Interesting thread. My conclusion? It's a crapshoot. From the 1940s-1978 it was not much of a crapshoot, but now it is.

I think the important variable here is whether he/she will not fritter away the profit. Since that seems doubtful, seems there is no chance that this particular individual will gain financially by selling; but perhaps he would find a way to fritter away the home equity, if he didn't sell, anyway! Also, we are talking a fairly short time frame until retirement for this guy, not that long to make hay.

I was lucky, bought my last house at a still somewhat moderate price (for SoCal), sold it at close to the peak of the market just before it crashed in 1989, and headed to Ohio where I paid cash for less than my original purchase. Invested the rest. I've done okay for retirement by continuing to save and live thriftily, but won't be living high on the hog for the next 30 years. If I had held onto the CA property, I would be sitting on enough property value to be about the same (on paper) overall -- without factoring in how much more I would have paid out in utilities, taxes, maintenance even child care to keep that house-- but would I be able to liquidate that when I need to? How many housing stalls has SoCal gone through in the past 25 years?

The house I have now has not appreciated anything like that CA house, and not as much as an equal investment in the stock market would have, plus I have had to sink at least 15% of its current value into maintenance and repair/replacements. But, on the other hand, I have had the security of a paid-for roof (hah, as long as I pay the property taxes) over my head. There is some value to that.

Or, maybe the stock market will be down drastically when the time comes to start pulling income from my investments? Who knows? Right now I am not convinced that stocks are priced realistically although I am enjoying my statements.

My mother bought a condo (against the advice of 2 of her children, at the urging of a 3rd) at a nice price, in a nice neighborhood (but not in a really prosperous city); it appreciated by some 20K in the first few years, but by the time she wanted/needed to sell, it was another housing crash and it sat for years and in the end was worth, and sold for, 25k less than she paid for it. Plus the money she had put into fees, taxes, repairs....and the money I put into fees, taxes, utilities in the years it was vacant.... in less than 10 years of ownership...ownership sure didn't work out for her.

I never look at my home as an investment it is a purchase, like a car. A 3% yearly return is the best a house yields historically and my stocks are much higher. So if I could not invest in the market and pay a down payment, mortgage interest, maintaince, taxes and insurance i would forgo home ownership and rent and use the extra disposable income I saved by renting to invest in higher risk stocks and bonds. If your client does invest his gains and still rents at the same cost as his mortgage payments he will have extra money every year now just by having zero insurance and taxes to pay to splurge or hopefully save or invest.
Since I am an investor, saver and frugal spender I do own my home rather than rent, it is my luxury item though, like prada or a sports car, not an investment I count on to carry me through life.

This post was edited by roarah on Thu, Sep 18, 14 at 17:53

Oh, and to answer your original question, How much would I need to realize to be worth it to me to sell? That is really hard to answer too. It so depends on the rental market and general cost of living and how easily I can pay rent out of current income, compared to my current costs.

Just guessing -- To sell a paid home I would want to clear $150k at least but for a house that was far from paid off I would probably be content with less. That is based on my sense of how I use and spend money.

It is very hard to find a rental house that the owner is loosing money on and stay in that home for more than a few years. This puts you moving every few years or spending more money on rent than ownership fees unless you are always finding the best rental deal. As already mentioned, rent tends to go up while a standard mortgage stays the same, although taxes and insurance go up. When you pay rent, you are still paying taxes and insurance, just a little differently. While interest adds up to a lot over the 20 or 30 year mortgage, your payments generally decrease dramatically once paid off, whereas rent never gets the same benefit.
If a person really wanted to decrease their lifetime home cost, they should look for a home that is the best value. A home with a tin roof would also be beneficial as well as something smaller (heating and cooling) with some type of rental income possibility. A brick 4-plex with a tin roof would likely benefit the purchaser over the lifetime given that it was in a decent neighborhood and that owner had enough business savvy to maintain the property. This is not what most home owners are looking for...they are looking for something move-in ready that speaks to them
However something move-in ready will need a lot of work to be ready to sell in 7 years as paint colors/cabinets/etc will feel very old then. Buying something outdated and updating only when ready to sell would likely be of more financial benefit.
The problem becomes confusing a lifestyle choice with an investment. They may be the same, but often are not. Iflt is great to think that renting is less expensive....but less than 1% of those renters are probably stashing away and significant amount to the savings/retirements. (Not figuring markets such as New York City where real estate is significantly different than the markets we are likely talking about.)

