Housing is pretty effective forced savings. We pay extra on our house each month, much to the dismay of many financial types of my acquaintance. Now, in theory, I could put that money right into mutual funds. In practice, I’m probably more likely to put it into a nice table for the backyard. As Dave Ramsey says all the time, the biggest mistake people make in talking about personal finance is treating it as a math issue. It’s not. The math behind personal finance is so risibly simple that journalists can do it. The discipline, however, is very hard. So the correct comparison for homeownership is not what the buyer could have achieved by putting all that extra money into a mutual fund; it’s what they would actually have done with the extra money if they hadn’t bought a house.
So while I’m not saying that you should definitely invest in a house, I won’t say you definitely shouldn’t, either; all I would say is that you shouldn’t count on your home value too much.
Megan McArdle, “Buying a Home Isn’t Bad for You”, Bloomberg View, 2014-04-07
January 6, 2015
QotD: Home ownership as a form of forced savings
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