Wednesday, April 21, 2010

Buying a House

Great post by Seth Godin on how to think about buying a house. It's one of his longer posts and he makes a lot of great points. The theme of the post is that buying a house isn't always such a great economic proposition and it can keep you from taking the chances that will lead to a better life. He sums it up here.

"I'm optimistic about the power of a house to change your finances, to provide a foundation for a family and our communities. I'm just not sure you should buy more house than you can afford merely because houses have such good marketing."

There's one thing that he doesn't address though and it's been bugging me for a while. The lending and housing bubble warped all kind of consumer behaviors and home ownership ticked up into the low 70%'s of all U.S. households, up from the historical average of the low 60%'s. Houses and increasing prices became the economic engine. Basically, everyone (or 70%+ of the population) was on the same side of the trade - long housing. So when the crash came, it was easy to push things through the Government & Fed that tried to help housing but this came at the expense of two groups 1) Savers, and 2) Non-Home Owners. 

Savers were punished with Fed mandated interest rates near 0%. It's almost impossible to live off your savings if you are an old person without eating into your principal. Policy is hurting all savers, but especially older people. However, many of these older people are homeowners so they are presumably ok with the trade-off. 

Non-Home Owners are also being hurt because 1) their tax dollars are going to subsidize low interest rates - in a round about way through Federal Bond sales & the Fed, and more importantly 2) because they still can't afford a house because prices haven't come down like they should.

I'm in both the Savers camp and in the Non-Home Owners camp so I get a double whammy here. I point all this out because maybe it's a flaw in Seth Godin's argument against buying a house. Maybe I (we) should all buy houses so we're on the same side of the trade as the rest of population and aren't subject to the double whammy caused by current policies?