assuming that your investment has done well because housing prices have risen, then your new accommodations will likewise be more expensive too. It might pay off a bit if you can see it through, especially if you can then move to a lower cost-of-living area, but it's hard to tell 30 years in advance whether you'll be able to keep that commitment and if it will pay off better than investing in index funds or other investments. Certainly some people found out the hard way in 2008 it doesn't always work out that well. In general, it may sometimes slightly beat inflation if you're lucky but under-performs the stock market. - https://www.investopedia.com/ask/answers/052015/which-has-performed-better-historically-stock-market-or-real-estate.asp https://www.investopedia.com/ask/answers/052015/which-has-pe... - https://www.cbsnews.com/news/history-says-home-real-estate-is-a-bad-investment/ https://www.cbsnews.com/news/history-says-home-real-estate-i...
    - JamesBarney 7y ago
      The best real estate investment you can make is your own home. 100% guaranteed occupancy, no property management, 0% turn over, deductions on property tax, federal taxes, etc...
Spooky23 7y ago
Renters pay most of the cost of home ownership, with the added feature of being unable to control children’s schooling or meaningfully become part of a community. Usually the argument against owning your home that is that inflation adjusted returns on real estate are not as attractive as investments in an index fund. In many, and I would argue most scenarios, that doesn’t really matter as the vast majority of people have minimal liquid net worth and renting eats up the cash flow that would allow them to accumulate wealth. I bought my first and current home when I was 23 and refinanced to a shorter term. I bought near the 2006 peak and due to local market conditions have minimal capital gains, but in the near future will have no debt service costs whatsoever. That means the freedom to make less income, start a business, blow the money or accumulate cash or whatever. Had I done the smart thing, I would have put 90% (or more, rents rose during the recession) of my current monthly mortgage obligation into rent. To the tune of $300k, allowing for fairly meager savings. Now if I was sitting on a pile of cash that was a critical mass, and paying rent from my income cash flow, that’s different. But that is a much more rare situation.
- aetherson 7y ago
  People also are usually unable to make highly leveraged investments in index funds in the same way they are in houses.
  - autokad 7y ago
    not sure why you are being down voted, its true. assume home prices go up 5% and the stock market goes up 7%. If I want to buy a house for 100k and put 20k as a down-payment and live in the spot for 5 years, I can make 8051$ off the stock market (invest 20k) but my home would have appreciated 27k$. sure there are some other factors, and maybe my numbers are not right, but I think it gets at what you were saying, an advantage of buying a home is you can make a leveraged investment.
    - leetcrew 7y ago
      in general, houses appreciate in value over time, but that doesn't mean your house will. leverage multiplies your exposure to the upside and the downside of an investment, and a single house is a much more volatile asset than SPY. imagine how much it would suck to be upside down on that $100k mortgage after five years.
bdcravens 7y ago
Once you're equity positive in a property, your net worth is going up, while the renter's isn't.
- unityByFreedom 7y ago
  Not if you bought an overpriced home. It also depends what the investment market does. Buying is not a guaranteed win.
  - twblalock 7y ago
    > Buying is not a guaranteed win. It usually is in the long term: https://www.bloomberg.com/opinion/articles/2019-03-21/buy-a-house-it-s-safer-than-the-stock-market https://www.bloomberg.com/opinion/articles/2019-03-21/buy-a-...

I have half a million I can liquidate, because I bought instead of rented. Many friends said it was a 'bad investment', but when the money gets spent either way, even a bad investment is better than none. It has never been easier to buy a home that you can afford thanks to loan programs and historically low rates, although now rising... But yeah, even though in many ways a home is a liability, it has equity you can leverage. In many countries, homeownership conveys other perks. In the usa, homeownership is also a strong sign of being a 'good neighbor' as you have skin in the game, while renters see little reward or penalty for being poor neighbors. There are of course shades of grey and other factors, but in general, the modern marketing to milennials that homeownership is futile or worthless is partly its own downfall.

