
Economist Who Won a Nobel Prize Thinks Owning a Home Is a Bad Investment (2013) - soham
http://www.citylab.com/housing/2013/10/economist-who-just-won-nobel-prize-thinks-housing-terrible-investment/7240/
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djrogers
Holy crap - what a misleading link title! Not only is the headline on HN right
now not in the article, the very end of the article states there are many
reasons to buy a home, but investing isn't a good one.

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dang
Right, this title breaks HN's submission guidelines hugely.

Submitters: the guideline is "Please use the original title, unless it is
misleading or linkbait." Rewriting to make something _more_ misleading or
linkbait is driving the wrong way down a one-way street.

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

~~~
soham
Hi Dan, I apologize for this impulsive post. I am not able to modify the title
anymore. Do you mind taking it down or editing it?

~~~
dang
Ok, we edited it.

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Broken_Hippo
I tried bringing up the fact that prices and things simply cannot always go up
in value... and got treated like I was insane. At the same time, I generally
thought it was crazy that some people bought homes for investment purposes.
While you might gain some things, you lose out on things like being able to
get the landlord to fix the leaky roof and flexibility in moving if the local
housing market turns sour. All in all, it seems one comes out nearly even in
the best of times.

Now, alternative reasons for buying or building a house, however, is
understandable so long as one can afford the payments. The want for privacy or
doing what one will is a bonus. Those I've known that bought a cheap house and
got it paid off in a short time wound up the best - even if their house lost
value, it wasn't so important during selling time (if they even move). No
house payments makes life easier.

~~~
lkrubner
I agree with your point as it applies to much of the USA in 2016. Of course,
there are always exceptions. Specific markets defy the general rule.

Warren Buffet has said that he never invests in trends or industries, but only
in specific companies. Likewise, we could apply a similar rule to real estate.
If you are allowed to get into a time machine and go back to New York City in
1985, then you should definitely buy up some buildings in Soho. They might
look like burned out derelicts now, but this neighborhood is going to turn
around in an amazing way. Likewise, a few years later, in Williamsburg. Also
Berlin circa 1995, after the initial surge of investment had stopped, and
people were having second thoughts about whether integration would ever work.
Likewise much of Florida in 1924. Likewise Tokoyo in the 1970s. And I would
argue, right now in Krakow, Poland. The idea is to buy real estate when most
people think a city is semi-dead, before it rebounds. As Warren Buffet has
said "Be greedy when others are fearful, and fearful when others are greedy.

In the USA, a combination of low interest rates, government subsidies, foreign
money seeking safety, and pure hype has managed to keep many cities in a
situation where they seem to have permanently over-valued real estate. Anyone
buying a home there runs the risk of losing money.

Then there are the places like Detroit, which are either dead forever, or the
turnaround is so far in the future that you could probably find better places
to invest your money.

But overseas, I believe there are places where you can invest in real estate,
and see the kinds of amazing returns that you would have enjoyed if you could
go back in time and invest in any of the turnaround cities that I mention
above.

Of course, it does take courage to invest in a city that most others are still
betting against.

~~~
Aelinsaar
Isn't it amazing what's happened in Detroit, and yet it really is a bare
accessory to the national conversation and sense of self. We seem not to take
it too hard that one of our 50 states has failed, when really, we should be up
in arms about it. Detroit isn't an anomaly, it's a preview, infrastructure and
all.

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Apocryphon
Is this the furthest act of burying the lede of any article? Because it's
literally the last sentence: "Shiller's work, however, says that you shouldn't
buy a house simply because you're hoping to pump money out of it in the long
run."

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gscott
Even if your home never appreciates... one day when you are too old to work
you will really appreciate a place to live that you only have to pay property
taxes on.

