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(English) The Only Thing “Lousy” Was the Advice!


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9 comentarios
  1. Dewey Linville
    Dewey Linville Dice:

    Hello Dean,

    Disciplined saver/investor is a myth. Those folks have passed on to their reward.
    Forced savings wheather buying a home or deductions for 401K’s is the best hope for most people.
    The PHD’s (piled high and deeps) have to publish or perish. So take them with a grain of salt and continue to put out a clear straightfoward message that owning your nest is better than renting one.

    Dewey

    Responder
  2. Jack
    Jack Dice:

    It is amazing how people take a simple back of the envelope calculation and so easily prove something right or wrong. So there are two choices we have before commenting on a detailed paper a professor writes – read the entire paper and then comment. Alternatively build our own detailed rent vs own model in a big spreadsheet that accounts for all the variables (and I did that). I guarantee that most people who talk about rent vs. own have never done that and the simplistic arguments they make shows their lack of understanding the subject. Which is why we are in this housing mess to start with.

    Specific points that this article raises
    1. “disciplined investor” – fair point – a house forces you to save. But you can overcome that by deducting a fixed amount into your 401k or straight into a savings account. But this argument still has some validity and the blog makes a reasonable argument here.

    2. 20% downpayment assumption. Well, this argument is useless and the author of this blog should know you can get leverage. So yes, a homeowner can attain more leverage by putting down just 5%. (but that increases mortgage costs, therefore reduces the return on the home) but similarly that person can get leverage on stocks (on margin or buy levered ETFs or high beta funds) and still achieve same returns as the 20% down payment scenario. Overall this argument against the article is extremely poor and useless.

    3. Normal ownership expenses- again a stupid argument from this blog. The professor uses some costs in his assumptions. Whatever it takes to maintain a home. You have to add that of course. This blog argues that you actually save money by owning than renting, so you save money rather than spend it. Well even if that is true (though not always) -this “saving” (or to be more correct, the difference in net free cashflows in renting vs. owning) is already accounted for in the computations on renting vs owning. In addition to your usual costs and benefits, you must include some assumptions on the cost of maintaining a house. that is an input into the model and must be a strictly non zero cost.

    So, while readers putting in comments can say whatever they want (rational or irrational) – the person who writes a blog has the bare minimum need to try and recreate the numbers and equations a little bit before commenting, and to follow the rationale. Or to take someones help before doing so.

    Responder
  3. Steve Harney
    Steve Harney Dice:

    @Jack
    The article was written by a professor and the KCM Crew realizes that. They didn’t read the entire paper (if one even exists) because they didn’t see any links to ANY papers that supported any of the points made in the article. As far as your points:

    1.) Thank you for the kind words. However, the credit goes to the Joint Center for Housing Studies at Harvard University. It was their study that was used to make this point. The study was linked in the article. I hope you had the time to read it.

    2.) 66% of people in this country own their own home. What percentage of Americans leverage their stock purchasers?

    3.) The best paper written on this issue was authored by two professors in the business schools of two different universities. Their paper explains this point in detail. Their research paper is linked in this blog post. I will suggest to you what you suggested to the KCM Crew: “read the entire paper and then comment”.

    Responder

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