Home Ownership and Retirement Savings

The NYT had an editorial discussing how unprepared most workers are for retirement. While most of the points in the piece are well-taken, it would have been worth saying a bit about homeownership, since housing equity is the main source of wealth for most middle income people.

Many families were badly burned by buying a home in the middle of the housing bubble. So-called experts who should have known better and warned people, didn't. This should have people very very angry.

However even in more normal times homeownership is not the slam dunk investment that its proponents claim. First, there are large transactions costs associated with buying and selling a home, typically around 10 percent of the purchase price. This means that anyone who cannot anticipate being in the same place for at least 5 years is almost certainly better off renting.

Even over the longer term homeownership is hardly risk free. In many areas where the economy is not diversified, if the major industry goes down, house prices will plummet with it. In this case, owning a home is sort of like putting all your savings in your employers stock. There are a lot of unemployed autoworkers in the Detroit area who have a home that is now worth $15,000-$20,000.

In short, there is a lot of silliness about homeownership that really needs to be attacked. Homeownership might be the dream of realtors, builders, and mortgage bankers, but that doesn't make it the American Dream. And remember, anyone who tells you not to worry about house prices because "you can always live in your home," is really trying to tell you that they don't have a clue what they are talking about.

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written by Bob_in_MA, September 16, 2012 9:42

While I agree the pros of home ownership have generally been exaggerated for middle-income families, there's at least one positive benefit that's usually left out of the equations as well: Owning your home is a call option on housing inflation.

Granted, this is an unknowable, just like your example of massive local job losses.

Silicon Valley and Washington DC
written by Paul, September 16, 2012 11:27

Have the least diversified economies in the U.S. and they have the strongest housing markets. Owning a house for 10 years in San Jose or Fairfax is a slam dunk.

-2

DC yes -- Silicon Valley will be a ghost town in ten years
written by Gus Hamilton, September 16, 2012 2:50

Silicon Valley is going to crash into a fifty foot brick wall called China. The Chinese are going to crush what's left of US high tech within ten years.

DC yes -- unless the federal government moves, DC is a safe bet.

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written by liberal, September 18, 2012 9:23

In short, there is a lot of silliness about homeownership that really needs to be attacked. Homeownership might be the dream of realtors, builders, and mortgage bankers, but that doesn't make it the American Dream.

Home ownership was never the American Dream. Land ownership---more correctly, ownership of the right to collect land rents---is the American Dream.

Liberal's right
written by Matt, September 18, 2012 11:39

This whole notion of homeownership-as-retirement-vehicle his wholly pernicious. Liberal correctly points out that it's not owning a home that is relevant: it's owning the land, the site, the location, location, location. The rent.

Because we do not have a comprehensive land value tax, our system is one where one part of society is effectively forced to pay another for the right to exist; the landless run on a treadmill that powers an escalator landowners ride up. So yeah, the goal is get ye on that escalator.

But should that be the goal? Is that sensible policy? Where our our economists on this idiotic system? The LVT has been gaining some traction of late, especially across the pond, but not nearly as much as it should. When the whole conversation centers around "housing wealth" that is -in reality- land rent, I'd think the issue would be getting a bit more thorough an investigation.

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written by Harold, September 18, 2012 12:30

Land ownership, usually starting as a sharecropper and working one's way up to owning a small, self-sufficient farm, was the American dream because before universal suffrage only landowners could vote. In Europe there was virtually no way to become a landowner, in fact, people were being kicked off the land. Most Americans did not aspire to become plantation owners, but rather to have a small hired staff who would ultimately also become landowners. This was the free labor ideal that Lincoln appealed to in his campaign speeches.

Home Ownership and retirement saving
written by Glenn, September 21, 2012 1:19

A very interesting perspective on home ownership and one that many home owners should pay attention to as they near retirement and consider http://www.financialcoachingwi...t planning.

Home Ownership and Retirement Savings

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