How housing became the world’s biggest asset class

Re:How housing became the world’s biggest asset class by codegeek on Wednesday January 22, 2020 @01:17PM (#22120300)

Housing may not depreciate like cars but it doesn't always appreciate at the rate in many areas that justifies keeping it with all the costs. In my neighborhood (with a decent school district and safe/no crime area), housing market has appreciated like 3-4% at best in last 7 years. I like living in my house but looking at it purely from an investment perspective, the returns are terrible because If I sold it today, I don't know if the 3-4% gain would be enough to offset the costs of repairs/taxes etc. that I have spent in last 7 years. And I live in NJ, the highest taxed state in the nation when it comes to property taxes. Sure I could stay in another 5-10 years to find out if appreciation rate goes up but it is more of a gamble then since I am spending tons of money every year to maintain the house in addition to mortgage payments.

Housing is NOT always a good investment from an economic perspective. It depends on the location, market events and most importantly what price you bought it at.

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Re:How housing became the world’s biggest asset class by maxsilver on Wednesday January 22, 2020 @02:08PM (#22120864)

> If I sold it today, I don't know if the 3-4% gain would be enough to offset the costs of repairs/taxes etc. that I have spent in last 7 years.

Sure, agreed, but let's think that through a minute. So your housing has 'only' beaten inflation by ~25%, and that if you sold it today, you would have 'only' gotten 7 years of effectively-rent-free living?

Imagine if you had actually had to rent a house during that time. I don't know what rates are in NJ, but you would have spent about $1200/month in rent (or ~$100k over 7 years) to have done something like that in Michigan.

The common "bad" scenario I hear about is one like yours, where you got 7 years of housing, and the appreciation "only" covered almost all of that maintenance/upkeep, but didn't also cut you a free-money bonus check on top of it.

That's where the "housing is always a good investment" line comes from. Yes, you had to take out a loan and front all the other money out-of-pocket yourself (and not everyone can afford to do that). But if you get it most-to-all of it back when you sell the house, then even in your "bad" example, you came out ~$100,000 ahead of any regular person who had not owned.

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Re:How housing became the world’s biggest asset class by the_gastropod on Wednesday January 22, 2020 @02:14PM (#22120923)

Whoa, there! Not so fast. In addition to things like home insurance, maintenance, etc, there's opportunity cost on the (I'm guessing?) 20% down payment. If GP had invested that 20% in a broad-market index fund over the past 7 years, I suspect it'd have grown a hell of a lot more than $100k.

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Re:How housing became the world’s biggest asset class by maxsilver on Wednesday January 22, 2020 @02:16PM (#22120949)

If that was an option, sure absolutely. I've never met a person who could actually afford a 20% downpayment recently (5% downpayments are common here in Michigan, for real humans buying houses in the past decade or so).

But yes, if you are wealthy enough to afford a 20% downpayment on a house, you are wealthy enough to potentially have opportunity costs from other investments at your disposal. Agreed.

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Re:How housing became the world’s biggest asset class by codegeek on Wednesday January 22, 2020 @07:33PM (#22123639)

I actually put 20% down 7 years ago on the house and I can tell you that if I had invested that downpayment purely in index funds, I would have a lot more cash today. So again, housing was not a good investment from an economic perspective. I bought it for my children but I look at it as a major expense and not investment.

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Re:How housing became the world’s biggest asset class by chii on Wednesday January 22, 2020 @11:00PM (#22124731)

if you were less risk adverse, it's possible to pull equity out of your house and have that reinvested in stocks, and continue paying the mortgage (and may be work out a way to make it tax efficient, like debt recycling). Then as long as the stock market out-performs the debt cost (which is likely), you win out ahead by quite a bit more.

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Re:How housing became the world’s biggest asset class by codegeek on Thursday January 23, 2020 @11:30AM (#22128861)

How would you pull equity out of the house other than doing things like HELOC ? HELOCs have huge interest and doesn't make sense to take that money and reinvest unless you know how to play the risky games like options trading etc.

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Re:How housing became the world’s biggest asset class by chii on Thursday January 23, 2020 @09:39PM (#22134891)

with a variable mortgage loan, a bank usually has a product called an offset account. When you pay back the principle, this offset account grows. It acts like a line of credit, and the max size is the value of the loan.

So essentially, it is a HELOC. But it's at the same rate as your home loan, which is usually quite a lot lower than the margin rate if you borrowed to buy shares. Of course, this offset loan cannot go higher than the equity you've already paid back, so unlike a margin loan (which can go up to 10x!?).

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Re:How housing became the world’s biggest asset class by chiefalchemist on Wednesday January 22, 2020 @06:08PM (#22123060)

The irony of the lower down payment? It increases demand; which obviously increases price.

So they are able to afford what they normally can't afford because of the tool (i.e., lower down payment) which helped make homes unaffordable.

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Re:How housing became the world’s biggest asset class by chiefalchemist on Wednesday January 22, 2020 @04:08PM (#22122056)

> effectively-rent-free living?

Not in NJ. Property taxes quickly eliminate any illusion of free. Factor in maintenance, including time, and you're barely breaking even.

Owning provides a sense of stability and community. But investment in many areas is highly overrated.

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Re:How housing became the world’s biggest asset class by throwaway100773 on Wednesday January 22, 2020 @09:10PM (#22124177)

People might be singing a different tune in a few decades when the ground flood of their buildings are taking on water from rising sea levels and economic activity is ceasing due to environmental effects.

It’s a very idiosyncratic risk you’re taking buying a home. Looking at a primary residence as an investment is silly in my opinion. Treating it as consumption makes more sense.

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