Conflict and resolution are the benchmarks of good writing. Human nature is attracted to it. However, today’s Home Page Article on MSN.com… “Why More People Should Rent” gives bad advice simply for the sake of being contrary.
Being the good Seattleite that I am, (okay… I actually live on the Renton / Newcastle border in the Seattle suburbs) MSN is my default homepage. I enjoy reading the consumer interest articles MSN.com posts in their featured article box on the top left hand side of the screen. They usually post three big stories that rotate unless something really huge happens like when Pope John Paul II died and they only featured that particular story while everything unfolded.
This morning’s featured article focused on the same topic that was written about by a syndicated columnist and included in the Seattle Times Sunday edition a few weeks ago. In fact, I think this is exactly the same article but I can’t be sure because I have already recycled that particular issue of the paper. It’s about the idea that renting is a better investment than purchasing a house. This might be true in other parts of the nation but it isn’t true here.
Being a real estate agent and REALTOR, my opinion on this topic is biased but it’s my belief in the benefits of home ownership that caused me to choose this career in the first place.
The opinions of the author of today’s MSN.com article are also biased. The author is Jack Hough and he is a stockbroker and writer for SmartMoney.
His contrarian opinion is that you should put your savings into stocks and not a house. I have quoted the opening statement here:
“A contrarian’s view: Houses don’t appreciate any faster than the level of inflation over the long term, so forget about buying a home and put your savings into stocks.”
The basis for his argument is that “shares have been remarkably consistent over the past two centuries in their 7% real returns” and he uses three pages of mathematical computation to come up with a return of 0% return on housing after inflation.
It concerns me that it took two centuries to justify an argument that stocks are more stable than real estate because humans don’t typically live long enough to benefit from this scenario.
This leads me to my biggest pet peeve which is the publishing of syndicated articles with a national focus in the real estate section of the Seattle Times and the Seattle Post Intelligencer that discuss market conditions and trends which do not exist in our particular area.
Unlike Stocks, real estate is local. Articles that reach conclusions using national averages such as those shared by Mr. Hough of SmartMoney are inherently inaccurate for this reason.
It reminds me of a dinner conversation I once had while on a cruise in the Mediterranean. My wife and were assigned to a table of six. One of the other couples was from one of England’s London suburbs. They expressed their lack of interest in joining the European Union because they would have to adopt the Euro and as long as Greece was a member, their own economy would weaken while Greece would become stronger through the law of averages.
I cannot comment on the accuracy of Mr. Hough’s conclusion as it relates to other real estate markets but for those of us lucky enough to live inWestern Washington, it’s simply incorrect.
We have seen a consistent increase in property value driven by our stable environment and “mutual fund” economy. We don’t have to deal with regular hurricanes; drought or extreme weather and we are not reliant on one particular mega-company or industry like Detroit to keep our citizens employed.
According to Beau Betts, “…our job creation rate is 3.5% which is more than twice the national average and unusually high among large metro markets.”Mr. Hough closes out by creating a list of objections to his contrarian view. He then answers them on his own terms. It’s like an FAQ list on an ecommerce website that only asks the questions intended to shed the company in a good light. Out of all the objections he listed, only four were concrete objections to his own view (the rest of his objections make our reasons for purchasing homes look purely emotional) and it was those four objections that his responses failed to hold up.
These are the four biggest benefits to home ownership as identified by Mr. Hough that (in my opinion) he was unable to defend.
“You can’t live in your stocks” or “Renters throw money down the drain.”
“Homebuyers get tax breaks.”
“You seem to knock government housing subsidies, but they’ve helped many Americans afford homes.”
“You say houses return zero. But I’ve made a fortune on my house in recent years.”
My two cents…
- Even if property value declines, you still get the benefit of shelter out of your investment.
- Stability… It takes more effort to sell a home. When housing trends show a decline, you don’t see a crash like you do in the stock market.
- Supply and demand… Surely Mr. Hough understands the law of supply and demand. Real Estate is finite whereas public companies are not. Real estate cannot be destroyed whereas the stock crash of 1999 has proven that publicly held companies can.
- Diversification… I don’t advocate investing in real estate alone. Take advantage of other investment vehicles as well. Any good financial planner will tell you that diversification is a good thing. By telling you to sell your home and put all your eggs in one basket, Mr. Hough loses all his credibility with me. What if the market crashes and you are left renting without a nest egg?
David Edwards
REALTOR®
Keller Williams Realty Southeast Sound
425-890-8045
E-Mail: david@davidjedwards.com
Website: http://www.davidjedwards.com
Blogsite: http://www.davidjedwards.com/renton-info-blog.asp David J Edwards is a full time real estate agent and REALTOR® with Keller Williams specializing in Residential Real Estate for buyers and sellers in Renton and Newcastle Washington.
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