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Houseonomics: Why Owning a Home is Still a Great Investment | 
 enlarge | Authors: Gary N. Smith, Margaret H. Smith
Publisher: FT Press
Category: Book
List Price: $17.99
Buy New: $10.73
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Avg. Customer Rating:  9 reviews
Sales Rank: 462290
Media: Paperback
Edition: 1
Number Of Items: 1
Pages: 240
Shipping Weight (lbs): 0.6
Dimensions (in): 8.2 x 5.4 x 0.8
ISBN: 0137133782
Dewey Decimal Number: 332.63240973
EAN: 9780137133789
ASIN: 0137133782
Publication Date: May 1, 2008
Availability: Usually ships in 1-2 business days
Shipping: International shipping available
Condition: BRAND NEW
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| Customer Reviews: Read 4 more reviews...
 Amidst the real estate storm, a calming insight July 28, 2008
1 out of 1 found this review helpful
I was skeptical about another real estate book, especially in this awful market. It's amazing how 5 years ago the magazine cover stories were all about how easy it is to make money in real estate, and now the cover stories are all about how easy it is to lose money in real estate. This book is firmly in the middle of these extremes. It argues that patient long-term homeowners will do fine in the long run--not a million dollars won or lost in 6 months, but a million dollars built up over 30 to 50 years. I think this middle ground is right. For most people, real estate is not a sensational short-term investment, but a prudent long-term one. This book is a great antidote to hyperbole and hysteria.
Houseonomics reminds me of Freakonomics: serious economists discussing some interesting, everyday things that economists don't usually spend a lot of time on. For example, I get a lot of spam telling me I can save tens of thousands of dollars by paying off my mortgage early. This sounds very plausible, but Houseonomics calls this the "total payment error." It actually costs you money to pay off your loan early because the money you use to pay off your loan could be invested in the stock market or elsewhere. You don't really save money by paying off your mortgage early unless your mortgage rate is higher than the rate of return on your investments. I don't think I explained it as well as the Smiths, but you get my point. They talk about some important decisions and show that things aren't always what they seem.
Housenomics makes dollars and sense July 2, 2008
This book is full of memorable wisdom ("a good home in a great location is better than a great home in a bad location") and wonderful stories (I laughed out loud at the ankle breakers). The book's big messages are: (1) people should think of their home as an investment; and (2) buying a home will be a great investment if the rent savings are bigger than the mortgage payments and other expenses--a difference they call the "home dividend." This phrase "home dividend" is intended to encourage people to think of their homes the way Warren Buffett thinks of stocks; for example, look at long-term earnings, not short-term price fluctuations. I think these messages are correct and much-needed. Most people don't think of their homes as an investment, and those who do focus on home prices.
My parents live in Cincinnati, Ohio, and have often told me that home prices there have only gone up by about 4% a year for the past 20-30 years, implying that they have only made a 4% rate of return on their home. As the Smith's point out, homes are a leveraged investment and the rate of return should include the rent savings. My parents paid off their mortgage several years ago and now they are living rent-free in a home that they couldn't afford to rent! Their home has without question been the best investment they ever made.
It's an excellent book and I'm glad I bought it. I also bought a copy for my parents and told them to read the Indianapolis example.
 Am I missing something? Written by ecomonists? June 18, 2008
2 out of 6 found this review helpful
Firstly, buying a house is a great thing if you need one. For example: if you are married and have children, there is no place better than your own house for stability and a sense of "home" to raise children in. There is no dollar amount you can place on these types of benefits.
But the logic of the "Home Dividend" described in this book I would never have guessed came from a trained economist unless the National Association of Realtors paid them very handsomely.
Most economists are very familiar with the concept of "opportunity cost." It is he cost of the next best alternative available. The Yale and Harvard PhD authors seemed to have forgotten this in their calculation of the "Home Dividend."
In the example given, a Fishers, IN couple making $80,000 per year put down $27,000 as a down payment. Nowhere is it mentioned that they will be forgoing what this could have earned. Since 2005 a 50/50 split between Series I Savings Bonds and the Vanguard Total Stock Market Index ETF (hardly a risky portfolio) would have been up 20% since that date with minimal tax implications. (The "Beanie Baby [...] stock investments" noted in the book I consider straw men.)
The "tax savings" is even more bizarre. Having a $6,120 of home interest deduction along with a $2,620 property tax bill equals $8,740 to "write off." For some reason real estate buyers find this great. The standard deduction for a couple earning $80,000 in 2005 was $10,000. House or not, this couple would have taken the standard deduction. There would be no change in their federal tax bill whether they rented or bought. The correct tax benefit is $0 and not the $2,447 noted in the book.
We haven't considered the %6 (perhaps lower) "back end load" involved in such a purchase in real estate commissions. For anyone who has ever sold a home they will tell you, the number and total amount of fees associated a real estate transaction is staggering.
And having owned a house, the maintenance cost of 1% is a dream, especially when you add something for the amount of time you will spend doing it. The cost of keeping the style "current" and salable........ forget it.
This calculation goes from marginal to disaster if real estate prices continue to fall.
If you have to discontinue contributions to a 401K (and forgo employer matching) to make a house payment you will never make up that opportunity cost. Buy a house for a lifestyle, it can be a great place to live, but I wouldn't want to invest for this "Home Dividend."
Worthwhile Read June 13, 2008
2 out of 2 found this review helpful
I've looked at a lot of real estate books. Some are essentially "Homebuying
for Idiots" and others make ridiculous claims ("How an Idiot Like You Can
Become a Zillionaire in Three Easy Steps"). I really like the fact that
Houseonomics does not treat its readers like they are idiots. First, it is
not filled with mindless details, like how to fill out a loan application.
Instead, the authors are concerned with bigger and more important things,
like comparing a fixed-rate mortgage with an adjustable-rate mortgage.
Second, the recommendations are restrained. They explain why home prices are
in some places low enough to make a home a great investment and in other
place so high that a home is just speculation.
Overall, I'd say that this is a very balanced book that is filled with
useful ideas that you won't find in other real estate books.
Very useful information! June 11, 2008
3 out of 3 found this review helpful
The first three chapters set up their approach, using the novel idea of home dividends to explain why buying a home often makes sense even if home prices only go up a few percent a year over the next 30 years.
In later chapters, they discuss remodeling, vacation homes, and rental properties. Their approach is consistent and deceptively simple: think about the benefits relative to the costs. I say deceptively simple because it is the logical way to look at it, but most people don't think this way. Most people buy a vacation home because their neighbors have one or because they think land prices are going to skyrocket in the desert or in the mountains.
There is also an unusually rich discussion of mortgages: short-term versus long-term, fixed-rate versus adjustable-rate, home equity loans versus refinancing, and reverse annuity mortgages. Other books tend to be pretty superficial about mortgages: either overly simplisitic (here's how to apply for a mortgage) or dogmatic (you never want an adjustable rate mortgage or a reverse mortgage). The Smiths try to help readers decide which option is best for them. The theme that emerges over and over is don't make the total payments error by simply adding up dollars no matter when they are paid. The Smiths give an example of Wall Street Journal writer making this error and I can attest that this is not an isolated example. I've seen dozens of articles in well-respected newspapers and magazines that make the total payments error when discussing refinancing, biweekly mortgages, 15-year mortgages and early loan payoffs.
Bottom line: This is a VERY useful book.
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