I posted a video of my pal James Altucher on Yahoo Tech Ticker this week, declaring he was “Never going to buy a home ever again!”

Whenever I hear that sort of declaration, it tells me we are closer to the end of down cycle than the beginning. The psychology is reaching a negative extreme, and that means we are nearer to a capitulation.

Lets take a closer look at Jame’s thesis: I do not agree with much of what he states here — from buying the home builders (why?) to being a renter (maybe) to not owning a home (huh?) to homes being illiquid (exaggerated). And while there are many reasons to buy a house, as an investment is not really one of them.

Indeed, I find myself noting the following in response to Jim’s concerns:

• Home ownership allows you to live in one place for as long as you like, without worries that the property owner will not renew your lease.

• You get to select the school district you like for your kids’ education.

• Those of us who lived in a city know what its like to be subject to the capricious whims of a landlord. (no fun).

• When you own your home, you have the option of painting the walls whatever color you want, doing capital improvements, renovations, etc.

• Homes are less liquid than stocks, but price any home correctly and it will sell quickly.

• If you buy a home you can actually afford, there is no more stress about mortgage payments than paying your rent.

• For middle class Americans, the mortgage deduction is a huge tax savings.

There are lots of reasons to choose between Owning and Renting — it is a personal life choice — but since you have to live somewhere, its simple math to determine what the price differences are. Are the marginal cost differences worth the perceived advantages? That is your calculus.

Currently, our 3 metrics for measuring home prices show prices remain elevated by various degrees.

1. Median Income to Median Home Price — it is still about 10% too high nationally. This is the most reliable of our indicators, and it shows the most expensive home prices of the three.

2. Cost of Renting vs Cost of Ownership: This metric is now reasonable — rents have gone up, people are fearful of buying an asset whose price is falling — so it makes Ownership look more attractive, depending upon the region. But it is the most volatile and least reliable of the three, as it is easily influenced by risk aversion psychology and rising rent prices.

3. Housing Value as a % of GDP:  It shows only a slightly over-valued housing market, but that is due to the weak economy. A more robust GDP makes housing look pricier.

Nationally, home prices remain somewhat elevated, but not absurdly so. The local region you are in, and the specific price you negotiate determine if you paid fair value or worse. Given the many variables, there are no broad declarations to be made that reflect every sale of every house. The answer to our title question (“Should You Buy a Home?”) is it really depends.

My biggest issue when it comes to Home prices is the lack of pendulum swing. All over-priced markets that crash typically swing to the downside until they not only achieve fair value but become cheap. Unfortunately, that has not been allowed to happen in the residential real estate market. The government’s HAMP/Mortgage Mods, the foreclosure abatement plans, the new purchaser tax credit, and even the Fed’s ZIRP have all conspired to prevent market forces from repricing homes.

If we want home prices to bottom, well then we must let them fall.

Category: Mathematics, Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

77 Responses to “Should You Buy a Home? Looking (Again) at Housing”

  1. I guess I am talking my own book –we own one home (50% LTV) and a 2nd outright.

    But that situation was the same 6 years ago, when I was railing about home prices and an overheated credit bubble.

  2. forwhomthebelltolls says:

    I distinctly remember Mr Altucher stating that he wasn’t going to allow his children to attend college. That it was a waste of time that they could be using to start a business. I realize this sentiment has gained momentum in recent years, but I fell like it’s a tad “overstated”.

  3. jaltucher says:

    to be fair, i do say that housing is a buy. I just dont think people should own a home.

    Btw, sadly, I both own a home AND rent (i’m divorced).

  4. • Home ownership allows you to live in one place for as long as you like, without worries that the property owner will not renew your lease.


    Property, Fifth Amendment, Due Process, Eminent Domain, Public Use
    In 1998, the small town of New London, Connecticut saw a dramatic turnaround in its economic fate when pharmaceutical giant Pfizer announced its development of a waterfront global research facility in the city’s Fort Trumbull area. New London created a development corporation to revitalize the area around the new facility, and granted this entity the power of eminent domain. This power has long enabled governments to condemn–essentially take–private property for “public use,” so long as they conform to due process and provide just compensation. In this case, the development corporation filed condemnation proceedings against the petitioners in an attempt to condemn their homes–some of which had been in their families for over a century. This property was to be used to create an office park, a parking lot, and a new park. This case tests the limits of the government’s power to take private property for “public use” under the Fifth Amendment of the United States Constitution in circumstances when the “use” is largely commercial…


  5. Alex says:

    An addition to the benefits list of home ownership:

    You effectively fix a significant portion of your overall expenses with a fixed rate mortgage. People aren’t to focused on that now, but during the 70′s I believe it was a life-saver for more than a few families.

    It is frustrating to see how everyone wants free markets, until it means their assets go down in value. Bargain prices allow a market to clear. Japan diddled around with forbidding prices to fall for a long time, and all they did was end up being exhausted and selling at the market bottom outside of Japan, and having a market that is still a mess in Japan.

    We got on our high horse to demand that Asian markets allow market forces to clear their markets (via the IMF with Geithner the most vocal) during the Asia crisis. Most did, and it actually went well for them, clearing out idiots and getting capital back to work in more productive areas. But now its our turn to take our own advice, and…well…its unthinkable! Therefore, it is now inevitable that the housing market is going to be a mess for many years…probably a decade or more.

