[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:11.15,0:00:14.08,Default,,0000,0000,0000,,So Alex, we're economists.\NOften people ask me,
Dialogue: 0,0:00:14.09,0:00:18.48,Default,,0000,0000,0000,,well what is it that we know about\Ninvestment and investment advice anyway?
Dialogue: 0,0:00:18.57,0:00:20.26,Default,,0000,0000,0000,,Now, we've already talked about equities,
Dialogue: 0,0:00:20.45,0:00:23.22,Default,,0000,0000,0000,,but as economists do we have\Nanything else to tell people?
Dialogue: 0,0:00:23.66,0:00:25.35,Default,,0000,0000,0000,,Let's talk a little bit about housing,
Dialogue: 0,0:00:25.60,0:00:28.78,Default,,0000,0000,0000,,because housing is one of these areas\Nwhere there's a lot of myths around it.
Dialogue: 0,0:00:28.84,0:00:31.54,Default,,0000,0000,0000,,People in America,\Nit's part of the American Dream.
Dialogue: 0,0:00:31.73,0:00:35.89,Default,,0000,0000,0000,,And one thing I think people don't\Nrealize is that over the long run,
Dialogue: 0,0:00:36.07,0:00:39.12,Default,,0000,0000,0000,,house prices are certainly\Nnot guaranteed to go up.
Dialogue: 0,0:00:39.36,0:00:42.80,Default,,0000,0000,0000,,I mean we saw in the financial crisis\Nthat house prices came way down.
Dialogue: 0,0:00:43.10,0:00:45.90,Default,,0000,0000,0000,,But there's still this kind of idea\Nthat people have in their heads
Dialogue: 0,0:00:45.90,0:00:48.05,Default,,0000,0000,0000,,that they're not making any more land,
Dialogue: 0,0:00:48.25,0:00:50.95,Default,,0000,0000,0000,,so in the long run\Nhouse prices have to go up.
Dialogue: 0,0:00:51.10,0:00:53.36,Default,,0000,0000,0000,,And we know from our\Nunderstanding of assets
Dialogue: 0,0:00:53.38,0:00:57.31,Default,,0000,0000,0000,,that you should not expect your house\Nto be a great financial investment.
Dialogue: 0,0:00:57.68,0:01:00.06,Default,,0000,0000,0000,,But isn't there a tax reason\Nto buy a home?
Dialogue: 0,0:01:00.20,0:01:02.28,Default,,0000,0000,0000,,So if I borrow money for a mortgage,
Dialogue: 0,0:01:02.40,0:01:05.68,Default,,0000,0000,0000,,and I'm paying income tax\Nand itemizing my deductions,
Dialogue: 0,0:01:05.90,0:01:10.05,Default,,0000,0000,0000,,I can write off a lot of that mortgage\Ninterest and get some of the money back.
Dialogue: 0,0:01:10.11,0:01:10.75,Default,,0000,0000,0000,,And that means
Dialogue: 0,0:01:10.76,0:01:14.88,Default,,0000,0000,0000,,it could be cheaper or more advantageous\Nto buy the home because of taxes.
Dialogue: 0,0:01:14.93,0:01:15.81,Default,,0000,0000,0000,,But don't forget,
Dialogue: 0,0:01:15.83,0:01:20.40,Default,,0000,0000,0000,,a lot of that tax advantage is going\Nto be captured not by the buyer,
Dialogue: 0,0:01:20.52,0:01:21.48,Default,,0000,0000,0000,,but by the seller.
Dialogue: 0,0:01:21.78,0:01:25.31,Default,,0000,0000,0000,,What the tax advantage means is\Nit pushes up the prices of homes.
Dialogue: 0,0:01:25.43,0:01:28.10,Default,,0000,0000,0000,,It's already built into a higher price,
Dialogue: 0,0:01:28.20,0:01:32.80,Default,,0000,0000,0000,,so you, as the buyer, don't always\Nget that gain. Often it's the seller.
Dialogue: 0,0:01:32.89,0:01:35.12,Default,,0000,0000,0000,,Well, but think of this\Nin terms of elasticity.
