Saturday, August 28, 2010

7 Reasons Not to Buy a House, + One More.

"This article is going to be a contradiction. After the fall that housing has suffered, I think that that, as an asset class, housing will probably be a decent investment going forward. But nobody should ever consider owning a home.

One of the biggest scams perpetrated on the American public is that owning a home is the "American Dream." It's more nightmare than dream as millions of Americans now know. But it has always been that way.

Here's why.
1) No diversification. Most people put the bulk of their net worth in their house and then they borrow money to pay for the rest of it.
2) It's illiquid. When times are tough and you need cash, you can't sell it.
3) It costs a lot more than renting. Most people think you are "throwing money away" when renting. Quite the reverse. There are many hidden costs when buying a house:
4) Transaction costs (legal, real estate agent, title check, inspections, etc.) often come to 7% to 10% of the cost of a house. So you are 7% to 10% down immediately.
5) Home improvement (adding a bathroom, upgrading the kitchen, installing double-pane windows, landscaping, etc.)
6) Ongoing maintenance and repairs (periodic roofing, plumbing repairs, yard upkeep, fixing things, etc.)
7) Your real estate taxes (which will ultimately be more than the tax savings you get on your mortgage interest)
It's not fun. I'd much rather have my landlord shovel the snow than me shovel the snow. And, by the way, heart failure goes way up during a snow storm. A sedentary lifestyle doesn't lend itself to the arduous task of shoveling our driveways."

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See full article from DailyFinance:

Time  says:

"Homeownership has let us down. For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point.
Franklin Roosevelt held that a country of homeowners was "unconquerable." Homeownership could even, in the words of George H.W. Bush's Secretary of Housing and Urban Development (HUD), Jack Kemp, "save babies, save children, save families and save America." A house with a front lawn and a picket fence wasn't just a nice place to live or a risk-free investment; it was a way to transform a nation.
No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy.
But the dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac.
Housing remains a drag on the economy. Existing-home sales in July dropped 27% from the prior month, exacerbating fears of a double-dip. And all that is just the obvious tale of a housing bubble and what happened when it popped. The real story is deeper and darker still. "
Read more:,8599,2013684,00.html?xid=aol-direct#ixzz0xvvvNUIP

The eight reason they did not give, is to change your back yard frequently by going Full Time in an RV.

As for me, yes, I own a house, but the first time I bought one, I added up the payments, and saw how much that house loan was going to cost me.  It was disgusting what the mortgage company was going to make off this frugal Scot.

I made a few improvements and within a year I sold it, moved into a motor home and went west to explore the left side of the US and Canada.
Having saved up for 10 years, and searched for the right house to buy,  I was sorely disappointed.  Not in the house, as it was a lovely brick 3-2-2 in an exclusive neighborhood in the best school district in TX, but in the whole " Now What?" situation.  Kinda like "Is That All There Is?", by Peggy Lee.

All I could see were years and years of being in the same place, with the same bills, and a very small portion of the payments going towards the principal for many years.  It was disheartening.  I swore I would never be on that end of a mortgage again.

Several times I built a dwelling, paying for it as I built it, and lost three either due to flood, fire or famine.  (Actually, not famine, I had another place to live, but I was sick, couldn't work, and needed to sell it to feed me and my son.)  Other places I have built, I sold 'owner financed', so I would get the interest.

So why am I in a house again?  Because it is paid for, and always has been.  Built and paid for as it grew.  It started out just being a TX winter place.  Part of the house that got flooded was salvageable, moved here, and is now my guest house which is rented out to Ray and Shay.  He helps me with the jobs around here, and it goes towards his rent.

I wanted to halftime, and be a "sunbird',  but I am a widowed great grandma now, and traveling on your own isn't much fun, or feel safe anymore.  There is no way I could go to all the places that I would like to see, so I have to be content to look at traveler's blogs.

Even if you live in a home that isn't the poshest one around, if it is paid for, and it is where you want to be, then it is really your home, even if it is on wheels.

This August has 5 Sundays, 5 Mondays, 5 Tuesdays, all in one month.
It happens once in 823 years.
I probably will miss it next time!

Yes, home ownership does have it's drawbacks.  Ray and I spent the whole morning mowing the grass and raking up the rest of the pine needles.  That long dry spell, and then the rain, made the pines shed something fearful.

It has started to get humid again, so that was all we did outside today.


pidge said...

Very interesting blog. We are so glad to be out from under all the upkeep and mowing. We also got rid of all our debt. That is the nicest part of it all. We still have taxes and insurance, but you have to pay some things.

Mike Goad said...

Our house is paid for, except for the addition we're working on, and that's pay-as-you-go and sweat equity. We've lived here since 1981. We'll never full-time, but we do go on lengthy trips and it is nice to come back home and be able to have plenty of room to move around in.

Leno said...

Loved this blog Penny. Thanks for posting it... Very interesting and very true.

Gypsy said...

One good thing about owning a detached house is the fact that Americans have become used to "their own space". We like to be the masters of our environment, and within reason, do what we like and how we like it on our own property. I much prefer living in my own dwelling than in renting and having neighbors so close as to be able to hear every move they make, when they turn the shower on, flush the toilet, etc. I could never return to yard work and home maintenance though.

From the financial point of view, it only makes sense to own if you pay the mortgage off quickly. Faced with paying interest to a mortgage company or a higher tax, I would just as soon pay it to the Government.