In Defense Of Being Homeless

Regular Newark News Analysis readers can’t help but notice that recent posts have swirled around real property ownership and housing, directly or indirectly. “Homeownership doesn’t build wealth, study finds” headlines Diana Olick for CNBC (11-16-17). Intriguing! Analysis required reading. “”On average, renting and reinvesting wins in terms of wealth creation regardless of property appreciation, because property appreciation is highly correlated with gains in the traditional financial asset classes of stocks and bonds,” wrote study co-author Ken Johnson of FAU’s College of Business [Florida Atlantic University], in a release.” This seems to be the keynote quote pursued (for actuality, efficacy) throughout the article. What follows are the pros and cons of renting versus owning with back up insights for the period covering 2008 (when the real estate bubble burst) to the present. “Still, researchers in the study claim the adage of “throwing your money away on rent” doesn’t hold up. That is because it assumes that the extra money a renter saves by not owning a home and not saving for a down payment is simply spent on goods or services and not invested.” Well, that seems clear enough. “In other words, the rent argument works only if the renter invests the rental savings instead of consuming the money.” The article then localizes the theory. “The researchers therefore went city by city, measuring home price appreciation against a portfolio of stocks and bonds that were equal in volatility. “To have a fair race, that reinvestment into stocks and bonds has to be as risky as that particular housing market,” Johnson said.” Put crassly (and simplistically) if a homeowner considers what she pays monthly for principle and balance on her mortgage against how much (percentage wise) her real property investment made (appreciates), that margin would be less than a renter, renting the same size, quality property would have if the difference between the monthly cost of renting and the mortgage amount was invested in “”stocks and bonds.” Gasp! Butt weight, there’s more. The buried lead appears at the end, after a breakdown on the requirement “if the renter invests the rental savings instead of consuming the money.” That buried lead throws shade on the initial quote by Johnson pursued throughout the article. Here it is: “As long as home values don’t fall, which has historically been the case in most markets, with the glaring exception of the last recession, homeowners are building a nest egg. They had also been getting a tax advantage. That is now at risk in the Republican tax plan, which curbs the mortgage deduction and in the Senate version, wipes out the property tax deduction. Real estate can still be a good investment, according to Johnson, but not necessarily living in the home you own. Being a landlord or investing in real estate-related stocks and commodities can be more lucrative that keeping all your capital in the nest.” Not surprising given the “Me first” focus of the apprentice president and his MAGA emphasis, and Wall Street’s insatiable demand for more sources of capital. But “Me first” “landlord[s] or investing in real estate-related stocks and commodities” don’t make neighborhoods (or community). What more, stock and bond ownership doesn’t equate with the quality of life issues associated with community. But investment is touted as the primo path to greatness, success and wealth (the GOP use this line of argument to justify the recent tax bill and its permanent corporate tax cut, etc.) How’s that in actuality? Reporting for The Independent Clark Mindrock headlined “Trump’s top economic adviser can’t contain his surprise after CEOs say his tax plan won’t make them invest more” 11-15-17. “During an event for the Wall Street Journal’s CEO Council, an editor at that newspaper turned to ask the room a question: “If the tax reform bill goes through, do you plan to increase investment — your company’s investment, capital investment?” Prompted to raise their hands if so, very few shot their palms into the air. Mr. [Gary] Cohn, the White House Economic Council director, smiled uncomfortably at the response. “Why aren’t the other hands up?” he asked, making a joke out of the spectacle. But experts say that it isn’t hard to figure out why corporations might not want to take savings from cuts to the corporate tax cut and pump it back into their companies — all you have to do is look at who actually benefits financially from the cuts. Citing a recent Moody’s report that estimate that the Trump tax plan would yield just a 0.3 percent economic growth rate for 10 years before a likely decline, Brooking Institute senior fellow William Gale noted that business leaders might be expecting declines in the long term.” Analysis shows there is more to the homeownership’s study than the math provides. The renter’s surplus investment (which will make her wealthy) can only be made with companies that themselves are reluctant to invest. “Being a landlord… can be more lucrative that keeping all your capital in the nest.” “Real estate can still be a good investment, according to Johnson, but not necessarily living in the home you own.”

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