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