"Place yourself in this scenario. You are 53, you have been self-employed, having to fund your own retirement completely for most of your worklife. You recently got a job that pays benefits, so you may have 15 years or so of a conventional job prior to retirement.

How Much Money would you have to Net from the sale of your House to feel it was worthwhile in increasing your savings for retirement? After this you would rent. "

Some questions:
1. What was saved during the self-employment years?

2. At what rate and how is the client currently funding retirement at a job "with benefits"? (assuming a 401K here)

3. Is client really going to work until he/she is 68?

4. Does client currently have a mortgage? What is the equity?

5. What is the amount of money client will expect in retirement?

Everyone has different financial goals and are at different places in terms of assets. Facts and figures will help paint a better picture.

1. What was saved during the self-employment years?
Hardly anything. About $100K was lost to a crooked advisor.

2. At what rate and how is the client currently funding retirement at a job "with benefits"? (assuming a 401K here)
   Probably minimal. If he has been there long enough to tap into this benefit.

3. Is client really going to work until he/she is 68?
I don't think he is going to have a choice.

4. Does client currently have a mortgage? What is the equity?
Not a lot of equity, there has been a refi and a cash out in the past. A refi at the increased value of the house, not a refi at the original mortgage value. Luckily the house value has increased above and beyond this.

MagdalenaLee hits it on the head for me. After my last home I owned getting flooded. All that money I put in, all the rennovations I did... Gone. I realized I could rebuild. I even had flood insurance. It is back again, but not by me. I got out for other reasons, but it made me see, owning isn't the holy grail, but if I will likely own again, because, it's cheaper than renting. To add to my own original post, renting isn't a stable deal, you lock in your housing cost if you buy. And at a lower rate if you're in a market where renting is harder, like I am. So both are good options.

I agree tribbix. Owning a house can be a lot like buying a car. I have two old cars. One is 18 years old and one is 24 years old. Do you know I own them? Because I will not sell the 24 year old car. But it needs repairs every once in while. Will NOT sell it. It's funny that when I bought the second car, everyone said what will you do with the Miata? I said, keep it. It'll go to ashes by the time I am done driving it. I don't care how much it's worth. Or that it needs repairs. I have hade it half of my life now, and it has been the most fun. It continues to be fun. If it wasn't, I'd buy a new car.

Same thing with the house. It wasn't fun any more paying those rising taxes, and all the investment portion out the window. You could pour it all into a house, and it be razed to the ground in a flood, and you not get it back. Happened in here in Nashville four years ago. Could happen anywhere at any time. I'm not sure I'm willing to put that kind of money into something that may just up and disappear again. Sure, we all say it could never happen to us. But here I am! Responsible person, who works hard, and tries hard, with no house. My ex? His house burned to the ground and the insurance company wouldn't pay. It can happen anywhere any time. Godforbid it does happen to you, but it happens. It's not the vault you think it is. Or at least, it could very well not as solid as you think.

In the case of Pals friend, if he had significant equity in the home, selling andrenting could make sense. If he has 250K in his home, that would double twice in 14.5 years at 10% to become a million when he is 68. He could then move somewhere like Florida, buy a small home with or without a mortgage and live somewhat comfortably. (Or somewhere else depending on the housing market.). Even with 100K equity, that gives him (or her) 400K at the end of the time. This of course makes several assumptions, including a willingness to rent a smaller home and that he is willing to invest somewhat aggressively enough to average a 10% return. This means that at 68, those funds may be down and he may have to squeeze expenditures to not pull many funds out when the market is lower.
With enough business savvy and willingness to sacrifice for the next 15 years, a good plan could include selling the current house, purchasing a small duplex/3-plex/4-plex with 20% down, and investing the difference. The multi-housing unit would then become an extra job, and he would want to be careful to upgrade carefully. Assuming his income is higher than necessity expenses, fully fund 401K and add on extra investments with another brokerage account. This all really assumes what is likely a drastic lifestyle change. Of course renting a small basement space or something may be easier and still get him to his goal, but a thoughtful investment property may yield an asset that can be sold or paid off by retirement, lowering his expenses overall.

