Tuesday, February 2, 2010

The American Dream – A Scam

Moreover, Altucher says the notion that buying a home is a ticket to financial security is a "scam" perpetrated on the American people by corporations seeking to keep us in debt, less mobile and with the storage to purchase all sorts of needless consumer goods.

James Altucher of Formula Capital

The discussion was about the investment return of a home. Since 1929, on average, a home has returned  0.4% per year. Compare that with stocks at roughly 8%, including the latest nasty downturn.

There are so many other expenses involved with a house that you would not spend if you were renting:

  • Insurance premium.
  • Property taxes (which usually offset any tax deduction you get from your mortgage interest).
  • Maintenance (pipes break, electricity problems, etc.).
  • Remodeling costs.
  • Utilities (utilities and maintenance for renters is often reflected in the rental price, but it's not reflected in a mortgage when you own).
  • Yard work, pest control, etc. (again, rents usually have this built into the price, but mortgages don't).

Many people say - "But, you have to live somewhere..." - true. But, you could rent, save a ton of money, and buy something else with all that money. A boat for instance. Or a RV. A house is so stationary. It doesn't do anything. I know some people like putzing with a house - home improvements, the garden; some even like repairs. Not me.

Now, with high unemployment, the stupidity of owning a home becomes especially clearer. In this economy, you can't just pick up and go where the jobs are. You can't unload the house. That's its largest flaw as an investment. It's not liquid - and it's not liquid at the most important time: when its value is tanking.

1 comment:

Perplexio said...

So, what you're suggesting is that perhaps instead of home ownership we should invest the difference between a monthly rent and a mortgage + Property taxes in the stock market in order to deliver us a greater return on investment?

I would argue that in some regions the value of real estate increases at a much more substantial rate than in other regions... and even in regions that only show approximately 0.4% annual growth, over the long term that adds up to quite a lot (not as much as the stock market of course).

There's also a desire in western culture to put down roots. And while there is something to be said for the relative ease of transience that renters have. Many people prefer home ownership as a means to establish those roots... Also rents increase, and while property taxes also increases, with a 30 year fixed mortgage you're "locked in" on essentially the same "rent" for 30 years. If you can find a really nice home to rent where you can lock in your rent with a 30 year lease, let me know. :-)