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I agree in theory, but in practice people don't go from renting houses to buying identical houses---they always trade up: from a 2 bedroom apartment to a 3 bedr
by true_religion 16y ago
I agree in theory, but in practice people don't go from renting houses to buying identical houses---they always trade up: from a 2 bedroom apartment to a 3 bedroom condominium, from a 3 bedroom house to a 5 bedroom McMansion, etc.
Because of this the costs of ownership once mortgage, taxes, utilities and maintenance are tallied up are often more than what a person was previously spending on rent.
Secondly, his major point is that home ownership involves a cash down payment. Its' not a case of person A/B spending 1500 per month, its a case of person A buying a 100k home and paying 20k in cash for the right to a loan. That 20k may have been better spent in more volatile and profitable investment than home ownership.
Third and lastly, a house can lose value. Did the major employer leave the area or downsize (e.g. Detroit most prominently, Ghost towns, and a scattering of towns all over US that relied on heavy industry)? If so, then your house value has fallen. Did the area fail to gentrify or did you buy in a bubble? If so, then your house value has fallen. Has there been a disaster that the economy hasn't recovered from (e.g. Katrina, coal slush floods in W. VA, BP oil spills effect on homefront properties)? If so, then .....
The argument that a house is an investment fails because it is the least liquid of investments, and thus harms the buyer the most when the prices fall. You can always sell your stock even in a strong downturn, but who is going to buy your drafty McMansion situated in an edge of town neighborhood in a down economy?
- jeffepp 16y agoThe analogy is similar re: stock. Is your $25 citigroup stock really worth selling @ $3? Most likely those people sold at .60 cents. Most people who are losing money in real estate were also selling stocks at the bottom (2 years ago) and were buying tech stocks with two hands in 1999.
- true_religion 16y ago> Most people who are losing money in real estate ... Many people are losing money simply by having the value of their houses fall. They don't want to sell, but their so called "investment" is worth half the price today on the open market than it was when they bought it. Realistically, they may never recover the value they spent in their lifetimes.
- jeffepp 16y agoTrue for people who purchased in the last 3-4 years in Florida, Cali, Nevada and a few other places. Last 10 years in Michigan.
- jeffepp 16y agoThe conditions of Detroit actually make it one of the most attractive areas for Real Estate investment in the country. High & mid-rise buildings Downtown are being purchased (Dan Gilbert is one such buyer) for 6 figure sums. http://detnews.com/article/20110127/BIZ/101270352/Quicken-Loans-buys-Detroit-s-Madison-Building http://detnews.com/article/20110127/BIZ/101270352/Quicken-Lo...
- true_religion 16y agoYeah, its a buyers market but if you already bought a home, you're a seller and likely hate the current situation in Detroit.
- Psyonic 16y agoIf most real estate investors agreed on that, wouldn't the prices be higher?