  6. MayorQuimby says:

    Housing is NOWHERE near a bottom.

    Bearish factors affecting housing:

    1. Cost of living – at record levels relative to wages. This makes housing much more expensive and means you can throw the traditional metrics (ie 2.5x income) out the window. Tuition, gas, food, clothing, appliances etc.

    2. Supply – at 9 months not including shadow inventory. Until this hits 6 months withOUT the shadow inventory, we have excess supply.

    3. Job stability – Making a 30 year commitment is much easier for us NYers than for those in Detroit, Seattle, Chicago, Atlanta etc. There has never been more career instability and fluctuation. This keeps people renting.

    4. Property taxation – at an all-time high (in % terms). More reason to not buy anything and get the cheapest rent you can.

    5. New home tracts are garbage. People will chase crappy investments during booms and buying panics but once the dust settles, they realize quickly that the 800 sq foot duplex in Mineola that cost $350K with $7K n taxes jussssst might have been a TAD expensive!

    6. No more refis and few HELOCs and housing ponzi.

    7. Banks are reticent to lend so buyers will need better credit and more cash at a time when both are hard to come by.

    etc etc etc

  7. MayorQuimby says:

    The time to buy isn’t when people are negative or positive but when you hear nothing but silence.

  8. globaleyes says:

    Home prices represent the battlefield for ongoing fight between The Fed and Mr Market or more succinctly: inflation versus deflation.


    The Fed seems desperate to build inflation into the price structure. Unlike times passed, inflation is the aswer, not the problem, to all the Federal government’s problems today.

    However, Mr Market wants to deflate and everytime a foreclosure happens, Mr Market takes another step towards declining prices. As a major asset, home prices dictate movement in other prices, too.

    That’s my worldview: The Fed wants to inflate while Mr Market (BR’s term) wants to deflate.

    The battle continues…

  9. jeffg says:

    BR: James Altucher is way out there, so I would not consider him a good contrarian signal. I like reading his stuff, as he forces people to confront conventional wisdom (blindly sending $200k to a small, liberal arts college for 4 years of Junior’s eductation, as he spends 3 night a week drunk / hungover prime example). If you are still lurking out here James, perhaps readers of the BP comment section would love to hear if you really believe what you say most of the time, or if you overstate to draw attention to a never considered issue (The Media Owes Everyone An Apology For Over-Hyping Japan Nuclear Crisis prime example – I’ll personally avoid drinking Tokoyo’s water for the forseeable future!).

  10. [...] Actually, home ownership does make sense for those who can afford it.  (TBP) [...]

  11. BR – the analysis framework is very good. Not sure if your model includes local economic or demographic factors (employment trends, taxation levels, trend of couples with young kids, etc) but I have found these factors to be useful.

    Also not sure if there will ever be a ‘clear-out’ in housing; allowing this seems to be more of a political issue rather than a purely economic one. (Just as monetary policy is really political policy now). As such, I would be cautious as it would appear you are, in hoping to profit on the downside from here, as with anything political, the outcomes are highly uncertain.

    Mr. Altucher – I understand what your perspective is now

  12. Clem Stone says:

    We are now 11 years since the ’00 stock market top and the S&P pendulum hasn’t yet swung to cheap. My time horizon isn’t that long!

  13. FarragutWest says:

    I have a technical remark- how does the weak economy make house prices cheap as percentage of GDP. If GDP is the denominator, a more robust growth will make housing look cheap, not the other way around!

  14. Ted Kavadas says:

    RE: “Nationally, home prices remain somewhat elevated, but not absurdly so. ”

    I don’t believe this to be the case, for a variety of reasons, both “fundamental” and “technical” in nature.

    “Price action” in housing remains very poor; as well, from a long-term historical perspective, many of the “excesses” of the housing bubble have yet to be resolved.

    A few months ago I wrote a post concerning the possible “downside” remaining in housing prices; here is the link for those interested:


  15. davefromcarolina says:

    Okay, you are going to buy a home. Where are you going to find a trustworthy lender for your mortgage?

  16. jaltucher says:

    @jeffg, i definitely believe everything I write. The funny thing is, on every post in my blog at http://jamesaltucher.com, someone always asks. “is this true?” or “do you really believe this?”. I guarantee everything is true and what I beleve.

    But I think its important for me to remind: i think housing is a buy here. A strong buy! Just not homes.


    BR: Note: Here is James’ Why I Am Never Going to Own a Home Again

  17. beaufou says:

    I had this conversation with a friend recently who wants to buy a house. We looked at renting prices compared to buying and renting was still much lower, prices around my house have gone down very little, I still have about 100k equity, so I guess it is still overpriced.

  18. DeDude says:

    There is no law of nature that you have to fall below fair prices before you can stabilize. It often happens in speculative asset classes, but houses are a lot more than a speculative asset class. Indeed it is much better for society if an asset class like houses slowly find the bottom (or top) rather than fluctuate drastically. All you get from drastic fluctuations is the opportunity for the rent seeker class to suck money out of hard working productive people – and we have way to much of that already.

  19. TBPfan says:

    As someone who’s looking at houses and trying to decide whether or not it’s the right time to buy, James’ arguments are ones I’ve already considered. It’s always interesting to see what the sentiment is.

