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Saturday, July 22, 2006

NewsFlash: Living Close To Work Not A Priority

Here's a shocker for you: most people in the Seattle area don't live all that close to where they work.

David Wilson lives in Fremont, Dan Griffiths and Mary Anne Lyman in Tacoma. Andrew Chen's home is in Newcastle, Roxann Harr's in Auburn, Nancy Andersen's in Federal Way.

They all work for the same insurance company — in Enumclaw.

They're living, breathing examples of a demographic reality the U.S. Census Bureau has quantified for the first time:

Despite the dramatic surge of new jobs in suburbia over the past three decades, most people in this and other metropolitan areas don't work in the same communities in which they live.
...
Lack of affordable housing in some of the region's job centers is a factor. But there's much more at play.
...
More than 70 percent of Enumclaw's working residents commute to out-of-town jobs. And more than 70 percent of the people who work in Enumclaw live somewhere else.
...
Some say they don't live in Enumclaw in part because housing there is too expensive. Nancy Andersen, who commutes from Federal Way, talks of a dumpy rental house near the insurance company's office that's on the market for $900 a month.

"That's outrageous to me," she says.

Randy Bannecker, housing specialist with the Seattle-King County Association of Realtors, says lack of affordable housing prevents many people from living where their jobs are.

"Typically, people want to live closer to work," Bannecker says.
I know that living close to work is a high priority for me, but I'm actually not convinced that's the case for most people. Maybe I'm off-base here, but I think most people base their idea of a desirable neighborhood primarily on touchy-feely things, with logical considerations like proximity to employment (and even affordability) being more of an afterthought.

People want to live in a neighborhood that "feels safe," "feels friendly," and looks nice. If they have kids, the reputation of the schools is a big consideration. Well-manicured lawns and smiling friendly neighbors (but not too friendly, we value our privacy after all) make a neighborhood "desirable," and if it's affordable and/or close to work that's just a bonus.

...which is why people will pay through the nose to live in Ballard, even though they may work in Redmond.

(Eric Pryne, Seattle Times, 07.22.2006)
Please read the rules before posting a comment.

37 comments:

Anonymous said...

If only there was a way that our government could encourage people to live closer to home! Some sort of...surcharge...perhaps proportional to the amount of fuel consumed during an individual's commute. Or even, directly on the usage of the road itself!

Alas....if only such measures existed! The world would be a very different place.

Anonymous said...

goddamnit. live closer to work.

clearly, karma does not want me to be sarcastic.

The Tim said...

clearly, karma does not want me to be sarcastic.

Earl, is that you?

Anonymous said...

It is less important that people live near where they work than that they can take mass transit to get to work and home. Now with "edge cities" and people working in places that really are suburbs (redmond, etc.) and have no infrastructure, employees are almost forced to drive to work.

Peckhammer said...

RENT. It's a four letter word. Sell you silly condo/house/love shack and rent. If we are headed for doom, it will be the best thing you ever did.

If I sold my condo today, I could put $250K into several CDs that pay 9% per year. The interest would pay my rent for the foreseeable future. Heck, the interest would pay my rent, my beer and MYLANTA for the next 20 years.

Rent where you work!

Anonymous said...

Ok peckhammer why aren't you moving?

If you guys are so convinced the market is going to drop 15%+ then I would expect every single one of you (those who agree) to be in the process of selling your property. In my opinion (and judging by how much traffic or at least posting has dropped off around here I'm not the only one) you guys like to sit around and play couch-quarterback and make dire predictions, but unless you back your comments with actions then you don't believe your own hype.

As it stands, I think most of you just can't afford to get your foot on the ladder and those that do can't afford to upgrade - don't get me wrong, I have my foot on the ladder but can't afford to upgrade either.

Here's why I don't understand...

