http://www.washingtonpost.com/wp-dyn/content/article/2009/11/13/AR2009111302214.html 3. Homeownership is good for society because owners make better citizens. This is the rationale behind the government's many efforts to subsidize and expand homeownership, and there is an appealing logic to the argument. Since homeowners have a financial stake in their communities, one might expect them to be more... [more]
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/13/AR2009111302214.html
3. Homeownership is good for society because owners make better citizens.
This is the rationale behind the government's many efforts to subsidize and expand homeownership, and there is an appealing logic to the argument. Since homeowners have a financial stake in their communities, one might expect them to be more responsible and involved citizens. But there's no overwhelming evidence that higher homeownership rates make for better societies. Austria, Germany and Denmark all have ownership rates in the low 40 percent range, meaning that just over two-fifths of all housing units are occupied by their owners. This is well below the 68 percent ownership rate in the United States, but those countries don't appear to be suffering a shortage of civic-mindedness. At the other end of the spectrum, Spain's ownership rate tops 80 percent, but no one seriously claims that this makes Spaniards better citizens than Americans.
4. It's safe to buy a house with a very low down payment.
Because the Federal Housing Administration insures mortgages backed by down payments as low as 3.5 percent, you might think that buying a house with a low down payment is relatively safe. But in the case of a 3.5 percent down payment, a borrower winds up carrying $96.50 of mortgage debt for every $3.50 of home equity. And the less equity you have in your home, the greater the chance that a fall in prices will leave you owing more than the house is worth, a condition often described as being "upside down" or "underwater." In this example, housing prices only need to fall by 4 percent to leave a buyer underwater.
To put this in perspective, Lehman Brothers, Bear Stearns and other investment banks were using similar ratios of debt-to-equity to finance their investments before the financial crisis. Of course, buying your house with little money down is less risky than engaging in the complex trades that Lehman and Bear Stearns were making. Still, negative equity sometimes leads to mortgage defaults, and when buyers default, they lose not just their down payments but also closing costs and the value of any improvements they've made to their homes.
Even if buyers don't default, they may not be able to afford to move, because they have to pay off their old home loans to get new ones. My research suggests that households with negative home equity are half as likely to move as similar households with positive home equity. As a result, our borrowing binge during the recent boom will probably leave many people locked into their current homes. One of the great virtues of American society has long been our willingness to relocate and follow opportunity. But now, many families are going to be stuck in declining parts of the country, unable to take advantage of better labor market conditions elsewhere.
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Response by Fluter
about 16 years ago
Posts: 372
Member since: Apr 2009
Great article, Riversider, thanks for sharing. I have been beating this drum for years, although nobody seems to want to listen to the tune.
For those who lack much in the way of financial discipline, owning a home does become a form of forced savings. You can't blow the money on lottery tickets or at the bar if you're using it to fix the boiler. The only problem is, in the current market, many people were forced to save into an investment that is no longer worth anything close to what they invested. A case can be made that they might have enjoyed the lottery tickets or the vodka more and would be just as well off, maybe even better off.
Often rental housing is less well-maintained than comparable owner-occupied housing. One reason for this, *in some cases*, is that even in very good investment areas, it is so expensive to own property that the landlord is not making enough profit to feel generous about maintenance. Why this doesn't give potential home owners pause, I don't know, because if even the professional property owners are challenged, why is it going to be easy for you?
For many people home ownership gives control. You can renovate. There's no stupid landlord to answer to or to deal with. But a great rental building or house can make a fantastic home. I like the tag line I saw a few months ago in Harlem: "Own Your Life, Rent Your Home."
And I always bristle when someone talks about "throwing money away on rent." Yeah, right. Every day I "throw money away" on food. Does this mean I should become a farmer? Housing is one of life's necessities, you're not "throwing money away" when you spend money on it.
{Manhattan real estate agent. Home owner and rental property investor.}
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Response by NYCMatt
about 16 years ago
Posts: 7523
Member since: May 2009
"The only problem is, in the current market, many people were forced to save into an investment that is no longer worth anything close to what they invested. "
*FOR NOW*
Again, people are simply not getting that homes are not an INVESTMENT -- they are a place to live.
