Part 1: Background
A friend came to me the other day and said, “Why do you think people who buy houses are idiots?”
The question kind of shocked me, and it took me a long time to figure what in the world he was talking about. I don’t remember having this opinion!
Of course, I did assume it may have something to do with a recent Facebook post:
I’m excited for my sister and brother-in-law buying a house, but only because they are smart with their money and I can trust that it won’t be a death trap for them. It’s also well-situated for them, and they’ll be needing the extra space soon.
But I have noticed over the past year how a massive slew of “congratulations” have made it to anybody who has bought a house. Really, there’s no difference between buying a house or not buying a house, they are just decisions on where to live. But I think this exposes how buying a house is seen as a sign of “making it”. My personal idea of “making it” is waking up five years from now in a place with very tall mountains and having an investment portfolio large enough to support me there.
There are options with how you go about your time on this rock, but most people don’t realize this. Just know what you want in life
Somehow, this came across to a large number of people as if I were saying that those who buy houses are idiots. WTF? This says more about those people than it does about what I said!
You can talk about politics and annoy people. You can post pictures of food and silly things and people laugh. You can grumble about your situation and people sympathize. But if you come close to insulting homeownership? You’re a monster, and everybody is pissed off at you!
Let’s first clarify something: I don’t believe homeownership is for idiots.
If my sister and brother-in-law were terrible with their finances and were out wasting their money on expensive consumer goods or gambling it away, I probably would not support them in their desire to buy a house. I don’t believe financially irresponsible people have any business committing to a 15- or 30-year loan. However, my sister’s family is pretty great, so I am happy for them. Many other people are smart with their money and buy houses and it works. What bothers me is how anybody can post excited pictures of their new property on Facebook and everybody else will pour support upon them no matter what. NO MATTER WHAT. This is like the good old days where relationships on Facebook were widely congratulated even if the relationship was horribly unhealthy or how everybody cooed “what happened?” when a break-up occurred even if the break-up was extremely healthy.
This sort of thing happens with all major “stages” of the American religion. Yes, some of these stages are somewhat universal to humans, but the focus seems almost always to be on the stage and not on the actual condition of the person. I don’t support people just because they reach a stage, I support them if they are in the right condition for that stage. Maybe you don’t agree with this, but I don’t really care. I would rather piss my friends off than watch them walk into a bad situation or ruin.
Nobody really celebrates when you move to a different apartment. Yeah, I know, some people may give a word. But that Sold sign? Man, people go nuts over that. That’s why, having a social science background, I’m fascinated with the behavior surrounding this, and I think our whole society is geared toward seeing homeownership as more of a step up in life than renting. It’s what you’re “supposed” to do, it’s a sign of settling in, it’s a sign of stability.
Let’s get something else clear. I have had homeownership preached down my throat for as long as I can remember. This was mostly done through schools. I remember being told in one of my classes (was it microeconomics?) that children raised in a house have higher self-esteem than those raised in an apartment. Mind you, I did grow up in a house, but I believed it was huge when I was a kid, whereas now I know it was a fairly small, modest house. I don’t think kids really know the difference until they learn to compare themselves to others. I’ve also heard that kids have a higher self-esteem when their fathers have over 100 head of cattle, but course that was in a different culture than ours. The take-away from this is that people have higher self-esteem when they attain their culture’s version of success, even if there is nothing strictly objective about the definition of success. This is further proof that our culture sees homeownership as a sign of success. So much so that David Platt can’t present many realistic alternatives to the American Dream despite making a good living hating on it, and I can’t think of too many, either. I also suspect these super-positive attributes of homeownership are peddled by a rather powerful real estate lobby. Industries with massive power and influence tend to do this. Think oil, pharmaceuticals, finance. Many people see these actors as terrible, but they forget that real estate is just as enormous. Oh, and what happened in 2007?
Even I once saw homeownership as the ideal. I lived with my parents for many years to pay off my student loans, and when those loans were paid off I started thinking about buying a house. However, a good friend of mine had dropped some serious cash on major repairs to his house. He had the sort of career set-up to ride through that, but I knew that I did not. So I decided that I would not buy a house until I had a sufficient OS fund in place to handle major repairs. I wholeheartedly believe this was a very smart thing to do, because I later went through three months of unemployment that wiped out my savings. It was very stressful, but would have been 10x more stressful if I had signed my life away on the dotted line of a mortgage. I at least had the recourse of moving back in with my parents, though I’m blessed it never came to this. After I started my new job, I rebuilt my savings with a more accurate emergency fund, saved up for a nice used car in much better condition than the one I had, and even started contributing to my company’s 401k plan. Then I discovered the Financial Independence community and I grew to love it, soaked it all up. There were options! I had options! And that was so amazing and exciting, and I really came to despise the message of that “one and only” path that had been forced on me.
Also, my parents had some very terrible experiences due to their house back in the recession. My generation just seems so arrogant about houses I don’t think they realize just what can happen when real estate turns sour. I won’t tell my parents’ story on this blog, but I see such sheer arrogance about homeownership that it makes me sick. “Just buy a house! You should always buy a house! It worked for me!” If you are not smart with your money, and sometimes even if you are, that home can become a “death trap”. If you don’t understand that this does not happen often but can certainly happen to you, then no, I do not believe you are an intelligent person. I think intelligent people go into buying a house cautiously.
So now you know where I’m coming from.
