Feeds: Email, RSS & Twitter

Get Our Videos By Email


8,300 Unique Visitors In The Past Day


Powered by Squarespace


Search The Archive Of 15,000 Videos




Hank Paulson Is A Criminal - Pass It On

"The Federal Reserve Is A Ponzi Scheme"

Get Our Videos By Email


Bernanke's Replacement: Happy Hour In Santa Cruz

Must See: National Debt Road Trip

"Of Course We're Not Going To  Payback the Chinese."

Dave Chappelle On White Collar Crime

Carlin: Wall Street Owns Washington

SLIDESHOW - Genius Signs From Irish IMF Protest

SLIDESHOW - Airport Security Cartoons - TSA

Most Recent Comments
Cartoons & Photos
« Audience Reaction To Greenspan's CFR Speech: "That Was Scary As Shit..." | Main | QE 2.0 COUNTDOWN: Goldman Predicts Bernanke Will Begin Massive Asset Purchases In November »

The Great Housing Bamboozle: A Look Behind The Numbers Shows Home Ownership To Be A Poor Investment

Mr. Housing Bubble Cartoon

Guest post from regular contributor Mark McHugh.  The numbers are not pretty for house debtors, myself included.  Can it really be this bad?


Without question, the best way to make people love you politically is to throw Tootsie rolls into the crowd. In lieu of sugary treats, making an impassioned plea for education is a close second. No one wants to see their kid grow up to be a potato head, right?

Today we’ll be exploring the mathematics behind the US housing market over the last thirty years to determine how smart we really want our kids to be. If you can successfully complete (or at least understand) the accompanying quiz you’ll have a more thorough understanding of economic realities than every Ivy League professor (including Nobel Laureates) active in government and mainstream media.

Question #1 – Joe and Mary Twelvepack, an average American couple, buy the average American home in 1980. They pay the average American price ($76,400) and take out the average American mortgage. 29 years later, they sell the home to another couple for the 2009 average American price of $270,900. How much did they profit from the sale (assume the mortgage has been paid in full)?

 A: If you said $194,500 ride the pony, big guy.

Author’s note: If you only aspire to be as intelligent as Uncle Sam wants you to be, STOP HERE. 

Question #2 – According to the BLS, cumulative inflation from 1980 to 2009 was 160.36%.  a)What is the simple inflation adjusted value of the house?  b)How much of the Twelvepack’s profit was the result of inflation and  c)how much was their profit after inflation? 

a) $198,915.04 ($76,400 * 2.6036)

b) $122,515.04 ($198,915.04 – 76,400)

c) $ 71,984.96 ($270,900 – $198,915.04)

C’mon, chin-up buckaroo. The Twelvepacks still made money. Beating inflation is the name of the game, right?

Well, there is one other factor we should probably consider: The effect interest rates had on the value of the Twelvepack’s “investment”. After all, re-fiing the house at ever lower interest rates is how they paid for Mary’s boob job, Joe’s rehab, that boat in the driveway, and the kids’ braces. God knows it wasn’t their ability to earn more.

Question #3 –The average 1980 mortgage was 14.005% APR (13.74% w/ 1.8 pts.) and the couple that bought it, the Fourpacks, got 5.1015% APR (5.04% w/ 0.7 pts plus cool cash from Uncle Sam) Their 30-year fixed mortgage payments are $1471.10. a)How big of a mortgage would that payment get if interest rates were the same as in 1980? b)How much of the Twelvepack’s “profit” can be directly attributed to the change in interest rates?

a) $124,206 (you’ll need Excel to calculate this if you’re not Korean)

b) $146,694 ($270,900 – $124,206)

 Question #4 –So there you have it. 74% of the Twelvepack’s gain can be attributed to the 9% drop in interest rate. When you strip out the interest rate effect, the house underperformed inflation by more than 60% over 30 years (and that’s excluding all other costs associated with the American dream), which of course means this wasn’t actually an investment at all. How many Americans understand this?