You guys say that buying right now is suicide but staying put isn't. I don't get that. If you have 100k in equity and I don't sell now and the value of my house drops 50k. How is that any different from selling and putting that 100k into a new house and now my new house goes down 50k. Either way I lost money. Just because people are equity rich doesn't mean it is any less stupid to lose the money. An asset is an asset. It’s like if someone said the value of a dollar would be worth 15% less (nevermind how real that comment actually is), would you keep $1000 in your wallet or cash it out?

Anonymous said...

I'd like to know where you are getting CDs at 9%?

Regarding living closer to where I work, I did some quick calculations before I bought. By living closer in, I save about a half hour of driving time every day. This gives me an extra half hour to make money. This works out to be about $4500 per year at my present wage, more as time goes on and my income rises. Of course, this does not all translate to straight wage, but this is what my time is worth. Not to mention the stress I save by not sitting in an extra half hour of traffic every day. There is a premium to this. There is specific value in this for me, enough to justify the extra $50k I paid. This equates to about $300 in mortgage payments per month to achieve an extra $375 in income potential.

Anonymous said...

I'm doing exactly that, I expect to close in a few weeks, I'm renting about 10 miles closer to work than my condo. I'll put the 250k into CDs and treasuries for the short term.

Ernst Stavro Bloviator said...

CDs at 9%?

Sign me up!

Why would anyone buy a house for the 8-10% appreciation, take all that risk, headache, taxes, etc., and pass up a fire-and-forget, slam-dunk investment that pays 9%?

Kitsap Bank is 5 and change for 9 months.

Anonymous said...

Lets not forget the other issue with long commutes - high gas prices. We're used to low gas prices and that's why so many people bought big SUV's and decided a long commute was ok. Fundamentals suggest that high gas prices are here to stay (we may never see gas go much below $3 in our lifetime; gas is even much more expensive overseas so we're just catching up). And of course there is the very real possibility of an oil shock in our increasingly unstable world. This cannot be good for real estate values; everyone will feel a pinch but those with really long commutes who are also stetched financially (because they bought more expensive homes than they could afford) will be pushed to sell to get out of that trap. Would this increase demand closer in (ie, seattle)? I doubt it. As the article points out, not all the jobs are in Seattle or a city center - in reality people are living and working all over the place - the problem is that it's just not the same place.

By the way, did everyone notice that for the first time I can recall asking prices on houses (all price ranges) were flat for the last month on Housing Tracker? I'd say it's a safe bet that we see at least a small decline within the next 6 months.

Peckhammer said...

> Ok peckhammer why aren't you moving?

Because my mortgage is paid off. Bought my condo in '98 for $115K with a 15 year loan, to which I made double payments. The loan was paid in full in 6 years.

>If you have 100k in equity and I don't sell now
>and the value of my house drops 50k. How is that any different
>from selling and putting that 100k into a new house and now my
>new house goes down 50k.

The new house will presumably cost more, both in payments and expenses. IOW, closing costs, larger loan payments, higher taxes, higher insurance, higher utilities, higher maintenance costs. So why would you spend money to lose money?

Peckhammer said...

The case for rent:

Let's use my condo as an example, if someone were buying it today:

Cost of condo is $250K (sure ain't a Paul Allen Project), and buyer finances 100% (typical these days). Evaluation period is 5 years. Square footage is 650 square feet.

The cost to live in the unit for 5 years would be:

Closing costs: ???
Interest: $31,000 (Freddie Mac's weekly report says the average 30-year fixed-rate mortgage rose to a four-year high of 6.8 percent this week)
Condo dues: $12,000
Taxes: $10,000
Insurance: $1000
Unit maintenance: $5000

Total: $59,000

Cost to rent same square footage in similar neighborhood. 5 years:

Rent: $1000/month
Total: $60,000

Assuming that nothing bad happens, owning probably has an advantage. Over the five years, the condo will likely have appreciated. What could go wrong?

Earthquake: Building deductible is $250K. Last earthquake caused $450K damage here, and the owners had to pay the deductible out of pocket.