Points not yet raised.
Transaction costs of selling/renting:
- 6-7% commission
- closing costs
- Fed '15 interest rate increase will (negatively) impact housing prices
- moving costs, security and cleaning costs

Behavior: will HO indeed 'save' proceeds?
- CD and MM returns negligible
- market at all time highs, would individual dollar cost average in?

Annie focused on the crash of 2007, while I focused on the consistent growth between 1950 and 2007.

Tibbrix, that is not what I did or said at all. Please don't misrepresent me. I actually highlighted the period from 1955 through the 1975 when real house prices steadily declined. I also looked at the beginning of the chart till the end. I largely ignored the crash as it was an extraordinary event....I also ignored the 2 earlier boom/busts in the 80s and 90s...as apparently you did. The chart clearly indicates that there is no "consistent growth" between 1950 and 2007 that the "better to buy than rent" adage assumes. Rather the real estate market, like other investments, is fraught with price fluctuations. Moreover, including the rising prices of the latest housing boom and ignoring the subsequent crash just weakens your argument.

There are a couple of things here that I think matter. One is that any adage like "better to buy than rent" is true some of the time and not true at other times, and that's largely the problem. A single rule that doesn't allow for the very real shifts in market conditions is useless as you then have to be prescient enough to know when to follow it and when to ignore it. Even putting money in a mattress can be a good investment depending on market conditions. In periods of deflation where money is gaining in value and investment values may be declining, a mattress may be a good choice....it's called holding cash, something many many investors did while house prices and stock markets were falling like a rock.

The other is the concept of "opportunity costs". What are the alternative things you could have done with the money that you didn't because of the choice you made. So even if you pay off your house completely, it isn't "free". The cost of doing so includes the cost of not investing in alternatives.

BTW, interest expense is every bit as much as an expense as is rent.

Uh-huh.

Who's renting? Who's owning?

Sell your house and go rent. Much smarter. And no on said buying a house is free.

There will almost always be inflation because it is the easiest way to steal from those that save.

One quick question for a couple of people here who live in million-dollar houses:

Assuming your house is worth $1 million today.

30 years ago, it was worth $250K.

Your monthly mortgage payment is the same across the 30 years.

What do you think the rent was on that 250K house in 1984? Same as it would be today, like your mortgage payment is?

Not by a long shot.

Still wish you'd been renting all that time and think you'd be better off?

Tibbrix - I feel like you can't see the forest for the trees. One tree is the situation that you describe where someone buys a house and stays in it for thirty years and it appreciates at a rapid rate. The other tree is the house in Detroit that the owner can't give away. Another tree is someone who bought on the uptick and had to sell during a recession.

Pal said up thread that even after 45 years of appreciation his Dad will not net from the sale of the house anywhere close to the sum total of the expenses he has in it (Total mortgage payment over 20 years and total maintenance expenses). He doesn't live in Manhattan or San Francisco but most of us don't.

Does he get intangible benefit from owning a home? Of course, but as a straight investment, he poured money into the house and had a negative return. If he paid the same amount in rent as his principal and interest amount and invested the tax, insurance, mortgage interest and maintenance money in stock over thirty years, he would be ahead.

deee…

http://www.forbes.com/sites/trulia/2014/03/05/buying-a-home-is-now-38-cheaper-than-renting/

http://fortune.com/2014/02/26/its-still-a-lot-cheaper-to-buy-than-rent/

And nowhere did I say buying is ALWAYS, in every case, for every person, better than renting.

right now, 35% of Americans rent while 65% own. What do you think the economy would look like if, say, 10% owned and 90% rented? It would be ugly.

At any rate, I'm glad, and I bet all of your kids are glad, that our parents bought and didn't spend their money paying someone else'e mortgage and property taxes. THAT is how wealth is grown.

Get it?

Tibbix, I purchaced my home with dividends from investments. My parents retired at 50 and live off of interest from investments, not equity from their very lovely house. The top tier of wealth pay less percentage in taxes because dividends from stocks do not carry ss and payroll taxes which add up to 15plus%. This is how wealth grows. Houses are sometimes an investment just not a very strong one.

