On the Value in Housing
by Chart School - December 13th, 2009 9:10 am
On the Value in Housing
Courtesy of Jake at Econompic Data
Felix Salmon recently made the case in his post Against Liquidity:
Investing shouldn’t be about safety: it should be about calculated risk.
and…
Liquidity is not ever and always a good thing.
And I completely agree. But both of those points seem to be in conflict with a more recent post of his The Housing Speculators Return. I don’t always agree with Felix Salmon, but I typically understand his thought process. That is not necessarily the case in this post. Per Felix:
It bears repeating: homes aren’t investments, they’re places to live. If you can buy a nice house for less than you’d otherwise pay in rent, then go ahead and buy — no matter what the market looks like, or where mortgage rates are. On the other hand, if you’re looking for an “investment”, stick to securities. You can sell those much more easily when you need some money, and they won’t drive you into possible bankruptcy and homelessness if they go down rather than up.
Let me go through my grievances with that one paragraph, then I’ll detail my personal thoughts on housing more broadly.
Homes Are "Only" Places to Live
In addition to living in a home, a house can serve as a long term investment that produces income (i.e. he makes just that point with his alternative to owning… RENTING, which is just paying another homeowner for the right to live in that home).
Rent Must Be More than a Mortgage Payment to Justify Owning
This ignores the fact that rents (typically) rise, while a fixed rate mortgage payment doesn’t. BLS data shows that the cost of renting typically rises by the rate of inflation over the long run.
Thus, if you plan to live in that home for a long period of time (there were previous generations who bought to live in home the rest of one’s life), then as long as rent moves higher than a mortgage at some point in time, you may be better off (not to mention the tax benefits of writing off interest). That includes after 30 years when a homeowner no longer has a mortgage, but renters…