    I’m also interested in what people think of this paper which argues that as baby boomers retire the housing market will be impacted. I would add to that argument that this will be even more so with tighter lending standards. We have good credit, a sizeable down payment, and can buy a house, but should we? Will we be able to sell it down the road when we’re ready?


  20. decius says:

    Illiquid certainly seems apt from my perspective. I live in Atlanta. People just aren’t moving here anymore. We didn’t have the sort of price run up that occurred in other markets, and yet we have homes that are listed for months at 50% of the price they were selling for a few years ago and no one buys them.

    It is not the case that there is always a price and its just a matter of lowering until you find it. If there is no demand it doesn’t matter where you are on the price curve. People are constantly pointing to Detriot as an example – you can buy a house there for a few thousand dollars. A whole house and the land it sits on. No one wants these things at any price.

    Perhaps the economic impact of property taxes and upkeep are enough to keep buyers away, but I think its fear. Atlanta is not Detroit. There are jobs here. People can make these mortgage payments. They are afraid of getting stuck somewhere, unable to move because they can’t sell, and that fear is self fulfilling. The consequence is a perception that as an asset, homes are illiquid.

  21. rip says:

    No one has mentioned mortgage interest rates. Which can be a huge determining factor.

    They bumped up a few months back, but seem stable now. The spread is record setting for the big banks with access to free money.

    When Ben the Butthead decides to slow things down, he’ll pump rates. Unless the GES toe the line. Unlikely.

    But on the other hand, the Fed can’t juice interest rates too much. It makes interest on gov debt a lot more of a problem.

    So we’re probably safe with low mortgage interest rates for some time. Maybe.

  22. Petey Wheatstraw says:


    Good research, as usual. Thanks. Another example of Corporate interests uber alles. Public and corporate interests have become one and the same (Fascism, no?). The corporatists will not be denied by such a trifling thing as the Constitution.

    Housing is still marked to fantasy. It can’t be good when a significant percentage of inventory is held off market and not maintained, while being accounted for at inflated loan/assessment values. While the complete loss of these assets might clear the excess inventory, that loss should be reflected in the balance sheet of the asset holder. Currently, that’s not happening, as such accurate accounting would immediately crush the market.

    I’ve looked a lot of RRE, lately, and my overall impression is that no one knows what anything is worth. For example, home builders are way outside the ballpark (yet they’re still building what was in the pipeline 4-5 years ago):


    There are good deals to be had, but the vast majority of properties I’ve seen have been overpriced.

    Then, there’s MERS.

    We keep sweeping this crap under the rug instead of letting the market determine value and the law determine ownership of the debt and the asset.

    For some, the temptation to drink the Kool Aid is irresistible.

  23. darth beta says:

    There are not many assets you can buy 70-80% levered at 5% and receieve tax breaks for doing so. Like all investments it is a question of time horizon. Long term, Farm land and or property on the great lakes ,to me, makes sense.

    I never understood why people bought condos (unless for cash flow properties).

  24. TBPfan says:

    decius – also live in Atlanta and the local government is projecting population growth although I’m not sure if I buy into that until we fix our transportation and water issues.

    Prices in the Atlanta suburbs seem have been more impacted than established, high-income, intown neighborhoods. Prices are still sticky intown but foreclosures have had an impact. We have some friends who are closing on a house this week in a new, well-developed, intown neighborhood that was revitalized. Houses were close to a $400k- million in mid-2000′s. Our friends are buying a Southern Living featured home which was $900′s for upper $500′s! I have not seen those types of deals in my neighborhood and probably won’t. I do wish they would just let prices fall and stabilize.

  25. DeDude says:

    Absolutist like Jim Altucher are great for debates, and to help you collect all the arguments for one extreme. Then you just need someone else to provide all the arguments for the opposite extreme and you will be ready to start making a decision. The fact is that generalization are dangerous because there are always individual situations that don’t fit the rule. There are plusses and minuses for owning vs renting and each person will have to figure out if their personality and situation favor renting or owning.

  26. TBPfan says:

    rip: Good point on how mortgage interest rates will affect the housing market.

    My view is that as interest rates go up, home prices will have to come down for people to afford homes. Homes prices were much lower in the 80′s when interest rates skyrocketed. Any thoughts on this out there?

  27. Petey Wheatstraw says:

    darth beta:

    “There are not many assets you can buy 70-80% levered at 5% and receieve tax breaks for doing so.”

    With high leverage and tax breaks, looks like somebody wants to sell inflated assets. Reminds me of cars: $0 down and (insert low number)% interest puts you into more vehicle than you need. Sign the loan docs, drive it off the lot, and immediately the value drops by 15%, or more.

    Ownership also saddles you with additional tax burden and the cost of maintaining the asset.

  28. Nuggz says:

    Based on my knowledge of modern home construction, most homes built between 1960 and now are basically disposable and HIGHLY inefficient.

    30 year mortgages are a joke. Because in 30 years, most homes are a piece of junk requiring extensive maintenance.

  29. Robespierre says:

    Yes you are talking your book but you can be like Cramer who has called the bottom every year since the start of the crisis…
    And about your bullets:

    • Home ownership allows you to live in one place for as long as you like, without worries that the property owner will not renew your lease.

    As long as the government allows you … since it can be taken away legally…

    • Those of us who lived in a city know what its like to be subject to the capricious whims of a landlord. (no fun).

