Friday, September 17, 2010

Housing "Bamboozle"?

Mark McHugh runs the numbers on home ownership and finds it a horrible investment.

Without question, the best way to make people love you politically is to throw Tootsie rolls into the crowd. In lieu of sugary treats, making an impassioned plea for education is a close second. No one wants to see their kid grow up to be a potato head, right?

Today we’ll be exploring the mathematics behind the US housing market over the last thirty years to determine how smart we really want our kids to be. If you can successfully complete (or at least understand) the accompanying quiz you’ll have a more thorough understanding of economic realities than every Ivy League professor (including Nobel Laureates) active in government and mainstream media.



It is a good read and worth the time.

And it does show pretty well, I think, that a house should not be considered an investment. A house is a consumer good like a car or a refrigerator. It deteriorates over time and if you do make a profit selling it, consider yourself lucky.

By the same token, housing should not be thought of as a manufacturing industry that spins off capital creating future economic growth. Buying a house consumes capital; a strong housing market is therefore a result of a prosperous economy -- not a cause.

The government's policy of encouraging Americans to buy homes as an investment is demonstrably false; and the government's efforts to spur the economy by encouraging Americans to buy homes is destined to fail. The Keynesians who dominate Washington are complicit in the first part -- unfortunately for all of us, they don't have a clue about the second.

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