Why A House Is Not A Home
Conventional opinion can oftentimes be very stupid - a natural consequence of decades (sometimes centuries) of people never questioning their own assumptions. Let’s take this statement for example:
Real estate is a safe investment.
Sounds accurate, right?
Now here are some cold, hard facts:
- The average return for US real estate was 3-6% per year from 1968 to 2009.
- Inflation averaged 4.5% during that same time period
- This was achieved amidst a historic (and virtually continuous) fall in interest rates, from 20% in 1982 to 0.75% today.
This begs the question: what happens to the value of assets when mortgage rates have nowhere to go but up?
Of course for most millennials, all of this is academic, as very few can afford a home in the first place. Even for those who are lucky enough to be able to, the price tag is usually far higher than they expect:
But I think even the affordability problem is missing the point. The question that millennials should be asking themselves is: should you buy a home even if you could afford one?
Here are my five arguments against.
5 Reasons Why a House is Not a Home
1. You’re Not Building Equity in Anything
Your first home is almost never an investment - whether its value goes up or down is completely irrelevant. As a Canadian who’s witnessed the Toronto and Vancouver housing bubble firsthand, it’s always baffling to me why people care how much their home is worth in any given year - when they clearly have no intention of moving out of their neighborhood.
I may be in the minority, but I think “building equity” is just a euphemism people use to make themselves feel better about living with debt, all while fantasizing about the day when they’ll finally get their life back.
2. A House Costs More Than The Mortgage
Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen, and it's something that rarely gets factored into the buy vs rent decision. Yes, moving can be a pain in the ass, but progress and career mobility tend to feel that way too.
Whether or not you decide to travel the world is beside the point. Given that most of a millennial’s net worth is tied to his/her future earning potential, doesn't it seem insane to tie your fortunes to one neighborhood for the next 30 years?
3. Security is Risky (and getting riskier every day)
The thing about the world we live in is that no one has any idea what’s going to happen a year from now - let alone thirty. For millennials to place our bets before we absolutely have to smacks of hubris.
4. We Never Own Anything Anyway
We just borrow it for a while. The sooner we realize this simple truth, the less of a rush we’ll be in to lock ourselves down. Instead of the buy vs rent decision, it’s better to frame it in the form of a question:
At this stage in your life, are you prepared to sign a one year lease or a thirty year lease?
5. Home is a State of Mind
Jennie and I worry that a lot of people are making life altering commitments simply because they think that it’s what they’re supposed to do to feel “secure” and “established.” In reality, security can't be bought or sold - it comes from our choices. What about feeling established in your relationships and secure in the things you want? In the person you want to be?
People get hold of ideas about how their life is supposed to turn out. It makes them think that they have to play the same game as everyone else, even when it doesn't suit them.
Do you know where you want to be for the next thirty years? If the answer is yes and a thirty year mortgage is your way of doing that, then don’t let this stop you. All we’re saying is that it’s okay to say you don't know - and act accordingly.
After all, a house is a house, while a home is something entirely different. It isn’t confined to one place; it can't be borrowed or bought.
Home is the feeling you get when you’re exactly where you’re supposed to be.