Plumbing problems: There was a plumbling problem here that damaged 6 units. The declaration defined this as significant damage and the owners were assessed for the amount of uninsured losses (and there were uninsured losses). I am also aware of a plumbling problem that happened in a Conversion (apartment to condo) in Bellevue. 14 unit owners declared bankruptsy as a result.

I am not going to factor in assessments, but I think it's obvious they could improve the rent side of the equasion. Of course, rent could go up too.

Now, if I cashed out today and bought a typical jumbo CD paying 5.8% interest, I would make ~$76,500 in interest over the next 5 years ($250K less real estate commission = $235K. $235K at 5.8% interest, compounded for 5 years = ~$76,500). That would more than pay for my rent, and I would still have my $235K principle.

Peckhammer said...

> Just because people are equity
> rich doesn't mean it is any less
> stupid to lose the money. An asset
> is an asset... if someone said the value of a dollar would be
> worth 15% less, would you keep $1000
> in your wallet or cash it out?

I think you are opening the door to a really excellent subject that is not often discussed. People may be equity rich -- if they haven't skimmed off the equity with a home equity loan -- but equity is a paper gain. Until you sell, you don't have squat.

For many people, their only asset is their home. The key to successful investing (and returns) is having a diversified portfolio. The importance of diversification is so that if one asset class tanks, you have others that mitigate the damage to your portfolio. Do you see the danger here... and do you see why people are banking on the "Next Greater Fool?"

Bringing this back to the subject of a bubble, even if housing prices do drop by %15 percent (theoretical -- remember, equity is only a paper gain until you sell), that will only encourage people to hunker down and stay put. There is no harm done if you are diversified and not using your home as a retirement plan. Now, if jobs fall off at the same time, that is a huge problem because people will start bailing on their homes. Too many homes on the market at once drives actual prices way down.

Anonymous said...

Yet another reason why the U.S. has major energy problems. There simply will not be enough cheap energy in the future to support someones 45 minute one-way commute every day just so they can live where they can have a lawn. Time for America to grow up.

jcricket said...

Tim - I think you're totally right. I love living close to work (8 minutes, door-to-door). Saves me stress, wear and tear on the car, gas, insurance, etc. We're also located somewhere that's easy to get on the major freeways (but not too easy), meaning that if my job moves around, we're not stuck (cough, Ballard, Magnolia, cough) with a crappy super commute all of a sudden.

I can see that my way of thinking is not the same as the vast majority of people. But, to be specific, I think many things are at work, including:

1) Some people work in an undesirable area for living (i.e. If I had to work in Enumclaw I sure as hell wouldn't want to live there).
2) Some people would love to live close to work but aren't willing to pay a space/cost premium to do so (definitely applies to people who have jobs downtown).
3) Other people would like to live close to work but the schools or demographics aren't to their liking
4) Others are afraid their job will move around a lot so they get a house in a location that has good accessibility (I call this "splitting the difference")
5) Some people hate living in cities (perception of noise, crowds, safety, etc.)

And so on... Much like my thoughts about the future of the housing market, I think lots of factors are at work here. We haven't gotten into the whole "ex-urbia" trend where houses in Carnation aren't as far out as they seem if you work in Redmond. Changes in zoning restrictions are the "wildcard" in that situation.

I think buying a house is an intensely personal decision and clearly your comment about Ballard proves that. I would never live in Ballard (too inaccessible to the east side) or West Seattle (hello, viaduct replacement = massive traffic jams for years), but clearly that hasn't stopped others from snapping up everything in sight in those areas.

All that said, clearly affordability (more specifically, "what you get for the money") is prominent. Most people just aren't willing to trade space for proximity, especially if the tradeoff is dramatic. Our expectations for housing size and amenities has risen a lot in the last 30-50 years, and most people don't want to live in a 1,000 square foot craftsman in Greenlake if they can live in a 2,000 sq.ft. split-level in Shoreline. Doesn't mean Greenlake is going to become undesirable, just means the pool of buyers is more limited.

Anonymous said...

Sorry Peckhammer I don't buy it...