Choices: Buy a house at, say, age 30, 20% down, 15 year mortgage, same every month for 15 years. Paid off in 15 years, age 45. You now own the house and have that equity.

Or

Start paying rent out of college and until you die, rents which go up as house values go up, versus the mortgage which does not, and being subjected to eviction, rent hikes, shoddy landlords, etc., and your rent money seeing absolutely no return.

You all think the second choice is the overall better one. I happen to disagree. I then have the proceeds from the liquidation of my house to leave my children, or the house itself, which then allows them to increase their personal wealth, which they then pass on to their children, etc., etc. The renter has spent his/her money paying off someone else's mortgage and basically buying that person's house for them.

Smarter?

I personally don't think so. We disagree. Pal's guy is choosing exactly the wrong time to sell. He's 53. He's got to be either close to paying off the house or has. That is when you start accumulating the value of the house as wealth for yourself because you no longer have the mortgage. All gains, minus property taxes and maintenance costs, which are deductible, are yours. Renters gain nothing.

roarah, people who are wealthy enough to live on dividends from investments are far and few between.

this board consisting of, I would guess, at least 90% homeowners, all but one saying renting is better.

Figure that one out.

They do not have to be tibbrex, I, with my parents' tutelage, invested my first babysitting earnings at 12 that changed my destiny.

http://www.fool.com/investing/general/2014/09/16/why-finance-breeds-so-many-arguments.aspx?source=ihpsitth0000003

Pal,
Given your client's history and current circumstances I think he should stay in his house and keep upgrades to a minimum. He has not shown evidence of fiscal responsibility, in my opinion. You said he is in a real estate market with a history (20 years) of ascending values. IF said client can live in the house and NOT refinance OR tap into equity, then this may be his best financial option.

Actually I found out exactly how much this guy would like to net. I also know exactly what he paid as a matter of public record. From what i
I can figure he has NO equity in the house and will only net the difference between what his original mortgage was for and what he might get for it.
Is this possible?

I'm thinking that some people shouldn't "own"...I'm using the term loosely here...because it gives some people the idea they have something to borrow against.

"Does he get intangible benefit from owning a home? Of course, but as a straight investment, he poured money into the house and had a negative return. If he paid the same amount in rent as his principal and interest amount and invested the tax, insurance, mortgage interest and maintenance money in stock over thirty years, he would be ahead."

We can't really make the assumption that a normal person (instead of lucky few) is able to rent a home for just the principal and interest. When you rent a house out, you attempt to cover the P+I+T+I plus the expenses. You do not rent a home for simply the P+I. A few down years this may be the case while someone is waiting for the market to rebound before they sell, but otherwise no. Yes you can rent a home for $600/month rather than your nice Hoke for $1250/month plus additional repair expenses. But in a normal market, these homes are not similar. They both have roofs, yes, but you can't rent the same exact house right across the street with the same landscaping/view for less than the neighbors expenses on his home. Not when you are comparing exact com parables (which of course there isn't such a thing in Real Estate as location always changes).
No, you are not going to sell your home at the end of 45 years for purchase price+30 years interest +45 years insurance and taxes+all improvements. There is a lost amount of that payment every month, but there is also a loss of all of your rent payments . You do not get any of that back at the end. But you ARE still paying those insurance/taxes/interest payments...just in the form of rent. There are also cheaper ways to replace water heaters and such...especially now with Craigslist .

However, if Pals friend has nothing set aside for retirement, a drastic lifestyle change MUST be made. That probably includes selling a larger home than needed. It also includes putting a significant amount away each month. I am not sure how you wake up one day willing to make the changes necessary, bit hopefully he is able. The house equity will unlikely get him there alone. But could also likely double twice in the next 14years if he is willing to be aggressive.

That statistic may be true, but isn't this affected by the fact that people who lack the ability to accumulate enough assets for a down payment are, by default, renters?
It's kinda saying that people who have more assets have more assets than people who don't.