 A: Not many.

 Somehow the mathematical realities of the US housing market have completely escaped the education-loving American public as they continue to assume that the next thirty years will yield results similar to the last thirty. Utterly freaking impossible. We can’t drop mortgage interest rates 9% again (currently 4.4%), but we should expect houses to continue to underperform inflation.

Despite our perception, the earth turns. That’s what makes day and night, and that’s why it seems like the sun travels through our sky. It took human beings more than 2,000 years to fully embrace that truth. Teaching your children that houses are good investments (‘cuz look how it worked out for you) and they’re lucky to have such low mortgage interest rates is about as enlightened as sacrificing them to Moloch so the Sun will continue to rise.

 Right now, the powers that be are bazooka-ing tootsie rolls into the crowd at an unprecedented rate. So if your child asks you, “Who’s gonna pay for all this?” maybe you should just say, “Shut-up and eat your paint chips, kid.”


 “The more deflation [sic] the elite, champagne economists throw out there to convince people “your tax dollars really can keep that anvil up in the air,” the more we’re gonna be stuck in the mud for years and years and years….”

 ~ Rick Santelli (more top-shelf Rick)

The ultimate result of shielding men from the effects of folly, is to fill the world with fools”

~ Herbert Spencer



U.S. Home Prices:


 30 year fixed mortgage interest rates:






Check out Mark's blog:




     Email to a Friend




Message from the founder:

Click here for the most important video we've ever published at the Daily Bail.  If you agree, post it all over the internet.  Email it to everyone you've ever met.  Use your imagination.  Thank you.




Subscribe to RSS headline updates from:
Powered by FeedBurner



PrintView Printer Friendly Version

EmailEmail Article to Friend

Reader Comments (32)

Very insightful piece mark...
Sep 16, 2010 at 12:56 PM | Registered CommenterDailyBail
Here's the latest on housing...

Bank Repossession of Homes Sets New Record in August

Sep 16, 2010 at 1:09 PM | Registered CommenterDailyBail
Home Prices Drop in 36 States; Beazer Warns on Orders; 8 Million Foreclosure-Bound Homes to Hit the Market; Prices to Stagnate for a Decade

Sep 16, 2010 at 1:10 PM | Registered CommenterDailyBail
Sep 16, 2010 at 1:11 PM | Registered CommenterDailyBail
Sep 16, 2010 at 1:11 PM | Registered CommenterDailyBail
Sep 16, 2010 at 1:12 PM | Registered CommenterDailyBail
When Eric Peterson buys foreclosed homes through courthouse trustee sales these days, the majority of borrowers are still living in the home rent-free, waiting to be evicted.

That is a dramatic change from last year, when most properties were vacant by the time of a foreclosure sale.

"Borrowers are savvy now and they know that once they lose the house, they can milk the system for time and cash," said Peterson, a managing director at the Sacramento private-equity firm Praxis Capital Inc., a large buyer at trustee sales in seven Northern California counties.

Sep 16, 2010 at 1:13 PM | Registered CommenterDailyBail

What "The 25 Most Expensive Homes" Reveal About the U.S. Economy
Sep 16, 2010 at 1:13 PM | Registered CommenterDailyBail
CalPERS must release documents detailing $100 million investment loss

Sep 16, 2010 at 1:14 PM | Registered CommenterDailyBail
Goldman Sachs Economist Predicts Housing in U.S. Won’t Recover Until Late 2013


JP Morgan said 2014 yesterday...

I expect it will be longer...7-8 more years of flat to declining prices...
Sep 16, 2010 at 2:58 PM | Registered CommenterDailyBail
Thanks, DB,

Love that "Mr Housing Bubble" graphic!
Sep 16, 2010 at 3:38 PM | Unregistered Commentermark mchugh
Mark..i sent it to Joe weisenthal and he published it...


You should probably go over there and respond to the many comments...