    Those who live in a closed community (or in a condo) also know how capricious a home owners association can be…

    • When you own your home, you have the option of painting the walls whatever color you want, doing capital improvements, renovations, etc.

    Yeah right… I know home owners that are only allowed to paint their outside walls to the colors their association deem “appropriate”

    • Homes are less liquid than stocks, but price any home correctly and it will sell quickly.

    Sure if losing money is in your plans but but wait isn’t home ownership the path to riches?

    • If you buy a home you can actually afford, there is no more stress about mortgage payments than paying your rent.

    Well no. When a hurricane is on its way it is not the same to lose your rental than all your equity. You know own something that needs to be protected. That always causes stress…

    • For middle class Americans, the mortgage deduction is a huge tax savings.

    Mortgage deduction is a give away to the banks and to the RE industry. It encourages people to go into bigger homes and bigger debt justified by see honey we can now deduct more!

  30. bm says:

    Darth Beta:

    “I never understood why people bought condos ”

    Price of upkeep.

  31. freitagfan says:

    The key is to buy what you can afford. If someone is going to pay their minimum payment on a 30 year mortgage, they have in effect locked in their principle payment with only marginal increases that would be included in rent increases. Buy what you can afford and you won’t have to worry about making the payment.

  32. Sasquatch says:

    What happens when the Fed can no longer keep a lid on interest rates and the 30 year downtrend in Treasury bond rates is broken? Is this going to be bullish for housing as the cost of borrowing increases? Some homeowners are having trouble with their mortgage even at current rates.

  33. Nuggz says:


    “Mortgage deduction is a give away to the banks and to the RE industry. It encourages people to go into bigger homes and bigger debt justified by see honey we can now deduct more!”


    Just like 7 year car loans.

  34. H Salmon says:

    Of course all real estate is local. Barry, you should spend a weekend looking at houses in Nassau County. Then tell us your opinion. There’s nothing like people asking $600-900k for fixer-upper 1960′s era splits with high and increasing property taxes to make you smile as you write your rent check.

    There will be many people who lose 100% of their investment in their home when and if this thing keeps sliding as shadow inventory comes on, baby boomers move away, and (take your pick) interest rates rise or the economy dips back down. And those are normal people , not Wall Streeters, for whom it takes years and years to build up that cash. Not a risk I will take at this time.

  35. Les Lofton says:

    Wouldn’t a more robust GDP make housing look less pricey since the % of GDP would go down?

  36. constantnormal says:

    I think what he really means to say is don’t buy a home as an investment — buy one to live in. Unfortunately, the establishment has been touting homes as investments for all of my life … prolly to avoid having the sheeple out there bidding up the real investments … the role of the sheeple is to finance debt, through purchases of CDs, bonds, and savings accounts, and to pay interest on the debt they incur. Nothing more. They are never supposed to have a piece of the action.

  37. jaymaster says:

    Going macro, if (when) inflation comes back, the calculus becomes much more clear. Renters lose. But in the recent disinflationary/deflationary environment, renters have won.

    Over a long enough term, at some point the mortgage will be paid off (most likely), and at that point, owner’s costs should drop dramatically. But they will not go to zero because of upkeep and property taxes.

    And speaking of property taxes, those are like a permanent lien against your home, held by the local government. And they can take your home away much faster than a mortgage holder…. Just something to keep in mind.

  38. WFTA says:

    I bought my first home when I was 25. That is the last time I thought of it as an investment.

    You have to live somewhere and I find owning where I live to be psychologically comforting.

    I don’t know the numbers, but I suspect that if you get a decent mortgage and make the effort to pay it off early you come out ahead of rent. Other than taxes and maintenance, I finish spending on housing at the age of fifty.Whatever I sell it for will pay for the retirement condo; hopefully with enough left over to nicely renovate the condo if needed. That’s 30-35 years of rent-free living to factor into the equation.

  39. louis says:

    The government’s HAMP/Mortgage Mods, the foreclosure abatement plans, the new purchaser tax credit, and even the Fed’s ZIRP have all conspired to prevent market forces from repricing homes.


    Agreed and unless they look at principal reductions you have the continued cloud of more inventory.

    As in most criminal plans their is no thought to the consequences of getting caught.

  40. MayorQuimby says:

    Re: “Assets”

    Houses are liabilities, not assets. This fact is hidden from people while they are earning money but it becomes apparent when economies teeter. No one but sellers, realtors and flippers ever ‘makes money’ off housing.

    The whole ‘I bought my house in 1964 for $25K and it’s now worth $550K!” thing is utter bs.

    When you run the math – that person spent $750K or more on the home in interest, taxes, principal, repairs, maintenance etc.

  41. DC says:

    “Location, location, location” is about the only generalization that stands the test of time. Priced correctly, any property will sell relatively quickly — as long as it’s along the DC-Boston corridor or in the hot neighborhoods of SF or other desirable cities.

    But if you’re in a rural spot, a midsize town without a university, or in oversupplied cities like Tampa you’ve got trouble. Midwest, South, inland California — most anywhere you look you’ve got a scary number of properties begging for buyers. And this is before the banks dump the rest of their losers onto the market.

    Not all of these property owners bought at the top. Not all bought “more than they afford.” Many are just caught in the riptide and can’t relocate for better job prospects, etc. The anxiety must be debilitating. You can bet that once they finally get out from under that mortgage they’ll squat in a yurt on national parkland before they ever buy another house.