Dialogue: 0,0:01:35.27,0:01:38.62,Default,,0000,0000,0000,,Say I live in an area, like\Nmany parts of Texas or Florida,
Dialogue: 0,0:01:38.89,0:01:43.04,Default,,0000,0000,0000,,where I get this tax break that\Nincreases the demand for homes, yes.
Dialogue: 0,0:01:43.29,0:01:46.100,Default,,0000,0000,0000,,But then suppliers build more homes and\Nthey drive the price back down again.
Dialogue: 0,0:01:47.30,0:01:49.85,Default,,0000,0000,0000,,And it seems that\Nin a lot of states actually,
Dialogue: 0,0:01:49.85,0:01:53.37,Default,,0000,0000,0000,,the buyer should be reaping a lot\Nof that tax break. Yes, No?
Dialogue: 0,0:01:53.37,0:01:56.89,Default,,0000,0000,0000,,If only there were more places\Nin the United States like that,
Dialogue: 0,0:01:57.04,0:01:58.50,Default,,0000,0000,0000,,I would tend to agree.
Dialogue: 0,0:01:58.63,0:02:02.23,Default,,0000,0000,0000,,But one of the big problems we have\Nin the United States today is that
Dialogue: 0,0:02:02.25,0:02:04.69,Default,,0000,0000,0000,,the demand for housing goes up\Nand you're in some place
Dialogue: 0,0:02:04.69,0:02:07.48,Default,,0000,0000,0000,,like San Francisco, or New York, or Boston
Dialogue: 0,0:02:07.48,0:02:11.10,Default,,0000,0000,0000,,whereit's impossible\Nto get permits to build more housing.
Dialogue: 0,0:02:11.16,0:02:12.59,Default,,0000,0000,0000,,And when the demand goes up,
Dialogue: 0,0:02:12.64,0:02:15.49,Default,,0000,0000,0000,,all that means is\Nthe price of the house goes up.
Dialogue: 0,0:02:15.72,0:02:19.09,Default,,0000,0000,0000,,So all of those gains, whether\Nit's from the tax system,
Dialogue: 0,0:02:19.11,0:02:23.12,Default,,0000,0000,0000,,or whether it's from people\Nwanting to move to San Francisco,
Dialogue: 0,0:02:23.16,0:02:25.27,Default,,0000,0000,0000,,all of those gains go to the land owners.
Dialogue: 0,0:02:25.30,0:02:28.57,Default,,0000,0000,0000,,And that's actually a big problem\Nwe have in the United States today.
Dialogue: 0,0:02:28.63,0:02:31.26,Default,,0000,0000,0000,,But I do see a stability reason\Nto own a home.
Dialogue: 0,0:02:31.38,0:02:34.38,Default,,0000,0000,0000,,Say you are 37 years old,\Nyou have 2 kids in school,
Dialogue: 0,0:02:34.47,0:02:36.86,Default,,0000,0000,0000,,you want them to go to a\Ngood high school district.
Dialogue: 0,0:02:36.99,0:02:39.14,Default,,0000,0000,0000,,You don't want to be told,\N"You're going to have to move."
Dialogue: 0,0:02:39.25,0:02:41.99,Default,,0000,0000,0000,,You want to arrange your backyard\Nthe way you see fit.
Dialogue: 0,0:02:42.10,0:02:44.90,Default,,0000,0000,0000,,And you don't want to have to renegotiate\Na rent contract.
Dialogue: 0,0:02:44.95,0:02:48.42,Default,,0000,0000,0000,,All of those factors militate\Nin favor of buying a home.
Dialogue: 0,0:02:48.66,0:02:50.78,Default,,0000,0000,0000,,So I think you're right for those people.
Dialogue: 0,0:02:50.96,0:02:54.19,Default,,0000,0000,0000,,But one thing you've got to keep in mind\Nis that on average,
Dialogue: 0,0:02:54.38,0:02:57.08,Default,,0000,0000,0000,,houses are not going to be\Na great financial investment.
Dialogue: 0,0:02:57.50,0:03:00.81,Default,,0000,0000,0000,,So you have to be exactly\None of those people
Dialogue: 0,0:03:00.100,0:03:04.83,Default,,0000,0000,0000,,who wants extra stability,\Nmore stability than the average person.
