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Opening Arguments

Home sickness

It appears that big city newspaper columnists can be idiots on subjects other than politics as well. Here's the Washington Post's Catherine Rampell on why dumb Americans just don't get it that home ownership is a lousy investment:

The fact that Americans still financially fetishize homeownership baffles me. Never mind that so many people lost their shirts (among other possessions) in the recent housing bust. Over an even longer horizon, owning a home has not proved to be a terribly lucrative investment either. Don’t take my word for it; ask Robert Shiller, winner of the 2013 Nobel Prize in economics who previously became a household name for identifying the housing bubble.

“People forget that housing deteriorates over time. It goes out of style. There are new innovations that people want, different layouts of rooms,” he told me. “And technological progress keeps bringing the cost of construction down.” Meaning your worn, old-fashioned home is competing with new, relatively inexpensive ones.

Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.

Yet Americans still think it’s financially savvy to dump all their savings into a single, large, highly illiquid asset.

Wow. We "fetishize homeownership" so we dump all our savings "into a single, large, highly illiqud asset." If that makes it sound like she's sneering at the whole idea of home ownership as part of the American Dream, that's because she is, as she makes clear later on:

Survey after survey finds that the vast majority of Americans see homeownership as a preferred lifestyle choice, a crucial part of obtaining the “American Dream ” and a requirement for membership in the middle class. Many families view homeownership as the best way to get their children into the right schools or most stable neighborhoods. Our national cultural reverence for homeownership is decades, if not centuries, old; as Pa Bailey declared in “It’s a Wonderful Life,” there is “a fundamental urge,” something “deep in the race for a man to want his own roof, walls and fireplace.”

But I think most people don't see a home as an "investment" in the way they see, for example, stock purchases or gold hoarding or getting into tax-free municipal bonds. The purpose is not to secure a financial future but to build a coherent and sustainable life. If you have a home, you have a place that's your own in an otherwise indifferent or even hostile world. And however little it might be worth compared to other "investments," it's still a lot more than what you'd have if instead you paid all that mortgage money as rent, which is zero.

Perhaps the American Dream has been oversold, but it is out there and exerts a powerful influence on our day-to-day lives. Not everything is about tax incentives and return on investments. The intangibles should never be dismissed lightly.