  42. Livermore Shimervore says:

    If you want to die middle class plunk down $3K-$5K on a house every month when you aren’t making mid to high six figures. What is the return on that after 30 years? maybe break even when you subtract taxes, maintenance, insurance, mortgage interest…all of which will be going UP and probably at a higher clip than your 401K?

    Now on the other hand…if you live modestly in a rented home even though you could afford to live in a much bigger place, take that extra money NOT going to cost of ownership and invest in engineering, energy, wireless, agriculture, bio-tech and emerging markets FOR THE NEXT 30 YEARS (sorry for the all caps but that point needs to be stressed) and tell me how many houses you’ll be able to buy in cash?
    But I guess that requires having a sensible spouse with a macro perspective of the future of global economies and the sinking fortunes of the avearage working Joe in America.

    by the way if you don’t like the schools somewhere you can pick up the phone call a realtor and ask them to find you another rental (probably sitting empty like the two car garage 3 br 3.5 bth in my gated community) in a beter school system. If the local school board slashes education and ramps up your property taxes good luck getting your kid in a new school in the same amount of time as renter.

  43. DSS10 says:

    The reason for owning a home is to lock in you future housing expense for 30 years. Yes there is up keep and taxes but the ability to “fix” the majority of you living expense is an incredible financial advantage. I remember back during the 80,s and 90′s when rents soared and having to constantly be on the look out because the wage increases never kept up with the rise in rents. I think that we are going to see this again once the Fed starts to tighten and allot of people will wish that they were back in their underwater homes that they walked away from by pulling a strategic default. Unfortunately however most careers do not allow for some one to live in the same metropolitan area for period where you really see the benefit of long term financing and that if rates rise and income levels do not rise to the same extend they will find declining real house values as housing credit gets more expensive. I think, and hope, that this will be the end of the arbitrage home ownership mentality and that people will start looking more at income streams as opposed to paper profits.

  44. bm says:

    I have never understood the sentiment, by a lot of people, that a house is a GREAT investment. No a house is a place to live in nothing else. That fallacy, IMHO also contributed to housing bust. As long as the middle class was increasing in size, there was a steady source of new buyers for houses. Now with the erosion of the middle class, that pool of buyers is drying up. In addition, isn’t there some scuttlebutt in Washington about removing the ability to deduct both mortgage interest and property taxes from our income taxes? There goes your great investment……..

    What really bothers me is how owning a home is promoted to being part of the “American Dream”. Not for nothing, but not everyone is capable of owning a home.

  45. Livermore Shimervore says:

    “I remember back during the 80,s and 90′s when rents soared and having to constantly be on the look out because the wage increases… ”

    This is the crux of the whole debate. People are operating under a flawed assumption that wage increases and job creation of the last three decades will continue into the next three decades.
    The last decade has already confirmed that those days are over. Wages have been flat and actually fell coming out of boom for the first time since WWII. Job creation since 2001 has been 1/3 that of even the Carter years. While things will inevitably improve there will be no cavalry coming in to bring us back to the hey days. Average to above average increases in property values will be targeted and specific to affluent areas or zip codes where there are concentrations of engineers and scientits. I should know I rent from one who will be buying his third income property courtesy of his employer’s special perks program. 15 years ago this guy was living in China and making chicken feed dreaming of doctorate from a U.S. University. Our folks had good timing buying real estate, today the world is different place.

  46. Livermore Shimervore says:


    If you let housing ‘bottom’ it will costs you elsewhere…RE investors and owners will take a hit and you’ll have that many fewer players to buy into a recovery in a new lending regime where down payments will be higher, credit scores will have be much higher and loans smaller. A RE marekt free fall sounds like a panacea with little thought about the radiation levels that would be left behind. Sound like a great scenario if you are a deep-pocketed RE developer looking to own all the houses on the block.

  47. socaljoe says:

    Home ownership is a combination of investment and consumption.

    As an investment, rising house prices create no wealth… only the illusion thereof. If your house went up in price, the guy buying your house will have to pay an elevated price, as will you for your next house… there is no gain. You, personally can check out of the market with a gain, but as a society we can’t… every house has to be owned by someone. Whatever gain is made on the sale of a property has to be paid for by another member of our society. We are not wealthier as a society just because we trade our houses at a elevated price. Also, consider mortgage interest, real estate tax, HOA fees, insurance premiums, and maintenance cost.

    As for the consumption aspect of home ownership, it is a personal decision. If you are happy with a house, are sure to be living there for a long time, and are sure you can afford it for the duration of your ownership… then it’s OK to buy… same as any consumption decision.

    Be careful to not justify an emotional consumption decision with false investment merit.

  48. gordo365 says:

    pts 1,2,3 are very good.

    We were renting and given 30 days notice right as our 1st child was born. The landlord put the house on the market – and liked that we had a new baby because it helped potential buyers feel good as they traipsed through our home.

