I met recently This article Exhale why buying a home is not a good long-term investment. Let me just say that I strongly oppose his argument. This article thoroughly analyzes his reasons for why he is wrong.
He is discussing with Schiller, who won the Nobel Peace Prize last year, and another economist who was completely against Schiller (see the numbers). Sure, indexing home pricing was good for him, but if he’s learned anything in the last two decades, economists are always wrong. So is the real estate investment dissertation based on an armchair professor? I do not think so. Let’s move on to the next part.
Schiller argued that housing is not a good provider of capital gains, but a good provider of housing services. Well, I would like to convey that to the IRS. I’m sure homes in the 1950s aren’t the same amount as they are today. Home prices are rising, even though Schiller graphed home prices in the 1890s to show that home prices did not change much after inflation adjustments. What he forgot to mention is that home prices seem to work surprisingly well in times of inflation.
Stocks vs. real estate?
From this point on, the author compared stocks as a better investment. The plunge of dozens of stock markets over the last 100 years does not seem to indicate that the stock market is a very volatile investment. It’s safe to say that investing in an index alone can outpace your home as an investment, but let’s dig a little deeper to see the benefits of owning a home.
Despite the fact that Schiller says that owning a home is a good provider of home services, the author forgets in his dissertation that inflation raises the cost of home services. is. The amount you paid for rent in the 1890s is quite different from the amount you paid for rent in today’s world.As recorded on a recent trip ArgentinaHow do Argentines feel when they have to sign a rental contract that stipulates that rent in the second year needs to increase by 30%? Or how does even San Franciscan feel about rent when he chooses not to buy a house in the 1990s? Living expenses will go up. Rent goes up.
However, this is not the case if you have a fixed rate mortgage. If you own a fixed rate mortgage, your payment will always be the same. In an inflationary environment, we are receiving significant discounts on debt repayment. Even in 2014, I wondered what the 1984 payment was like. Let’s say the monthly mortgage was probably about $ 600, with exaggerated numbers. The cost of gas in 1984 is $ 1.21. So in 1984, we needed 495 gallons of gas to pay our monthly mortgage. If today’s payment is still $ 600, but gas is $ 3.68, it means that you only need 163 gallons of gas to pay your monthly mortgage. You needed much less gas to pay to live in your home. Meanwhile, I think that the rent has risen along with the gas bill. And that is the power to own debt in an inflationary state. So what I’m saying is that when you fix your 30-year mortgage rate, you’ll feel pretty smart by 2044.
So in this case, I think both the author and Schiller missed a big point. House prices may be stable at any time after inflation adjustments, but the cost of living in a house has been completely removed from the debate for their convenience. Millions of Americans have hedged the rise in living costs by owning a home. You can’t do that with stocks.
Inventory will increase. But so is your rent. How to pay the principal and interest on your home? It will be the same (don’t lock the adjustable ones, fix them!).