
Record low numbers of millennials think buying a home is a good investment - paulpauper
https://www.cnbc.com/2018/08/23/record-low-numbers-of-millennials-think-a-home-is-a-good-investment.html
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whttheuuu
Bought my first place 6 years ago and people were telling me the same thing.
"Market is at a peak", "downturn is right around the corner", etc.

So glad I ignored them because it is the best financial decision I've ever
made. Literally changed life for me and my family.

~~~
refurb
I assume you still own it and those gains aren’t realized?

~~~
whttheuuu
We'll be selling it and retiring this year!

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esotericn
Investment is a terrible way of thinking about homeownership.

In the markets that are most affected by this phenomenon like London, SF, and
so on, for the vast majority of individuals, it's the only thing that costs
money anyway.

Anything else can either be binned as 'trivially cheap' (e.g.
groceries+bills+transport combined) or 'luxury fun' (e.g. nice clothes,
expensive holidays, etc).

To the point that money in the abstract is basically irrelevant (vanishingly
small numbers of people have liquid wealth, but tons of families with modest
jobs own 500K, 1M, 2M homes in London).

If you don't want a house or apartment to call your own, a place to make good
and have suit your needs (with nice fittings, a layout that suits you,
neighbours you know well and so on) then you don't want it.

Young people barely ever want this stuff (I sure didn't) and the Internet has
only exacerbated that. Money has less to do with it than people think, I
reckon.

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opportune
A home should not be considered as much of an investment as it commonly is. A
home is a physical good you buy because you need a place to live, and
generally the economics work out so that it's long term cheaper to buy a place
than to rent it. Ideally home prices should be _low_ for the reason you want
any other physical good to have low prices: so you can spend your money on
other things.

But, a home is generally the most expensive thing people own. For a lot of
people (most?), it probably makes up the majority of their net worth. So in
general the incentives are for policy to be passed to pump up home values
because people want to make money without having to work. Basically, we have
perverse incentives regarding housing prices due to the fact that they are
expensive things.

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skookumchuck
The best investments are those that are used to produce income. Passively
investing in real estate means buying an asset that produces no income, costs
taxes/maintenance/insurance, and the structure declines in value due to people
wanting new things, not old things.

The net result is you're relying on increasing demand to make money, which
only works for location, location, location.

~~~
sokoloff
For owner occupied real estate (read: your house), the asset produces [tax-
free] income in the form of rent avoided.

~~~
skookumchuck
That's right. But using a house, like driving a car, pushes its value down.
Wear and tear.

I own my home because I like owning it and being able to use it the way I want
to rather than asking permission from the owner. But I don't think I have
illusions about it being an investment. It kinda sucks as an investment.

~~~
sokoloff
I suspect we see things fairly similarly. I bought our house because it was a
great location, (potentially) lovely old house, with a yard and parking, and
sized/designed that we might be able to live there 30+ years.

I bought it considering the ownership to be primarily an act of _consumption_
; it's just happened to turn out to be a greater windfall than my
actual/intentional investments. I accounted for it like consumption, but had
pretty strong suspicions that it would have a strongly positive financial
return. (Nice large, already old, single-family with a yard in Cambridge, MA.)

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paulpauper
_While buying will you save money on rent, studies have shown that, if your
priority is building wealth, investing in stocks and bonds can have a higher
overall return, even as you continue to make rent payments. The London
Business School and Credit Suisse found that, between 1900 and 2011, housing
offered returns around 1.3 percent per year, after adjusting for inflation.
The average annualized total return for the S &P 500 index over the past 90
years, by contrast, is 9.8 percent._

 _" A single family home is not an investment," CFP Eric Roberge tells CNBC
Make It. "It may gain money over time, but if you're looking to invest, buying
a single family home and then living in that home is not the place to do it."_

A few things to keep in mind:

Obviously location is important. Parents have done really well on their Bay
Area homes ,averaging a compounded return of 7% since 1996 on home equity (or
about 3.5% real), but other locations may be worse. That far exceeds the 1.3%
figure quoted by the article and includes the 2008-2011 hosing bust.

The 1.3% figure may be abnormally low due to the exceptionally high inflation
of the 70's and early 80's distorting the stats. It is exceedingly unlikely
imho that we will see 10% inflation again.

The article downplays the erosion of potential wealth due to rent. Since 2009,
rent, especially in booming areas like Seattle and Bay Area, has far exceeded
inflation. [http://greyenlightenment.com/bay-area-rent-prices-are-
surgin...](http://greyenlightenment.com/bay-area-rent-prices-are-surging)
Also, many landlords require a huge deposit and a good credit score , which
negates many of the advantages of renting such as not needing as much money
and nimbleness. Otherwise, for short-term rents you're stuck with services
like AirBnB, which is even more expensive on a per-night and inflation-
adjusted basis.

Rent + stock market may beat home ownership, but when the market falls, rent
does not fall. Also one must account for the fact a mortgage allows a lot of
leverage, which magnifies those returns.

Home ownership allows cheap leverage and has generous payment and tax plans,
which stocks do not have. With stocks, you have no negotiating power with the
broker if you find yourself in a bind.

