What’s So Special About Owning a House?


The more I think about it, the more I dread ever owning a house. A recent article in The Economist talked about how real estate is a more volatile asset than most people think. Just look at the recent housing bubble as shown by the Case-Shiller Index:

Case-Shiller Index
That looks like a bubble to me.

How did this happen? Economist Paul Krugman says that part of the housing mania came from “ketchup economists:”

In the case of housing, buyers do carefully compare prices — with the prices of other houses. That is, they make sure that two-quart bottles of ketchup are the same price as one-quart bottles. As we’ve seen, however, they don’t do a very good job of checking whether the overall level of housing prices makes sense.

Everywhere I go, ghosts of the housing bubble in the form of vacant properties still linger. Two years ago, a group of college friends and I went hiking in Zion National Park. We lived in Henderson, Nevada, a suburb on the outskirts of Las Vegas for several days and had the chance to visit the city. While walking down the Strip, we saw the nearly constructed CityCenter, a mixed-use, massive urban complex. The buildings were impressive and glitzy. The brochure marketed the condo units as places where people would want to live long-term with their family. I wondered to myself, “Why the hell would anybody want to raise a family on the Las Vegas Strip?” Since then, CityCenter has run into financial troubles, and Las Vegas has become the foreclosure capital of America.

Closer to where I grew up, the parking lot for the Woodland MBTA station has been developed into an apartment complex called Arborpoint. Nice name, but most of the units have no lights on at night. I’ve got news for the developer: most people probably don’t want to live next to a subway station. Then there’s the luxury condos called Nouvelle at the Natick Mall. The last time I heard, auctions were being held because the developer wasn’t able to find enough buyers. What? People don’t want to live in a mall?

I recently met a woman who’s planning on selling the house she’s owned for over 20 years. She worries about her property’s market value and how she’ll price it. She claimed that two years ago she could’ve sold her two-bedroom property for over $1 million. But that was during the height of the housing mania when housing prices had gone through the roof. Her prospects today? She believes her town’s property values will insulate her, and she’s hoping for a nice value from the bank-appointed appraiser. “Oh there’s the creek and the yard’s awesome, and it’s so sunny in the summertime.” She’ll have to be more realistic. According to The Economist, “homeowners overestimate the value of their homes by an average of 5-10%.”

Too many people think property is a safe bet. How safe can it be if people were applying for NINJA loans and sank themselves in debt up to their eyeballs to own a home whose underlying value is lower than the balance of their debt? Although housing prices in America have returned to saner levels, in China the housing market is overheating.

In the US, home ownership is seen as morally uplifting, similar to how neat handwriting is a sign of good character in China. Wikipedia has a table of home ownership rates for various countries including the US.

I’ve never been crazy on owning material goods. I rent a bedroom in Manhattan that has a bed and a desk. If I need to leave the state for a month, I can pack a suitcase in one hour, and I won’t miss anything. Of course, I’ll probably buy a house in the future. But right now, home ownership doesn’t appeal to me at all.