For as long as there have been economists, there have been those who tell us that owning a home is a bad investment. This is a popular point of view today, as it was before the bubble, as it was during the bubble, as it was at the depths of the housing recession. All sorts of people have told us that if we wish to protect and grow our money we’d be better off not investing it in housing- everyone from homeowners themselves to minimalist trader types who feel it a better use of their money to rent forever. The newest housing naysayer is Greg McBride, and he’s not unlike the others. He’s wrong too.
In a Wall Street Journal piece, Mr. McBride takes an abacus approach to home ownership and complains that after a period of home ownership the appreciation doesn’t actually result in financial gain because of the expenses that you incurred during your ownership tenure. This is the complaint of every housing pessimist. They argue that if a homeowner actually kept a tally of their entire, ongoing investment- the mortgage, taxes, repairs, gas bills, Home Depot visits, etc- it would show just how bad of an investment owning a home actually is. In this, they are right. If you add up your housing costs annually, they’re probably significant. If that money were all dedicated towards pure investment in a 401k, it may indeed, over time, be rather valuable.
Home Deniers use this is the basis for their reasoning, that money spent on housing would be better spent on a true investment, and this is why housing should never, ever, be considered to be a worthwhile investment. Own a house because it is your home, some say, not because you ever hope to make money on it. Others do not allow that benevolent view, and ask that we never own homes because they are flawed investments due to the constant drip, drip, drip of expenses that will, in fact, never end.
I find these views to be troubling for many reasons. Initially they bother me because they encourage renting, which, if finances are not the reason, is a horrible way to live. I’ve spent many months in rentals, and I’ve hated every single experience. I understand that you and your wife rented a small flat when you were first married, and you look back on that time with fondness, but that fondness is because you were deeply in love and excited about all sorts of other things, not because you truly enjoyed cooking dinner six feet from where you slept. If we skip the rental enthusiasts, and instead just look at the words of the McBride types, we’ll see rather plainly what it is they are trying to accomplish.
When McBride tells the world to not view housing as an investment, he is doing so for the betterment of the housing industry. He’s telling us that houses are bad financial investments because he wants to lower the bar. He wants to temper our expectations. He wants us all to see that houses are homes, and nothing more. Homes are where we live, where we mark heights on the door jams, where we sleep and eat and grow. I like viewing houses like that too, and have admitted to my struggle that finds all houses to be, in fact, just houses. Rarely can I consider a house a home, but that’s because I think of a home as a house first, and I always think of a house as an investment. Tempered expectations be damned.
The problems in real estate ownership arise when we fail to first consider the property as an investment, and instead view it only as a place to live, and a place to mess up the door jams. This is why people do the things like they were doing in last Friday’s post, because if we are to view real estate as a bad investment, why not just do whatever it is that we please and accept the fate that McBride says lies in wait? I have owned lots and lots of houses, and admittedly not a single one of them has been a home. I have also sold all of these houses, and have made money on each and every one of them. To the extremists point, if I added up the entire cost of ownership, including loss of return on the invested capital, I would likely have made money only on a few of these and lost money on the rest, but if I had been renting during the same time I would have still had housing expenses, just without any hope of actual appreciation. We must live somewhere, we must spend money to live somewhere, so don’t we want to live somewhere and then someday sell that somewhere and make some money?
I, for one, refuse to lower my expectations. I don’t think you should either. We all will, at some point, buy a home that we love and that home will prove to be a truly poor investment. But love aside, we can and should make housing decisions that will allow us at least some gain. That gain is realized some day in the far distant future when we sell that house that may or may not have become a home, but the gain is made when we strike the deal to buy it.