First of, most people agree paying your off your house early is a bad idea. With very low risk, you can easily get a better return on other investments that will beat your mortgage interest rate plus you get to claim the mortgage deduction. However, piece of mind is priceless, I guess.

Second, you answered but didn't really answer. Almost every single asset is a paper gain until you exercise it. The only reason people diversify their portfolio is because they don't know what's going to happen. If people felt as strong as you guys do about a certain stock, they wouldn't diversify and hope to minimize their risk. They would liquidate that stock and move on.

Peckhammer, I’m calling you out because you happened to be so upfront with your situation. It doesn’t matter whether the bank or you own your asset, if it loses value, you lose. If you are certain that it is going to lose value, then you are an idiot for not selling it. Then you go and make an argument for renting. Sounds like you have the perfect opportunity to sell before the housing market collapses, find a place to rent (which you think is better than owning) and then wait for house values to hit an all-time low.

Also, what happned to your 9% CD. Now you are talking about 5.8% CDs. Sorry, you are just a prime example of why this blog is nothing but the kind of people you despie…speculators. You have no real foundation for your logic nor do you back up your ramblings with action.

Sorry Tim, this blog went downhill fast in the last 2 weeks. I tried to keep reading but the content just isn't all that interesting...

Anonymous said...

Sorry Tim, this blog went downhill fast in the last 2 weeks.

This place is just fine, aside from the occassional attitude.

Peckhammer said...

> First of, most people agree paying your off your
> house early is a bad idea. With very low risk,
> you can easily get a better return on other > investments that will beat your mortgage interest
> rate plus you get to claim the mortgage deduction.


Then MOST people are wrong -- especially when applied to my case. Your points one by one:

1.) Total cost for my condo, including interest, was $127K -- and that means anything over $127K is profit.
a.) $115K, with closing costs
b.) $12K interest expense because of early prepayment
2.) Current value of Condo is $250K. Please name the other ivestments that increase in value by 97% in seven years. Even if the price does sag by 15%, I am still WAY ahead.
3.) Itemizing my deductions (where you get an interest rate deduction) was never better than the standard deduction. And even if I did qualify, the figure I heard is that for every $1 you spend in interest, you get a 27 cents back. That's not a very good return on your investment.

> If people felt as strong as you guys do about a certain
> stock, they wouldn't diversify and hope to minimize
> their risk. They would liquidate that stock and move on.

I can't speak for the others here, but my condo is not my only holding, and otherwise makes up only 50% of my real estate portfolio (I own land in two other states). And the other part of my total portfolio is in vastly diversified mutual funds, money markets, etc.

> If you are certain that it is going to lose value,
> then you are an idiot for not selling it.

How so? It would have to lose more than 40% of it's value before I would even blink. I didn't drink the financing Kool-aid that so many feckless idiots in this market have. And remember, there is always a cost for housing, no matter what. You are going to spend money to live, regardless of where. If I dollar cost average over 30 years... well you get it, right?

> Then you go and make an argument for renting. Sounds
> like you have the perfect opportunity to sell before > the housing market collapses

As I said, there is always a cost for housing. I may end up renting, but in my situation, it is pretty cheap to live for $200/month. This allows me to add the amount that other Seattle lemmings continue to pay for housing into other assets that I don't have to move out of in order to liquidate -- and by move out, I mean getting a U-haul and a bunch of cardboard boxes.

> Also, what happned to your 9% CD.

mlnbank.com offers an 8.8% to 9% CD for a minimum $100K deposit, held for 5 years. Careful when you call people out unless you enjoy the taste of crow.

seattle long term buyer said...

it's the peak of summer people are out enjoying themselves rather than waste time arguing with people that just won't open their eyes... doesn't mean that real estate is not going where we know it will...

to the question of losing money... contrary to what I preach, I ended up buying a house...

bought at the top of the market... expect that it will lose 50K even 100K at worse....

no plan to sell for a long time...

in 10 years, it should be worth at least what I paid for...