Part 2: Where I Stand
I have heard too many people say, “Renting is throwing money away!” and they suddenly believe they are financial geniuses for this insight. I may get a bit nasty here. These people generally don’t have any understanding of economics and think that opportunity cost is only related to what happens when you don’t have the guts to ask a girl out. It apparently takes an inordinate amount of reason to understand that owning a house involves throwing money away, too, mostly in the form of interest on the mortgage and the grand dice roll of geography and home repairs and renovations.
There are many good reasons for owning a house. I don’t deny this. I don’t begrudge people who have good reasons. Sometimes I think people are on autopilot with what the culture preaches to them, but this is not always the case, and I still won’t deny that there are some very good reasons.
But some homeowners can be such dicks that I can’t help but have negative feelings toward homeownership entirely.
Again, it’s been preached at me my whole life. I watched it not work out so well for my parents, and I get a lot of friends who act like nothing bad could ever happen. I want to tell them, “You do realize that a few tough years can wipe out your investment entirely, don’t you? You do realize that yes, you do typically pay less for a house than an apartment but if you aren’t saving that difference for home repairs then you may get some rude surprises along the way? You do realize that it is one of the riskiest investments you can ever make (if you choose to treat it like an investment)?”
Now, to be fair, I’m not looking to put down roots. I’m not looking to settle-in, to pursue the American Dream, to be a part of the middle class. This is not the case for everyone. I want to do missions work and volunteer over seas, and I’ve never seen anybody, I mean ANYBODY in the Christian missions community investing like crazy to support themselves overseas. They are usually too busy telling everyone that wealth is evil and/or trying to raise money to support their work =P. I think I could serve the Kingdom much better not having to worry about money and being able to contribute in many different and varied ways. That’s one of my primary reasons for pursing FI, and it’s why buying a house really has no place in my life right now. Sometimes I envy the lower costs of owning a house, but I also remember the unexpected variables and how a mortgage does not work well with a mobile lifestyle. A co-worker friend often tells me that he was always able to save so much more before he got his feet wet in real estate. Despite very much being a nature lover, he almost always finds his weekends occupied with work around the house.
“I made a ton of money selling my house!”
Several friends bought houses before the huge real estate climb here in Colorado. One couple sold their place for much more than they paid, and used their earnings to halve one spouse’s medical degree debt. This is incredibly smart and I have a lot of respect for them doing that. Another friend sold his house for almost double what he paid and then moved to another state where prices are much cheaper. For the win! Even another friend had help from his dad buying a foreclosed property in the wake of the recession and could probably sell his house now for many times what he paid.
But I’m not going to do this myself. And here’s why.
Let’s say you have no financial training but you invested in Company X back in 2007. And let’s say that over ten years your investment tripled. You go to me and say, “Hey, you should buy stock from Company X, I had my money triple, and yours will triple, too!” This wouldn’t make any sense, because earnings like that are extremely rare and cannot accurately be predicted. I could just as easily lose money, and my friend would either have cashed out or seen only a relatively small dip compared to the value of his/her overall investment.
Colorado prices have skyrocketed, and I wouldn’t believe a single friend who said they predicted this. I mean, great for those who bought-in before the prices went up – they won a small lottery – but that doesn’t mean I should do what they did and expect the same results. That would just be market timing, and nobody can realistically do that. Just ask the people who bought bitcoin at $20k thinking it could only go higher! (I mean, it may someday, but most people buying-in were looking for quick gains, and it’s my opinion that this is not wise).
And again, if I had bought a house before that period of unemployment? I don’t want to think about that. High returns or not, that would have been foolish on my part.
So again, great for those people, I am happy for them, but that doesn’t mean I should buy a house.
“House prices always go up!”
Using this as an argument to buy a house is just sheer ignorance. Housing keeps pace with inflation. The cost of labor goes up, too, property taxes rise, and other products go up in general. Tell me something I don’t know. Some areas get lucky, and some areas get really unlucky. We haven’t seen ‘unlucky’ in Colorado for awhile because of the population boom and the increased demand for housing, but it happens to many, many people, and is quietly ignored by those who believe that owning a house is the only way to go. Again, buying a house because values “always” go up is like timing the market, except you are completely contained to one geographic area, and short of investing in a REIT to diversify or actually buying houses across the country to rent out (which is known to have good returns sometimes), you may find that if that one region fails, your house probably fails with it. You also pay a great number of fees in the process, which is why it is recommended you have your residence for five years or more. Think about this for a second: the average homeowner is encouraged not to move for five years before the appreciation even makes the total cost of the house worth it! Normal investments generally have to be kept for only one year to avoid a steeper capital gains tax!
This could be talked and written about forever, but I’m going to stop here.
So again, there ARE good reasons to buy a house! There are also some bad reasons to buy a house, and a very widespread lack of understanding about how houses can sometimes be poor investments. This DOES depend on your circumstances and what you want out of life. I personally have fairly negative opinions of homeownership simply because I almost let our culture dictate a lifestyle for me that I don’t want to live. For the longest time I didn’t know any better. This WILL leak into my conversations about housing, but that doesn’t mean I’m talking about you! There are intelligent home owners and intelligent renters, just as there are stupid homeowners and stupid renters. Just don’t follow one path because you were told to, or because it’s popular. Educate yourself and learn how to make good decisions with your money. And don’t be that dick person who is always telling me housing is the only way to go and renting is for chumps because this really does make you look like an idiot.