Houseonomics Why Owning a Home is Still a Great Investment: Why Owning a Home is Still a Great Investment

by Smith, Gary N.; Smith, Margaret H.

• ISBN13: 9780137133789
• ISBN10: 0137133782
• Edition: 1st
• Format: Paperback
• Copyright: 2008-04-21
• Publisher: FT Press

Summary

"This book couldnrs"t be timelier. With hundreds of thousands of Americans expected to lose their homes because they took out mortgages beyond their ability to pay, it is clear that home buyers need assistance-beyond the reassurance of the mortgage broker trying to close the deal and get his commission. This book, written in an easily accessible manner, provides that assistance; it lays out the economics of buying, owning, and financing a home." Joseph Stiglitz, Columbia University, 2001 Nobel Prize in Economics "The purchase of a home is the most significant investment decision confronting nearly all adults. Yet sound advice, untainted by the self-interest of real estate and mortgage brokers, is extremely scarce. InHouseonomics, the Smiths provide simple and understandable answers to the vexing questions surrounding homeownership, making it a valuable resource for anyone serious about their financial future." Bryan White, Managing Director, BlackRock "Houseonomicsoffers great insights about how to think about homeownership. Its approach is innovative, but the analysis is grounded in common sense. A useful primer for what is the most important investment most people make in their lives." Paul Efron, Retired Partner and Advisory Director, Goldman Sachs & Co. "This book is a common sense response to those who question the value of homeownership. The Smiths validate the argument that homeownership is normally a key component of lifelong wealth building. They present a practical guide to basic financial analysis for those planning on owning a home or who currently own a home." Doug Duncan, Chief Economist, Mortgage Bankers Association "There is a lot of wisdom in Gary and Margaret Smithrs"sHouseonomicsregarding the biggest investment that most people ever make. It is so well written that reading it is a joy and yet almost everyone can gain valuable knowledge in the process. The time you take to read this book will be a smart investment indeed. Having taught economics at Stanford for 35 years, I can only wish that more authors were as knowledgeable as the Smiths and wrote this well." John B. Shoven, Stanford University, co-author with Secretary George P. Shultz,Putting Our House in Order: A Guide to Social Security and Health Care Reform "The "Home Dividend" is a powerful concept and, indeed, an engine for prosperity." Ed Yardeni, President, Yardeni Research For generations, buying a home has been the best investment Americans could make. But, now, some so-called "experts" claim that itrs"s foolish to be a homeowner. Theyrs"re wrong.Houseonomicsexplains why a home is still an excellent investment for most people in most placeshellip;and helps you make smarter housing decisions wherever you are. This book isnrs"t for aspiring slumlords or flippers: Itrs"s for anyone who wants to move toward financial security, with a roof over their heads, and a home to call their own. You wonrs"t find "too good to be true" schemes here: Yours"ll find a sensible, intelligent, and totally up-to-date explanation of the real economics of homeownership. Discover how to develop an achievable vision for financial prosperity via homeowner

Author Biography

Dr. Gary Smith is the Fletcher Jones Professor of Economics at Pomona College in Claremont, California and is affiliated with the Financial Economics Institute at Claremont McKenna College. He has published eight college-level textbooks, over 60 research papers, eight educational software programs, and is a noted public speaker. He has received national and international recognition in the media. His research has been featured in various media venues including The New York Times, the Wall Street Journal, The Motley Fool, Newsweek, and BusinessWeek. He has been interviewed on CNBC and was a keynote speaker at the Brookings Institution in Washington D.C. and the Mortgage Finance Industry Summit in New York City. He received his B.A. in Mathematics with Honors from Harvey Mudd College and his Ph.D. in Economics from Yale University.

Dr. Margaret Smith is President of Smith Financial Place, an independent financial planning coaching firm that provides holistic, comprehensive financial planning and life coaching services for its clients. She does not sell products or manage assets, but rather focuses on providing objective advice and coaching. She is a Certified Financial Planner^TM, a Registered Invest-ment Advisor, a member of the Financial Planning Association, and a Certified Integral Coach^TM through New Ventures West. Margaret received a Ph.D. in Business Economics from Harvard and a simultaneous B.A./M.A., summa cum laude, in Economics from Yale. She has published various articles on real estate and finance.