I make 6 figures so I don't really care although it means I won't get that paper equity as fast as others...

bottom line, I needed a place to live that was stable... my high stress, high paying job requires me to have stable footing to perform well... the inconvenience of moving yearly would compromise my sanity and thus my paycheck...

so to those that say sell your house to prove you believe in the bubble... there are other things in life other than paper equity and money...

and peckhammer is right, unless you're moving to another state, if you sell you'll have to buy anyway...

now to rent is the best if you can afford the inconvenience...

If you're retired and on fixed income... renting is the key to keeping your nest egg...

Case in point, the home I bought (new devt) has already been discounted 10K in 30 days (incentives not actual price drops)...

the market has peaked... take it from somebody who is a recent home buyer and wished it didn't....

Anonymous said...

Millennium Bank is an offshore bank that is not FDIC insured and has come under intense scrutiny for not having transparent practices and sketchy directors.

Anonymous said...

...most people don't want to live in a 1,000 square foot craftsman in Greenlake if they can live in a 2,000 sq.ft. split-level in Shoreline.

OMG...people actually want to live in a split-level?! Blech!

Anonymous said...

"It would have to lose more than 40% of it's value before I would even blink." I'm sorry but I don't think you have a grasp on personal finance or economics. I'll try to explain it to you one more time.

If your property goes down 40% you lost money. It doesn't matter if it was paper equity or not. It was an asset in your portfolio that you watched lose money month after month. Maybe you have so much bling that a 40% drop wouldn't affect you, but if any of my assets dropped 40% I wouldn't be too happy.

Going to your other point of paying off earlier...If you put down 80% on a 30 year fixed at say 5%. Then you invested the rest of your cash in some low risk investment. I think I read that bonds tend to have an ROI of 8%. Let's say your property went up to $400k. The equity is still yours. Let me repeat that. You only owe the bank what your loan is for, not how good or bad the property does.

If you got a loan for 80% of the value, the equity would still be yours not the banks. Yes you owe the bank money, but by that point you'll have way more then what you owe because of your outside investments.

Here's a great article from Motley Fool on why paying your mortgage early is a bad idea:
http://www.fool.com/Specials/2001/sp010607.htm?ref=60mortgage

I agree with the idea that there are housing costs and that you have to live somewhere, but the mantra on this blog is "Sell now and rent for 3 years then the world is your oyster".

I hadn't actually heard of mlnbank, but after the other anon posting, I did a quick search on mlnbank + scam and there is enough there that I wouldn't feel comfortable doing it.

Anonymous said...

Anon from 12:48 continued…

"there are other things in life other than paper equity and money" - I couldn't agree with you more. I actually believe that incalculable benefits to owning a home that far outweigh the arguments seen here. I’m actually just playing devil’s advocate about the blindness strategy I read on this blog. Having a home to raise a family and provide stability for your wife and kids is a value that think is more important than moving every year to rent just to say 10k or whatever. I love the fact that the work I do on my home is mine to enjoy month after month. The remodel work, the backyard. That’s all mine and I love it.

disgruntledengineer said...

Anon 12:48, etc. Are you kidding me? Your retort is very funny. By the way, I did a Google with "minibank scam" as keywords, and yeah, a bunch of links come up related to a minibank ATM machine scam, but nothing about CD scams or minibank.com. However, I couldn't find minibank.com either. Doesn't matter, because I did a Google search on "minibank CD" and a whole bunch of context ads appeared on the side regarding banks with high-rate CDs. In fact, these have existed for quite some time, and have probably historically been restricted to the wealthy. You think these banks cater to the likes of normal, mortgage-bound, anonymous, blog-reading folk such as yourself! Nope! By the way, that article is dated 2001, and was just the kind of fodder that came out when interest rates were at their lowest. You know what? Those tips the article mentions only works in a market of rising appreciation rates. Get it? In fact, the strategies mentioned WHOLLY depend on the value of real estate to continue on a rising trend, indefinitely. Isn't that funny? Don't you also think it's funny that the article was released at the time that it was? It's crap like that that started all this.

disgruntledengineer said...