~~~
refurb
_but when the market falls, rent does not fall._

Why do you say that? Rents certainly dropped during the financial crisis even
in hot cities like SF.

~~~
nostrademons
Yeah, rents dropped dramatically in the Bay Area, even faster than home
prices. My first 1BR was $1400/month for the first 3 years I lived out here
(2009-2011); the exact same complex had been renting these apartments out for
$2000/month in 2007 & early 2008.

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sdinsn
In other markets, homes aren't seen as investments by _anyone_. For example,
in Japan, homes are considered depreciating assets, like cars. Homes are
abundant, surprisingly cheap (even in dense urban areas, like Tokyo), and
regularly demolished / rebuilt. The reason for this affordability is Japan's
flexible zoning laws. In America, urban areas have very strict zoning laws,
which do wonders to prop up real estate prices.

~~~
chillacy
In japan you don’t own land either right, you just acquire a 90 year lease.

~~~
sdinsn
That is not true. That's the case in China, not Japan.

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acconrad
I only see real estate as a good investment two reasons:

1\. Capital/equity appreciation - the value of the home + land is worth more
in the future. This is not a guarantee in most parts of the country. There are
a few areas that are fairly resilient (usually within the metro area of the
largest cities in the country) but the barrier to entry can be impossibly high
for most people.

2\. Hedge against inflation - the value of your mortgage stays the same, but
rents (and, in turn, the value of the dollar) increase. This is the classic
"rent vs buy" scenario. If rents / sq ft are more in your area than owning the
home it's worthwhile. This may not _always_ be the case but even if rents dip
they may (will) rise again and the predictability of a mortgage payment over
30 years can offer stability. Again, though, it can require considerable
upfront capital to secure that steady payment.

~~~
whttheuuu
I suppose it depends where you live. But in general, in growing cities it's a
matter of supply and demand. More and more people move to growing cities, and
there is a fixed supply of zoned land to build on.

A few other reasons to add to your list:

\- Preferential tax treatment. In the US and Canada, capital
gains/appreciation on your home is completely TAX FREE. For comparison, any
gains you make on the stock market 15-40% will go to taxes.

\- Leverage. Try going to a bank and ask for a $500K loan to invest in stocks.
Not going to happen. You can do this with a mortgage at incredibly low
interest rate.

~~~
refurb
In the US appreciation is only tax free up to $500k.

~~~
EpicEng
"only"? What percentage of home buyers do you imagine see more than $500k in
appreciated value on their home?

~~~
refurb
A couple bought a house near us in SF for $900k back in 2011. It’s now worth
close to $2M.

They’ll be paying taxes on half of that appreciation.

~~~
masonic
... and CA taxes on the _full_ amount.

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skunkworker
Personally it's having the knowledge of 2008 still fresh on my mind, the
uncertainty in the market, a possible coming recession and the speed at which
unsustainable housing prices are currently increasing make it more attractive
to Rent & Save rather than buy a home.

~~~
choward
> possible coming recession

Possible? There definitely is one coming. It's just a question of when.

