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I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table.

Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/community ties dissolving. Hell, I went to business school and read 10Ks for a living, and can still barely manage to figure out all the terms and conditions on my credit cards.

I just want to point out that alternatives (usually uncomfortable, but often necessary) do exist to taking on opaque loans.

How does someone get into a situation where they are "leveraged to their eyeballs with rents"? Sometimes it's purely out of necessity (need to be close to sick family, within commuting distance of work, keeping a rent controlled unit) but otherwise most people in the US generally have a choice of where to live and how much to pay in rent. I could live in the city and pay 1.5x what I'm paying now to live in the suburbs in an unorthodox situation, but I don't because then my rent would be >30% of my annual income.

Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable?

Also, if a homeowner considers their home an "investment" that means they should be willing to liquidate that investment at some point when it makes financial sense to do so. People get sentimentally attached to their homes, which is not true of most "good" (read: fungible/liquid) investments.

We're definitely both against fraud, but unfortunately these government programs that make life better for some by subsidizing mortgages, home renovations, tuitions, etc. can and will always be gamed by unscrupulous individuals. Question is - is the payoff to society (higher homeownership, literacy, energy efficiency) worth it?




> I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St."

I think we can amicably disagree. I'm not in the "fuck Wall St." camp. I understand what it is supposed to do and the value it is supposed to provide.

> Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable?

Yes. You have the option of mobility because you're young and employable. Probably just because you're employable. The average person has horrible job prospects where they are. Moving into uncertainty of even worse job prospects probably isn't a realistic option. I think most people would try to make it work with the job they have (and get stuck with rents because of it), than leave their job and possibly not be able to find one where they move (and to have spent money moving).

> Also, if a homeowner considers their home an "investment" that means they should be willing to liquidate that investment at some point when it makes financial sense to do so. People get sentimentally attached to their homes, which is not true of most "good" (read: fungible/liquid) investments.

I'll go ahead and say this. Your home is NEVER an investment. A house that you own, maybe. But, I repeat, your home is never an investment.

> We're definitely both against fraud, but unfortunately these government programs that make life better for some by subsidizing mortgages, home renovations, tuitions, etc. can and will always be gamed by unscrupulous individuals. Question is - is the payoff to society (higher homeownership, literacy, energy efficiency) worth it?

I agree here, but I think the better question is, "When the unscrupulous individuals form a large, easily identifiable group, why sit idle and do nothing?"


>Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment.

Can you expand a bit more on this?

Usually it might not directly turn into an investment, but it does act as a 'savings vehicle' in many cases. For example when I moved to US a long time ago, the choice was between a 1200 rent and a 1600 mortgage (assuming I put a down of 25k or so). At that point it felt like a very reasonable investment and the market worked out afterwards where in it turned in a great ROI. If it wasn't for that move, I would've still been pissing off money in rent.

Also the actual investment options today are not as cut and dry as it seems either: There is no real 'assured' gain anywhere even though I do see the 3.5-6% returns number touted in the reddit personal finance circles. In the long term, I would ideally split money between these, not eschew home as an investment vehicle. With the right amount of thought and reasonable location choices, it can indeed turn out into a great investment. This is not to ignore the risks people take by overextending themselves / doing 'home flipping' but to each their own.


Everyone is born short housing. Buying your first house is covering a short position. Renting instead of buying is maintaining a short position. Buying your second house is taking a long position.

(Copied directly from my other post in this thread [0], though if you do a search I've said the same thing several times.)

[0] https://news.ycombinator.com/item?id=13376763



It's an illiquid investment that appreciates at a rate that varies in conjunction with inflation. You might win or lose, but it's tough to predict, varies with geographical area and in relation to inflation and wages.

There are many graphs that show aspects of this, here is one useful one I found: http://lesjones.com/2008/11/25/inflation-adjusted-us-house-p...


You don't typically consume an investment.

If I buy a house and live in it, how quickly can I reasonable divest myself from the house? For the average American, not quickly at all. Why is that? Because I need to a home to live in. If not this one, another. And generally the equity in my current home will be used to secure my future one.

A house that you buy and don't live in (or is easily divested) could be seen as an investment because you don't live in (consume) it. If you need to sell it, that money could easily go to other things. And you can sell in a timely manner.

Edit: I was trying to be layman about it, but chillingeffect did a good job on the technicals.


If you agree with chillingeffect that one's home "is an illiquid investment that appreciates at a rate that varies in conjunction with inflation", then you think it's an investment, albeit one with some drawbacks.

Yes, it's illiquid, absolutely. (Although not much more so than any other home one buys, say an apartment block; I can move on less notice than I can sell a property.) Yes, there are some concerns about the ROR, relative to inflation (although I note that world population, and population in most markets one cares about, is increasing, and they're not making more land, so one should expect real estate to appreciate somewhat, relative to inflation, although perhaps not enough to be interesting).

But why on earth would you say that it's "not an investment"? Why does illiquidity and poor RoR disqualify something from being an investment?

Do you also claim that buying negative-rate bonds is not an investment? What about buying gold against inflation (for those who see gold as an inflation hedge)?