By the way, what I spew is not new by any means, and any faithful blog reader would have been privy to the obvious.

Anonymous said...

I wish people would finally get the defition of ASSET Correct~!!


Your PRIMARY RESIDENCE IS NOT AN ASSET.. PLAIN AND SIMPLE..

Only way you can call it an asset is if you sell put the money in your pocket.
secondary homes are assetts if they are cash flow postitive.

PRIMARY HOME IS SOMEWHERE YOU LIVE.. THAT TAKES MASSIVE CASH INFUSION.. its only an asset on the banks income statement if carrying a mortgage.


I see way to many people calling there primary Resisdence an Asset here on this blog.

Your Primary resisdence does not put postive cash flow in your pocket every month.
It the point IF you place postive cash flow in the form of appreciation IN YOUR POCKET.. At that point you could state it was an asset..

Most my stocks dont pay dividends and the only time I realize a gain is when I sell. At the point they are simpy that hopeful gains.. I cant count whats not in the bag. Dividend stocks like Phillip Morris which pays me every Quarter, could be considered an asset..

Anonymous said...

If you rent out rooms on your Primary Resisdence and your room renters put money back into your pocket after paying the mortgage.. That could be considered an Asset.

If your primary resisdence provides revenue that adds value above and beyond the mortgage.. appreciation isnt counted..

Anonymous said...

disgruntledengineer: you ought to brush up on your reading. peckhammer referred to mlnbank.com, the website for Millennium Bank, whose website is currently down (an indication of how reliable a deposit institution they are? you make the call.)

Peckhammer said...

250

289600

48312

> If your property goes down 40%
> you lost money.
> It doesn't matter if it was
> paper equity or not.
> It was an asset in your
> portfolio that you watched
> lose money month after month.

No, I wouldn't lose any money unless I sell. On a day to day basis, my mutual funds go up, and go down. What would happen if I sold them every time they went down?

You make buy and sell decisions based upon your investment horizon, not day-to-day or even year-to-year fluctuations.

> Going to your other point of
> paying off earlier...
> If you put down 80% on a 30 year > fixed at say 5%.
> Then you invested the rest of
> your cash in some low
> risk investment. I think I read > that bonds tend to
> have an ROI of 8%. Let's say
> your property went up
> to $400k. The equity is still
> yours.

LOL! Seems to me you drank a double dose of the Kool Aid. Your approach might actually work if you didn't avoid one important reality. You have to pay interest on your home loan!

On a $250,000 loan, you will pay $289,600 in interest (at 6%) over the course of the 30 year term. If you paid off that loan in 6 years, as I did in my example, you would only pay $48,000 in interest. And in the first 5 years of a loan, you are paying much more interest than principle, so you are not reducing principle very much and you are bending over and getting banged by the bank.

> I agree with the idea that there > are housing costs
> and that you have to live
> somewhere, but the mantra
> on this blog is "Sell now and
> rent for 3 years then
> the world is your oyster".

Well, I think you and I might have some common ground. While I can make a case for renting, I am not not necessarily ready to start packing. "Seattle Long Term Buyer" pointed out that psychological satisfaction is often part of the homeowner equation, and it's hard to put a value on that.

I don't agree with the "Sell now and rent for 3 years then the world is your oyster" mantra either. That is called "market timing," and few people are capable of doing that well. If you sold now and moved somewhere cheaper (while earing the same wage), that might make some sense. In fact, it makes the most sense because if the housing market truly tanks, it is going to have an effect on employment -- especially since so much employment is tied to the housing sector -- and that will have a very bad effect on Seattle's livibility.

Peckhammer said...

> I see way to many people calling > there primary Resisdence an
> Asset here on this blog.

Finally! Someone said it!

Your primary home is not an investment. It may be an asset when applying for a loan, but it is not an investment. And that's why I've been saying that there is always a cost to live (housing).

disgruntledengineer said...