Great stuff...
Sep 16, 2010 at 4:42 PM | Registered CommenterDailyBail
this is a bit biased towards bashing the house ownership. We should add the savings in renting a house for 30 years as well to see how much really they saved. That should certainly beat the inflation and any other factors mentioned here.
Sep 16, 2010 at 6:05 PM | Unregistered Commentermhk
C'mon! There is nothing "average" about the 2009 housing price! and the mortgage rate in 1980 is near all time high while the mortgage rate in 2009 are near all time low! You have to do better than that to make this argument somewhat plausible. If you pick the worst possible scenario, you can say whatever you want about ANY investment out there.
Sep 16, 2010 at 6:06 PM | Unregistered CommenterDB
"DB," house prices were LOWER in 1980 precisely because of the high interest rates. Especially if you have cash, buying during a high-rate environment is going to better your chances of asset appreciation down the road as rates fall. (Right now, they can't go much lower, but they can sure get a lot higher.)
Sep 16, 2010 at 6:20 PM | Registered CommenterDr. Pitchfork
Good job Mark, loved the Moloch reference, many times I have felt that that is all America is doing, sacrificing the young to an illusion...
Sep 16, 2010 at 7:33 PM | Unregistered CommenterS. Gompers
With all due respect, what Excel macro.(or Korean) do you use do determine your return if you had paid rent during the 1980-2009 time frame?

Just curious.
Sep 16, 2010 at 7:36 PM | Unregistered CommenterErsatz86
Let me try to clarify the points I was trying to make:

The primary driver of house prices is interest rates, period. You can say I cherry-picked data, I really didn't. 1981 to 2010 would produce even more dramatic results. You're welcome to make your own spreadsheet and do your own calcs.

There is nothing in the data to suggest that housing can ever outperform inflation over more than a couple years. The couple years it did (and only slightly) is what we think of as the "bubble". If something doesn't beat inflation, it's no an investment.

If you're really, really smart, you'll realize that the reason houses underperform inflation is because real wages have been stagnant for a long time and will continue to be so.

The article is not an indictment of home ownership nor did it aspire to compare owning vs. renting. But if you stretch to buy that McMansion for 500k, thinking it's gonna payoff big someday, bon voyage!
Sep 16, 2010 at 10:02 PM | Unregistered Commentermark mchugh
Looks like the Natl. Assoc. of Realtors sent a few employees here to make comments...great story mark...
Sep 16, 2010 at 10:11 PM | Registered CommenterDailyBail
I am an appraiser and the one thing folks keep leaving out of the home ownership equation is UPKEEP and Rising Property Taxes.....I RENT....AB
Sep 16, 2010 at 10:13 PM | Unregistered CommenterAint Bullshittin'
Mark, as Paul Harvy said, An Now You Know the Rest of the Story, but you Mark, Dr Pitchfork,& Steve, and others, can add the Truth of the Story.

We live in a world whAre the sun dont come up on many bad people. Hang on, 2011 is just around the cornner.....
Sep 16, 2010 at 10:19 PM | Unregistered CommenterTexas Dar
Mike -

I really DO want to be smarter than Uncle Sam, so I need to understand this...

In Question #2 you said "cumulative inflation from 1980 to 2009 was 160.36%.

Then in the answer (part a) you have: $198,915.04 ($76,400 * 2.6036)

My question - Where did you get that 2.6036? I "get" everything else except that figure.