What is the definition of "investment" that you're using? It must be a pretty compelling one, for you to use the phrase "not an investment" so confidently in so many comments. Me, I thought that the nature of investing was allocating capital, the opposite of divesting (selling).


Alright, we can get down to technical definitions and splitting hairs.

In an economic sense, you don't consume an investment. In economics, an investment is the allocation of capital that will essentially be "put away" until some time in the future. You don't touch it.

In finance, an investment is purely about the possibility of appreciation/depreciation (or making money on the buy sell spread). If I buy a candy bar wit hope that it appreciates in value, it's an investment. If I short that candy bar, and the value of the bar depreciates, that's an investment.

I do understand that the two different usages of the term (combined with the fact that a house can be consumed and still be intact enough to sell). However, I stand by the statement that your home is not an investment. It's a bad financial one. It's not an economic one.


Both of those definitions are wrongly stated, and that's why you're producing this wrong belief about primary residences.

An an economic sense, an investment is an allocation of capital. Certainly consumer purchases of durable goods are not investments. The most common type of capital to invest is money, but other types might apply. By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner.

Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing. Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one).

If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice.


We can go back an forth about this (or not, doesn't matter), but my point still stands.

> An an economic sense, an investment is an allocation of capital.

As I said.

> Certainly consumer purchases of durable goods are not investments.

I relate this to the consuming of your primary residence ("home").

> By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner.

Your home is not a mechanism of production. Sure, if you buy your house, you may be able to sell it for a profit down the line. However, you home is a place a residence. A CNC machine, a fleet of vehicles, a building that you will then fill and rent out all are mechanisms of production. The idea of your home as a means of production is based upon the false idea (prevalent in the US, and apparently Canada) that home values will always increase. Non of those other "consumable" investments are based upon the value of the investment themselves... they produce value due to usage, not inflation.

> Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing.=

I was probably being a little hyperbolic there, but my point was that you should not consider your home an investment.

> Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one).

Again, didn't I say that?

> If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice.

In practice, for many people, it's not. See the 2008 housing crisis.


> (or not, doesn't matter)

heh. indeed.

I agree with the "didn't I say that?"s, you just appeared to contradict it on later in the respective sentences.

Of course appreciation (assuming it happens) is not production. The good that a home produces is housing. That's why it's an allocation of capital to a means of production. That's why, economically, it's an investment. There's no way around that. The claim that something is economically an investment is completely disconnected from resale value; it's connected to productive capacity.

And you appear to have backed off on the claim that it's not a financial investment, you just think it's a poor one. I disagree, but I think your position on this is, while mistaken, not madness.

I think that, given demographic trends, both in terms of population growth, and in terms of ongoing trends in urbanization, we should expect that the long-term trend of real estate appreciating at 1-2% more than inflation should continue. That alone should defuse your claim that it's an obviously-bad investment (i.e. it's a good hedge against inflation, better than traditional anti-inflation hedges like gold). Whether it's a good investment depends on other factors, like how far you leverage, how easily you can weather things like 2008, how diversified you want your portfolio, how much tax advantage you get from owning your primary residence, how much it would cost in your market to rent an equivalent home, whether it's even possible to rent the home you want, etc etc etc. But it should be credibly on the table for every investor. And you cite 2008... but of the homeowners that I personally know, who were long real estate in 2008, with whom I've discussed the issue (perhaps a dozen), literally zero of them are sad that they were long in 2008 (except of course that if they'd had a crystal ball, some of them would have done differently, right after buying lottery tickets). So what is it you want me to see about the 2008 housing crisis?


> I'll go ahead and say this. Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment.

I'll go ahead and say this. My home is certainly an investment. I allocated some capital to some real property, and this real property generates value for me every day, which I might have purchased otherwise (indeed, would have been nearly forced to). Because of the ability of my home to generate value in this manner, I expect that others might want to own it, and so it can probably be resold. I also am pretty optimistic about my ability to resell it for more than I bought it for, although perhaps not at such a price such that the purchase was as profitable as, say, buying an Vanguard ETF.


Everyone is born short housing. Buying your first house is covering a short position. Renting instead of buying is maintaining a short position. Buying your second house is taking a long position.


I'm not saying you can't make money by buying and selling houses, but the average person's home is not an investment.


Well, it is if you plan to sell it and move to a cheaper place once you retire, using the profit to fund part of your retirement. That's well inside the definition of retirement saving.


Using a layman's definition, yes. However, strictly speaking, the average person's home is not an investment.


Your home is a durable consumer good. You spend (lots) of money maintaining it and paying insurance, because it's in a constant state of decay. Your home isn't paying you anything, quite the opposite.

Maybe someone will come along later and pay you more than what you've spent on it. Maybe not. On average you're likely to get back what you paid plus inflation. It's a speculative investment at best.

Now, owning a home where someone else is paying you to live there? That's an investment.