What?!? I could've sworn it said MINIbank.com! I have 20/15 vision! No way!

Peckhammer said...

BTW folks, I do not recommend Millennium Bank. I only used the reference because they had incredibly high CD rates, and I thought that level of return made a good anaolgy to the Seattle housing market.

You mean there are risks in investments that seem to good to be true? Go figure...

Anonymous said...

Aiya! It continues to amaze me that people do not compute the amount of interest they will pay over the life of a loan.

Pay that thing off as soon as you can! Take the money you would have thrown down the toilet in INTEREST PAYMENTS and invest that.

The whole "don't pay the loan off" crap is just a ploy by the banks to steal your money.

S-crow said...

I have never been with a client that ever said anything other than "my new home is going to be an investment."

It is ingrained into the psyche of the masses, created in large by the industry in whole.

Today, I think that the home, as never before, is really a vehicle to leapfrog up the ladder of homeownership and withdraw cash like an ATM machine to support a lifestyle that for many is a facade**.

In my case, I leapfroged from 670 sq ft to 1300 ft to 2050 sq ft.--which today is a comfortable space, not to o big and not too small for a five member family.

**was looking for a truck this weekend and talked with a local salesperson who said they are having a hard time moving trucks and are receiving in repo's, leased trucks on a regular basis. ($450-650/mo payments is about the norm for these newer 2004 and later trucks). I smiled and said that I know, I know, I deal with this all the time too.

jcricket said...

Your home is most certainly an asset. Definitions otherwise sound like that Kiyosaki guy, who oversimplifies what a house and investing "means" just so you can make your point seem stronger (not to mention misrepresenting how mutual funds work, the average rate of return for an "active investor", etc.).

A definition of housing as an asset from an actual, long-time, RE investor, John Reed
"Trust me, your house is an asset. The mortgage on your house is a liability. As they accrue, carrying costs of your house like taxes and insurance are also liabilities"

And housing is an investment. One that's illiquid and prone to fluctuations that are different than the stock market, but it does appreciate. It's not like a car or clothing, which depreciate the moment you buy them. I agree your house should not be treated as your retirement "portfolio", but then neither should your stock options in your pre-IPO start up. Simply put, if housing follows historical trends (keeps up with inflation), that's better than just renting for the next 30 years. During retirement, if cash were tight you could get a reverse mortgage when you retire. Or you can sell and start renting, sitting on at least some reasonably large cash pile. Yes, I know you've had to put money into maintenance, but housing always has some costs (like all the moving costs you'll have while renting).

If you're arguing that the next 5 years are particularly risky because of ahistorical appreciation, I would agree with you. But as others have pointed out, I doubt you'll time the market perfectly if you're on the sidelines waiting for the bottom. You might end up better (catching it on the way down), you might wait too long. Some clearly just think homeownership is stupid, no matter what.

As others have pointed out, along with the tax and psychological benefits, the traditional housing appreciation rate is merely a hedge against inflation. Along with a sizable 401k, IRAs and Social Security, owning a house usually makes a lot of sense in the long run.

Unless you're now claiming housing will not return to previous appreciation rates in the next 30 years. In which case I challenge your other investing strategies, because if the future is clearly so different from the past, your stock market investments won't be worth jack either, and then we're all screwed.

Peckhammer said...
This comment has been removed by a blog administrator.
Peckhammer said...

We should not call housing an "investment." Housing is a durable supply of consumption services -- not an expenditure on a productive or reproductive good.

If you think otherwise, try getting an investment loan for your primary residence.

Asset yes, investment no. DEspite the semantics, I have the following point of interest:

Smartmoney.com compared money invested in your home with a dollar invested in the stock or bond market. Their conclusion: "In the majority of cases, asset appreciation of a house, after adjusting for all the carrying costs, can't keep up with returns from either the equity or the bond market. The real advantage of owning a house lies in the opportunity it gives you to reduce your cost of housing."