Why “Invest” in a home, indeed?

Rober Schiller just destroyed one of the hottest and stupidest fads of the early 2000s:

“Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better.”

That’s right.  There is one, and only one, economically rational reason to buy a house, and that is because it provides you the opportunity, with enough time and patience, to no longer pay a landlord or bank money every month just for the privelege of taking up space.

Yes! I got in with no closing costs!

 There’s a lot of rationalization going on in real estate, and it’s bad.

  1. Investment?  Not unless you’re in a bubble and you can and flip.  That’s not investing: that’s trading.  And if you’re good at that, you can make a stupid amount of money by doing it.  Chances are, though, that if you’re reading this…you’re not good at it.
  2. Good schools?  You can get into a good school district in a rented apartment.  And if your monthly take-up-space-bill is zero, that pays for a lot of private schooling, too.
  3. Safe place to play?  Any place worth living in usually has kick-ass parks, and most apartments have green spaces that are safe, too.  If they’re too young to play unsupervised in an apartment greenspace, they’re too young to play unsupervised in the back yard, too.
  4. Bad things happen to houses.  Bad and expensive things.  Foundation repair.  Termites. Hail damage.  Plumbling breaks and water damage.  They have to be fixed, and the lawns have to be maintained, or else the Zoning Nazis will be all over you and your neighbors will stare daggers at you.
  5. Expensive houses in “good neighborhoods” usually means long commutes, which is a tremendous cost in both money, and your most valuable asset, TIME.  Time is not money.  You can always earn more money, but once your clock is punched, the game is over.
  6. The quality of construction of most “tract mansions” near the “good schools” is frequently abysmal.  A half-million-dollar house built out of chip-board is a poor investment compared to a house that costs a third of that, with the rest in stocks, bonds, and precious metals.  Just because a house is big, doesn’t mean that a house is good.

Here’s your strategy:  get the cheapest house you can possibly bear to live with.  Pay it off, as fast as you possibly can, especially while interest rates are low and saving is a chump’s game anyway.  Then, once you’re used to dropping that huge chunk of change on the mortgage, saving will be a breeze — you just transfer the same amount of money…not to a bank, but to an account you already own.  THEN, once you’ve got six months’ of your total income (meaning, if you’re married, what you both earn in six months), and ONLY THEN is it safe to look at this little thing called “investing.”

 Investing is the hallmark of the middle class.  And the first rule of the middle class is “don’t be a rent-serf.”

Leave a comment


  1. Mrs

     /  February 9, 2013

    Doesn’t the primary investment benefit of home ownership start with a letter ‘t’ and end in ‘axes’? 🙂 The tax advantages to home ownership are pretty substantial.

    I’ve heard pros and cons of ownership from different people famous for their investments. Peter Lynch said it’s the best investment anyone can make. Never agreed entirely with that one myself, but I don’t think it’s the opposite either.

    I think the main benefits to home ownership are a bit less tangible. It builds communities and a sense of pride in neighborhoods (I’ve lived in many places and this has always held true in my experience, owners take better care of their property), helps to reduce crime and generally creates a better atmosphere.

    • Mrs

       /  February 9, 2013

      Heh, reading the above I almost sound as if I am stating that I know people famous for investments. I meant what has been stated in books I’ve read.

      • Not an issue; “X says” doesn’t mean he said it to you over coffee. 🙂 I know from personal experience that George Soros has crappy taste in ties when he’s not in NY or London, but that doesn’t mean he knows who *I* am!

    • Mrs: because the tax deferrment for mortgage interest only applies for people in the upper-middle-class and higher who earn enough money that it actually counts; for “the rest of us,” mortgage interest for any SANE mortgage we should actually be having fails to be greater than what one would already get via the standard deduction.

      So it’s a great benefit for those who can afford to get into a really NICE house, but a non-issue for everybody else.

  2. The current issue with housing is that at some point, we are going to get mass inflation (not hyperinflation – The Fed will pull the plug on that before it gets that bad), although it is not likely until there is no other choice.

    I don’t know what will happen to housing as a store of value. Even depreciating assets can serve as stores of value if the nominal currency is rapidly devaluing (but in relation to what? wages are’t going anywhere up…)

    In any event, just wanted to let you know that Jack put up a Liberalism 5.0 part 2.


    • Agreed, and if you have 100% equity and can swing it, in an emergency you can sometimes be lucky enough to “cash out” and use that nest-egg as an emergency measure.

      The inflation IS coming — we’re very much in a repeat of the Nixon-Ford-Carter years right now.

  3. Anyhow, Art Cashin is chiming in on this:


    In any event, the Fed/ECB/Treasury/TurboTax Timmy doesn’t know what it’s doing.

    However, they were quite good at first causing the financial meltdown and then, thankfully, stepping in and actually stopping the system from completely imploding. Which was nice. I liked that they actually prevented a complete and total collapse due to a problem they caused in the first place.

    However, their solution doesn’t just “solve the problem”; rather, it “solves the problem and then creates an entirely new problem that is somewhat obvious”.


    • Link is broken, but I would agree that the Fed has no idea what it’s doing. It’s still a prisoner of the econometricists, and is following their standard playbook into sovereign default: bubble, financial repression, inflation. Nobody will *call* it a default, because TPTB will say “don’t,” but that’s what inflating away your debt is, and we tut-tut and waggle our finger when countries like Argentina do it.

  4. Try this link. It goes directly to the article in Business Insider.


    The problem here is that there no wage inflation, which you need in order to, you know, pay the debts in now-inflated nominal dollars.

    Anyhow, this isn’t the 1970’s stagflation, but it’s something equally unpleasant for everybody.

    It would have been nice if we could just have not had major credit bubble since that credit had no business actually existing in the first place.

    At least pets.com actually created a sock puppet marketing icon.

    • Yes, it’s not a *perfect* parallel, but it’s something similar — people who want to save have no valid mechanisms for doing so except for PMs (IF you can actually get your hands on any). And PMs, while awesome in their own right, are not a panacea, either.


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