    According to my wife – there is a special place in hell for them…

  49. gpshark says:

    I actually heard his interview and to be honest he had lots of good points and almost made a believer out of me and I sell real estate for a living but then again real estate is like any investment .. and timing .. etc etc .. factors to consider vs. renting .. but in regards to some of the comments here are we at the bottom .. NO .. NO Way .. but then again its a trade off .. rates are going to go up that is a fact .. but for those that need financing .. it may get harder your payments will go up as well .. on a lower priced home… I remember doing loans in the double digits .. but for cash buyers .. oh ya .. they will be positioned just right …

  50. Arequipa01 says:

    Arguing these things out and considering the issues from various viewpoints are obviously very healthy things to do, however, I urge everyone to reflect on the increasingly contingent nature of ‘ownership’ in this country. The reference to the Kelo decision is fundamental. IMHO, the property rights of individuals, i.e., natural persons, are being dissolved in parallel to the dissolution of citizenship rights. The displacement of natural person by the juridical person is nearly complete. This all may seem like hyperbole and scaremongering but I would counter that the system has moved from randomly torturing people in Iraq to torturing US citizens to torturing US soldiers. Frankly, all the signs are present. Once the War Machine can no longer project its lethality outward it will turn inward. Within 12 to 15 years, the US will experience an open process of internal (re-)conquest.
    Crazy? Contemplate the fact that individuals like Kasich of Ohio and Walker of Wisconsin are openly engaging in acts of corruption. Walker’s phone conversation with the prank Koch brother- as an extended speech act it was exactly a progress report of a subordinate to his superior.

  51. cognos says:

    Id say 5/1 ARM mortgage is a much better option for 90% of home buyers and its been as low as 3.125% this week. Take the tax deductibility of a $500k comforming mortgage, add some taxes and maintenance… and your $600k house should cost you about $1,500 per month all-in!

    At 3% interest rates… buying is quite cash-flow attractive.

    And if you think inflation is coming… there is NO ASSET more leveraged to inflation, literally leveraged, that real estate.

    For those in the UHNW class, I would recommend making sure you are borrowing around LIBOR at 30 bps… its all cash is worth these days. For example, use idle cash or take a withdrawal (loan) against 30-40% of your investment portfolio at 1% or less (whatever your bank will get you) and pay off any mortgages in your family. Or set-up family mortgage loans at statutory IRS minimum interest rates… as low as 2% for 9-years, 0.55% for 3 yrs.

    Please dont pay the banks excess interest by holding cash and also having a mortgage.

  52. curbyourrisk says:

    Wait a minute. You already called the bottom Barry…. We argued over this back then.

    I was the idiot (as most of you put it) 7 months ago that said we have another 25-30% of downside. You all piled on.

    Just wait til the banks actually do what they are required and bring those foreclosures to market.


  53. forwhomthebelltolls says:

    RE: curbyourrisk


    Realize what? This is what I don’t understand. It’s just a purchase. Have you ever lost money in a stock or better comparison: a car? I would assume you’d answer affirmatively.

    A car you get to drive and a house, better yet, you get to live in. Better than that even, if you took a mortgage, you get to deduct interest against income. So how are you “f*cked”? It’s still a okay deal. If you actually make money in a home (after taxes, repairs, remodels, maintenance, etc) which is rarer than people actually realize, then it’s a better deal.

    I paid a boatload for my home. But it was a school district I wanted for my kids and property I wanted for the family and close to my office, etc etc. I expect to be there for a long time but have no delusions of “making” money in the home. My best hope/anticipation is that it will average out as not having been terribly expensive when I ultimately calculate my cost of living there.

  54. decius says:


    Atlanta will likely grow in the future but its anemic right now.


    I want to second this comment: “Not all of these property owners bought at the top. Not all bought “more than they afford.” Many are just caught in the riptide and can’t relocate for better job prospects, etc. The anxiety must be debilitating. You can bet that once they finally get out from under that mortgage they’ll squat in a yurt on national parkland before they ever buy another house.”

    Totally agree. This situation is far bigger than giving option arms to people with bad credit. The rock bottom foreclosure pricing has dragged the entire market into a hole. One wonders if the banks wouldn’t be better off in the long term if they weren’t trying to offload houses at prices that damage the rest of the market. The more people go bankrupt or strategically default, the more the banks loose, and end up going out of business themselves.

  55. Jack says:

    Big issue in own v. rent: how long are you going to live there? The longer the time horizon, the more important the non-economic issues like paint colors, schools, etc.

    Analogously, it’s like financial planning: isn’t one of the very important guesses we need to make “how long am I going to live?”

  56. SANETT says:

    One thing buying and renting have in common: you’re making a payment on real estate
    One big diff: with the latter, you don’t get to own it.
    You’re paying for the place anyway — with current market prices renting doesn’t make sense unless one is in transition. Everything becomes its opposite. Will here too if you don’t hold your breath.

  57. Lyle says:

    Actually the mortgage interest deduction is a much bigger deal on the coasts than in Indianapolis for example. The median price home in Indianapolis is around 106k. Take a 100k mortgage at todays rates and you get a mortgage interest deduction of less than 5 k. Given that the standard deduction is 11 k for married its a stretch to get much mileage out of the mortgage interest deduction. Now the situation is very different on the coasts. Note that in smaller cities in the midwest prices are even lower (not counting Detroit) for example Fort Wayne In, the median price there is 70k., while Evansville is 150k. Omaha, Ne is 139k.
    What this discloses is because all real estate is local the impact of the mortgage interest deduction is local also.
    Because most pundits on this issue live in high cost areas, they have a different point of view than someone who lives in the low cost areas.

  58. [...] Should You Buy a Home? Looking (Again) at Housing (March 23, 2011) [...]