argv_empty 7y ago
when the money gets spent either way* The core of the "bad investment" argument is that the money doesn't necessarily all get spent either way. renters see little reward or penalty for being poor neighbors "We have chosen not to renew your lease."
- patrick5415 7y ago
  > The core of the "bad investment" argument is that the money doesn't necessarily all get spent either way. Yes but that is part of the problem with the argument: it basically assumes perfectly rational actors who never cheat contributing to their index fund so they can go do/buy whatever. It’s a lot harder to just not pay your mortgage one month.
unityByFreedom 7y ago
A home is an investment, and depending on the market, it may make more sense to rent and invest the rest in an index.
- vturner 7y ago
  It definitely it, I'm shocked at the never ending cycle of costs. If you can't buy new, don't buy something middlebofbthe road, too much sunk costs.
- Falkon1313 7y ago
  Right, but it's really only an investment property if you already have somewhere else to live. It's more of a consumable asset with a tightrope walk between transaction costs, upkeep costs, depreciation, and inflation vs market price increases. And if you live there, it's different because to sell it you have to become homeless and/or use the money for new accommodations. Assuming that your investment has done well because housing prices have risen, then your new accommodations will likewise be more expensive too. It might pay off a bit if you can see it through, especially if you can then move to a lower cost-of-living area, but it's hard to tell 30 years in advance whether you'll be able to keep that commitment and if it will pay off better than investing in index funds or other investments. Certainly some people found out the hard way in 2008 it doesn't always work out that well. In general, it may sometimes slightly beat inflation if you're lucky but under-performs the stock market. - https://www.investopedia.com/ask/answers/052015/which-has-performed-better-historically-stock-market-or-real-estate.asp https://www.investopedia.com/ask/answers/052015/which-has-pe... - https://www.cbsnews.com/news/history-says-home-real-estate-is-a-bad-investment/ https://www.cbsnews.com/news/history-says-home-real-estate-i...
  - JamesBarney 7y ago
    The best real estate investment you can make is your own home. 100% guaranteed occupancy, no property management, 0% turn over, deductions on property tax, federal taxes, etc...

Spooky23 7y ago

Renters pay most of the cost of home ownership, with the added feature of being unable to control children’s schooling or meaningfully become part of a community. Usually the argument against owning your home that is that inflation adjusted returns on real estate are not as attractive as investments in an index fund. In many, and I would argue most scenarios, that doesn’t really matter as the vast majority of people have minimal liquid net worth and renting eats up the cash flow that would allow them to accumulate wealth. I bought my first and current home when I was 23 and refinanced to a shorter term. I bought near the 2006 peak and due to local market conditions have minimal capital gains, but in the near future will have no debt service costs whatsoever. That means the freedom to make less income, start a business, blow the money or accumulate cash or whatever. Had I done the smart thing, I would have put 90% (or more, rents rose during the recession) of my current monthly mortgage obligation into rent. To the tune of $300k, allowing for fairly meager savings. Now if I was sitting on a pile of cash that was a critical mass, and paying rent from my income cash flow, that’s different. But that is a much more rare situation.

aetherson 7y ago
People also are usually unable to make highly leveraged investments in index funds in the same way they are in houses.
- autokad 7y ago
  not sure why you are being down voted, its true. assume home prices go up 5% and the stock market goes up 7%. If I want to buy a house for 100k and put 20k as a down-payment and live in the spot for 5 years, I can make 8051$ off the stock market (invest 20k) but my home would have appreciated 27k$. sure there are some other factors, and maybe my numbers are not right, but I think it gets at what you were saying, an advantage of buying a home is you can make a leveraged investment.
  - leetcrew 7y ago
    in general, houses appreciate in value over time, but that doesn't mean your house will. leverage multiplies your exposure to the upside and the downside of an investment, and a single house is a much more volatile asset than SPY. imagine how much it would suck to be upside down on that $100k mortgage after five years.

bdcravens 7y ago

Once you're equity positive in a property, your net worth is going up, while the renter's isn't.

unityByFreedom 7y ago
Not if you bought an overpriced home. It also depends what the investment market does. Buying is not a guaranteed win.
- twblalock 7y ago
  > Buying is not a guaranteed win. It usually is in the long term: https://www.bloomberg.com/opinion/articles/2019-03-21/buy-a-house-it-s-safer-than-the-stock-market https://www.bloomberg.com/opinion/articles/2019-03-21/buy-a-...