Today, after the Dow closed down 777 points, I faxed in the application to enable option trading on my brokerage account. 🙂 I’m not actually as speculative as that sounds, though. My intended investment, LEAPS, is effectively less risky than plain stocks, even before you factor in Taleb’s criticisms of the Gaussian bell curve. Since I’m not cocky enough to think I can reliably time the market, I plan to buy as soon as the feature is enabled. Thus, I do appreciate all the selling that’s occurring in the meantime. Thanks!
Depressing real estate values
For some odd reason, I ended up browsing through real estate listings tonight, and I saw that a 2-bedroom unit in my building is listed for $15,000. Now, when I clicked for details, the description claimed the price was $25,000, so this is likely to be a typo. For comparison, a studio unit is listed for $13k. Regardless of typographical errors, this does not bode well for my 1-bedroom unit. Despite having made a 20% down payment and being nearly four years into a ten-year mortgage, I’m probably still under water.
Making things worse, it’s not even clear that sales are even happening at these prices. I don’t know how to directly access past sales data, but the $25k 2-bedroom unit appears to have been listed since April 25!
I can see how owning a home is a good investment; you needed a roof over your head anyway, why not get in on the appreciation of the asset? I was going to mention the tax shield, but I think individuals enjoy the income tax benefits from a margin account with a brokerage as they do with mortgages. If I understand homesteading correctly, homeowners pay less property tax than renters indirectly pay through their rent.
I have the impression that home values generally have low volatility relative to the stock market, but is that a fair comparison? Owning a single home is an undiversified investment that is typically levered 5 to 1 or higher. Making a similar commitment in the stock market — investing a multiple of your annual income in a single stock — is virtually unthinkable. Houses never declare bankruptcy, but they do burn down. Both events can be protected against with various forms of insurance. The comparison really depends on specific numbers, but I don’t see home ownership as an investment panacea. If I was on the upswing, I would probably feel like whistling a different tune, but it would be foolish to measure the reward without also considering the risk. If owning vs. buying can be assumed a wash financially, then the real deciding factors should be non-financial.