  59. BillG says:


    the banks won’t hold on to their real estate and wait for a better market because holding an empty house is nothing but an additional cost to them. Even if they decided to rent the thing out to someone then that’s one more person who isn’t buying a house right now. And really they are holding a lot of this stuff off the market (though they probably aren’t doing it purely to wait for a better market). That’s part of that shadow inventory people talk about.

    Face it. The housing market is simply overpriced. There is too much housing available and too many people who don’t make enough money to afford enough of it. We need to get back to equilibrium – which in a time of recession is some point below the historical average of whatever home valuation metric (price/income, price/rent, etc.) you choose.


    Your point about the mortgage interest deduction has been made before. At today’s interest rates a family really has to be in a $200000+ home (or in a state with really high property taxes) before it provides any benefit. Its basically a tax break for the middle and upper middle class with a backdoor benefit to the banks, realtors, and builders. This country would be better off getting rid of it and instead dropping the 25% tax bracket to 15% or something.

  60. decius says:


    I’m not suggesting that banks wait for a better market or that housing prices have not been overvalued.
    Foreclosure sales are usually cheaper than the “market” price for the same property at any particular time. Banks dump foreclosed properties out at low prices in order to move them quickly. They do this to avoid the tax and upkeep costs associated with holding on to them through a normal sales cycle, as well as the costs associated with prepping the home to be sold, fixing damage, working with agents, and all of the other things that you have to do to make the home competitive at a “market” price with individual home owners who are trying to sell their houses and doing everything they can to make them attractive.
    Its not impossible for banks to manage these things. They could hire people to prep their properties for sale. They just don’t. They’re not set up for it. Under normal circumstances these costs are not worth the benefit. However, these are not normal circumstances.
    What I’m suggesting is that there is a point where there are so many foreclosures, that continuing to flip places at rock bottom prices becomes counter productive in the grand scheme of things. Banks are no longer competing with individual home owners to sell their homes. They are competing with other banks selling other foreclosed properties, each offering lower and lower prices than the next to move their properties quickly. There are so many properties in this condition and the prices have gotten so low, that this activity has left individual homeowners so far under water that it is directly increasing the volume of defaults and, ironically, foreclosures.
    Foreclosures are bad for banks. If you look at the statistics regularly published here, banks have been failing at historically unprecedented rates in recent years. They are failing because loans are failing. Some of these defaults are the consequence of irresponsible lending, but not all of them. Some of these people are defaulting because they can’t sell their houses. People can’t sell their houses because they can’t compete with foreclosed properties. In that respect, the banks are feeding their own decline.

  61. lark says:

    Altucher is an excellent 100% contrarian indicator as pointed out. About a year ago he said buying gold was a ridiculous investment, but if you must have gold in your portfolio, you should buy Kingold, a Chinese jewelry manufacturer. Gold went up about 12% since then, and Kingold went from $8/share to about $2.60 today. Wow — wrong on both ends of a trade. His advice is about as useful as what you pay for it when watch Yahoo! TV. Caveat Emptor

  62. DeDude says:

    Some people don’t like homebuilders.

    Personally I think they will be in trouble for a long time. The cost of building a new home is to high to compete effectively with already build homes. Furthermore, there will be an excess of already build homes for a long time, as baby boomers retire and want to take up residence in their second home and sell their primary residence.

  63. elder bear says:

    Mr. Ritholtz is a very respected journalist and author re the economy and the recent Financial crisis.
    And in digesting his article I found the real nugget up above the various reasons he gave for buying:

    He said, ‘And while there are many reasons to buy a house, as an investment is not really one of them. ‘

    That pronouncement hits incredibly hard. The days of a medium-size house appreciating 100K in a year are gone though. Forever. House price increases could easily mean-revert to a few % per year, or less. Were the government to end the deduction for mortgage interest, there would be no financial incentive beyond price. And politicians know that a continuing drop in housing prices sinks the economy again.

  64. derekce says:

    I became an “accidental” real estate investor last year. I live in a college town (Athens) about an hour from Atlanta. We haven’t been hammered like Atlanta in our economy but I moved in a bigger house to meet the deadline for homebuyers tax credits before I sold my other house. Even after dropping the price 20% from what the agent said I should list it, I couldnt even get anybody to look at it. The agent said I might have to drop the price another 15/20% to get a buyer so I got disgusted and put it on Craigs list for rent at about $100 more than my monthly cost and I had people suddenly fighting over it, firing off emails begging for me to pick them, several had recently lost their homes or walked away. I picked an old couple that likes to plant flowers instead of college students or families with small kids, hoping they will take good care of it. I didn’t want to be a landlord but I couldn’t sell it. My real estate friend says all analysis points to 18 months more down and 30% of the people who contact him are underwater too far to do a deal. I find myself thinking maybe inflation would be good for my situation because with 2 houses, falling values will be double pain. I see some roped off neighborhoods starting to build again and I ask myself why since the supply and demand is already so out of whack.

  65. nemo says:

    “My biggest issue when it comes to Home prices is the lack of pendulum swing. All over-priced markets that crash typically swing to the downside until they not only achieve fair value but become cheap. Unfortunately, that has not been allowed to happen in the residential real estate market.”

    Also has not been allowed to happen in the stock market, except for a week or two in March 2009.

