Because most philosophies that frown on reproduction don't survive.

Tuesday, March 22, 2011

House as Home Rather Than Investment

We love our house. And our neighborhood. But every so often -- like the other night when the weather was so springy that we had to divest the children of their wheeled conveyances and make them take a walk with us around the nearest couple blocks -- we see the houses that were for sale when we bought ours that are still for sale and think: It's a good thing we're not planning to sell any time soon. This can be a little scary, given the uncertainly of the current economy.

However, I'm very much in sympathy with this Megan McArdle piece:
Although I may spend odd moments cruising through the listings to see what neighboring houses have sold for, my husband and I agree on one thing: “Who cares? We’re not going to sell,” he said the last time I told him about a comparable house that sold for less than ours.

We didn’t buy our house for an investment; that’s what our investments are for. Our house is to live in. We bought mostly because we wanted to commit to a place, and to make it over to suit us exactly. Landlords get testy when you rip out walls and replace the stove; besides, who wants to spend money installing custom blackout curtains only to have the place sold out from under you?

Before World War II, Americans recognized that housing was a consumption good, not a savings plan. But for a number of reasons—higher incomes, zoning restrictions that limited supply, and longer-term mortgages that enabled people to afford pricier homes—postwar housing prices started rising faster than inflation. When people began retiring on the proceeds of their homes, their children and grandchildren started thinking that was the natural order of things. But for most of history, housing has been a lousy investment: expensive to maintain and hard to sell.

On the other hand, houses have always made very good homes. And they still do. If we sold today, we might get less for the house than we paid for it. But to us, it’s still worth every penny.
Given that we're committed to staying pretty much within this area now we've got here, in order to remain close to family, and that we love our house, I would think of it much more as a consumption good than an investment good.


Big Tex said...

Wouldn't I love to be in that situation. Family being halfway across the country, this home of ours isn't permanent. To make matters worse (financially), we bought the house around peak market, thus making a relocation more difficult. On the bright side, I'm in a good position with my job, and could feasibly stay in it and advance quite a bit more.

Amber said...

We're so underwater on our house, it isn't even funny. And given the still unfinished state of our house, I think we'd have to pay people even to look at it. If we knew just how badly the market was going to crash around here, we could have waited a few more years and bought a spacious home on land that would actually be FINISHED!!!! (you can't imagine how much I want windowsills and door trim right now - silly, really, in the grand scheme of things - but I do get tired of wiping drywall dust off my clothing when I inadvertently lean against something) without having to go through all the trials and angst we experienced in building. But it certainly did build character... *grin*

And yes, it is a home for our family, not an investment. Thank goodness! I think I'd have a lot more trouble sleeping if the situation was otherwise.

Anonymous said...

darwin, you have it exactly right. Houses are terrible, awful investments. Millions of Americans have had their lives ruined by homeownership, as would be the case with Big Tex and Amber if they were forced, for whatever reason, to move any time soon.

If you know going in that it's expensive, a lot of work, limiting to your career prospects (since you might not be able to move if your current job tanks) and potentially devastating to your finances, but you just want to own anyway for personal reasons, well, by all means, help yourself. It's an irresponsibly risky indulgence, I think, but different strokes for different folks and all that.

Happy Apartment Dweller Joel

Arkanabar T'verrick Ilarsadin said...

If you plan to stay a good long while, you actually want your home's value to decline -- because your taxes will as well. Thanks to Spider Robinson for pointing this out in his novel, Night of Power.

Mrs. Zummo said...

I think the era of housing as a short term investment is pretty much over, except for a very few in the know in very limited markets. This is probably for the best. I still think long term home ownership is a good investment for many people if location and lifestyle warrant it. You've got to live somewhere, so you might as well be getting something back for your money. But we need to go back to the idea of looking at homeownership as a good investment for some and not for everyone.

Darwin said...

Agreed, as a long term investment, I think buying a house still makes a lot of sense. My goal is to own a house outright before I'm 60. Not having a housing payment as I'm approaching retirement age would obviously be a huge benefit, and one that can only be achieved through buying.

However, it does reduce flexibility in some ways, and it involves a certain amount of short term risk. In most places and times, you're likely to see housing grow in worth over a period of more than ten years, but it can certainly crash in the short term, and there are some areas that have long term down trends.

On the other hand, even if your house is worth less than it was when you bought it, if you own it outright you receive a benefit you would not have had you rented.

BurgoFitzgerald said...

A good friend of mine is in the profession of helping people recover from financial ruin, and she has repeatedly told us that the majority of people she is working with now are in the position they are in because they bought a home not looking at it as a PLACE TO LIVE but rather an investment. She said it is one thing to do this if you have expendable liquidity - go ahead, purchase a property and see what you can make on it - but most of the people she is helping weren't in that position. They put all and MORE than they had into it. My friend also says that many of these people didn't buy homes that were anywhere NEAR affordable for them - and that WASN'T because someone was selling them a bad mortgage. Many of her clients just thought they "deserved" the homes that ended up sinking them.

JMB said...

I agree that one should not buy a house to flip it in a few months or years. Those days, thankfully, are past us. But home ownership is good in the sense that it stablizes a neighborhood. It is not a coincidence that the best public school districts in the country are areas where there is a high home ownership. Look at Greenwich, Beverly Hills, Princeton, Lake Forest - all these areas have excellent schools because the majority of families own homes and are committed to the town/school district. You just don't get that with a bunch a renters.

Anonymous said...

JMB, could you do me a favor? Look up the average income in Greenwich, Beverly Hills, Princeton, and Lake Forest. Thanks.

Meanwhile, I'm going to assume you're being ironic.