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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (236557)	1/22/2010 1:27:53 PM
From: Broken_Clock	Read Replies (1) \| Respond to of 306849

Home Economics: The 'American Dream' Is a "Scam", James Altucher Says finance.yahoo.com Posted Jan 22, 2010 10:30am EST by Aaron Task Related: REZ, IYR, XHB, HD, LOW, DHI, PHM The past few years have certainly challenged the idea that real estate prices only go in one direction. But the downside of the "American Dream" is even more pronounced, says James Altucher of Formula Capital. Owning a home has "never been a great investment," Altucher says, noting housing went up a dismal 0.4% annually vs. 8% for the stock market from 1890 to 2004, according to the Social Security Advisory Board. Moreover, Altucher says the notion buying a home is a ticket to financial security is a "scam" perpetrated on the American people by corporations seeking to keep us in debt, less mobile and with the storage to purchase all sorts of needless consumer goods. That's a provocative statement, hard to prove, and certainly subject to debate. Such a view also leaves out the intangibles of home ownership, such as the stability and other benefits raising a family in a community can bring. Still, it's hard to argue with Altucher's main point, as detailed in a recent Daily News article: from a purely economic basis, there's a lot of downsides and hidden costs to home ownership that get lost in the "American Dream" discussion: Insurance premium. Property taxes (which usually offset any tax deduction you get from your mortgage interest). Maintenance (pipes break, electricity problems, etc.). Remodeling costs. Utilities (utilities and maintenance for renters is often reflected in the rental price, but it's not reflected in a mortgage when you own). Yard work, pest control, etc. (again, rents usually have this built into the price, but mortgages don't). A down payment of at least 15%, which is $90,000 on a $600,000 home. Closing costs, usually 5% of loan amount, or another $25,000. Rather than concentrating so much of your wealth in a potentially illiquid asset, Altucher says most of us would be better of renting. If you want to bet on a housing recovery - and he does believe housing is a good short-term bet here - Altucher recommends buying a REIT like the iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ). So if buying a house is a bad investment, should the more than 20% of American mortgage holders currently under water just walk away, as some advocate? Check the accompanying video to hear Altucher's take on this highly controversial topic.