Correct, Pal. Again, the reason for the housing bubble and it's implosion wasn't because homeownership is not a good investment but because banks were knowingly giving mortgages to people who could not afford them. That is a very different thing than homeownership being more financially wise for people who can afford it. And even that is the point, that people who rent by and large do so because they are lower income and cannot afford to buy. But a renter has no control over rent, and rent goes up and up and up over time, whereas a mortgage payment on a fixed rate does not. So after 30 years, that mortgage payment is pretty darn cheap, and you've got a valuable asset. After 30 years of renting, your rent has skyrocketed, hopefully keeping with one's income increases, but likely not, esp. now, and you have nothing.

I have a friend who was a finance guy. Lost his job in the crash. Upper middle class. He's fallen into that terrible category of the over 50 unemployed person who cannot get a job. The only reason he was able to get his last kid through college despite what had befallen them was because of home equity. And they finally had to sell the house, for which they got $1 million, and moved into their other property, an apartment building they owned for rental income purposes. So homeownership, in their case and in many cases, is precisely what saved their hides, hard as it has been.

"That statistic may be true, but isn't this affected by the fact that people who lack the ability to accumulate enough assets for a down payment are, by default, renters?
It's kinda saying that people who have more assets have more assets than people who don't."

According to the arguments being made by the others, no. Because according to them, renters have extra assets they can invest in other things than a house. I don't happen to agree with that, since I think most people who rent do so precisely because they don't have a lot of money or income, but I'm wrong, as has been determined, and renters, in fact, are flush in cash and assets and wealth BECAUSE they've rented and not bought.

If your client has owned the house for 20 years and it has steadily appreciated over time, assuming he has a 30 year mortgage, he has ten years left to pay off the mortgage. However, chances are that he's got a lot more than ten years left to live, so let's say he'll live to 75. He's got 22 years more to live . Does he want to pay rent for 22 years, or his mortgage for another ten, and then have no housing payment for the final 12 years and be able to draw from his equity for retirement?

The latter makes more sense to me. I would not want to be elderly and paying rent.

Tribbrix, I never will borrow against my house. I only buy what we can afford to pay for with cash. We have chet investments that will have enough set aside to pay for college when the time comes and my seven year old is taught to save and invest at least 2/3 of her allowance. I am so cheap and I hate to pay interest! I love to make it though.

The first article you linked was published in a realtor ad so there is a bias and I think the middle class stagnation is possibly because home ownership has been the sole vehicle for its wealth accumulation. Savings, maximizing 401s, IRAS, chets and low to no debt is the way to leave the middle class and enter the upper class.

This post was edited by roarah on Fri, Sep 19, 14 at 21:51

And they financial expert in the Bloomberg link, talking about house prices, saying that homeownership has been the SOLE vehicle for wealth accumulation for the middle class? Or the other article I posted?

This post was edited by Tibbrix on Fri, Sep 19, 14 at 21:42

To answer your (non sequitur) questions, we have not used equity in our homes to pay for college for our three children, for life insurance, or anything at all. People should not tap the equity in their homes to pay for things that should be funded by savings. That act erodes what tiny investment value actually resides in their homes!

I have a question for you, though. Did you by chance purchase your home from a relative at advantageous terms? The nine year mortgage, the apparent low simple interest and your assertion that you bought it $200k below market value seem to indicate a non-qualifying sale. (Before you take umbrage, that is merely a term for a sale that is not performed between strangers at arms' length.)

Sigh.

Okay, kwsl, so you paid cash for your kids' college educations, from savings.

You think most Americans have homes like yours and pay cash for their kids' college educations??? They don't.

That YOU had the cash to pay for your kids' college is not relevant. This is owners v. renters. Renters do NOT have even the home equity to get their kids' educated, thereby improving their children's futures, hopefully.

No, I did not buy my house from a relative. I bought it via family home equity, i.e.: my family having invested in homeownership.

tibbrix said: how many of you used home equity to pay for your children's college educations, which allows THEM to pursue better lives

kswl answered: we have not used equity in our homes to pay for college for our three children, for life insurance, or anything at all.

tibbrix: That YOU had the cash to pay for your kids' college is not relevant.

How is it not relevant when you asked the question?

jill, because the whole debate is accumulated wealth from owning a home versus renting a home. Renters do not have any accumulated wealth from the money they put into their housing to draw on to cover huge expenses like college for their kids, while homeowners do. Educating offspring is part of generational/familial wealth accumulation.

