The Best Advice Always Comes From Interested Parties

Shall we fisk Megan McArdle? Let's!

James Altucher has a lengthy column on why you should rent rather than buy. Shorter version: there are a lot of hidden costs, and outside of the bubble, housing has not historically been a great investment. The phenomena that made it a great investment for some people (the emptying out and then filling up of cities, the introduction of self-amortizing mortgages, rising and then plummeting interest rates, and the special status of mortgage debt after 1986) will not indefinitely continue to push prices up; most of them have played out. Over the long run, housing prices cannot grow much faster than incomes.

Who is this Jame Altucher and why should we believe what he says? McArdle does not provide his bona fides, so we must do the job ourselves. What a surprise, Mr. Altucher is a hedge fund manager. In McArdle's mind, that makes him perfectly trustworthy because, as she says, such people never would operate out of self interest, for fear of losing money for their firms. The fat fees and bonuses such people derive from suckering the rubes is somehow overlooked. One can't think of everything, I suppose.

I agree with all of this. You should not buy a house because "renting is throwing your money away" or because you expect the house to become a cash cow. As an investment, housing is a good form of forced savings, but do not expect price appreciation to make you rich--nay, not even if it made your parents and all your neighbors rich.

Forsooth, 'twould be folly indeed to expect housing to make one rich in these parlous times. Verily and a hey-nonny-nonny!

But these articles, and the homeownership-skeptics (of which I am sort of one) often give short shrift to the benefits of owning.

McArdle is a professional skeptic, always questioning the status quo and conventional wisdom. Which makes me wonder why she has been so dead-set to buy a house of late, and would have bought one if her investments hadn't crashed with the stock market.

Renting has hidden costs, too. Outside of New York, with its massive stock of professional landlords hamstrung by restrictive rent rules, renting means you usually have to move every few years, because the landlord wants to live in the house again, or is selling it, or wants to raise the rent too much in the hope that you'll be too lazy to move. Moving costs a ton of money, between the movers (now that I'm getting old and creaky), the new furniture that is inevitably required, and the old furniture that cannot be fit into the new house and must be thrown away. Moving also soaks up a month or so of your time on each side of the move, which needs to be factored in for both lost income and sheer misery.

I remember her move. It took her weeks to pack, an incomprehensible situation, and she had to move twice because one apartment was unlivable. We won't wonder at her habit of throwing away furniture, since we know she believes wholeheartedly in cheap cardboard and plywood furnishings.

Then there is the inability to have your house the way you want it. Sure, it's not like we could afford high-end appliances. But if we owned our house, I might be able to hope that someday we would acquire a water heater bigger than a thimble, rather than hopelessly resigning myself to shallow, lukewarm baths. I might also be able to sink screws into the ceiling for a hanging potrack, install blackout curtains so that I could sleep later than 6 am in the summer, and otherwise make the house over more to my specifications. But the owners are fond of their home the way it is, so it stays.

In the South we call this "po' mouthing." If a lady complains about her poverty or sighs that she just can't afford what everyone else has, we assume she's putting on airs and is both greedy and without gratitude for God's blessings. Bad breeding, McArdle.

Furthermore, why doesn't she just buy a bigger water heater and arrange with the landlord to cut the rent in recompense? Or just throw caution to the wind and buy the damn thing on her own dime? Hot baths are obviously important to her, and someone who will spend $20 for a pound for salt will surely be willing to pay a few hundred dollars for something so essential to daily life. It certainly would be cheaper than buying a house.

For a long time, I didn't care so much about this. I liked the freedom renting gave me. But once you're committed to a city, and another person, that freedom starts looking overrated.

Oh, please. McArdle always wanted a house and any attempts to deny it are futile. Archives don't lie, unlike bloggers. However the point of our story is not McArdle's bad breeding or Galtian willingness to suffer cold baths rather than risk benefiting her landlord. The point is this:

Rather than spend $100,000-to-$200,000 on a home's initial cost -- and that has become completely illiquid as long as you own the house -- you can put that money in a portfolio of diversified real estate investment trusts, including residential investment trusts, if you truly believe in the housing market.

The hedge fund manager recommends renting so you will have more money to put into investments. Maybe into hedge funds! Do you believe in housing or don't you? If so, don't buy a house, invest in mortgages instead. That's worked out so very well so far.

Oh Conflict Of Interest, how elusive you are to those trained to avoid you. When you don't understand or acknowledge your own conflicts of interest, you studiously avoid recognizing others' as well.