However there are reasons not to own a house like wanting to be very mobile,
not wanting the responsibility, wanting to live in more of a "group"
environment, etc. If you live on the edge and can't save money then you
shouldn't own a house because if you loose your job you won't be able to
continue making the payments.

~~~
VLM
Just keep in mind the costs of home ownership. Roofs and HVAC systems and
plumbing don't stop deteriorating because the owner has retired... Aside from
"normal" maintenance of course.

I dropped $400 on a new lawnmower this spring, $7K on a new roof a couple
years ago, $800 on a new kitchen stove last year. Two years ago it was a
washer and dryer for $1500 or so. It adds up.

My mom is retired and on SS and her rental is cheaper than her income and is
the same every month. I worry about my retired MiL living in her house, she's
one furnace replacement away from a panic sale or having to take out an heloc.

~~~
revicon
| and is the same every month

That's nice if you can get into a rent controlled house and don't have a
landlord that decides to "reoccupy" the property for whatever reason. Renters
in most areas do not have these assurances.

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pfarnsworth
This title needs to change because it completely misrepresents the original
article.

And it's wrong, too. "Never pays off" is simply stupid. My parents bought
their house for $250k and sold it 20 years later for $1.4M cash. To say it
didn't pay off is simply ridiculous. My own house is worth 50% more in 3
years, obviously unsustainable, but nonetheless worthwhile, especially given
rents.

~~~
refurb
How does the return compare to the market overall? Instead of putting a down
payment on a house, what if that was invested in the market along with the
other savings from not owning a house?

Going from $250K to $1.4M over 20 years sounds good, but it's only a ~10%
annual return.

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wpBenny
Correction. Don't buy a condo. You'll never make the money back. Everyone in
my family has made money on selling their home, including me.

~~~
ebiester
It depends on the area. In San Francisco or Boston, buying a condo is fine. In
other areas, buying a condo may be a bad idea.

~~~
zardo
It's also fine if you want to live in it for a few decades.

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zirpderp
I think he means don't buy a house at the wrong time.. which is now because
the gov't continues to over subsidize housing post crisis because america is a
consumer economy and consumers only consume when they feel rich. How do you
make a homeowner feel rich? Tell him that his house has doubled in value -
sweet HELOC city - what could go wrong? (AGAIN) - Everyone and there mom
should watch Jim Grant's speech at Google, the Keynsians are running a crazy
world.

~~~
zirpderp
here
[https://www.youtube.com/watch?v=KAWxhdPGJfU](https://www.youtube.com/watch?v=KAWxhdPGJfU)

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huherto
TL;DR

>| Shiller's work, however, says that you shouldn't buy a house simply because
you're hoping to pump money out of it in the long run.

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rayvd
Obviously "never" is false. As with every type of investment it "sometimes"
pays off.

I think the point of the article is just that it won't ALWAYS pay off
(especially at a 10% growth per year thing). This should be common sense but
maybe isn't. Lots of things should factor into a purchase decision. If timed
right, a home can very much be a good investment, but is absolutely not
without risk.

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tmpanon1234act
NYT put out a great calculator for this exact tradeoff
[http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calc...](http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calculator.html). I personally have my own spreadsheet model as well, but the
NYT calculator suffices for most purposes.

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xrd
I'm not an economist, but if the Fed is printing money to pay off its debts
faster than the economy grows, then I'm betting (and it could be misguided)
that a hard asset like a house and land is worth more than quickly devaluing
cash due to inflation. I wonder if his advice was more true 20 years ago than
now.

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ebiester
This is silly.

Buying a house is making a calculated risk that you will stay in one area.
While it will cost money in the short run, rent (in most places) tracks with
inflation but a mortgage doesn't.

Now, it doesn't make sense to keep moving/upgrading every 5 years. If you do
that (as I have over the last decade), don't buy a house.

~~~
mywittyname
Maintenance costs and taxes also track inflation (taxes will often exceed
inflation). It's quite possible to spend more than the purchase cost of a home
in renovations and maintenance before a 30 year mortgage is paid off.

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jasallen
Article is from 2013

