Poll results from May 2011 Newsletter
Do You Believe in Homeownership?
The following is in response to a blog post titled Why I Am Never Going to Own a Home Again by James Altucher, Managing Director of Formula Capital.
From an investment perspective, he’s probably right. Homes are often over-valued as long-term financial investments, when compared to other financial products. While he’d suggest that you should invest in stocks and bonds (or better yet, in his “fund of funds”), there are probably more people who’ve gone broke trying to play the market than those who’ve gone broke trying to pay their mortgage. While you can make an argument about the rate of return on your investment in a home compared to a stock, there’s always an intrinsic value in the structure and the land; not so with that piece of paper that says you own a share of Bear Stearns or ENRON. Oddly, Mr. Altucher doesn’t spend much time talking about the fact that in many markets, particularly for family sized dwellings, it’s actually cheaper to buy a home than rent one. Even factoring in some of the other costs he mentions.As for risk, despite this current housing market mess, the historical percentage of homeowners in foreclosure is less than 1 percent. And most of those foreclosures are due to personal catastrophes: unemployment, divorce, serious medical conditions, etc. One could pretty legitimately ask the question of how a renter would fare under those circumstances. Will the landlord allow you to stay in your apartment if you stop paying the rent? Can you leverage some of the equity in your rental property to re-finance it and tide you by a temporary income problem? Not so much.
The context that Mr. Altucher lays out is actually more hysterical than historical. The notion that homeownership was some sort of deep, dark conspiracy foisted on innocent rubes by diabolical business owners to keep them permanently grounded (and therefore, unable to escape their low wage, dead end jobs) is just pointy-headed nonsense.
Simply going back to the beginnings of the U.S., the concepts of “wealth” and “land ownership” went hand-in-hand. In fact, the entire country west of the Mississippi was largely populated by the government opening up land for people to “homestead,” or lay claim to. This gave tens of thousands of working class Americans the chance to own their own land, and their own homes, for the first time — and they risked their livelihoods and often their lives to take advantage of the opportunity. Not only did this chance for homeownership NOT allow people to move, but it also ENTICED them to move.
And going back to medieval times, the feudal lords basically were land barons; the serfs, the working poor of the age, were allowed to live on the lands in exchange for paying exorbitant amounts of money to the lords, however much the lords decided to collect. Or you could leave (on your own, or in pieces). Sounds like a renter’s lot in life to me.
Homeownership is something to enter into seriously (like a marriage, or the decision to start a family), but done intelligently, is, in my opinion, a much better option for families than renting. There’s the stability of knowing where you live, and that you won’t be forced to leave. There’s the certainty of knowing what your monthly payment is going to be for housing, rather than seeing it go up every year (the tax issue is largely mitigated in California by Proposition 13, which dramatically limits tax increases). The hassle of having to maintain your home is balanced by the ability to maintain it the way you want, when you want. Does it really matter if you’re calling Sears to replace the dishwasher in your apartment or your house? Really?
And — and this is the dad in me — it gives your kids a foundation. “Home” becomes more than a concept; it’s a place that becomes part of their life, and part of their memories. I suppose the same would be true of a long-term rental property, but wonder if families stay in rental properties that long?
For Mr. Altucher, the notion of homeownership seems downright scary. And he shouldn’t own a home. He probably shouldn’t own a car either — or a goldfish. He wants the combination of limited responsibility, someone else “taking care of things,” and the ability to move to Sri Lanka on a moment’s notice. And he wants his investments to all be liquid (so maybe I should re-think the goldfish part).
For me, I’ve been a homeowner for all but one year since 1993. The one year I rented cost me more money and gave me more heartburn than any year of homeownership. It’s a responsibility. But so are my kids — and my fish. And I’m not giving any of them up anytime soon.