"A" buys a $100,000 house, "B" rents a $100,000 house. Both pay about $1,500 per month. At the end of 15 years, "A" owns an asset worth $100,000, "B" owns nothing. You decide.
Because of this the costs of ownership once mortgage, taxes, utilities and maintenance are tallied up are often more than what a person was previously spending on rent.
Secondly, his major point is that home ownership involves a cash down payment. Its' not a case of person A/B spending 1500 per month, its a case of person A buying a 100k home and paying 20k in cash for the right to a loan. That 20k may have been better spent in more volatile and profitable investment than home ownership.
Third and lastly, a house can lose value. Did the major employer leave the area or downsize (e.g. Detroit most prominently, Ghost towns, and a scattering of towns all over US that relied on heavy industry)? If so, then your house value has fallen. Did the area fail to gentrify or did you buy in a bubble? If so, then your house value has fallen. Has there been a disaster that the economy hasn't recovered from (e.g. Katrina, coal slush floods in W. VA, BP oil spills effect on homefront properties)? If so, then .....
The argument that a house is an investment fails because it is the least liquid of investments, and thus harms the buyer the most when the prices fall. You can always sell your stock even in a strong downturn, but who is going to buy your drafty McMansion situated in an edge of town neighborhood in a down economy?
Most likely those people sold at .60 cents.
Most people who are losing money in real estate were also selling stocks at the bottom (2 years ago) and were buying tech stocks with two hands in 1999.
Many people are losing money simply by having the value of their houses fall. They don't want to sell, but their so called "investment" is worth half the price today on the open market than it was when they bought it. Realistically, they may never recover the value they spent in their lifetimes.
High & mid-rise buildings Downtown are being purchased (Dan Gilbert is one such buyer) for 6 figure sums.
http://detnews.com/article/20110127/BIZ/101270352/Quicken-Lo...
See here for an elementary explanation: http://www.khanacademy.org/video/renting-vs--buying-a-home?p...
The only benefit of owning in such a market is that purchasing means you draw a line in the sand, "A" is now more in control if their monthly rent. But they're not in complete control, interest rates rise, the building needs to get repaired, there's those not insignificant legal and other costs associated with purchasing in the first place. That adds up to quite an expense. Meanwhile "B" doesn't have those concerns, and a great deal of flexibility and liquidity.
I'll personally stay "B", and my investment properties will be limited to those rare gems that are cash-flow positive within a year or two.
My small 2 bedroom end of terrace costs me just more in mortgage payments than a 4 bed detached house in the same town. The reason? I bought at peak of market in 2007 whereas the people renting out the big houses bought 10+ years ago when such houses cost little more than my shoe box. Given the total lack of a job market, too, the rents have failed to increase.
Oh not to mention the value the property has already lost since purchase, and is still modestly loosing each and every month.
Even factoring in taxes and maintenance costs, renting out that first house, even at the low end of what we could get for it, we'll handily subsidize our current residence as well as pay off the old house. Even if we were to sell it, the quality of work we put into it more than pays for the time and money we put into renovations.
To each their own I guess.
If you buy one house, one bad tennant could mean six months or more of no rent payments while you go through the eviction process and try to get someone else in there. One really bad tennant could cause tens of thousands of dollars of damages.