Comment by nommm-nommm | Hacker News Reader

Comment by nommm-nommm | Hacker News Reader

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Most Americans (and apparently Canadians) think their home is a very good place to park their entire net worth. Meaning they think its guaranteed to appreciate and appreciate faster than all other assets and investments a person has.

They also tend to only look at raw numbers that look impressive unless you don't think about it too much rather than the whole picture. Grandma bought her house in 1970 for $10,000 and sold in 2005 for $100,000 (made up example). Looks impressive at a glance, however, What's the carrying cost of the house, transaction costs, inflation, and the performance of other investment vehicles during that time period?

This thinking is part of what drove the 2000s housing bubble. Its also part of what causes people to become "house poor," meaning a very large part of their income and assets go towards their primary residence leaving them unable to save any money and have no retirement fund.

http://www.usatoday.com/story/money/personalfinance/2014/05/...

>a recent Gallup poll shows that Americans now believe housing is the best long-term investment, beating out stocks, bonds, and gold.

The reality is house prices stay about lock step with inflation on average over the long haul. There's other reasons why I house is a bad investment even if they did outpace inflation. Not that they are a bad thing to buy or own, I am a homeowner myself, its just not a great financial investment.

The American government also subsidizes home ownership in various ways which can play into the fantasy.

>I consider home/condo a utility, a bill paid for purpose; it can go up, but it can also go down.

This is a great attitude. A home can be a fantastic thing to own. It is great at providing housing! It can provide a sense of pride. Its just not a great financial investment and every portfolio should be diversified even if it were.

> Most Americans (and apparently Canadians) think their home is a very good place to park their entire net worth. Meaning they think its guaranteed to appreciate and appreciate faster than all other assets a person has.

Most Americans have no choice, because you can't buy 1/3rd of a house or a room in a house, or a basement. You have to buy the whole house and very rarely will a family be able to outright get themselves into 2 mortgages on houses in a desirable area. In other words, you're painting a picture of choice where there is none. Renting has the same underlying problem - you alleviate yourself of depreciation risk, but you take on the risk of being at the mercy of the landlord and area gentrification and being priced out of it eventually.

> The American government also subsidizes home ownership in various ways which can play into the fantasy.

Not in as many ways as you think. It's rather the higher density urban areas that subsidize the suburban low density single family houses (most of which are very shoddily constructed).

> Its just not a great financial investment and every portfolio should be diversified even if it were.

Like I said earlier, most Americans don't have a portfolio of investments of any sort. Housing is a relatively stable asset for the risk-averse, and incidentally also provides you with a place to live.

> The reality is house prices stay about lock step with inflation on average over the long haul.

The reality is that discussing real estate prices without discussing location and separating structure value from land value is a gross and useless oversimplification. Look at property values in desirable urban areas: they far outpaced inflation and have recovered after the housing crash in less than 5 years.

> being priced out of it eventually

This applies to home ownership as well. Taxes can increase to where you can't afford to live there anymore.

> It's rather the higher density urban areas that subsidize the suburban low density single family houses (most of which are very shoddily constructed).

I'm not sure I understand what you mean. I am talking about, mostly, income tax deduction that applies to everyone. There's also the 30 year mortgage and VA loans and (I think) FHA loans.

> most Americans don't have a portfolio of investments of any sort.

Many times it because they put all their income into their house because they believe it is their house that it the key to building them wealth!! My only point was this is a common misconception. Housing is for living in, unless its an investment property that generates cash flow but that's not what we are talking about.

Buy a house, or rent, there's tradeoffs. There's pros and cons of both. Its different for everyone at different times in their lives. As I said, a house is a great place to live in! My only point is the American/Canadian mindset that buying a house is the ultimate way to build wealth is false. It might, if you are really lucky, but don't bet on it. Especially don't bet your future on it!

Yes, you have to buy housing, you need somewhere to live. A house is a good choice for many. A house may be cheaper than renting. It's just not a guaranteed generator of wealth like most people believe. You shouldn't disregard funding your retirement to buy a house. You shouldn't stop saving to buy a house. Diversify your assets.

Depends on your definition of investment and what you're looking to get out of it. If they maintain value by appreciating at least at the rate of inflation, then they're a great store of value. At that point, you need to take all expenses into consideration (including any applicable tax deductions and rental incomes from rooms) in order to determine whether you're net positive or net negative versus renting. This can't be generalized since it depends on your local housing/rental market, however I can speak for my own situation where I pay about the same for my home as I would for a rental where I'd live by myself. If I was to rent out my extra room, I'd be paying significantly less.

That's a bit long winded, just don't want people automatically rule out home ownership since not only can it be a point of pride, it actually can be financially beneficial if you're willing to do the math for your own situation.

In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.[1]

I don't think people are saying you'll never come out ahead (like one might say about someone who wants to take up daytrading). Most of the arguments I hear are, "houses are a terrible investment" or "don't think about it as an investment" and they're not trying to dissuade people from buying houses--just from buying them as an investment. Calling it an investment encourages people to buy when they should rent, or buy larger houses than they should. Houses being the largest purchase most people make and the one thing containing most of one's wealth (and the fact people only do it a few times in their life) should mean people need to be very careful about the decision. People also tend to undervalue the subjective attachment to the houses they live in, causing them to make poor financial decisions.

Like others have said, houses generally perform slightly less than inflation, there are additional costs like maintenance, taxes, and insurance people generally don't always consider. Houses are illiquid, you can move to a place with smaller rent, but you can't divest yourself of half your house (you could take a second mortgage, thought). It's also much easier to relocate when renting even if you're paying the same rent. When fixing up your house it's easy to not think about cost/benefit or blindly think your upgrades will pay for themselves.

[1] http://www.investopedia.com/terms/i/investment.asp

Perfect comment, you explained my feelings and points better than I could.

Like I said, I am a homeowner. I love being a homeowner. But I just can't stand the myths around homeownership that people tell me. I didn't buy a house in order to get rich, I bought a house for consumption, to live in. I hope I come out ahead when I sell my home. I'll be happy as pie if I break even.

My dad asked me why I was buying a house if I thought it was a poor investment. "To live in." He was honestly confused as to why someone would buy their primary residence other than "because it's an investment."

Nobody believes a car is a good investment but we all still buy them, to use them.

>When fixing up your house it's easy to not think about cost/benefit or blindly think your upgrades will pay for themselves.

This is a great point that should not be overlooked. I think HGTV is terrible in this regards. One of my coworkers told me you should always get every single upgrade you want because you will always get that money back when you sell. This is just so untrue I find it difficult to believe that anyone would actually believe that.

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