Why do we assume that higher house prices = good?

We assume that "higher house prices = good" -- but why? Is that really true?

Ramit Sethi

If the price of toothpaste or a burrito dropped 20%, most of us would be thrilled.

So why is it considered a catastrophe when housing prices drop?

Last week, I asked you to identify the cultural assumption in this screenshot. Here’s what I was thinking of:

Isn’t it funny how “home prices falling” is assumed to be a bad thing?

You never know how American your assumptions are until you go to another country. That’s because in the United States, we have been systematically taught that housing is a good investment and that prices must go up. Ask your parents why they bought their house. One of the top 3 reasons will almost certainly be, “It was a good investment.” Yet I’ve shown very clearly that for many people in many situations, it is not. In fact, housing is often a terrible investment.

Yet the illusion persists, whether it’s my friend wanting to buy a million-dollar house with no research, or people saying things like, “I wish I’d bought more real estate” after incurring a paltry 1.2% return rate over several decades.

As a result, you get media reports that implicitly echo the cultural assumption that housing is a good investment. The way they describe the housing market — oops, “housing recovery” — influences and reflects our cultural assumption. Let’s take a look at a headline from a major national news publication:

Interesting…it’s a “housing recovery” when prices are getting expensive. Would you say that with toothpaste?

Also interesting: Why is it a painful decline when young people and other first-time buyers get more affordable housing?

Alice in Real Estate

What if we discard the assumption? Let’s try: For each of these screenshots from major media sources, I’m including the opposite cultural assumption below it.

Or…prices could become more affordable for young people

Or…prices reach a new level of affordability

Affordability grows for first-time homebuyers

Housing market bargains continue for young people, first-time homebuyers

As Warren Buffett said in his 1997 Chairman’s Letter to Shareholders,




Why “higher house prices = good” persists

Deep-seated beliefs like this exist for multiple reasons. What might some of them be?

    1. American culture believes that home ownership is a right that everyone should have (it’s not).
    2. Since most newspapers are written by and read by older people — whose wealth is predominantly (and mistakenly) tied up in their houses, it only makes sense that real estate prices “should” increase. As a result, you see words like “recovery” and “crash” rather than “bargain.”
    3. Unlike toothpaste or other commodities, there are ancillary effects of changes in real-estate prices. If one house price declines in a neighborhood, there are spillover effects that affect nearby houses. This is why neighbors and realtors will do anything to prevent a house from being sold at a low price, including throwing in things like cars and TVs instead of lowering the list price.
    4. Crooked organizations like the National Association of Realtors and banks use every trick in the book to prevent house prices from actively reflecting the market price. Remember how, in Chapter 6 of my book, I described example after example of how Wall Street firms use disingenuous tricks like survivorship bias to obscure how poorly performing most of their funds are? The same is true of real estate. Where there’s lots of money in commissions, there is virtually always shady behavior, obscured facts, and whispered promises that never turn out to be true.

In fact, this cultural expectation goes to the very highest levels of the U.S. government. In a speech, President Obama said:

“This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” Mr. Obama told a crowd here, in one of the communities hardest hit by the housing crisis. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

It’s fascinating, but unsurprising, to hear the President’s explicit goal is to “shore up housing prices for everyone” — and, you could argue, maintain unaffordably high rates for most young people.

It’s not that simple

For young people, every time the market goes down, you should be cheering for your own individual finances. You can acquire investments at lower prices and you have a long time for the market to grow.

Yet, paradoxically, lower housing prices do represent a clear risk to the American financial system, whose growth is predicated on consumer spending, which is in turn strongly influenced by housing prices. That’s why this crisis is so serious and confusing. (See the President’s full remarks here.)

Just because virtually every media presentation decries the “rapid decline” in housing values doesn’t mean that applies to you. “Higher house prices = good” is a cultural assumption.

You can read more on my page about real estate investing.

* * *

What other money assumptions are there?

I’ll start:

What money assumptions have you noticed?

Do you know your actual earning potential?


Start The Quiz

Takes 3 min


  1. Tom | Build That List

    The one assumption that a lot of people have is:

    ‘People with money only have money because they are greedy and selfish.’

    And I totally missed what you saw in that picture when you posted it last week!

    • Rusko

      I really think the writer misunderstood the fundamentals of our modern economy. This isn’t mercantilism- i wonder if he even knows how we measure the wealth of a nation.
      The point is that if we have a big budget deficit then intetest rates rise which makes the rates of loans for businesses go up and causes a domino effect making rates of almost everything rise – and that causes the price of houses to fall.
      Take a basic economic course before you berate American economics. You missed the entire point – prices of housing lowering is a clear reflection of our budget deficit and overall economic growth, which im sure you don’t know how to measure as well.

  2. Celeste G.

    The difference between a house and a burrito is that buying a burrito, you usually do not plan to sell it on (or pass on to your children).

    I think the assumption you talk about stems from viewing house prices as one of the indicators of how the economy fares. It makes sense, to some degree – the stock is limited (especially in desirable locations with no space for new houses), so house prices reflect how much people are willing/able to pay. They rise when people have a lot of money, fall when people can pay only so much. So the journalists are probably writing more from the “state of economy” point of view, not houseowners’ point of view.
    BTW if you have only house you live in, prices don’t matter much – if you want to move, you may sell your house for more (less) than you bought it for, but your new house will cost you correspondingly more (less). It’s the investors with multiple properties who have a real reason to get excited about price changes, but I do not think they are the majority.

  3. Kevin Khachatryan

    Even if real estate is not as a lucrative investment, say it brings you 1-2% annually, its a safer investment.

    If the stock market crashes, you’re left without stocks and without income.

    But if the real estate market crashes and you lose everything, at least you know you have somewhere to live. In my eyes, that is worth much more than the few % extra you get from stocks.

  4. The Amazing Spider-Ads

    This is a really good insight towards a principle of American economics that, you are right, has two sides, either of which making very good points.

    A good corollary to this is the price of gas and oil… we cheer if the price of gas goes down but we panic if house values go down. I guess it’s mainly because the average American doesn’t own much of a stake in the oil market.

    This is part of why I think many people get confused with the idea of the economy needing to expand and panic when prices stagnate. As long as wages are keeping proportional pace with prices, who cares about the specific figures?

  5. Jonny |

    It is also worth remembering that in reality rising house prices do not actually mean the value of the house it going up, it simply means more dollars are required to purchase the house which is a direct result of inflation or put another way, the devaluation of the dollar because of the amount of “funny money” being injected into the system by banks, the federal reserve and the government.

    Just a point to think about. Great site Rammit.

    • Rusko

      No the price of houses rising is a result of our economy growing to fast like in 2009 where houses were seling in 4 hours so the prices rise – you cant build a house in four hours. Thats why we have fiscal stabilization policies. That is litteraly designed to stabilize the economy when it is going too fast or too slow. For example the expansionary policy will increase spending or lower taxes to get the economy moving at a faster pace when it is moving too slow. Thats almost the same reason (and applys to the same example) why we have supplemental spending – which is an addition or change in the current spending plan in case of the unexpected.