~~~
whttheuuu
Could be 30 years from now..

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theonemind
It really does _not_ look like a good investment at this time, though
individual houses and local markets could vary. Record low numbers of
millennials also believe the earth is not flat, and they're right.

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pseudolus
A geographic breakdown of attitudes to home purchase would have made the
survey more useful. Arguably, the economics of purchasing a home in NYC/SF are
somewhat dubious. However, investing in a home outside of those areas and more
particularly in areas, such as Texas or parts of the midwest, where housing is
still affordable and the economy predicted to grow further, might be a good
decision.

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lordnacho
Well it's a pretty common sense investment idea. If something's gone up a lot,
there's less upside in it.

If you look at how many years' income it costs to buy a home, it's gone up by
a lot in many places. Back when it used to cost 2-3 annual salaries it might
have made a lot of sense to buy a place. Now there's parts of the world where
it's 10x.

~~~
scarface74
Well, you have to live somewhere. The true cost is the difference between your
mortgage and the equivalent rent.

~~~
opportune
There's more factors than that though, such as commute time and general
desirability of the area you buy in, stability of your job, insurance, etc.

It's not exactly an apples to apples comparison

~~~
scarface74
In general yes, it is about the stability of your job _and_ you having to move
somewhere else to find a job.

But, if you are in area where jobs are plentiful in your area of ecpertise,
it’s not about the stability of your job but the ability to find another one
quickly.

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demarq
Is a home an investment though? You would plan to live in it and probably
retire in it. And even if you sold it eventually you would have to spread the
profit (assuming appreciation) over the many years that you have lived in it.

~~~
sokoloff
If you are pretty sure you're going to stay in the house for 7+ years, I still
think buying housing is a good financial decision. I max my 401(k) each year.
We bought a house 10.5 years ago and (because of leverage) the appreciation on
it dwarfs my 401(k) balance (max deferral and S&P-500-ish investment returns
for 10 years).

Do I think the next 10 years will be as good as the last 10? I don't think so,
because I don't think that housing can grow sustainably faster than wages
[because wages are spent on housing] and as interest rates inevitably rise
from the current low levels, that will put pressure on price appreciation as
well. Nevertheless, we have a house that suits our needs and fully expect to
be here in 10 years.

It was a struggle to afford the downpayment and payments when we first bought
it. It forced a certain amount of financial discipline. It'd be a similar
sized struggle now for us to buy the place for the Zillow WAG.

By all means, though, if you don't think your career/field is stable or think
you're going to move in the next half-decade, don't buy a house to live in.

~~~
opportune
Nitpick, but I think housing can grow faster than wages by a couple
mechanisms. First, if supply is heavily constrained and people are trying to
move to the area, what they might do is start sharing homes. Average wage
doesn't change, but the number of wage earners in a home increases. Second,
speculative investors can raise prices indefinitely since they aren't even
earning a wage in that area - but I do think it's often overstated how much of
an influence this has had in actual cities that have had housing cost
explosions like Vancouver

~~~
sokoloff
I'll adopt your nits, though the second one seems at least loosely capped by
wages in the long-run.

The first one is also a valid (actually quite good) house-hacking strategy. My
brother and my brother-in-law both afforded their first houses in large part
by renting rooms in it to friends.

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gdieowkbdnd
Smart millennials! Over almost all periods where we have enough data (1800
onwards) buying real estate has been a worse investment than buying stocks. A
couple of exceptions are the decade leading up to the 2008 financial crisis
(i.e. the swansong of the real estate bubble) and the decade from 1945-1955 as
returning soldiers and the post-war boom increased the demand for property in
the U.S.

Real estate produces rents but also costs (taxes, maintenance) and over long
periods the investment only just keeps up with inflation. Putting your money
in productive businesses (the stock market) has historically been a much
better investment, beating inflation by something like 3-5%.

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RickJWagner
It's not necessarily bad advice. Some credible financial advisors are now
saying houses are not investments.

