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I voted for the 40 acres, because I've already got my home (OK, townhouse) free and clear.

I'm glad I own it because it means, with the mortgage outlay gone, the housing portion of my budget is down under 8% of income, counting taxes, condo fees, insurance, and maintenance.

And, since I couldn't deduct mortage interest (the way Americans can), there was an incentive to apply extra funds to the principal. While I could have put those extra funds to investments, the question is, which ones? Given a 37% marginal tax rate, I would have to get a ROI 1.5 times my mortgage interest rate to come out ahead. This is possible, but not consistently so.

The final benefit is that, if I suddenly become unemployed, I don't have the financial squeeze that someone with a mortgage would.

I'll buy a home when it makes sense to me.

Ditto.

I equated that with 'when the market is right' for the purposes of this poll.

I'm single and childless. I expect to remain that way for the rest of my life. I'm comfortable renting a downtown apartment.

♪ I don't need no mortgage ♪ [/Ray Charles]

we bought our apartment five years ago. It has more than quadrupled in value (although if you factor in inflation, it more like doubled). Still, our mortgage was done through a special government program which allows us to pay an obscenely low and fixed interest rate for 30 years. The way I see it, in 10 years time, what with crazee hyperinflation and housing scarcity in Venezuela, my monthly mortgage will be about $10... :-)
.... well, if Chavez actually lets me own/keep my own home... :-(

Schiff has a bad habit of insisting words are defined differently than other people use them. That said, his point is still valid. Buying property with the expectation that it will increase in values is speculation. You may be right or you may be wrong. That is a different sort of investment than buying property to rent out, where you getting return on your investments through rents. Of course housing prices and rents are not unrelated, but the distinction is still worth making.

As for depreciation. I think you're missing the point. The structure depreciates as time goes by (no matter how long a time frame) unless you actively maintain it (which costs money). That's all he's saying.

How is speculating that the market will go up not speculation?

Warren,

I agree that there's differences between buying a house to live in versus buying one for its income (hell, just the fact that they're described differently makes them different!), but your implication seems to be that it's easier to make a mistake, investment wise, if you buy a house to live in than it is to buy one for its rental income, and I just don't see why that would be.

One of the big things with a home being an investment is that you have to live somewhere. For most of us, that means renting versus owning. The fact that you give up having to pay rent is one of the things that makes buying a house usually work out to being a good investment. Not always, nothing in life is guaranteed, but that's an important consideration. Buying a house for income (and investment) has to be compared with what you would do with that money otherwise, investment-wise. Which may or may not turn out to be as advantageous as buying a house to live in. They're just different animals. But the investment potential should certainly be considered in comparing home ownership to renting.

And BTW, while I encourage home ownership as a general matter, I don't claim to know everyone else's utility, and far be it for me, for example, to try to tell J sub D he's not doing the right thing or something.

Probably so. Norman Malcolm wrote a memoir of his friendship with Ludwig Wittgenstein in which he relates telling Wittgenstein one day that he had had a very unsatisfactory discussion with another philosopher, to which Wittgenstein replied "You probably made the mistake of arguing with him."

DAR, not that I'm agreeing with Warren (like I'm THAT crazy????), but I'd be curious to know how you would differentially define investment and speculation "in the finance and investment sense".

Fyodor, here's a reasonably good summary of the terms as they are commonly understood in the investment community.

Yes, in the sense that any investment is made under the assumption that the asset will increase in value but with the recognition that it may not, there is speculation involved in the general sense of the term. But quick turn-over, day trader, hope there will be the next sucker type 'investments' are mere speculations and the antithesis of what most prudent investors mean by an investment. From a legal point of view, the difference could also be explained in terms of investments which a fiduciary, exercising due diligence, would prudently make. Everything short of that is, to some degree or another, a speculation.

In general, real estate prudently purchased is a decent investment. No, not the only investment a private investor should make and, yeah, I agree with all the other caveats and such that others have raised. But it's simply not a speculation to buy a decent house within your means which you intend to keep for, say, a decade. It may not be the best investment available to you, but as between calling it an investment or a speculation, it is clearly the former and not the latter.

...by more than a certain amount, right?

It is reasonable for a mortgage in the first few years to exceed rents, because in a mortgage you are distributing a present value sum over a fix time series, while in rent your time series is basically infinity.

(this assumes traditional amortization , not the I/O or neg-am -- those *are* pure speculation that the value of your house will increase by a certain amount)

If I were going to spend my life in NYC, I'd definitely buy something, anything, and hope to trade up over the years from there. Yeah, it's a huge bite at first but it's a huge bite at first anywhere. Bailey and I know a guy who does real estate in NYC and he or I could probably have bought a decent one bedroom apartment in the East Village for around $100k many years ago. It seemed outrageous back then but it was a fair price and you couldn't touch such a place now for three times that much. For every story about someone's rent controlled $65 a month apartment there's also a story about a guy who bought 20 years ago and now has nearly free housing in the city. I'd gladly own a pied-a-terre in Manhattan even if I only used it a month or two a year.