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Response by evnyc
about 16 years ago
Posts: 1844
Member since: Aug 2008
Fluter, I agree, although I'd also point out that those "investments" also cost a lot of money over time in upkeep. If you don't have the financial discipline to come up with a down payment, how are you going to save enough to maintain your "investment"? And how long before your "investment" starts looking less habitable than a modest rental if you're spending all your money on debt service?
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Response by w67thstreet
about 16 years ago
Posts: 9003
Member since: Dec 2008
Forget it envy. Talking to fluter, matt or de furer is like trying to convince a parent their kid is indeed ugly as dirt, dumb as a stick and dances like 3 Amish kids in studio 54.
They'll never believe you. Instead, they will send headshots to Ford, apply them to Harvard and make them try out for the lead in the nutcracker.
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Response by evnyc
about 16 years ago
Posts: 1844
Member since: Aug 2008
I think Fluter mostly agrees with us on this, Westie. I don't talk to Matt; he's a nasty little piece of work and not worth the time or effort. Der Fuhrer is an idiot, though at least he's not usually mean-spirited.
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Response by beatyerputz
about 16 years ago
Posts: 330
Member since: Aug 2008
"Again, people are simply not getting that homes are not an INVESTMENT -- they are a place to live."
I love this moron. Hey Matt, here's a few more:
"People are simply not getting that gold is not an INVESTMENT - it's something nice to look at."
"People are simply not getting that stocks are not INVESTMENTS - they're conversation topics for cocktail parties."
"People are simply not getting that art is not an INVESTMENT - it's stuff to put on your walls."
Hey Matt, let me make it simple for you.
If you buy something and there's a good chance you'll sell it sometime in the future, guess what that is.
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Response by columbiacounty
about 16 years ago
Posts: 12708
Member since: Jan 2009
now matt will explain to you how once you buy real estate, you never sell it. never. ever.
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Response by somewhereelse
about 16 years ago
Posts: 7435
Member since: Oct 2009
"If you buy something and there's a good chance you'll sell it sometime in the future, guess what that is"
BYP, you call call Matt a moron all you want, but you're actually wrong, and he's right.
Owner-occupied real estate is not an investment going by the actual, well, *definition*.
The line you gave that I quoted is NOT the definition... hell, a new car fits that description, too, and its not an investment.
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Response by beatyerputz
about 16 years ago
Posts: 330
Member since: Aug 2008
"The line you gave that I quoted is NOT the definition... hell, a new car fits that description, too, and its not an investment."
Actually, SWE, do you expect your house to lose 20% in value the first day you own it? (Maybe if you buy real estate like LICC, but I digress)
How many people view their cars as a form of savings?
How many people calculate their home's bluebook salvage value after 10 years?
Cars are perishables.
SWE, if people viewed their homes the same way they view cars, they'd rent. The fact is that people expect their house to increase in value, and their ultimate exit will be in all likelihood a sale. Plain and simple. You can call that whatever you want. I'll call it an "investment" and see you on the other side.
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Response by columbiacounty
about 16 years ago
Posts: 12708
Member since: Jan 2009
of course....i think its safe to say that its a known fact that cars lose 15-20% of their value the first day you pull it off the lot. its like any other appliance---even if you buy a sub zero refrigerator, you don't assume that it holds its value.
the only case to be made for a car as investment is a classic.
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Response by cow
about 16 years ago
Posts: 4
Member since: Oct 2009
in-vest-ment
-noun
1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.
2. a particular instance or mode of investing.
3. a thing invested in, as a business, a quantity of shares of stock, etc.
By definition, purchasing a home is an investment if the buyer's primary motive is earning a profit (as opposed to say simply wanting a place to seek shelter from the elements). So houses CAN BE investments. Whether or not houses make GOOD investments is another question...
Great article, Riversider, thanks for sharing. I have been beating this drum for years, although nobody seems to want to listen to the tune.
For those who lack much in the way of financial discipline, owning a home does become a form of forced savings. You can't blow the money on lottery tickets or at the bar if you're using it to fix the boiler. The only problem is, in the current market, many people were forced to save into an investment that is no longer worth anything close to what they invested. A case can be made that they might have enjoyed the lottery tickets or the vodka more and would be just as well off, maybe even better off.