  6. Andrew

    It’s pretty normal behaviour.. everybody goes fear and loss. what will we all gain. If more people can buy houses, more people get employed, builders will need extra workers, since most of use fix,repair change a house as soon as we’ve moved into it.

    It’s always about me,me,me. I’m about to lose something. After all the media cheer at house price rises and bemoan any falling of anything. The masses just follow.

    Happy Travels


  7. Divya

    Ramit, how is this a cultural assumption? This is true in other places too. In India, the builders even throw in all sorts of freebies to avoid lowering their prices so people can continue with the assumption that the house prices are rising or stable.

  8. Eric S. Mueller

    One cultural assumption that I find annoying is “A car is a depreciating asset”. A car isn’t an asset; it’s an appliance. Once I figured that out, cars got a lot easier for me. I drive a paid for minivan, because that’s the appliance that my family needs right now.

  9. thekevinmonster

    Buying a house means you can control your own house. Renting an apartment, on the other hand, means you have to follow the landlord’s rules.

    So far, I like having a house, since it’s my responsibility. If the cat ruins something, I can replace it with something better. If the cat ruins something in an apartment, the landlord has to replace it and chide me for breaking the rules.

    On the other hand, house prices going down means that you’re stuck when you go to sell a house. Houses are so expensive that if the value drops and you need to move, you’re stuck underwater, owing the bank a massive amount of money due to the difference between your loan value and your home’s selling price.

    When you go to sell a car, that’s often not so much of a problem. You can easily pay off a car within 5 years even though the value depreciates so sharply. A house turns into a long-term investment because you simply need to break even or better to avoid financial ruin.

  10. Tyler WebCPA

    You said it right when you said that the newspaper was written with the interests of its readers, the majority of them presumably already own their own houses, in mind. The newspaper doesn’t care about the young or the renters because that is not their intended audience. The problem is when the president shares that prejudice.

  11. rob

    Perhaps if you owned a house you would like rising home values. Personally, I enjoy seeing something I bought a year ago go up $20K in value. My 401k should be so lucky……

  12. Joshua Ulrich

    Sorry for the double-post, my phone was acting up. If it’s possible to delete my previous post, please do.


    I agree with your sentiment, but homes are generally purchased with loans. If you’re a home owner and house prices are falling, even if you put 20% down, you could be under water. Now, being under water is only a problem if you sell your home, and is particularly problematic if you’re forced to sell (e.g. due to job loss).

    So, in many respects “Higher house prices = good” is a cultural assumption. But steep drops in housing prices, either from bubble corrections or external shocks (e.g. 1980’s Texas), can be very toxic for the broader economy.

  13. baron

    @Kevin Khachatryan

    if you brought a broad based index fund that tracked something like the s&p 500 or the wilshire 5000, and the stock market crashed to the point that you had no stocks and no income, your real estate would be worthless too. that’s because it would mean nearly all of the publicly traded companies would have gone out of business. nearly everyone would be unemployed and people would go house to house stealing and pillaging to survive mad-max style and the only things of value would be food, water and gasoline.

  14. Customers Revenge

    I’m with Kevin Khachatryan, real estate is a very fine purchase. You can leverage it more than stocks, and it has utility for the person living in it. It is a real business for those who buy investment properties.

    Stocks are comparatively very lame, in fact. They are just shuffling paper. There is nothing there. Sure you can believe that you “own” a part of a business, but you have no power. And funds are even worse, you pay someone else to shuffle the paper and take a piece. The average investor needs no knowledge to handle stocks other than some simple formulas about allocation. They are a good base, but your advice on earning income from other sources is where you add lots of value.

  15. JT

    This is the first personal finance blog that I’ve seen that has actually made some sense about housing prices. So, congratulations Ramit. It’s refreshing to hear!

    The only thing that I would add is that the government needs to get out of the way when it comes to the correction. The housing credit was a failure and a waste, as all it did was push forward demand. People that were going to buy in a year or two moved up their purchase date to now. But when the credit ends there will be a drop in demand to correct for this, bringing us right back to where we started.

    Now the government is considering giving money to lenders and borrowers to leave their houses. This will be another programs ripe with fraud, and yet another waste of money. Banks should not need an incentive to work with their borrowers; the losses associated with foreclosure and/or bankruptcy should be enough incentive. Yet under current accounting rules, they can play extend and pretend by failing to realize the true market value of the home. This is part of the reason they choose not to work with homeowners in need; they can continue to keep the non-performing loans on their books at “model” value. The sheer amount of shadow inventory, if forced onto the market, would truly provide some affordable homes. It’s insane to think of all the homeless families out there when we have millions of homes sitting empty. What a shame…

  16. Ken Siew

    This post is great! My mindset changed 360 degrees while I was taking a class on Equity Valuation and Analysis back in college. We had to read the entire “Essays of Warren Buffett”, and man I finally began to see why we should really be excited when the stock prices are down (same goes for real estate).

    Buffett said something like would you want to buy a hamburger at a lower price or a higher price? All of you will say yes with 2 hands raised. But when it comes to stock purchases, most people hope for high prices even when they want to buy!

    Some of other money assumptions I’ve noticed are:
    1) People who earn more are richer than those who earn less – not necessarily true. People who earn more also spend more, and might even be on huge debt. See how many professional athletes who earn millions go broke at 30.

    2) You save money from discounts/It pays to spend on tax-deductible items – you spend a dollar to save 50 cents? 50 cents still goes out from your pocket. Of course if it’s something that you really need then you’re really saving money. In most cases though, it’s just another impulsive purchase.

    3) Your stock broker knows real estate market and your real estate broker knows stock market – they might say the other market is risky, but they don’t know the other market to begin with! Also, they might not even be investing in their OWN market, that’s the worst part. Dig deeper before you make your financial decisions.

  17. adam

    Lower housing prices are great…. if you’re buying. If you’re trying to sell because you’re getting married in June and moving then you’re not so lucky. Especially when you owe $20k more on the mortgage than the current going rate is for the house 🙁

  18. ctreit

    You say, “American culture believes that home ownership is a right that everyone should have (it’s not).” I basically agree. This should not be considered a right. Nevertheless, the American system supports individualism which includes individual home ownership. That is why the US tax code allows you to deduct a substantial amount of mortgage interest in your tax return. This tax code comes from a political consensus within the US – quite normal in any democracy. So, I would rephrase the statement to, “American culture believes that rising home prices is a right that everyone should have.” That is, of course, hogwash which is why I don’t understand why the US tries to support house prices that still show a nice annualized return since 2000. Hey, maybe we both are getting it wrong and we missed something. “American culture believes that home ownership and rising home prices are indeed rights that everyone should have.”