That a very few people have the income to pay cash for their kids college has no bearing on the debate here. Indeed, kwsl is also saying that, despite the worse financial situation of homeownership, she was still able to pay cash for her kids' educations. How many people raising children in rented apartments and houses do you think pay cash for their kids college, keeping in mind that they don't have any financial gain from the money they've put into their housing?

A renter who does not have the cash can take out a fannie Mae loan at a similar interest rate as the home equity loan. Either way owners or renters without cash take a loan, and end up paying more for the same education as one who had the cash. Using one's savings, not equity, is always the less expensive route to pay for anything. Borrowing, even against your own money, is never a great option even though it seems unfortunately to be many peoples only one.

This post was edited by roarah on Fri, Sep 19, 14 at 22:52

No, it goes to how investing in homes furthers wealth accumulation for families generationally, which is the whole point of this argument.

You're thinking in a vacuum. I'm the one saying that homeownership is financially smart, if it's done long-term and wisely. You're the one saying no, that renting is better financially.

How many renters do you suppose are, from the proceeds of having paid rent, able to do the same? I'm not talking about some 1 per center here ,kwsl.

and I explained WHY your paying cash from savings for your kids' college is not relevant to this discussion, and it had nothing to do with your disagreeing with me and everything to do with the FACT that most people, renters or homeowners, can't do that.

This post was edited by Tibbrix on Fri, Sep 19, 14 at 22:49

Tibbrix - I was just pointing out you asked a specific question and when one poster answered it (not how you wanted them to), it was then irrelevant.

Renters do not have any accumulated wealth from the money they put into their housing

True. But, they have (or could have) accumulated wealth from the money they saved (not having to fix the furnace, put in a new roof, the initial down payment, etc) if that were invested. I believe Pal's story about his own dad illustrates this point.

For my own story, I bought my house in 1995, when the market was pretty much rock bottom. At the height of the market, I could have sold my house for almost 3 times what I paid for it. I thought seriously about doing that and renting something. But, I love my house. I love raising my kids in this house. At this point, I could still sell it for almost 2 times what I paid for it. I can tell you that financially I probably should have sold it at the height. I probably should still sell it now. Why don't I? Because I love it. The reason I continue to own my house, and I think most people here do, is because we love our homes and have emotional attachments to them. Not because we think they are a fabulous investment.

The bottom line (and I believe what both mtn and annie were saying) is it depends. Sometimes it's a smart financial move and sometimes it's not. That's all.

Stop it. I did NOT say kwsl's paying cash for her kids' college was irrelevant because I disagree with her (disagree about WHAT? I'm GLAD she could pay cash for her kids education. I wish ALL people could). I explained for you why it is not relevant to this debate. You went ahead and ignored that.

I'm glad for you that your house appreciated three times its value in a mere 12 years.

doesn't that kind of prove what I'm saying here, though? Sounds like buying your house was a VERY wise investment. If you have a house that tripled in value in only ten years, which is very, very rare, I would say do NOT sell it. It sounds like it is a very valuable property and you will benefit enormously if you hold onto it for at least another ten years, so owning it for at least 30 years.

We've all said it depends, myself included. And no, Mtn. said it's a myth that homeownership as an investment is smart.

I'm not sure how someone who says her house tripled in value in a mere decade could agree with that.

And again, most people who rent do so because they can't afford to buy a house and have lower incomes, which means they don't HAVE the resources to invest in high risk/high return investments in the market. they might have 401ks through work, but I wouldn't call that the equivalent of house appreciation and equity or a Warren Buffet investment strategy. It's wise and it's safe, although less so now, but it's very conservative. this idea that renters have all this cash as a result of not having to pay for maintenance on a house is a fallacious argument. they don't have a house because they can't afford one. OR they rent because they're EXTREMELY wealthy.

I explained for you why it is not relevant to this debate. You went ahead and ignored that.

I did not ignore it. My point is that you asked the question, got an answer, then said the answer was not relevant. I cut and paste the exact quotes in my original post above. Somehow I think if kswl has said she borrowed against her house to put her kid(s) through college, you would have said her response was not relevant.

Yes, my house was a wise investment. Yay, me. And what would have been wise from a purely financial point of view would have been to sell it at that point. But, for me, it's not a purely financial decision. I was just trying to answer your question of why we all own houses by giving my reasons.