 

Table of Contents

Acknowledgments	p. xix
About the Authors	p. xxi
Introduction	p. 1
The Million-Dollar Question	p. 5
Our Homes Are Our Castles	p. 7
An Engine to Prosperity	p. 8
Uncle Sam Wants You to Be a Homeowner	p. 10
The Million-Dollar Question	p. 13
Slow and Steady Wins the Race	p. 15
The Bottom Line	p. 15
Your Home is an Investment	p. 17
Investment Versus Speculation	p. 17
Your Home Dividend	p. 19
The Nifty Fifty	p. 23
Waiting to Buy	p. 24
It Is Hard to Time the Stock Market and Housing Market	p. 24
Taking the Long-Term View	p. 25
Don't Day Trade Homes	p. 26
Your Home Is an Investment	p. 29
A Home to Call Their Own	p. 29
Look at the Whole Picture	p. 30
What Am I Supposed to Look at Again?	p. 31
The Bottom Line	p. 32
Now is a Good Time to Own a Home	p. 33
A Home in Fishers, Indiana	p. 34
Cash is King	p. 38
The Lynch's Southern California Home	p. 43
Your Home Is Not an ATM	p. 46
The Millionaire Paupers	p. 47
Housing as a Portfolio Decision	p. 49
Homes North, South, East, and West	p. 51
The Bottom Line	p. 54
Finding a Home and Closing the Deal	p. 55
How Much Home Can You Afford?	p. 55
How to Choose a Home	p. 59
How to Choose a Realtor	p. 61
Is the Price Right?	p. 63
This House Will Be Sold on November 11	p. 63
The 6 Percent Fortress	p. 64
Moving Merchandise	p. 67
Happy Clients	p. 69
The Closer	p. 70
The Times They Are a Changing	p. 70
Match This	p. 72
Realtors: Can't Live With Them or Without Them	p. 72
Negotiating Boldly	p. 74
Good Things Come to Those Who Wait	p. 75
Regression to the Mean	p. 76
The Bottom Line	p. 78
Debt Doesn't Have to Be a Four-Letter Word	p. 79
Using Loans to Live Beyond Your Means	p. 80
How to Invest Like Warren Buffett	p. 81
Loans Create Leverage	p. 82
Leverage + Compounding = Wow!	p. 84
Loan Payments	p. 85
The Unpaid Balance	p. 85
Comparing Loans: The Total-Payments Error	p. 87
The Right Way to Think About Loans	p. 88
Bad News, You Won the Lottery	p. 89
Can You Make Money Borrowing at 12 Percent to Invest at 7 Percent?	p. 90
The Bottom Line	p. 91
Choosing the Right Mortgage	p. 93
Finding a Lender	p. 93
Getting Preapproved	p. 95
Saving for Your Down Payment	p. 97
Mortgage Terms	p. 101
Mortgage Rates	p. 102
Anchoring	p. 103
Mortgage Points	p. 107
Sure, I'll Lend You Money	p. 109
30-Years, 15-Years, or?	p. 109
Adjustable Rate Loans	p. 110
Creative Financing	p. 113
Buying a House with Creative Financing	p. 114
Biweekly Mortgages	p. 115
Graduated Payment Loans	p. 116
The Bottom Line	p. 119
Refinancing and Home Equity Loans	p. 121
Heads You Win, Tails I Lose	p. 121
Prepayment Penalties	p. 123
Does Refinancing Pay?	p. 123
The Break-Even Refinancing Rate	p. 124
Wake Up, Little Susie	p. 126
The Time Value of What?	p. 126
Mental Accounting	p. 128
You Can Sell Your Home Without Selling Your Home	p. 129
Say No to Credit-Card Debt	p. 130
One Way to Pay for College	p. 131
The Bottom Line	p. 132
Remodeling	p. 133
Sunk Costs	p. 133
Does Remodeling Pay for Itself?	p. 135
Remodel Sooner, Not Later	p. 139
Make It Bigger, Not Better	p. 140
What's a Remodeling Project Really Worth?	p. 141
Leaky Windows	p. 144
I'd Rather Do It Myself	p. 145
Paying By the Job or By the Hour?	p. 147
The Big Job in Waltham	p. 147
The Bottom Line	p. 148
Rental Properties and Vacation Homes	p. 151
You Used to Pay the Landlord, Now You Are the Landlord	p. 151
Adverse Selection	p. 152
Moral Hazard	p. 152
Long-Distance Landlords	p. 154
Ah, the Tax Code	p. 156
Fishers, Indiana, Again	p. 156
If I Bought It, It Must be Worth the Price I Paid	p. 160
A Home with Two Rentals	p. 161
Those Darn Taxes	p. 162
The Investment Value of a Vacation Home	p. 163
The Bi-Coastal Renkens	p. 165
The Bottom Line	p. 166
Letting Your Home Take Care of You	p. 167
HRAs	p. 167
Life Is a Journey: From Porterville and Indio to Thatcher	p. 170
Should You Raid Your IRA to Pay Off Your Mortgage?	p. 171
Reverse Annuity Mortgages	p. 173
Grandma Ford	p. 173
What Do I Owe You?	p. 175
RAMed by a RAM?	p. 176
The Bottom Line	p. 177
Selling Your Home	p. 179
Home Dividends, Again	p. 180
Curb Appeal	p. 181
Clean It Up!	p. 182
Pictures on the Wall	p. 183
Loss Aversion	p. 184
Waiting for the Right Price	p. 186
Our Price Is Firm, But the Terms Are Negotiable	p. 187
The Bottom Line	p. 187
Afterword	p. 189
An Owner-Occupied Home in Fishers, Indiana	p. 191
A Rental Home in Fishers, Indiana	p. 195
Your Home	p. 199
Index	p. 205
Table of Contents provided by Ingram. All Rights Reserved.