  19. JT


    I feel your pain. It hurts to see losses like that. However, for every buyer there is a seller, and the new place that you’re moving too will most likely be cheaper as a result of the housing correction.

    I’m assuming that when you say you’re moving, you and your wife-to-be are moving into an entirely new place and not a place she already owns. If that’s the case then, yeah, it sucks. But, if not, then try to think of the money you’re saving by purchasing/renting your new place. So, while you see the hard $20,000 loss on your current home, it’ll at least be partially offset by your new shelter’s lower price (most likely).

  20. Todd

    Housing is NOT a terrible investment when you are actually investing. (i.e rental property) You are trying to compare home ownership of a primary residence (generally an expense) to some other form of investing (stocks, mutual funds). Its a flawed comparison from the beginning.

  21. Kelly

    The other thing I keep hearing about is that new home construction is “weak” or “tentatively improving”. Isn’t building fewer new homes a good idea? …for sustainability of our communities, for the owners of existing homes, and preservation of open spaces. Of course if you’re in the construction industry that is understandably a bad thing – for you.

  22. Todd

    I should say that I do agree with your over all message of this post: people should be glad prices are falling. If you are a buyer, either primary residence or a RE investor, you like falling prices.

  23. Jason

    Owning a home is not an investment. Typically, investments are meant to be cashed in at some time, right? Would you sell your home once the price is right? Would most people?

    The housing market has instilled the aura of ‘investment’ to expand the appeal. But in this global market, more people are nomadic, going where the jobs are. In that scene, I’d figure renting is much more economical.

  24. Erica Douglass

    The comments on this post are SO classic! Ramit, I think you could easily do another post on this just regarding the comments.

    Love #3:



    #3, have you done the math to see how much “the few %” actually is? Hint: HUGE numbers over your lifetime.

    Also–there are many alternative investments that will outperform real estate and still give you safety (bonds, for instance.)


  25. Dennis

    I don’t think the current press about home prices has to do with anything more than the fact that 40+% of homeowners are potentially underwater in their mortgages and the ripple effect that has on the broader economy. The assumption is that rising prices help to cure that situation and help stabilize the economy by stabilizing price levels in real estate and other goods.

    Rapid inflation or deflation creates uncertainty which creates fear and people don’t respond well when they are scared, which serves to destabilize the economy. So my assumption is that stable price levels have a value all their own in the economy.

    But I don’t think it has anything to do with cultural assumptions of any kind. Are 40+% of people in hock tens of thousands of dollars for consumables like burritos and toothpaste? I don’t think so. While I agree with much of what you presented, it doesn’t prove your point.

  26. Erica Douglass

    @#25 Dennis: “Rapid inflation or deflation creates uncertainty which creates fear”

    House prices were going up 15-20% a year for at least 4-5 years…more here in California. Between 1997 and 2005, real home prices more than doubled in a lot of areas. Yet I didn’t see any fear at that point. That’s definitely “rapid inflation.”


  27. Honey

    Here’s a semi-related cultural assumption – having a home as a forced savings plan is a good thing, but getting a refund on your federal income taxes somehow makes you a bad person for loaning your money interest-free to the gov’t. I got $1500 on my taxes this year, and while on the one hand most of it was because I didn’t think to adjust my withholding when we had furlough, now I get to pay off almost half of my remaining credit card in one fell swoop. Would I have saved that $1500 for that purpose if I’d gotten it in $57 increments in my paychecks throughout the year instead of all at once? I’m betting not.

    Here’s another: rising home prices are good for everyone (flawed for all the reasons you mention) yet rising tuition is horrible? If you’re comparing a house to an education, an education is far more of an asset. I do think that rising tuition is horrible for reasons I’ll explain below, but I think it’s interesting that prices rising faster than inflation is a good thing if it’s your house but a bad thing if it’s your education, especially since in a lot of situations we are talking about nearly identical sums of money.

    I have been commenting everywhere I can on this one issue, though: tuition is the next bubble. The crisis in the housing market and the recession has led to people not being able to afford out-of-state or private college tuition, so those institutions are in deep trouble.

    Additionally, states are slashing their contributions to public institutions, which are raising tuition at alarming rates as well (over 30% in California for next year, and about 20% at the state institutions where I live), so people are having to take out more and more loans just to go to mediocre public institutions. They are even more likely to do so now because people are going to school or going back to school for another degree as a way to hide from the economy and the fact that there are so few jobs.

    Unfortunately, there’s no guarantee that there WILL be more jobs when people get out of school, and more and more people are going to default on their student loans (which is extra horrible because the debt doesn’t get discharged in bankruptcy even if you do default).

    The federal government (which is trying to take over the entire student loan industry by expanding the direct loan system, a bill in Congress even as we speak) is going to lose billions of dollars that people can’t repay…and if they lose that money, they can’t lend it to other people…and if other people can’t get loan money, they won’t be able to go to college…and if college’s don’t have tuition money coming in from new students they will raise tuition on the current students…and the whole thing is going to come crashing down.

    I have worked at 3 large public universities over the last 10 years and read the Chronicle of Higher Education online almost daily. This is coming faster than we think, and despite the fact that it’s almost painfully obvioius that this is what is going to unfold, it will be just like the housing market all over again in that everyone will be totally surprised.

  28. Troy

    Every asset has a buyer and a seller. Lower prices benefit buyers. Higher prices benefit sellers. This isn’t rocket science.

    This post sucked.

    The reason prices are expected to increase is because the price of everything is expected to increase over time. Increasing prices are the byproduct of productivity and economic growth. This is why milk no longer costs a nickel, and cars cost more than the $2K they did in 1950. This is the exact reason why people get raises, the COLA adjustment, etc.

    And you went to Stanford?

    • Mack

      Actually increasing prices are a result of an inflation in the money supply (due to banks creating money with their fractional reserve system policies), which doesn’t necessarily correlate to increased productivity and economic growth.

  29. D

    Perspectives and contexts matter.

    If you’re looking to buy a house, prices going down is good.

    If you’re looking to sell a house, prices going down is bad (depending on why you’re selling).

    If you’re one of the double-digit-millions of Americans who is currently significantly underwater in your home, putting you at significantly higher risk of default, and you can’t sell it and won’t be able to for another decade regardless of what life events might motivate you to do so, and your mortgage is part of unnecessarily complex securities held by many mutual funds, and represents significant real-but-unaccounted losses for financial institutions at the center of our economy — all of which was rooted in things that happened well before Mr. Sethi published his infinite wisdom in best-selling book form — then house prices going down is a very, very bad thing for many, many people.

    Perspectives and contexts matter.

  30. Al

    This is a much more complicated topic than you allude to. When you buy a home with 10% down you make an investment where you are leveraged 1:10. That can be good or bad depending on market situations.
    One thing to notice is that if the value of the dollar goes down, inflation goes up, then your making money because the house as an asset will rise with inflation while your debt is based on whatever interest rate you secured to take the loan.