Jason, lots of middle class people own nice little condos (or rent controlled apartments which amount to the same thing) in NYC which they do exactly that with. It's hardly the exclusive prerogative of wealthy people. In fact, New York's lunatic rental laws actually encourage that sort of thing.

That was the worst financial article I've ever read. The anecdote was not only not a 'typical' experience, it had nothing to do with the rest of the story. The 'full story' didn't have the full story, you had to go to the slideshow. And the advice, while not wrong, was either common sense or so generic as to be useless.

So, what does our own highly scientific poll reveal so far?

Home owners edge out renters by a mere 13 to 12, lower than the national average, but it's hard to say whether, our politics aside, we are otherwise a statistically representative sample. Some of us are still students or, as in Thoreau's case, early in our professional careers and uncertain about where we want to or will end up "putting down roots."

84% of home owners are happy about our decision. Slightly more, actually, since Aresen owns his townhouse free of mortgage and thus didn't select the first choice.

Excluding his vote, 33% of the remaining want to buy a home but, for various reasons, believe the time isn't right now. Possibly more if you take frustration with the super as evidence of frustration at being a renter.

Even those of use who think home ownership is a good thing acknowledge that it isn't a sure fire road to financial security, urge investment diversification and, when purchasing a home, buying within our current and likely future means, being careful about location, etc.

From a purely financial perspective, these are the sorts of considerations, by the way, that separate an investment from a speculation. Yes, even the most prudent investment can still fail to pay off, but buying just to buy at any price in hopes of a quick profit are the characteristics of the speculator who, between keeping one's savings in the bank and using it all to buy lottery tickets stands closer to the latter than to the former.

Which is not to say, as others have agreed, that home ownership can or should be viewed primarily as an investment. Those who urge us first to look at the fact that it satisfies our need for housing of some sort and only secondarily as a (long term) investment are correct. You don't have to be frustrated by management's slow response to fix something; you are management. If that prospect fills you with fear or if you are the sort of person who would avoid repairs and maintenance to the point where your home would fall into serious disrepair, well, then that's a strong point in favor of remaining a renter.

In which case, for heaven's sake do take the difference between what you're paying for rent and as much of the difference you'd be paying for a mortgage in the early years and invest it somewhere else. Easier said than done, though, and most of us find it much harder to discipline ourselves in that manner than to make the mortgage payment every month. Still, if over the years you rent and you don't invest, you've pretty much lost your standing to make the case that renting is the better long term strategy. Rents will keep going up. Your income will someday decline. And unless you've got a pack of kids like Jennifer will who will let you live with them or pay for your nursing home, you're screwed.

Housing prices will go up again. And they will go down again, too. Maybe there will be another round of mortgage failures and bank collapses further depressing residential real estate prices, and maybe not. But housing is just part of the overall economy which will, as J.P. Morgan noted, fluctuate. But, our youthful doomsayers aside, it (the economy) will also continue to grow. Perhaps painfully slowly for the foreseeable future, but it will. And inflation will continue to eat away at the purchasing power of money parked in the bank which means that even mere long term capital preservation requires something a bit more aggressive than money market funds.

I got a lot of heat about a casual comment once about people earning under $50k. Of course, that's an excellent salary for some people at some ages (both young and old), but if you crunch the numbers you'll find that you'll probably never be able to retire and enjoy your retirement if, adjusted for inflation, that's your peak annual salary. Unless, that is, you start investing a reasonable portion of your income, at least 5 to 10%, as soon as you can in prudent, slow but steady growth investments.

And for most of us, one of those investments should be a house.

I know. But, you know, no one pays cash. My father sold our small house when he retired to Florida in 1969 for, as a matter of fact, $25,000. I just looked up its assessed value (probably too high but not grotesquely so), $650,000. Yeah, $25,000 was a large sum of money in the 1960s but my father owned the house outright and paid it off as a house painter who never made more than $7,000 a year in his working career and had to retire on disability in his 50s. And my mother was a stay-at-home mom. And there was money for me for college. All anecdata and all easily attacked, but the fact remains that for a first time buyer the price of housing always seems out of reach but often, in fact, is not. I didn't buy back then because I didn't have the money either and, most importantly, wasn't living in NYC. But the prices in Northern Virginia were, though less expensive, outrageous by national standards. When we bought our first house in Arlington twelve years ago we paid well over $250,000 and the mortgage payments seemed oppressively high at first. But they're cheap now and it was a damned good buy.

Heh...whoops. Didn't even see this thread until after I posted my housing inflation thread, otherwise I would have just posted my gripe here. Oh well.

I didn't see this because I usually go straight to the forums instead of the front page; I didn't vote because there was no option labeled "I'll buy a house when I no longer live in a state with such dysfunctional property tax laws that your monthly tax bill can more-than-double in a single year."

yeah, like you don't still take pleasure in sausage-fests :P

welcome back, Stevo! :)

Oh, kevin00001, you are such a card! We simply must do lunch sometime!