They also have a great blog. Sandy read this article in the Wall Street Journal and was kind enough to share with her customers. I think it really say's it all about home ownership.
My wife and I have sold all of our four previous homes for more than we paid for them—sometimes a lot more.
We’ve been pretty lucky. We’ve never overpaid much for a house, we’ve always bought in good school districts and decent neighborhoods, we’ve lived in neighborhoods where prices soared during the real-estate bubble, and we’ve been hurt but not decimated by the bursting of that bubble.
When I constructed a very basic cash-flow model for our home-buying history—selling price minus purchase price, renovations and repairs—it showed a roughly 3.5% annualized return on investment, from 1991 through the summer of last year. That’s when we sold our last home and bought our current one.
Then things got ugly. If we were forced to sell our current home, which I estimate has lost 5% or so of its value in our 10 months of ownership—despite the more than $20,000 we’ve made in improvements—our cumulative return over the years sinks to approximately 2% annually. And if prices keep falling in our northern New Jersey neighborhood, as is likely for a while, that return will shrink even further.
So do I regret owning a home? Heck, no. It’s not a get-rich scheme, and Americans never should have viewed it as one. Owning a home has given my family a series of anchors to cling to as we’ve moved around the country for my job. It’s allowed us to live in pleasant neighborhoods where it would have been tough to find a rental house. And paying down a mortgage is a form of forced savings, which should help us in retirement.
Columbia Business School’s Christopher Mayer, who has studied housing markets, says our experience with home-price gains is pretty typical. Home appreciation nationally has run about 1% above inflation over time.
The big price run-ups from the late 1990s through 2006 or 2007 were an aberration. The biggest value you derive from home ownership isn’t appreciation. “It’s being able to live in it,” Prof. Mayer says, and avoiding the rent you would otherwise have to pay.
Once you add in imputed rent and subtract property taxes, Prof. Mayer estimates, my 2% annual home-ownership return looks more like 6%.
That’s why you should buy as much home as you need—but no more. A bigger home than you need isn’t an investment—it’s an extravagance, the equivalent of renting a bigger apartment than you need. You may choose to do so, but that doesn’t make it a smart move financially.
Another reason home ownership isn’t the road to riches: Most houses—especially the old ones my wife and I favor—are money pits.
Consider the house we owned in Verona, N.J., from 2001 to 2004. We bought it for $335,000 and sold it for $455,000 near the height of the real-estate boom. That’s nearly an 11% annualized return. The only problem was that we sunk $45,000 into renovating the bathrooms, spiffing up the kitchen, refinishing the floors and the like. The result: Our actual return was less than 7%.
Contrast that with our current house. Counting the money we’ve sunk into it and its decline in value, I estimate close to a 10% loss on our investment since we bought it last year. Prof. Mayer predicts house prices in the New York metropolitan area will fall an additional 10% over the next couple of years.
That’s the brutal financial reality of home ownership in today’s market. But the consolation is this: I really like our house, our neighbors and the quaint suburban town where we’re now putting down roots. In other words, I’m happy being a tenant in this building I happen to own.