    My most annoying cultural assumption here is the respect we give to people that have a lot of possesions but are deep in debt and have no clue how to manage their finances. Why do we respect people with the big house and the nice clothes more than the construction worker who saved his money for retirment, for his kids and for his future?

  31. Mike Lutter

    Price decreases are bad for people who own their homes but are even worse for people who haven’t paid off their loans yet.

    The real estate “gurus” who preached RE investing prior to the bubble bursting were doing so with the schtick that you can put very little money down and get a huge house. The reason they were saying it was a good thing was because with $1,000 down payment and three cans of paint you could possibly make $5-$15K on the deal. That’s a a 500-1500% return possible in less than a year. The less money you put down, the higher the rate of return. In finance, that’s called leverage. They were even encouraging people to get zero down loans! Infinite percent return!

    The thing with leverage is that it’s great for assets that appreciate in value, but it’s devastating on assets that depreciate in value. If you intend to live there until retirement, then who cares what the price does? But for all others, they intend to sell their house at some point in the near future and they all have mortgages. That’s why it stings so bad when prices go down, the price drop doesn’t hurt the bank any, it’s the homeowner’s equity that gets stepped on and with the fact that it’s a highly leveraged asset the declines are multiplied.

    That said, price declines are great for people who are buying!

  32. Dennis

    @#26 Erica

    Real estate isn’t everything Erica, I was thinking of all types of inflation. And there were lots of people who were fearful of what they called the “real estate bubble”, and they were right.

    But my reference was to inflation and deflation generally, not to real estate specifically. For example, in the price of consumer goods, food, fuel and other consumables. Look at how disruptive the rapid rise in the cost of gasoline was to the economy just a year or so ago.

    Right now we have some amount of uncertainty regarding the potential for high inflation due to current monetary policy. If it comes true, that uncertainty will turn to fear.

    As Ramit pointed out, the economy is dependent on consumer spending, which itself is heavily influenced by the value of real estate. I think that is what drives the bias Ramit sees in the press, not “cultural assumptions”. “Higher house prices = good” is a reflection of the effect real estate values have on the entire economy, well beyond real estate.

  33. Aitor Calero García

    I’ve been renting since I left my parents’ home at 26. Now I’m 35. I’m from Spain, the European country most affected by real state market crash. Back in the 90’s there was a great pressure to buy a house. Prices started to soar up quickly and steadly. Lots of young friends get mortgages and started to buy home, even when the prices where dramatically high (600K €). Now they have childrens, have changed their jobs, and they cannot sell their home. Moreover, they are paying a mortgage which worth more than the current market price, since prices have fallen 20% on average. That’s dramatic. In may case, basically because I never had enough money (and by this time I preferred to go out and have more fun) I did not buy a house and rented. Now I am mortgage free and I am very happy about it. There is no chains in my financial situation. My advice for young people is “rent until you have a clear idea that purchasing a house is worthwhile and your life is more or less stabilized, otherwise invest in anything else”. But, of course, buying a house is for many people a question of choice and/or social status. As I read here in comments, it has nothing to do with good financial decisions in investment, at all (at least in the cases that I know about)

  34. Zain

    Even if you were planning to sell your house, if you wanted to move to a larger, more expensive house then falling prices would be great for you (if both houses fall 20% in value you end up paying less overall). It’s only if you were nearing retirement and ready to sell your 4 bedroom place for a small 1-bed retirement home that you’d need to be concerned about loosing money.

  35. Khalid

    What’s funny is that these journalists understand so little about the economy that they still can’t see the $8 trillion housing bubble, even after it burst and caused economic collapse.

    All housing prices did for the 20th century was track inflation. In about 1996, prices started to outpace inflation, for no reason, and with no corresponding increase in rent prices. There will be no “recovery,” because homes are still overpriced, and have about 15% to fall before they return to their historical trend levels.

    Dean Baker, one of the few economists who understands the economy, was all over this a decade ago. He does a Ramit-like mocking of the media every day:

  36. Victorino

    I think buying a house is still a good investment. Having a house may not a good financial investment in a certain time, but beyond that – emotional investment and other meta-financial investment, it’s always a good thing to have a home. Of course, unless you crave to buy excessive houses.

  37. WR

    In my book ‘The Hero with a Million Dollars’ ( (shameless plug…sorry) I list a few “Wealthy Homeowner Tips” The one that seems most relevant to this discussion is:

    Do not ask your bank or real estate agent how much home you can afford.

    As Ramit suggested, their incentives are not your incentives. They are not trying to ‘help’ you. They are trying to earn interest or commission and the higher the sales price, the bigger their boat.

    Owning a home is not the right choice for everyone but I firmly believe that owning a modest home still provides a few real benefits. The law of the land is still magnetized toward the ‘landed gentry’ and will be for some time. Taking advantage of the mortgage interest deduction, prop tax deduction and liberal capital gains rules can be a smart financial move. A home can also be a nice “forced savings vehicle” for those of us who can’t control our compulsions. This is not ideal but even after a steep decline, you will still have equity when you finally burn the deed.

    I have heard the argument that your primary home is not, should not be considered an “investment”. I agree. Ya gotta live somewhere and your home provides ‘Utility’ (Dang, thought I could get through this post without using Econ101 blather). Not Utility in the “electricity” sense but more in the George Carlin sense:

    “A house is just a pile of stuff with a cover on it…That’s what your house is, a place to keep your stuff while you go out and get…more stuff!”

    Your home purchase should be made based on where you want to live and what you can really afford. (Hint: This is a much lower amount than the calculators spit out at Lending Tree)

  38. The Rich Blog

    The change in housing prices is one of the important indicators of the economy. Of course nobody wants to pay for a higher price when buying a house, but they are expected to rise because we expect our economies to grow. The higher the demand for housing, the better the economy is doing.

  39. Joey

    Here Here Ramit!

    I’ve often thought the same thing about why people buy when stocks/housing prices are high and try to sell when they’re low (in desperation)…should be the other way around. Those that got into houses that are now underwater and doing fine on their mortgage, it just means they have to stay in their house for at least another 15-25 years for the prices to overcome the debt…for those looking to buy, it’ll be a great time for the next 5-10 years!

    Right on brother Ramit!

  40. Bob Weber

    There are some economic factors that you didn’t address. The first being construction. Construction is a large segment of our economy, and with house prices at their current levels construction companies have had to drop their prices as well, or be out of a job.

    The other big reason that dropping home prices are bad are loan defaults. When house proces drop below what a person owes on a home there is little to keep them from short selling the home and moving, ultimately leading to bank failures and losses by many people or government covering those losses and higher taxes. None of these seem like good things.