Yeah I think we're in agreement in general, just coming at this issue from different perspectives. I'd like to see things changing on the consumer side as well as the gov/regulation side described in the article:

Riverside County, Calif., has opened an investigation into marketing practices for PACE loans, and California Gov. Jerry Brown signed into law in September new requirements establishing uniform disclosures for PACE loans, an effort to make lending terms closer to those for mortgages. Homeowners who get a PACE loan now have three days to back out.

The largest PACE lender, Renovate America Inc., is accused in three lawsuits filed in November by borrowers of double-charging interest and administrative fees and failing to immediately credit loan payments. The suits seek class-action status. The company denies the allegations and says it will “defend PACE, our company and the program vigorously.”

In November, the Energy Department urged administrators of the loan programs to clearly explain loan costs and other terms, allow borrowers to cancel their loan during a short period and deter kickbacks to contractors.

It would be nice to be able to trust financial institutions/loan originators, have them explain things to consumers in easy-to-understand and fair ways, and have some type of more personal relationship than we have now with those who provide us with places to save/borrow money.


> and to have spent money moving

Point that at the ~52k median US income, a long distance move + the inevitable missed weeks without a paycheck is not a trivial decision for a lot of people.


>If a homeowner considers their home an "investment" that means they should be willing to liquidate that investment

This is a point which is missed by so many people. Every empty-nester I know and consider well prepared for retirement has made downsizing a key component of their overall strategy.

I get sentimentality but there's as much sentimental value in retaining financial stability in one's later years. Sure, an empty nest, baby boomer household will usually be able to bear the financial burden well into their retirement. However, seniors find themselves facing large, unplanned healthcare expenses all too often. That's where the $XXX,XXX they gained by downsizing around the time of their retirement would prove invaluable. Not only would they avoid the large tax penalty that comes from withdrawing from a 401K, they'd reduce their fixed expenses while retaining an asset (the smaller home) that can be passed down to the next generation.

I've known far too many seniors who have been forced to sell the home they "plan to pass down to the children as a nest egg" just to cover medical bills and it's a sad sight to see.


Who should be paying their medical bills then?


This maybe doesn't apply for many people in the us currently, but in my age group (late 20s) student loan payments are so high that it's not worth moving to a lower cost of living area. Staying in the city where the jobs are and the higher pay is, nets you more money at the end of the month even if rent is >30% of your pay.

Having a large static payment is making cost of living a much less important part of my cohorts finances


I think you've hit the nail on the head when it comes to houses - people form irrational sentimental attachments to their real estate.


Human irrationality around shelter is a market inefficiency which the banks are happy to take advantage of.

They're also happy to write documents that are incomprehensible to the buyer, providing terms in their favor, as they know they are not working with experts, 99 percent of the time.

When individuals are put in opposition to large institutions, the individuals are going to lose. No amount of financial education is going to change that.

Regulation and good governance are your best bets, though competition sometimes works as well; place another institution in the mix to take the burden off the individuals.


Yes, yes, and yes. I was not trying to shift the blame to the consumer. Information asymmetry is why we need strong consumer financial regulations.


Buying a home is a massive bet on the local employment market (in your niche) staying fungible over decades. At the rate of creative destruction happening in business these days and the associated deterioration of the employee/employer (implied) social contract since at least the 80s...this just doesn't make sense.


> Buying a home is a massive bet on the local employment market (in your niche) staying fungible over decades.

I've seen "fungible" used to indicate flexibility, and I've seen it used to indicate growth and decay. Are you using it to indicate either of these, or are you attempting to indicate a long-term steady state?

When trying to communicate an idea, you may wish to use a word that has a fixed meaning and a reasonable chance of being understood, because to be brutally honest, I haven't any idea what you're actually intending.


It's not necessarily irrational to want to stay in the same home after 40 years. Money is only indirectly beneficial. If you enjoy where you live that can be worth quite a bit.


>There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table.

You've kind of hit on a huge part of the problem - there's WAY more than 2 sides. Thanks to swaps, derivatives, and bonds, the originator isn't on the hook if the borrower defaults. The originator isn't even holding the loan anymore. They've bundled it up and sold it off to a 3rd party who never bothers to check if the loans are any good, because THEY bundle it up and sell it off ASAP to a 4th party. Repeat ad nauseum.

End result is that nobody in the chain is ever incentivized to actually check if the borrower can afford the loan they've been given. On one side, you've got a giant billion-dollar industry who whose best interests are served by issuing as many loans issued as without concern for the long-term consequences. On the other, you have the borrower. As we learned from the 2008 crisis, putting all the pressure solely on the borrower to think of the long-term consequences is not only unfair, it's dangerous to everyone.


> The originator isn't even holding the loan anymore. They've bundled it up and sold it off to a 3rd party who never bothers to check if the loans are any good, because THEY bundle it up and sell it off ASAP to a 4th party. Repeat ad nauseum.

"You get a hot potato, you pass it on. I passed it on. Listen, there were a lot of people who are very happy to get things taken care of for me. Hey, you know? It was really funny seeing how far and how fast that particular potato got passed on. That told me a lot about who was bright and who was not."

The Long Dark Tea-Time of the Soul - Douglas Adams




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