Hope you'll clarify so I can be smart, too!
Sep 17, 2010 at 7:36 AM | Unregistered CommenterBetty

Inflation of 160.36% (or 1.6036). and you have to add 1 to get the right number. If inflation was 100%, meaning prices doubled, you multiply by two (1 + 1).
Sep 17, 2010 at 7:44 AM | Unregistered Commentermark mchugh
so.lets see, i bought my house in 1980 for 30k, a fixer upper,put down 6k and got a 30 yr mtg for about 600/month. rates were 13% at the time.after 5 years , started renting it out at 800/month and refied it at 6% took 40k out to buy my next property which made me a 70000 profit after 5 years. still own this property valued at 300000 k with no mtg and brings in 1400/ month. all that for a measly 6 grand out of my pocket. i guess i got screwed!! What are you guys smoking,
Sep 17, 2010 at 12:09 PM | Unregistered Commentermike.b
I don't see that you calculated the owner's mortgage interest deduction into your figures. Also, less the potential risk of a monthly housing cost increase (or, being forced to move) into your calculations which is harder to quantify.
Sep 17, 2010 at 1:22 PM | Unregistered Commenterthomas

Unless you lived in the house while you rented it out, your comment doesn't make sense. And even if you did, what's your point? The point of Mark's article is that buying a house to live in is NOT an investment. The article is NOT called "The Great Landlord Bamboozle".
Sep 17, 2010 at 1:32 PM | Registered CommenterDr. Pitchfork
The author of this article is a fool. He fails to take into account for the fact that you have to live somewhere. Because he doesn't compare his 30 years of paying a mortgage to rent for a lifetime it is just irrelavent numbers.
Sep 17, 2010 at 10:05 PM | Unregistered CommenterBrian (Appraiser)
Buying a house is NOT an investment?

Your house might not be a good investment depending on when you bought it but it is still an investment. If there is an expectation of profit, it is an investment by definition? Is that a reasonable expectation? I guess that all depends on the knowledge of the investor, timing and a little good luck. Is buying Van Gogh’s The Fields (Wheat Fields) an investment if all you want to do for a while is look at it on your wall?

House depreciation is more relevant when you have a rental property (long term asset) but I think that it is important to understand that a house does depreciate in value due to use. This is so often overlooked by the homeowner until they file a claim with their insurance company (they get it).

Dr. P, the title of the article calls it a “poor investment”. Isn’t this similar to argument many are having with regards to gold these days? Maybe a home is still a sensible way to protect your net worth in the long term. Maybe we just change location location location to something a bit more contemporary like location location and bubble-timing.
Sep 18, 2010 at 10:35 AM | Unregistered CommenterZ
Maybe even more importantly: Interest rates, Interest rates, Interest rates.

$2,000 a month gets you a 420K mortgage at 4%
$2,000 a month gets you a 169K mortgage at 14%

You need to understand that before you go home shopping and factor that in to your decision. That's really all this article was about. I've found time and time again, otherwise educated people have absolutely no idea what effect interest rates have on the "price" of a house. So before you go passing "wisdom" on to the next generation maybe you should understand that.

Another thing we need to understand is the amount of deficit spending going on to keep the "values" of homes and 401(k)'s up. It's been about 500 bucks per person, per month for more than two years now.

Now ask the average family of four if they're willing to pay $2,000 a month (on top of the mortgage) to keep their house and 401(k) values up. What do you think they'd say?

It's easier to stick your kids with the bill, right? If you don't understand this, don't give me any of that "education is the key!", crap. Go back to school, and don't even think about trying to stick me with the bill.
Sep 18, 2010 at 1:23 PM | Unregistered Commentermark mchugh
Home ownership as an "investment" is generally nuts, unless you are certain of population migration to a specific local area. It requires a ton of upkeep (maintenance/taxes/insurance) in additiion to the cost. People should buy houses for lifestyle stability- e.g. your kids have the same schools, neighbors, you are part of a community, etc. I live in Florida, paid a bit over 2 times my annual income for a modest home- It's lost value since my 2003 purchase. Not happy about it, but it's not going to kill me. And you're 100% right- housing inflation without wage inflation is merely a temporary disconnect, assuming a stable interest environment. (I believe both are significant variables) And I must say- the graphic is priceless. Thanks
Sep 19, 2010 at 11:43 AM | Unregistered CommenterMark

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
All HTML will be escaped. Hyperlinks will be created for URLs automatically.