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]
I think he hits it on the head in that article.
But, I disagree with the argument that if prices go lower, you are unaffected. Because you are leveraged up, you get killed.
Yeah. What these ridiculous articles never factor into their investment calculations is that the house is actually a product you use. That’s the most important value of the ‘investment’. You can’t live inside a stock certificate. It’s like talking about owning a car as an investment. If you bought the car for $10,000 and sold it for $5,000 a few years later, this guy would say it was a horrible investment. But, hey, you got to drive the car for all those years. A house is, after all, a consumable product…
So everyone who disagrees with the author thinks that housing prices have nowhere to go but up?
I think the article can be summed up as follows: Its shelter, stupid.
This guy is young enough to be my son. I’m supposed to start taking financial advice from him?
One mistake that J. Surowiecki should never make is the quoting of economist Robert Shiller. This guy has no credibility when it comes to housing. He’s been calling for a major housing crash since 2002. He’s been wrong for 3 years straight and almost wrong for the last year.
Anonymous 1st poster —
Hard to see the upside of lower property values for me:
1. We only insure up the the amount required by the mortgage company, so a decrease in market value wouldn’t allow us to decrease our insurance cost.
2. because of the way the NYC computes and caps property taxes our home value would have to decline by something like 80% before we’d have a shot at arguing that our taxes should be lowered.
I thought great article. But lower insurance and property taxes because value of home maybe lower? No way. Never gonna happen. If appraised values go down tax rate goes up. Appraised value goes up – tax rate can stay same. Either way taxes still go up. City still needs to raise revenue.
Why do you publish this kind of articles over and over, you are contributing to make the market worst by doing that,every day price cut price cut, please stop it! and just talk about beautiful houses and other interesting things about them
Ok, this is wrong, but my first thought on this post was “gee, why does brownstoner have a picture of a really cute guy on his page?” Oh lord.
But a good balanced article. This is his best point:
“If you’re planning to sell your home and buy another one, an over-all decline in housing prices leaves you no poorer than before. And, if you’re staying in your home, a drop in value can actually make things easier by lowering property taxes and insurance costs.”
Especially that first sentence – if everyone drops prices, first timers can come in because move up buyers can drop their prices because those move ups buyers will be able to afford the now lower priced home they are moving up to, and so forth and so on. And who has ever complained about lower property taxes?