Excerpts

Praise for Houseonomics Praise forHouseonomics"The Smiths have done their homework, and with their new book you can do yours too--on what, for most families, is the most important investment people ever make. Their careful analysis takes account of important elements of the housing decision that even most so-called professional advisers overlook. And their writing is clear and easy to understand. Their book should help millions of American families." --Benjamin M. Friedman, William Joseph Maier Professor of Political Economy, Harvard University, Author,The Moral Consequences of Economic Growth"Houseonomicsprovides the most intuitive framework for understanding the power of real estate investing. It is a great toolkit for first-time homeowners and seasoned real estate investors." --Matt Thompson, Director of Business Development, Sony Pictures Television International"Recent studies show that more than 98% of all homeowners had gains in the purchase of their home if they have owned it more than five years. The numbers drop measurably for those who have owned for less than two years.Houseonomicsis among the first books to inform current and future homeowners that owning a home should never be seen as a short-term speculative investment, but rather a sound long-term one. This is a simple to read but powerful reminder of the benefits of homeownership along with useful tips on how to navigate through the process of buying and selling." --Steve Murray, Editor, REAL Trends, Coauthor,The Consumer Tsunami"Houseonomicsis packed with insights for anyone who owns a home or is thinking about buying a home. The "Home Dividend" is an original and invaluable way of thinking about homes.Houseonomicsopened my eyes; it will open yours too." --Chris Dialynas, Managing Director, Pacific Investment Management Company (PIMCO)"Housenomicsis essential reading for anyone considering purchasing a home. It explains why owning a home is the best investment most Americans will ever make, and clearly lays out in everyday language and easy-to-follow numerical examples all of the financial principles associated with the purchase and sale of residential real estate. The book answers questions such as how to pick the best mortgage, how much money one saves by owning rather than renting, whether remodeling is a good economic investment, how tax breaks, leverage and compounding work together to make homeowners rich, and how to decide if a vacation home can be a good investment. World class economists Gary and Margaret Smith give readers the knowledge and confidence to ignore tainted advice from real estate agents or mortgage brokers and instead make informed decisions that are in their best interest." --Mike Schimmel, Managing Director, Kayne Anderson Capital Advisors, L.P."No one explains the economics of the rent vs. buy decision as clearly as the Smiths. If you are looking to purchase a home, considerHouseonomicsyour 'House Buying 101.' A must read." --Jeff H. Ellis, CFA, Portfolio Analyst, Western Asset Management"Few investors treat housing with this level of thoughtfulness and depth.Houseonomicsoffers an invaluable perspective on housing as an asset with returns that can be calculated and evaluated when considering home ownership and long-term personal portfolio management." --Kristin Horne, Principal, TPG Capital"When it comes to houses, Americans suffer from a collective bi