We've all said it depends, myself included.

Good, then we agree. Good night.

jill,okay, you're right. I only said it was irrelevant because I disagree with kwsl.

Because, after all, most people do pay cash for their kids' college educations, very few use home equity to do so, and people who rent their housing are just as likely to be able to afford to pay for college with their savings as homeowners and everyone else.

And yes, when asking how many of the homeowners here have used equity from their homes to pay for college for their children (which is very smart to do, btw, since it's one of the cheapest ways to do so), had kwsl said, "I did!", yes, I would have said her answer was not relevant because I was asking how many people have benefited from having home equity in that they could put their kids through college, and answering directly, as you point out, would have been irrelevant.

K?

And apparently you believe that you'd have been better off renting than having bought a house that tripled in value in only a decade. I disagree. But as you've all noted, I'm wrong and have been proven wrong.

If your house tripled in only a decade, and is even double in its value now, a 100% increase (show me a stock market rate of return of 100%, and rent, of course, has 0% rate of return), then that house is going to be worth A LOT more in the next 20, 30, 40 years.

Hang onto it. you'll be glad you did.

This post was edited by Tibbrix on Sat, Sep 20, 14 at 0:15

Pal,

If your friends wants to alter his housing arrangement to save more for retirement, probably the clearest most direct step is to live some place less expensive. So downsize or move further out from the urban areas of whatever. That's probably a good idea no matter what.

I think the statistics cited partly show that people who can't accumulate assets Have to rent because they can't accumulate the assets for a down payment and can't own. The poor have to rent so it's going to affect that statistic.

Did anyone even notice the post where by my calculations it appears that after 15 years of paying the mortgage that it appears he owes more on the house than the original mortgage?

No, sorry, let me go back and look. I am afraid that is so common. Forced savings worked better before home equity loans came along I guess.

"they might have 401ks through work, but I wouldn't call that the equivalent of house appreciation and equity or a Warren Buffet investment strategy. It's wise and it's safe, although less so now, but it's very conservative."

Investing in the stock market is more conservative than tying up all your capital in a house? Tibb, do you really believe that?

You also have not addressed this issue; am I correct in my surmise?

"bought it via family home equity, i.e.:my family having invested in homeownership" suggests someone either gave, or bequeathed the money to enable you to purchase the house, which puts a somewhat different spin on your instant equity.

Another point: "And they financial expert in the Bloomberg link, talking about house prices, saying that homeownership has been the SOLE vehicle for wealth accumulation for the middle class?"

The fact that home ownership has been the sole vehicle for wealth accumulation for the middle class does not mean it was the BEST vehicle for that. Plowing money each month equal to the expenses over and above rent that a homeowner pays for "pride of ownership"----taxes, upkeep for decoration and maintenance----in capital markets, instead of a house, would be a much better and faster vehicle of wealth accumulation for the middle class.

This post was edited by kswl on Sat, Sep 20, 14 at 9:44

pal, sounds to me like the only way this client is going to have any savings for retirement is if s/he has a parent who says "No!" and slaps his/her hand every time s/he reaches for the money as there is no investment vehicle that I know of that can't be tapped...it may be costly to tap, but it can be. I've never heard of it, but can you put money in trust for yourself so it can't be touched until you're 65? There is no better savings tool than self discipline. Even inherited wealth or lottery winnings can dissipate quickly without discipline. They say some 70% of lottery winners end up broke...

I think most people in this thread are emphasizing that even though we own, from a purely financial perspective, typically owning is not the best financial decision. We realize that about ourselves and acknowledge we own homes for different reasons such as pride of ownership, not having to deal with landlords, etc.

Housing doesn't decrease in value like, say, cars do. But housing typically gains value, on average, at a small rate, much smaller than investing in the stock market.

The weird thing to wrap your head around is that, from an economic perspective, even a slight gain feels like a loss if you know you could be making a bigger gain somewhere else. The nest egg I have sitting in my house wants to get bigger. And from the egg's perspective, it knows it could be doubling a lot faster if I had it put somewhere else besides my house.

That pain my nest egg feels by missing an opportunity to make even more of itself is called an opportunity cost. So even though my nest egg isn't getting smaller while it's sitting around in my house, it knows it could be getting a lot bigger if I had it somewhere else.

