posted
Two notes: First, when I said "housing prices in my area", I was being rather specific. There are problems with this area that concern me including several large dominant high tech companies that seem to be in a precarious business situation and a really badly run local government.
Second, you may find this thread interesting, its from a forum that focuses on financial issues and is on this topic linkPosts: 7593 | Registered: Sep 2006
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posted
I suspect that such analyses don't take into account the value of a fallback position, though: Even if your home doesn't rise in money value, you still get the value of being able to live in it.
Posts: 10645 | Registered: Jul 2004
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posted
So long as you're able to make payments. If your investment doesn't rise in value, you're not obligated to keep making payments in order to have a place to live.
Certainly having a home has different sorts of advantages, and to many people owning a home will be advantageous. But, separately considered, the return on a home as a monetary investment is not a compelling reason to have one.
Posts: 15770 | Registered: Dec 2001
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posted
I think there may be some more recent constraints driving the cost of homes that are unlikely to relent, such as decreasing space near urban areas into which we can build out economically, rising fuel costs which make it less desirable to live further from urban areas, and increasing costs and decreasing availability of water and power-generating resources.
Posts: 3275 | Registered: May 2007
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People said that about property prices in Japan; it didn't turn out to be true.
There will definitely be increases in the price of property. But they are unlikely to be greater than the increases in the value of non-property investments over the long term. The recent bubble was an anomaly. Note that several of your reasons are likely to drive the prices of most houses in America, out in the suburbs, down, not up.
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posted
Still, for the vast majority of people, it's easier to get a higher return on investment (as opposed to a higher return on the value of the investment asset at the time of purchase) from real estate than, say, an index fund, simply because it's much easier to get access to capital for a house than for an index fund.
Posts: 26071 | Registered: Oct 2003
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posted
Not to mention, again, that the money you're investing in your house you're pretty much going to be spending on housing anyway. That's really the kicker in all these comparisons -- if you weren't paying a mortgage, you would not be putting the "saved" money into an index fund. You'd be using most, if not all, of it to pay rent. So comparing it to investing in something else "instead" is not a fair comparison.
Even if you don't actually make money when you sell the house, you're still getting back a big chunk of what you've spent on housing for the past however many years.
Posts: 7954 | Registered: Mar 2004
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posted
Yes, I am only saying that housing as an investment in and of itself is not specially advantageous over other forms of investment, to refute Rabbit's argument that, in addition to the sorts of advantages you were listing, the return on real estate was higher than for other investment. To quote:
quote:1st over the long term real estate does better than most other investments.
This is not true. In fact, the only reason real estate does well on comparisons of capital investment at all is because it tends to be highly leveraged (effectively).
Posts: 15770 | Registered: Dec 2001
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quote: Originally posted by The Rabbit: 3rd: Assuming that they got a fixed rate mortgage, they are effectively protected from inflation, whereas rent is not.
Of course the rent is going up due to inflation, a house owner is not entirely protected from that either. Property taxes, maintenance, and utilities which explain part of why rent is increasing also affect house owners and many of the calculators use about 1% of the house price per year for maintenance (including roofing, windows, etc.) and 1% for property tax which is non-trivial.
quote: 4th: Taxes. Mortgage payments can be deducted from your taxes and rent can't. Furthermore, the appreciation on your personal residence is effectively tax free for ever. In most IRAs, you have to pay taxes on the earnings when you take the money out of the account. This makes it very difficult for any investment to compete with owning your own house.
Again, this depends on jurisdiction. In general, mortgage payments are not tax deductible in Canada. If an IRA is anything like a RRSP then the reason that it is taxable on withdrawal is that you fund it with 'before-tax' dollars. So you have more money to work with when contributing to an RRSP rather than a mortgage which is funded with 'after-tax' dollars. After this year, we're also getting a TFSA which is funded with after-tax dollars but is not taxable on withdrawal, period.
In general: I would also note that some are comparing apples with oranges. If you compare renting a house versus buying a house, I'm sure that the equation would improve dramatically in favour of buying compared to renting a small apartment versus buying a house.
None of this is to say that owning a house is a bad idea, financially. I just really like how ketchupqueen put it, "this really, really, really depends."
Posts: 7593 | Registered: Sep 2006
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posted
Re: Rabbit's earlier post- I hadn't considered all those factors, and I'm not exactly a financial genius. Still, in the endgame, I'd just rather live in an apartment... I guess I could see myself buying one of those if it were a good investment. Not like you HAVE to live in it.
Posts: 9912 | Registered: Nov 2005
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quote:Still, in the endgame, I'd just rather live in an apartment..
This is a great reason to live in an apartment.
When I help my siblings with financial planning, my goal is to show them the financial effects of their choices over time. That way they can fully evaluate their options.
The goal is never to simply maximize net worth.
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