  41. Credit Card Chaser

    Ahh, I was hoping that you would reveal what you were thinking when you posted that last week. Very good observation.

  42. Kevin

    IMO, there is a difference between your residence and investment real-estate. With your residence, there are nice tax benefits which you need to consider, along with the downsides of taxes, maintenance, more taxes, etc.
    To me I see my house as returning maybe 50-cents on the dollar.. still better than renting. At least right now. I try to keep my housing costs low and invest $$ in actual investments though. A house is simply a place to live..

  43. WR

    Fictional conversation circa 2007

    “I just sold my 2 BR townhouse for $325k, I bought it 6 years ago for $125k. It sold in 4 hours after listing it!”
    —“That’s great! Must be nice to have a nest egg and money in the bank”

    “Now I live in a 4000 Sq foot McMansion with a $625k No money down, No paperwork Reverse Double-lindy Balloon Mortgage.”

    —“What’d you do with the $200k?”

    “Had to buy new furniture and a Lexus, can’t have a futon and a Camry in Towne Village Estates.”

    It should be noted that people were buying houses that were selling for up to 9 times their annual income. The Banks should not have done that but there is no excuse for a person to make such a stupid personal decision.

    That said. In pure reference to an individuals personal financial life (i.e not the greater good or good of the country) buying a home at a bargain price (i.e now or at least…soon) should be a no-brainer.

    Joey is spot on. Buy low/Sell high. I bought a ton of FRE and FNM at 53 cents. Just could not resist. Right now this has more than doubled. Does that make me a financial genius? Probably not (I have some Worldcom stock certificates to prove it 🙂 )

    I also invested in Financial Services and Real Estate Mutual Funds. My Favorite is Vanguard REIT Index .

    Why? It cranks out nice dividends and since it is an index fund has a low expense ratio (.26). Kind of like owning real estate without the luxury of fixing a toilet in the middle of the night. (Yes, I have rental props too. What a pain!)

    From what I could gather, most of the readers of this blog are young. I think Ramit’s continual advice to challenge conventional wisdom is excellent. Things are different now and you need to examine opportunity, calculate risk and go for it. Why not consider buying a modest bank-owned foreclosure and rent out a few rooms?

    Also worth noting, If you take Ramit’s advice and moonlight, part of your home can be considered your place of business and you get another big perk, the Home Office Deduction.


  44. Honey

    @ Bob Weber, #40 – I don’t understand this reasoning at all. It seems to me that if you can still afford the mortgage payments, being underwater actually de-incentivizes moving because as long as you’re still in the house, it’s only a paper loss, and if you short-sell and move, it becomes an actual loss. Also, my understanding of short sales is that they are NOT easy – you have to get the bank’s permission, and then the sale itself takes 2-3 times longer than a normal sale (during which time you are still paying the mortgage). Banks will usually approve a short sale if the alternative is foreclosure, but not just because you feel like moving.

    As far as construction, perhaps (like the housing market) supply has exceeded demand, and we’re over-correcting back to normal. Maybe construction SHOULDN’T be as large a segment of our economy as it is. You can’t possibly be arguing that we NEED more new homes? Personally, I never want to live in a freestanding house again. I’m a perma-renter, and sososo happy about it…

  45. Bob Weber

    @Honey – Do we NEED new homes? None of this is about need. Sure, we could all live in factory built cement towers, one room huts, wigwams, whatever. Regardless of your personal opinion, many people in this country want to live in freestanding homes. My point isn’t a philisophical one about how much construction should be done, or what type of home people should live in, it’s simply an observation that reduced construction has resulted in lower wages and unemployment.

    Another good point you bring up is renting. This is a larger issue than home ownership. Even if your rent, someone owns your home and prices impact their economics. New rentals also have to be built, renovated and maintained by someone.

    As for the short-sell and move concept. Sure it’s harder, but if you can get out of your house and buy a new one for $50,000 less it’s worth the hassle. Maybe you took out a 2nd and paid off all your debt or invested that money somewhere else. Great if you can just walk away with thousands of dollars in your pocket. Yes it takes creative maneuvering, but I’ve known people who have done it.

  46. Honey

    Um, there is a 10-month supply of existing homes right now, so we certainly don’t need to be building more even if people want to live in freestanding homes (which are more expensive and worse for the environment). I’m not saying or implying that there aren’t people who want to live in freestanding homes, I’m saying wow – what a cultural assumption that anyone DESERVES that, like it’s a RIGHT.

    If you can’t afford a freestanding home, or can’t afford a brand new home, then you shouldn’t buy one. It’s not like the universe owes you something – live within your means. Sheesh. I have been rooting against the economic recovery this whole time because I feel like the recession hasn’t had severe enough consequences for us to have actually learned our lesson. A nice double-dip might show us…

  47. WR

    I agree. I have very few needs. here is my short list:

    1. I NEED coffee. Every day. In bulk quantities.
    2. I NEED my DVR. Haven’t watched a commercial in years (except the good ones and then usually on youtube)
    3. I NEED a shower. Just jogged.

  48. Bob Weber

    The 10-month supply of homes is why home prices are low. Supply exceeds demand so prices are down. If the surplus supply drops prices will likely increase.

    I don’t believe anyone deserves to live in a freestanding home. This isn’t a right. This is a desire and an opportunity. Let’s not mix altruism and economics. It sounds like you belive that owning a home is a moral choice, and that’s fine, but it clouds the economic issues. If the country is prosperous there will be more demand for homes, home prices will rise, construction workers will make more money, real estate and bankers will make more money and we all will benefit. Will this harm the environment and be wasteful? Probably, but that’s not the issue I’m here to discuss.

    Likewise, I absolutely agree with your comments about purchasing a home. If you can’t afford it, you absolutely should not buy it. If you can’t understand the terms of the loan you shouldn’t sign the papers. Should the recession get deeper so we ‘learn a lesson’? I don’t think so. Our government isn’t going to let anyone fail, so how is anyone going to learn anything?

  49. GS

    Government encourages others to buy a home. It allows money to float around. Look at the list of people who earn money…feel free to chip in where I had missed

    1. Realtor
    2. Bank that handles the mortgage
    3. Assessment parties who value the home
    4.Government – Yearly tax on the property
    5. Some furniture/carpet/wherever you buy more stuff to fill the house will benefit
    6. Contractors whom you source out for that change in the bedroom, or the bathroom, or the kitchen
    7. Insurance
    8. ……….

    What can i say, there are another good 10 other things that will benefit from one person purchasing a home. This is a passive income for the government apart from our taxes. So my conclusion is if you own a home – you will always be paying a fixed amount of money + additional cost (repairs etc). I would opt for rent. I can control the amount I pay, be free to choose another option plus none of the costs above.

  50. Wish I Were Riding

    I wouldn’t care if toothpaste burrito prices dropped 99%.

