Congratulations to Robert Shiller for winning the Nobel Prize!
Trish Regan: “Then why buy a home? People trap their savings in a home. They’re running an opportunity cost of not having that money liquid to earn a better return in the market. Why do it?”
Robert Shiller: “Absolutely! Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better…
“So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000’s. And I don’t expect it to come back. Not with the same force. So people might just decide, “Yeah, I’ll diversify my portfolio. I’ll live in a rental.” That is a very sensible thing for many people to do.
“If you think investing in housing is such a great idea, why not invest in cars? Buy a car, mothball it, and sell it in 20 years. Obviously not a good idea because people won’t want our cars. It’s the same with our houses. So, they’re not really an investment vehicle.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Reasons to Own:
-
Security of knowing where you will be living.
-
Security of tying down the major housing expenses.
- The prospect of not having a mortgage payment someday.
- Certainty of having the kids grow up in the same house.
- Make your wife happy! (Shiller said it again in this video).
None of these may have much, if any, investment value. Can we stop talking about housing as an investment? Why are we addicted to that conversation? Buy a house because you need a place to live.
Jim, you forgot the tax benefits! That’s pretty important, I think. While the reasons you listed are the main ones, it’s always nice to get some financial aid as well.
I almost forgot – you can also stop paying your mortgage and live for free for a year or more, whereas a landlord will kick you out after only a month or two of non-payment. 😀
Two good ones!
The tax benefits might get chipped away, and with rates so low their impact has dropped somewhat anyway.
It’s also a way to easily get 5x leverage on an asset that can be expected to return CPI or better over a long horizon.
Now that’s an investment!
All of the “home as a bad investment” calculus I’ve seen has failed to account for paying off the mortgage and living mortgage free the last 30 years of your life.
Homes are a great investment compared to putting your money in the bank or putting it into Treasuries. If you have extra cash, get a good house with good rental value, buy it and rent it out. Any mortgage you take on will be wiped out through inflation as the printing presses go into overdrive in the next year or two.
“Buy a car, mothball it, and sell it in 20 years.”
No one mothballs a house. They either live in it, flip it, or rent it out.
How can someone compare a house to a car and win the Nobel Prize for Econ? Was this a serious interview or copied from The Onion?
“I’ll diversify my portfolio by living in a rental” ?? He’s got it backwards. Owning real estate, even if it limited to just a primary home, is how you diversify outside of stocks, bonds, commodities and cash.
WC said the magic L-word. It is a beautiful thing, leverage.
How many move-up buyers in SoCal sold their home and walked away with $500K tax free?
As for cars, perhaps Schiller should watch a little Mecum’s and do a few calculations of how those $1500 classics are doing these days.
We moved into our last rental while building our current house, sold it after two years (in ’05), and made $500k gains tax free plus some taxed. The wisdom of this tax break is questionable, but the government treats home ownership like no other investment: Loan guarantees, tax breaks, carry forward gains, no-fault defaults, tax free cap gains, etc. It’s crazy.
Ah, the Cali-centric perspective. Most homes in flyover country were barely worth six figures, let alone had the opportunity to appreciate that far. Be careful about generalizing.
Houses basically never go up in value. The land does!
Sure that house on Neptune will wear out but the lot won’t.
The exception is when you improve the structure.
Jason, some lots do indeed wear out. See recent U-T story about people with homes on seaside cliffs battling against erosion! Also, global warming (man-made or natural) will eventually take out our current beachfront properties.
http://sealevel.climatecentral.org/surgingseas/place/cities/CA/San_Diego