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If you're home alone, tonight, on Valentine's Day, here's a game to play. Go through this article entitled--Why Homeowners Get Rich and Renters Stay Poor and see how many fallacies you can identify in 10 minutes. Enter them into the comments, and we'll see who comes up with the most.
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» This week's sign that the bubpocalpse is upon us from Altos Research Real Estate Insights
David Bach has one of those should've-known-it-at-the-time articles (like that Dow 26 Gazillion book of late '99) on Yahoo Finance today. The Automatic Millionaire Homeowner, as he describes it, is a can't-lose situation. With the historic [Read More]
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Owning is cheaper than renting:
1) Assuming rents to increase by 5% every year is incorrect. Rents should track inflation generally.
2) Who pays 9% of the value of a property to live in it? ($1,500/mo for a $200,000 house) In most markets now it's <5%, so either your rent is going to be much lower or your purchase price will be WAY higher.
3) Why should I expect the value of a house to increase in value at 6% over 30 years when I expect inflation to be much lower?
Homeowners get leverage
4) Why is the leverage on a house better than leverage on a portfolio of stocks or bonds? Remember it works both ways.
Homeowners become savers
5) How is this different than a payroll decution or any other forced savings program?
Posted by: Duncan | February 14, 2006 at 04:43 PM
"According to Freddie Mac (a.k.a., the Federal Home Loan Mortgage Corporation), since 1950 U.S. house prices have never experienced a year-to-year decline nationally."
~~~~~~~
It's deceptive to say "national averages" have never dropped when there have clearly been years when regional prices have dropped substantially year over year.
Posted by: rarely right | February 14, 2006 at 05:48 PM
"According to statistics compiled by the Federal Reserve, the average homeowner is 34 times richer than the average renter."
Post hoc ergo propter hoc.
"Each time you make a mortgage payment, you're saving money. That's because with each payment you're reducing your loan balance a little -- and that, in turn, is building your equity. (This assumes you don't have an interest-only loan.) The longer you're in your home, the more equity you build, the more you save -- and the richer you get."
Not if you have IO or reverse am loans - which are becoming depressingly more common.
"Homeowners Can Earn Tax-Free Profits"
So can municipal bond holders. Point is also a repeat of:
"Homeowners Get Tax Breaks, Renters Don't"
Indeed - this is one of the sloppiest arguments I have read in a very long time.
Posted by: SourAaron | February 14, 2006 at 09:56 PM
I started reading and said, "Yeah, I pay about $1500 a month to rent my house." Then I get to the part about buying the house. $200,000? The house I rent is listed at $600,000.
Posted by: Nathan Whitehead | February 15, 2006 at 04:52 PM