The difference in returns between investing a chunk of money in a house and investing it in the stock market is so great that for most people, it more than makes the difference compared to the monthly out of pocket cost of renting. And actually the bigger the nest egg you had at the beginning (down payment) the more sense it would make to rent, because you'd be able to put more money to work for you sooner, covering even more of the rental costs.

It takes a special person to be so financially prudent that they choose the wise financial decision over the emotional decision even when it comes to something so fundamental as where you live. Those people do exist, and they'll be retiring early and thumbing their noses at me from their suite balcony on their cruise ship as I keep whittling away at my job until I'm 70. This financially prudent person might not own a car and doesn't eat out a lot. Wine is right out for the most part. They lift weights at home instead of the gym. Their cell phone might still have push buttons. Their low cost lifestyle doesn't need a giant nest-egg to support it when they retire, so they're able to retire earlier.

But the trade-off for being tighter than a gnat's butt is that they have increased freedom and financial independence and they accumulate wealth much quicker. They're the ant instead of the grasshopper.

The person Pal described is a grasshopper. And sad to say, I'm probably closer to a grasshopper than an ant. But my father in law is a super ant so I get the best of both worlds.

Governments have typically encouraged home ownership through social policy. However there is little overall evidence that high rates of home ownership are a social good. Indeed 2008 showed us that there are many people who wanted to own homes that likely should have been renters.

For a good overview of the pros and cons of encouraging home ownership through public policy:

http://www.economist.com/debate/days/view/882

To note, many very successful countries have very low rates of home ownership. In fact Switzerland and Germany have the lowest rates of ownership in the OECD, while Lithuania and Romania have the highest.

Singapore has the third highest at 90% home ownership but they also have a unique view of government involvement in the housing market. 80% of the population lives in publicly built and funded housing.

PS In the case of Pal's client - there are two major things arguing against selling.

We know the client isn't financially prudent so all that money (whatever there is) isn't going right into the market.

The timeline is short because the client is older-- gains from investments take time to get really big, so having a short time span until retirement means the balance might be in favor of lower month-to-month costs as opposed to long term gains.

In Jill's case her keeping her home was the poor finacial choice. She did not sell when it tripled in value and presently it is only double its orginal cost to her. She has lost equity from its highest value even though she is still ahead.If she had a stock that tripled in value she would have sold not held onto it, but due to her emotional attatchment to her house she made a poor financial decision that is how it was not her best investment choice.

My house has more than doubled in value, as has the sort of houses in the areas I would wish to live. So I remain in the same position after all these years.

Palimpsest- interesting point about the successful real estate agent who rents. If we are thinking about the same one, she does own a parking space :)

Did everyone agree that it depends on many, many individual factors?

I think that for many people, having forced savings of some sort -- a house being most common -- might be a good approach. I think it is a natural tendency to want to tap assets that are more liquid. Had a good friend recently have to bail out her mother, who despite being very well off at one point, blew her assets on renting places well beyond her needs. Plus, as has been noted, there are so many intangible benefits to home ownership.

On the other hand, I've witnessed the value of other investments too. The house my folks got more than 30 years ago has tripled in nominal value (albeit from a small amount to a not very big amount). Shortly after they got the house they made an much smaller investment in Phillips Petroleum for my sister. That investment, never been touched, is worth far more today than my parents' house. And that does not even take into account dividends.

OMG.

Exasperating.

Had her house continued to rise in value and quadruple, she'd and you would be saying she made a BAD financial decision to sell!

NO one knows when the high has hit or the low. Whether she sold then or in 30 years is also not relevant. If she'd sold when it had tripled in value, or even now that it's supposedly doubled, she made a very good investment in buying a home. THAT is the point.

Sheesh.

Everyone also assumes in this debate that renters, because they're not paying property taxes and maintenance costs on a home, are just FLUSH with cash to invest in the stock market.

Now, how many renters do you REALLY believe are in that situation?

So as a matter of forced savings for people who wouldn't otherwise, perhaps responsible home ownership is a good vehicle.

But for an extreme Ant like my father (my college account was funded by age five): Not so much. He is losing money due to a market where real estate prices never rose much. Plus he built rather than bought. Building there costs as much there as other places.