  66. MikeW says:

    I read Mr. Altucher’s essay a few days ago and think BR has accurately made most of the counterpoints above.

    Buying a house is certainly a financial decision but is much more than that as well. It does not all boil down to a financial cost/benefit analysis, although having said that, I still have to imagine that people who retire with their homes fully paid off must feel pretty good about that aspect of their finances.

    In the meantime they have enjoyed decades of tax breaks, enjoyed the intangible sense of sovereignty that comes with ownership, and more often than not, raised kids in that house.

    Yes, they may have to sell on short notice and risk some loss. Well, ditto for the equity markets and pretty much everything else in life.

  67. DW auto says:

    Isn’t it the rule that when a bubble breaks, people have a revulsion for the bubble asset, whether it is houses or tulip bulbs. They can’t stand the thought of purchasing, having been burned before. As a result, I think house prices are going lower.

  68. Lord says:

    There is no rush to buy, prices could well soften further, if not in nominal terms then in real ones, but most of the decline is behind us. Unemployment will keep prices down for some time. Prices are slow to move and this prevents too much overshoot on the downside, consider that 97 was a buying opportunity. Keep in mind that housing prices in growing large cities increase at the rate of incomes and since peoples earning capacity tops out with age, they should own if they wish to retire there. Owning is foremost a lifestyle choice and one that rarely changes even as residences change.

  69. Lookout Ranch says:

    My widowed mother is able to live in relative comfort on Social Security in her paid-off home here in California, where Proposition 13 keeps property taxes low. Her taxes are based on the value when she and my dad built the house decades ago.

    When she has a major expense, like a new roof, I loan her the money and record an interest-bearing note against the house, which will be settled when mom dies and the house is sold as part of her estate.

    It makes all the sense in the world for her to own a home.

    And so, my 26-year-old daughter is now in escrow on her first house.

    She is paying $180,000 for a very well built and maintained 2-bedroom home with a full basement on 5 acres with an adjoining 5 acre parcel. It’s in a nice area close to town , has lots of big oaks, a great well, a beautiful view across the canyon and a year-round irrigation ditch bordering one side, from which she can draw water if she wants.

    Her mortgage payment will be about what her boyfriend is paying to rent a crappy place over a garage in town. If my daughter ever wants to, she can turn her place into a rental and easily cover the mortgage.

    She can have it paid off in 20 years and will have her own retirement fall-back secured.

  70. Dr. Goose says:

    A house on the market, priced rightly,
    Will sell at a pace that is sprightly,
    So a backlog that grows
    Leads one to suppose
    That homes are expensive, if slightly.

  71. bulfinch says:

    Lookout Ranch — the only snag in that equation is that your daughter’s house sounds kind of far out of town. If the cost of conveyance lurches in the next twenty years, I think it could eat into any investment potential the land might have.

    Unless, of course, she also enjoys the mineral rights and there’s oil somewhere in those five acres…

  72. Lookout Ranch says:

    As I note above, my daughter is buying a home.

    She and I looked at a lot of houses over the past year and learned a bit about the market. Here are some observations that pertain to the Sierra Foothills of Northern California east of Sacramento:

    1) Good homes at the lower end of the market in nice areas sell quickly if priced right.

    2) There are a lot of crappy houses with serious problems sitting on the market for a long time at unrealistic prices.

    3) Properties at the low end, where mortgage payments are comparable to rents, sell the quickest.

    4) Rent rates seem to create a price floor for low-end house prices.

    5) Houses in the hinterlands with long commutes aren’t selling.

    6) Our local bank is a key source of support for the real estate market. It’s a conservative little regional bank that didn’t go crazy in the boom years. It’s now the go-to place for qualified borrowers wanting conventional loans.

    7) In many cases, banks are asking higher prices than private sellers, and REOs and short sales are on the market far longer than homes being sold by private parties.

    8) Bare land is not selling and, for all practical purposes, has no market value.

    I believe we are entering the capitulation phase.

  73. scsurfer says:

    I bought a house in the Bay Area last year. I got a great rate at 4.75 and the mortage is only 400 dollars more a month then rent. I put down 25% and had no problems with financing with a credit score of 810. I plan on staying here for the next 30 years with my family. I work in high tech for a Fortune 500 company. One final note, I’ve been a housing bear since 2004… I believe the FED is going to create some serious inflation in the coming months ahead.

  74. cognos says:

    There is a great Bill Ackman (Pershing Square) presentation on the web titled “How to Make A Fortune”… where he pitches residential investment to insitutional investors…

    Even if you dont agree that “down 30-50%” housing is a good buy… its a good investment piece from a multi-billionaire.


  75. louis says:

    Id say 5/1 ARM mortgage is a much better option for 90% of home buyers and its been as low as 3.125% this week. Take the tax deductibility of a $500k comforming mortgage, add some taxes and maintenance… and your $600k house should cost you about $1,500 per month all-in!


    If they would suspend appraisals and let those with stellar credit refi their current loans that would be a start in the right direction. Instead they will let those walk and continue the decline.

  76. [...] all the changes in the market, does that mean you shouldn’t buy a house? Barry Ritholtz counters Mr. Altucher’s position with some of the benefits we still associate with home ownership. When [...]

  77. [...] all the changes in the market, does that mean you shouldn’t buy a house? Barry Ritholtz counters Mr. Altucher’s position with some of the benefits we still associate with home ownership. When [...]