Often rental housing is less well-maintained than comparable owner-occupied housing. One reason for this, *in some cases*, is that even in very good investment areas, it is so expensive to own property that the landlord is not making enough profit to feel generous about maintenance. Why this doesn't give potential home owners pause, I don't know, because if even the professional property owners are challenged, why is it going to be easy for you?
For many people home ownership gives control. You can renovate. There's no stupid landlord to answer to or to deal with. But a great rental building or house can make a fantastic home. I like the tag line I saw a few months ago in Harlem: "Own Your Life, Rent Your Home."
And I always bristle when someone talks about "throwing money away on rent." Yeah, right. Every day I "throw money away" on food. Does this mean I should become a farmer? Housing is one of life's necessities, you're not "throwing money away" when you spend money on it.
{Manhattan real estate agent. Home owner and rental property investor.}
"The only problem is, in the current market, many people were forced to save into an investment that is no longer worth anything close to what they invested. "
*FOR NOW*
Again, people are simply not getting that homes are not an INVESTMENT -- they are a place to live.
Fluter, I agree, although I'd also point out that those "investments" also cost a lot of money over time in upkeep. If you don't have the financial discipline to come up with a down payment, how are you going to save enough to maintain your "investment"? And how long before your "investment" starts looking less habitable than a modest rental if you're spending all your money on debt service?
Forget it envy. Talking to fluter, matt or de furer is like trying to convince a parent their kid is indeed ugly as dirt, dumb as a stick and dances like 3 Amish kids in studio 54.
They'll never believe you. Instead, they will send headshots to Ford, apply them to Harvard and make them try out for the lead in the nutcracker.
I think Fluter mostly agrees with us on this, Westie. I don't talk to Matt; he's a nasty little piece of work and not worth the time or effort. Der Fuhrer is an idiot, though at least he's not usually mean-spirited.
"Again, people are simply not getting that homes are not an INVESTMENT -- they are a place to live."
I love this moron. Hey Matt, here's a few more:
"People are simply not getting that gold is not an INVESTMENT - it's something nice to look at."
"People are simply not getting that stocks are not INVESTMENTS - they're conversation topics for cocktail parties."
"People are simply not getting that art is not an INVESTMENT - it's stuff to put on your walls."
Hey Matt, let me make it simple for you.
If you buy something and there's a good chance you'll sell it sometime in the future, guess what that is.
now matt will explain to you how once you buy real estate, you never sell it. never. ever.
"If you buy something and there's a good chance you'll sell it sometime in the future, guess what that is"
BYP, you call call Matt a moron all you want, but you're actually wrong, and he's right.
Owner-occupied real estate is not an investment going by the actual, well, *definition*.
The line you gave that I quoted is NOT the definition... hell, a new car fits that description, too, and its not an investment.
"The line you gave that I quoted is NOT the definition... hell, a new car fits that description, too, and its not an investment."
Actually, SWE, do you expect your house to lose 20% in value the first day you own it? (Maybe if you buy real estate like LICC, but I digress)
How many people view their cars as a form of savings?
How many people calculate their home's bluebook salvage value after 10 years?
Cars are perishables.
SWE, if people viewed their homes the same way they view cars, they'd rent. The fact is that people expect their house to increase in value, and their ultimate exit will be in all likelihood a sale. Plain and simple. You can call that whatever you want. I'll call it an "investment" and see you on the other side.
of course....i think its safe to say that its a known fact that cars lose 15-20% of their value the first day you pull it off the lot. its like any other appliance---even if you buy a sub zero refrigerator, you don't assume that it holds its value.
the only case to be made for a car as investment is a classic.
in-vest-ment
-noun
1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.
2. a particular instance or mode of investing.
3. a thing invested in, as a business, a quantity of shares of stock, etc.
By definition, purchasing a home is an investment if the buyer's primary motive is earning a profit (as opposed to say simply wanting a place to seek shelter from the elements). So houses CAN BE investments. Whether or not houses make GOOD investments is another question...