  51. Monevator

    The burrito argument is fun, as Warren’s burgers were tasty, but strictly speaking they’re nonsensical.

    You eat a burrito. If you store a load of burritos under your bed for the long-term, you’ll soon discover the different between a consumable good an asset.

    It’s blatantly true that someone who is short one house (i.e. young would be first time owners) want low house prices.

    It’s not rocket science to see why the 70%+ who do own want high hight house prices.

  52. Monevator

    (p.s. Never post comments on a clever person’s blog after a trip to the pub! Sorry for all the typos Ramit. Please treat working out what I meant as an entertaining parlor game 😉 )

  53. Alex

    First, I want to say Thank You! Why? Because this post is exactly what I like to see/read. The news is so twisted and takes everything and turns it into something negative. I love how you have taken this “housing crisis” and turned it into something positive. I love doing that and seeing that done. Great job. This post really pumped me up

  54. Kevin

    Your post is just as targeted towards your younger skewing, renting audience as the newspaper is towards its older, house owning one.

    People usually buy homes with debt. They don’t usually buy stocks with debt.

    People aren’t net buyers of homes. Typically, you buy one, you hold it. Then you sell it. This is different than accumulating shares of stock over time, or eating burritos. Obviously.

    So if you’ve already bought a house, it’s bad news if the value goes down. You won’t need to buy another one in 4 hours, unlike your burrito analogy.

    You’re better than this. But I doubt you’ll see it.

  55. Ketan

    I’m not impressed with this article – I’ve seen better from you, Ramit.

    It’s too one-sided for the ‘young’ ‘first-time homebuyer’ that housing is now affordable.

    I don’t live in San Francisco where home prices are outrageous. Nonetheless, in Chicago, I see some home prices falling to within 110% of their prices 15 years ago. My own home is 10% below the purchase price 9 years ago.

    Foreclosures or people dropping the responsibility to pay their debt and continue to spend outrageously hurts all the rest of hard-working, bill-paying class. This is where a sub-prime issue grows into a prime issue — When the majority of people are hurt, because of a minority’s negligence, that is not good.

    Compare to most stock portfolios, people saw the values go down 50-60% in some cases and they lost their job, and home value went down, so do they have a choice but to sell at the greatest losses.

    This only perpetuates the rich getting richer since they can weather a storm and profit from other’s demise. If you happen to be young and managed your finances well, sure, it’s nice that it’s affordable, but that is the minority.

    I hope you understand my point.

  56. Craig/FFB

    Housing market please CRASH, CRASH, CRASH!!!

    We’re looking to buy soon and all of this stimulus only hinders my opportunity to buy. The past decade built up this idea that a house is a great investment where you can make a lot of money. That’s still true in my opinion but its something you do late on in life, when you are selling your home ’cause the kids moved out and you’re ready to retire someplace warm. THEN you sell the house and make some profit, maybe after 20 years.

    Otherwise a home is where you live and the investment aspect is that you get pretty decent tax breaks for owning.

    The problem we’ve had is people were buying home with loose credit not just to live in but to flip and make profit.

    So please housing market, go ahead and keep going down. I’d love to be able to afford something reasonable!

  57. What’s So Bad About Falling Home Prices? - Mortgage Rate News

    […] read a rather interesting post today from Ramit Sethi’s blog, I Will Teach You To Be Rich. It is about home prices — and how we are kind of backward in our assumption that home prices […]

  58. Juan C.

    So if I buy an apt for $150,000 and rent it out where the renter is paying for my mortgage and maintenance, how is that a bad investment?
    In 10 Years I could sell the property for the same amount (unlikely because price will likely (hopefully) be higher) and all of the money that I get from the sale would go into my pocket, of which I only put the down payment and closing costs out of my pocket.
    So let’s say I put 20% down that is $30,000 I would get that back and whatever equity was built up (by the renter’s payments)… I would put that up against the S&P 500 any day…
    or am i wrong? please let me know if so.

  59. Nishant

    yo ramit, great post. On the latest issue of Canadian Business magazine : Why Buying A House is Bad Investment. Here’s link

    “The father of modern economics placed housing in the same category as clothing and furniture — useful consumer goods that do not generate wealth. For the homeowner, a house is a “part of his expense, and not of his revenue.” Were Smith alive to make such a statement today, he would no doubt be regarded as a heretic.”

    As for what it all means for the future of the economy…this whole recession is not some minor blip make it out to be, Obama is definitely correct in describing how this effects the entire economy…

    Perhaps less about owning, more about mobility in the future, communal living! haha. I know you say Americans are not going to suddenly stop spending like bandits….but this constant consumerism instead of creating is a long term problem.

  60. Antoine Bugleboy

    How come no one has pointed out the obvious?

    Losing 99% of your money on a house > Losing 100% of your money on rent

  61. Antoine Bugleboy

    Ah, I see Kevin already brought up the point I just made.

  62. Raul

    the burrito analogy doesn’t work because:

    1. You do not borrow money to buy a burrito
    2. You do not re-sell burritos, so a price drop cannot hurt you, unless of course you’re in the burrito business.

  63. WR

    Ramit has some very good material in his book on this subject. I suggest you pick up a copy!

    In an earlier post (#37) I mentioned a ‘modest’ home can be a great investment. I’ll elaborate a bit and use a personal example.

    I bought a home about 2 years ago that was a Fannie Mae owned foreclosure. I bought it for 180,000 (Which, at the time was 1.3X the salary from my job, I also have rental props and a home based business but I don’t use that in my calcs.). This was at the final weeks of the Housing boom just when some cracks started to appear in the dam. Even so, the banks I dealt with were still telling me I could afford a 500-600K home.

    We chose the home not for an investment but for a place to live which suited our lifestyle. It is in a community built in the 70s (house is 3 BR/2Ba, a bit small by todays standards)

    We like the fact that there is very little HOA-BS and All of the properties are over 3 acres, ours is 3.5 acres.

    The HOA laws state we can have 2 horses, 2 cows -or- 1 horse and 1 cow but no chickens, pigs or goats. (The no Goats thing was almost a dealbreaker for me). As you can surmise, we live in a somewhat rural area. Not for everyone, I know.

    My point is that if you work hard on finding a modest home in a decent neighborhood, it can be a great part of your financial picture. If you can get creative and find one that is 1.5-2.0 times your annual income with a 30 year fixed, you could be in great shape. Why?

    If you earn 60k, that would be a 120,000 home. Max.

    You still have to fund your contingency fund, Max out your 401(k), Fund your ROTH IRA and put some into your kids 529 plan. You still need to be able to go to the movies and take a vacation every once in a while. You still need ot have some seed capital for your business.

    at 120k with 15k Down and 6% interest the payment you are looking at about 800.00 per month. The Interest is deductible which is cool but should not be the ‘reason’.

    Is it a good investment? I think so. Not for everyone though.

