5 ms·

I've liked Shiller's opinions and seen them before, and agree with them. Just because it makes a "terrible investment" however doesn't mean it's a terrible thin

by ljoshua 13y ago

I've liked Shiller's opinions and seen them before, and agree with them. Just because it makes a "terrible investment" however doesn't mean it's a terrible thing to do. You look at your home as an essential element of life (shelter) and do the math for rent vs. buy, but you don't worry about making a huge return from it. Use other investment vehicles for growing capital.

deleted 13y ago
[deleted]
vidarh 13y ago
Another point is that if you see it as an investment, you should see it as a hedge against runaway prices: If you rent, and are unlucky, you might find yourself priced out of the market for the type of properties you would like to live in, and at the same time become priced out of purchasing. Where I live, purchase prices and rents have increased 30% or so in the 8 years since I bought, while my repayments are the same. My repayment + interest has been substantially below rental prices since a few months after I bought. If it had gone the other way, yes it would have been a bad investment, but it would have been a cost I'd still be ok with because of the predictability it gives (and if prices dropped, I'd use it as an opportunity to trade up, still hedging against prices increasing again). Essentially by purchasing I have locked in an upper limit on the vast majority of my housing costs for the duration I stay in this house, and also reduced the risk of a substantial jump if/when I move, as the value of my current house is likely to move reasonably close to the overall market. That hedge is worth a lot to me.
- rgbrenner 13y ago
  You're completely ignoring the downside of your home. If the job market in the area where you live declines, you'll find it more difficult to move to an area where you're able to find work.. and if the decline in your area is severe enough, you may also find yourself unable to sell your home and/or must sell at a substantial loss. Your potential downside is not the difference between a lower rent and the cost of a home. Your potential downside is the entire cost of your home. This is actually one of Shiller's points about rent vs ownership (mobility).
  - michaelochurch 13y ago
    The real evil is that it's impossible to be zero-beta to housing, because even if you own your house (neutral position; renting non-owners are short) you are still exposed if you need to move. Unfortunately, I can't see a real fix for this except for more remote/mobile work. One thing Europe has that is good is a lot of public housing, even for middle-class people (like typical renting programmers)-- not just US-style "projects". This is great because it keeps the price down on the private market as well. You still need to build enough to avoid scarcity, of course. Otherwise, you end up with hellish queues.
    - toomuchtodo 13y ago
      Is this public housing in Europe anything like public housing in the US? I'm a US citizen with ambitions to one day move to Europe (I'm a DevOps/Sysadmin/Operations guy); how does public housing in Europe work?
      - walshemj 13y ago
        Depends on country in the UK a single person will never get a council house unless your a single mum.

by ljoshua 13y ago

deleted 13y ago

[deleted]

vidarh 13y ago

Another point is that if you see it as an investment, you should see it as a hedge against runaway prices: If you rent, and are unlucky, you might find yourself priced out of the market for the type of properties you would like to live in, and at the same time become priced out of purchasing. Where I live, purchase prices and rents have increased 30% or so in the 8 years since I bought, while my repayments are the same. My repayment + interest has been substantially below rental prices since a few months after I bought. If it had gone the other way, yes it would have been a bad investment, but it would have been a cost I'd still be ok with because of the predictability it gives (and if prices dropped, I'd use it as an opportunity to trade up, still hedging against prices increasing again). Essentially by purchasing I have locked in an upper limit on the vast majority of my housing costs for the duration I stay in this house, and also reduced the risk of a substantial jump if/when I move, as the value of my current house is likely to move reasonably close to the overall market. That hedge is worth a lot to me.

rgbrenner 13y ago
You're completely ignoring the downside of your home. If the job market in the area where you live declines, you'll find it more difficult to move to an area where you're able to find work.. and if the decline in your area is severe enough, you may also find yourself unable to sell your home and/or must sell at a substantial loss. Your potential downside is not the difference between a lower rent and the cost of a home. Your potential downside is the entire cost of your home. This is actually one of Shiller's points about rent vs ownership (mobility).
- michaelochurch 13y ago
  The real evil is that it's impossible to be zero-beta to housing, because even if you own your house (neutral position; renting non-owners are short) you are still exposed if you need to move. Unfortunately, I can't see a real fix for this except for more remote/mobile work. One thing Europe has that is good is a lot of public housing, even for middle-class people (like typical renting programmers)-- not just US-style "projects". This is great because it keeps the price down on the private market as well. You still need to build enough to avoid scarcity, of course. Otherwise, you end up with hellish queues.
  - toomuchtodo 13y ago
    Is this public housing in Europe anything like public housing in the US? I'm a US citizen with ambitions to one day move to Europe (I'm a DevOps/Sysadmin/Operations guy); how does public housing in Europe work?
    - walshemj 13y ago
      Depends on country in the UK a single person will never get a council house unless your a single mum.