Dialogue: 0,0:03:04.97,0:03:07.46,Default,,0000,0000,0000,,That's when you're going to gain\Nfrom buying a house.
Dialogue: 0,0:03:07.59,0:03:09.17,Default,,0000,0000,0000,,And, keep in mind,
Dialogue: 0,0:03:09.48,0:03:12.29,Default,,0000,0000,0000,,that when you buy a house and\Nthat heating system collapses
Dialogue: 0,0:03:12.29,0:03:14.56,Default,,0000,0000,0000,,and you've got to repair that,\Nthat's a big problem.
Dialogue: 0,0:03:14.56,0:03:17.70,Default,,0000,0000,0000,,When you're hit by a lightning strike\Nand you've got to repair the roof,
Dialogue: 0,0:03:17.71,0:03:19.62,Default,,0000,0000,0000,,that's a big expense as well.
Dialogue: 0,0:03:19.78,0:03:23.69,Default,,0000,0000,0000,,So when people say, "I'm only\Nworried about the rent going up."
Dialogue: 0,0:03:24.10,0:03:25.19,Default,,0000,0000,0000,,Well that's fine.
Dialogue: 0,0:03:25.39,0:03:27.74,Default,,0000,0000,0000,,They may be worried about that,\Nbut don't forget,
Dialogue: 0,0:03:27.74,0:03:31.14,Default,,0000,0000,0000,,you've got to be worried about\Nreplacing the roof every 20 years, as well.
Dialogue: 0,0:03:31.14,0:03:34.59,Default,,0000,0000,0000,,So it's really a marginal question,\Nyou're saying. Like at the margin,
Dialogue: 0,0:03:34.84,0:03:37.90,Default,,0000,0000,0000,,do you need the tax break\Nmore than the typical buyer?
Dialogue: 0,0:03:38.04,0:03:38.86,Default,,0000,0000,0000,,At the margin,
Dialogue: 0,0:03:38.87,0:03:42.52,Default,,0000,0000,0000,,do you value the good high school district\Nmore than the typical buyer?
Dialogue: 0,0:03:42.73,0:03:43.80,Default,,0000,0000,0000,,And at the margin,
Dialogue: 0,0:03:43.82,0:03:45.78,Default,,0000,0000,0000,,are you better at fixing the broken roof
Dialogue: 0,0:03:45.80,0:03:48.77,Default,,0000,0000,0000,,or hiring someone to do it\Nthan the average buyer?
Dialogue: 0,0:03:48.77,0:03:50.61,Default,,0000,0000,0000,,And those things may or\Nmay not apply to you,
Dialogue: 0,0:03:50.61,0:03:52.62,Default,,0000,0000,0000,,but that's the right way\Nto think about it?
Dialogue: 0,0:03:52.71,0:03:55.19,Default,,0000,0000,0000,,Exactly right, so if you\Nwant that tax advantage,
Dialogue: 0,0:03:55.30,0:03:57.83,Default,,0000,0000,0000,,you've got to be earning\Nmore income than average.
Dialogue: 0,0:03:57.90,0:04:00.35,Default,,0000,0000,0000,,You've got to be\Nitemizing your deductions.
Dialogue: 0,0:04:00.40,0:04:03.57,Default,,0000,0000,0000,,If you're not one of those people\Nin the upper middle class,
Dialogue: 0,0:04:03.61,0:04:05.62,Default,,0000,0000,0000,,you're not going to get\Nthat tax advantage.
Dialogue: 0,0:04:05.62,0:04:08.37,Default,,0000,0000,0000,,If you've got one kid, maybe\Nthe school is not so important.
Dialogue: 0,0:04:08.39,0:04:09.66,Default,,0000,0000,0000,,Maybe you have to have two
Dialogue: 0,0:04:09.67,0:04:12.32,Default,,0000,0000,0000,,before you really get that\Nadvantage from the schooling.
Dialogue: 0,0:04:12.37,0:04:15.88,Default,,0000,0000,0000,,So yeah, you've got to be thinking about\Nhow you're different from the average.
Dialogue: 0,0:04:15.96,0:04:19.22,Default,,0000,0000,0000,,If you really want to buy a home,\Nyou've got to love buying a home.