    If you are maxing out your retirement funds (401k / IRA) and you put the 15,000 down payment into a REIT Index fund or an Extended Equity Index fund and rented instead, would you be in a better financial situation 20 years down the road? Who knows. One thing you should factor in though is that rents are, for the most part, out of your control.

    If rents go way up, that’s what you pay. The person with the 30 year fixed continues to pay the exact same amount. I know I will pay $X next month and in 2018. Don’t have to worry about finding new digs if my landlord decides to sell (or goes bankrupt). I LOVE having a huge garden, a wind turbine, a solar water heater and a treehouse. I’m a tinkerer.

    The idea that renters don’t pay property taxes is absurd. Taxes are baked into the rent and will always be.

    Renting is great, though, for people who like to move freely about the land. no permanent ties can be a great thing for some folks.

    Anyhoo. Gotta run. LOST is waiting for me on the DVR…

  64. Forex Automatic

    Owning a home gives a different sense of fulfillment when compared to the purchase of other material belongings. But with that said, it becomes more imperative that first time buyers be more wise in making this crucial decision.

  65. Margo


    A house is not a burrito.

    The problem with decreasing home prices, although they make those homes affordable for young people, is that people have loans on their homes. When the prices decrease enough, people will default on their loans because they agreed to pay so much more than the home is now “worth.” When too many people default on their loans, the companies who hold those mortgages will go bankrupt, and our entire economy will be negatively impacted. If the price of a burrito or toothpaste goes down, the economy will generally not be impacted as significantly as in the mortgage situation. In addition, property taxes decrease as the price of a home drops, and this negatively and directly impacts the government. That’s why the government is concerned with the “mortgage crisis.”

    As for individual homeowners, yes, we’d absolutely like to see the value of our homes go up rather than down, especially since – in most cases – we are still paying money on those homes. If the value of my home goes below the amount of money I agreed to pay for it, I’m throwing money into the trash every month when I pay my mortgage.

    WR has some good comments on buying a home, but I’ll say that the main reason I chose to buy a house was for the security of always knowing where I’ll be living next month and next year, not necessarily the fact that the home price would be appreciating significantly.

    Ramit, you’ve obviously chosen to rent, so you’re happy when home prices go down – but you can’t say that you don’t understand why people would want home prices to appreciate. Homeowners, corporations, and the government all have strong reasons why they want home prices to appreciate modestly year-over-year, and those considering home ownership should be pleased with modest home appreciation, too – no one in their right mind would buy a home in a depreciating market if they expected the price to continue dropping signficantly every year after they purchased it.

  66. Mike P

    You cannot sell a burrito after you use it. If you can I don’t want to be involved.

    You can sell a house after you are done with it, maybe in even better condition than you received it. Why wouldn’t I want my home to increase in value? I still don’t understand why you think its invalid for me to expect that my home increase in value over a period of time.

    But I would agree with your notion that a home is not a “great investment”

  67. WR

    To be fair to Ramit, he is looking at a house as a consumable. When you buy a Burrito you pay for the ingredients, any premium additions that go in there (Guacamole!) and for the drink. You can’t have a spicy burrito without a Diet Coke now can you. This Consumer behavior is similar to buying a house. The details are different, sure, but it is a consumer activity nonetheless.

    You don’t ‘buy’ a house, you mortgage it. You borrow a ton of money based on a rather modest down payment.

    So a $180,000 house does not really cost $180,000. It costs $380,000 over 30 years at 5.9% interest. A full 200k is interest (which is tax deductible but still a heck of a lot. about 50k in tax savings). Depending on down payment and closing costs (and the interest rate you get!) This could be lots more.

    Rents are paid with 100% after tax dollars. Rent increase over time. As home values appreciate, so do rents for the most part. Not a 1-1 but close.

    This does not sway my opinion, though. We are in a unique time. Massive foreclosures and tight banks have saturated the market with bargains. Low interest rates are icing on the cake. If you are part of the group that has lost your home in this crisis, my heart goes out to you and I hope you recover your will to play the game. For those of you who have a decent job, decent credit and have saved up a bit of a down payment, what are you waiting for…A written invitation?

    Buying your home is the biggest, most important decision in your life. It has the most consequences.

    Here is my short list of wisdom (very short indeed)

    1. Still, the best real estate investment is a 3BR/2BA detached home on a 1/4 acre lot. These keep their value.

    2. Conversely, Finding a community outside a metro area (longer commute) that is on a bigger piece of land has benefits as well. Mainly, it is less likely to go ‘all rental’. Renters don’t want to mow 3 acres.

    3. Everywhere there are artsy communities, usually near a university or historical area, that are great places to live. There is a nice tourist trade, a rich local event schedule and fewer restrictions on your home (yes, this can be both a benefit and a curse).

    4. Understand “BASIS”. Learn why you should IMPROVE your home and REPAIR your rental property.

    5. Your home should be a fraction of your income. You should also strive to build and protect a contingency fund that is at least 6 months of your expenses. The cheaper your lodging, the less this fund needs to be. Where you put your stuff will be the single most costly expenditure in your life, make it worthwhile!

    I still think that buying is not for everyone and renting is not “Throwing money away”. If by renting you are able to maximize your career potential, enjoy your life more, maximize your retirement (401(k)/Roth IRA) contributions then by all means, be a renter.

    My grandfather was a sailor and a happily married man. He spoke 7 languages and had friends from all over the world come and stay with him and grandma for protracted periods. These were Norwegians who sailed their ‘home’ to Elizabeth City to stay with Grandpa for a month or two. Russians (during the cold war, no less) who sailed their remarkably tiny vessel to do the same. A Couple from France who had a nicer boat bathroom than my house has (can you say bidet?) . I have always envied these ‘homeless’ people in some ways and pitied them in others. Not having a permanent anchor can be hard for some. This is the same sentiment I have for renters. I want for them the benefits of owning with all the liquidity and freedom of renting.

    Great luck!


  68. The Rat

    I’m a firm believer in owning a home for a lot of reasons; however, buying the WRONG home as it relates to one’s earned income, the current market in one’s region (eg. inflated housing prices), and size of the home can literally ruin a family’s finances.

    In my view, it’s probably the most important decision from a personal finance perspective that a family can make.

    Nice post.

  69. Free advice on everday problems

    I love when they assume that if something is 2 for $3 then it must be cheap! but really.. it means $1.50 each.. and there’s a product in the shelf near there that is probably only $1.20 for an item..


  70. Jimmy

    Renting is a smarter move ?

    I am renting my apartment in Hong Kong now, as I am here on work assignment. It can be any time that i may pack my bags and go. Just like a hotel room while U are vacation, so rental makes sense

    Then my own apartment at my home country, was rental out just before I moved over. The rental helps me to accelerate the repayment that with a bit of discipline, a 30years loan @ 2.6% took just 3.5 years to clear off. There is no penalty for early redemption. yeah, i did get a renter from hell with the mess they left behind at the end of the rental period, but thats the pro & cons involved.

