Your House May Not Be Such a Great Bet After All
In this week’s New Yorker, James Surowiecki takes an axe to the myth that buying a house is always a great investment. The reliance on median home price as a barometer of the market is part of the problem. First of all, the statistic does not take into account the qualitative (e.g. central air) and…
In this week’s New Yorker, James Surowiecki takes an axe to the myth that buying a house is always a great investment. The reliance on median home price as a barometer of the market is part of the problem. First of all, the statistic does not take into account the qualitative (e.g. central air) and quantitative (more square footage). Secondly, it ignores the corrosive effect of inflation on real returns. It also, doesn’t take into account non-financial incentives and rebates. Nor does it handle the problem of sample bias, whereby the inputs (i.e. sold homes) to the median calculation every year do not remain constant. “The idea that housing prices have nowhere to go but up is,” in Surowiecki’s words, “a statistical illusion.”
Safe As Houses? [New Yorker]
Another article on real estate as an investment, oh no! We should just line posters up into categories:
I own a coop and am self congratulatory
I own a brownstone and am self congratulatory.
I own a coop and am nervous
I own a brownstone and am nervous
I want to own a coop and am nervous
I want to own a brownstone and am nervous
I rent and am angry about it
I live with my mother and spend all day on line bashing people.
Robert Shiller is a pretty sharp fellow. He called the stock market and tech run-up bubble just about perfectly. And, yes, he was early to the housing bubble but that’s not remotely to suggest he was wrong. If you read his comments of a few years back, he states what is simply commonsense: No one can call the top. All you can hope to do is divine the nature of the bubble and issue a caveat emptor. (I’ll bet there are a whole lot of new homeowners around the nation who wish they’d listened … )
I realize this is mainly a homeowners’ website, and therefore the bias is towards retaining value. But let’s be aware of our biases. Bizarrely high prices, viewed more broadly, are not good for the social culture of the city. A decline of 15 or 20 percent would be splendid for many buyers and not really hurt those who purchased back in the mid-1990s or even late 1990s (unless they have over-leveraged their homes).
I’m not predicting such a drop, by the way. Though the plummet in purchase prices of new and existing homes, and the continued very high inventory, certainly suggests this housing slowdown could persist for many months.
Thanks
I wouldn’t be surprised if real estate price in NYC dropped 25% in the next couple years in NYC.
Hell, they’ve gone up twice that in the same period of time and rents haven’t moved much. During the dotcom bubble rents were at the same level they are now.
I rather “earn” 200-300k by waiting a year or two to buy a brownstone in Brooklyn instead of overpaying to buy one now.
If you factor in taxes, we’re taking about a 500k difference to purchase a 2 million dollar home.
I live in a nice, bright Soho 2 bedroom now, so I don’t mind waiting. I own the building, so only lose out on the rent I’d otherwise be making.
It’s smarter to be the tortois than the hare.
Rent!
So I guess we don’t need to worry about this: http://news.bbc.co.uk/2/hi/business/6088630.stm
JoshK, Isn’t rent vs. buy kinda where the market’s at right now? One could argue that this IS precisely the point of the article above. (Although the Montgomery Place buyer sure as hell just boosted buyer’s confidence, eh?)
Uh-oh, I’m sensing a rent vs buy discussion.
So if your mother’s brownstone were worth 1/2 of a 1/3 of what you think it is today- which maybe more in line of her expectiations when she bought – her % net worth in RE would be much less. But her income (rental) and life(style) is still the same no matter what ‘worth’.
I think it is you worrying/dreaming more about some inheritance $$$ –
that you’d consider selling an option.
Another thing these real estate as “investment” articles miss is this: You HAVE TO invest your money in a place to live. Whether you buy or rent, you need a roof over your head. No matter what decision you make, it certainly has financial repercussions; so, I guess you can look at it in investment terms. But doesn’t it seem a little silly to only talk about this as a dollar investment when everyone is forced into the market simply because they’re alive?