    Assuming that I am out of the job the next day. I won’t have to worry about the roof over my head.

    I am planning for my own apartment in HK as I got hit with a rental hike of almost 20% this year. The housing market, what ever BS about economy being bad, is almost the seller’s market. The area’s apartment has a price tag that was like 1/2 of what it was just 2 years ago.

    When you can no longer work or wants to enjoy your retirement years, you are still paying rent. That number is going to be up & down like the stock market, BUT you are still paying.

    BTW. a Burrito is a consumption item. Housing is both a consumption item (paying rent to myself) AND a source of savings.

  71. Kiran

    A few things that many of the pro-homeowner commenters aren’t taking into consideration….in some areas renting is cheaper than a mortgage payment. You might be able to save the difference and invest that elsewhere. In fact that’s the smart move – renting the most expensive place you can afford is silly. Also, home ownership has a plethora of other expenses you’d need to evaluate to do a fair analysis. Did you take into account taxes, repairs/maintenance, and the fact you are guaranteed to spend more on non-essential items if you own a home? There’s also the cost of your time and added stress from owning a home. Ramit has talked about this before in detail.

  72. lynn

    I bought my home in 1999, before the housing bubble rose to the unsustainable high it reached before it *popped*. I got a fixed rate mortgage on a small home in an inexpensive older neighborhood. I live in an area where housing prices do not fluctuate very much, but rents are high because it is a college town and people who want to charge high rents can (college students will just borrow more money to make up the difference). In my situation – in a stable housing market and with a fixed rate mortgage – it makes better sense for me to stay in my home, get the tax break, & accumulate equity — yes, outside of California, Florida and Nevada there is still such a thing as “equity” – not every homeowner in the world is underwater! I’ve been in my home just over 10 years now, and I’m at almost 60% equity in my home. Where I live, my mortgage payment is cheaper than renting. Now, I can understand why everyone on the west coast is bitter about home ownership. However, in more stable environments, less susceptible to fluctuations in housing prices, and if you do as much as you can to avoid adjustable rate mortages like the plague, you can buy a home, build equity and be comfortable. I just think it’s important not to go overboard and be too reactive against home ownership. The housing bubble, crash and pain suffered by so many homeowners in recent years is largely a function of the dingbats in Washington,D.C., keeping interest rates too low, and forcing banks to approve mortgages to people who didn’t have the income or good enough credit to afford one. There is a very real solution to the problem:… TERM LIMITS.

  73. EyesOpen

    Ownership, Shmoanership. Our REAL cultural ineptitude here is the assumtion that buying must = DEBT! We didn’t experience a housing bubble, it was a CREDIT bubble. If buyers paid with CASH, the true value of housing would be obvious.

    Lenders used to have a vested interest in the communities they lent in. They knew their profits would be realised only if the people paying them stayed fiscally healthy. And they valued collateral property accordingly.

    Then along came “swaps”, “derivitaves” and “mortgage backed securities,” and suddenly lenders realised they could make as much money off the gullible in a few months as they could in a lifetime of healthy borrowers. Suddenly, 110% mortgages made sense and they were able to convince people the “rush” of ownership is worth the risk of fiscal slavery over the next 30 or 40 years, because the “high” prices would magically change borrowers into investors who always sell at a profit in the future. Then they packaged up all those loans into “securities” and sold them off as fast as they could, knowing full well that the crackheads the “products” were based on were all bound for overdose land.

    Every party in the exchange of real estate profits from higher prices except the buyers, and every institution in the real estate business are enablers or pushers. But the addicts are STILL convinced they did the right thing. It’s the guy next door who can’t afford his habit that’s to blame.

    And why is it that the lenders who entered, just as blithely as their victims, into business transactions based on their own “valuations” are trying to make out that the addicts are to blame for those bad decisions, but the lenders are not? Here’s a news flash for you… if you’re “under water” on your loan, you PAID TOO MUCH! Give the property back to the lender and let him see what he can get for it. Your “credit rating” is already shot. Throwing another 10 years of income at it won’t help either. You were duped, you’re an addict and the only treatment is to quit borrowing and start paying CASH.

    Just a tip for all you “investors”, anything that is valued by comparison to what the idiot that lives next door paid is sure to be OVERPRICED. And anything you have to borrow money to pay for is not an investment, it’s an expense.

    And yes, a house is a buritto. If you eat it, ie: do no maintenance, repairs, upgrades (all of which cost real dollars and/or time), it rots just like a burrito. The sooner you learn to quit dreaming that housing is an “investment” and not an EXPENSE, the sooner all of us will be able to afford it.

    Just keep telling your emaciated fiscal face in the mirror that you’re not an addict, and the pushers will keep you enslaved for the rest of your miserable life.

    Peace out!

  74. Dwight Kellams

    I work for, and this is my personal opinion. Our personal residence has not appreciated as anticipated. Combine that with losing thousands of dollars because of defective siding, maintenance and repairs, property taxes that have doubled, new heating/air conditioning, appliances, roof, and garage doors, and renting would have been much cheaper.

    I tried to talk my wife’s single girlfriend from purchasing a home. Now she is locked into a home that has lost tens of thousands of dollars in net worth due to a land contamination issue that was identified after she purchased it. She purchased a home because she wanted that lifestyle but also with the rationalization that she needed a “tax writeoff”. She will be lucky if her “tax writeoff” does not eventually bankrupt her. Plus she is considering job offers out of state but may not be able to take advantage of them because she cannot afford to sell and take the loss, assuming she could even find a buyer.

  75. Matthew Peters

    Great ideas here Ramit. Well worth the read.

    I know many people who have a large portion of their retirement wrapped up in their house and figure on the value of their property increasing every year. When it doesn’t increase in perceived market value, they are upset and concerned and looking for someone to turn the market around for them or even ways to bail on their mortgage.

  76. WR

    Housing is unique. Home ownership in America is an emotionally loaded political minefield. I believe that it was the “Chicken in every pot” mindset that allowed the crisis we are in to initially brew. Everyone does not deserve to own a home (or anything).

    Housing is inescapably a large part of just about everyone’s financial picture. Whether you rent or own, you are going to pay for the roof over your head. Owning a home can be a major positive part of your portfolio but it has to be treated like everything else in the basket.

    Many of the people who put all of their chips on the “House prices will always go up” square have lost but let’s be clear that it was a gamble, not an investment. One of the not so great side effects of this great free society is that people are free to make dumb decisions AND people are free to take advantage of others dumb decisions. Buying a house that is 8-10 times your income with an adjustable rate mortgage is a dumb decision.

    Buying a house that is steeply discounted and about 2-3 times your income can be a prudent financial decision.

    As we have seen in this thread, the Renting Vs. Owning debate will wage on, there is no right answer for everyone.

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