Dialogue: 0,0:04:19.52,0:04:23.13,Default,,0000,0000,0000,,I think of people as needing\Nto save more typically.
Dialogue: 0,0:04:23.34,0:04:25.94,Default,,0000,0000,0000,,That we're programmed to think about\Nthe here and now,
Dialogue: 0,0:04:25.98,0:04:27.04,Default,,0000,0000,0000,,we're a bit impatient.
Dialogue: 0,0:04:27.18,0:04:30.89,Default,,0000,0000,0000,,Perhaps we haven't evolved to think well\Nenough about the more distant future.
Dialogue: 0,0:04:31.20,0:04:32.41,Default,,0000,0000,0000,,If you buy a home,
Dialogue: 0,0:04:32.50,0:04:37.29,Default,,0000,0000,0000,,pay off your mortgage at the end of 30,\Nor one hopes 15 years, you own something.
Dialogue: 0,0:04:37.32,0:04:38.79,Default,,0000,0000,0000,,In the meantime, you're saving.
Dialogue: 0,0:04:38.81,0:04:41.88,Default,,0000,0000,0000,,And you get into a routine that\Ndoesn't even feel like saving.
Dialogue: 0,0:04:42.02,0:04:45.29,Default,,0000,0000,0000,,It's more savings than if you're\Nwriting a rent check every month.
Dialogue: 0,0:04:45.36,0:04:47.09,Default,,0000,0000,0000,,So maybe it's our own imperfections.
Dialogue: 0,0:04:47.09,0:04:50.46,Default,,0000,0000,0000,,We need to lock ourselves\Ninto a higher savings regime,
Dialogue: 0,0:04:50.46,0:04:52.92,Default,,0000,0000,0000,,and that's another possible reason\Nto buy a home.
Dialogue: 0,0:04:52.96,0:04:56.51,Default,,0000,0000,0000,,Yeah, I do think the forth savings\Nargument has got something to it.
Dialogue: 0,0:04:56.81,0:05:00.11,Default,,0000,0000,0000,,But there's a big problem, especially\Nin the United States today,
Dialogue: 0,0:05:00.14,0:05:04.62,Default,,0000,0000,0000,,and that is there's such an encouragement\Nto buy houses with no money down,
Dialogue: 0,0:05:04.62,0:05:06.39,Default,,0000,0000,0000,,even after the financial crisis.
Dialogue: 0,0:05:06.76,0:05:08.93,Default,,0000,0000,0000,,If you really are concerned about savings,
Dialogue: 0,0:05:09.11,0:05:14.23,Default,,0000,0000,0000,,the key point is to have a 20% down\Npayment. So save up for that down payment.
Dialogue: 0,0:05:14.59,0:05:16.54,Default,,0000,0000,0000,,And that is really what is going to be
Dialogue: 0,0:05:16.57,0:05:19.66,Default,,0000,0000,0000,,the forth savings aspect\Nof buying the house.
Dialogue: 0,0:05:19.94,0:05:22.97,Default,,0000,0000,0000,,You know, I think the biggest piece\Nof advice I'd give to people
Dialogue: 0,0:05:22.97,0:05:25.54,Default,,0000,0000,0000,,is just to be on that\Nwealthier side of the equation,
Dialogue: 0,0:05:25.69,0:05:27.80,Default,,0000,0000,0000,,so that owning a home\Nmakes sense for you.
Dialogue: 0,0:05:27.98,0:05:32.78,Default,,0000,0000,0000,,Don't forget our earlier investment\Nrule: Diversify, diversify, diversify.
Dialogue: 0,0:05:33.07,0:05:34.62,Default,,0000,0000,0000,,And yet, when it comes to housing,
Dialogue: 0,0:05:34.85,0:05:39.36,Default,,0000,0000,0000,,people are encouraged to put a huge\Namount of their wealth into one asset,
Dialogue: 0,0:05:39.45,0:05:41.20,Default,,0000,0000,0000,,in one place in the country.
Dialogue: 0,0:05:41.41,0:05:43.04,Default,,0000,0000,0000,,That could be a terrible decision.
Dialogue: 0,0:05:43.19,0:05:45.67,Default,,0000,0000,0000,,If you're in a small town\Nwith only one employer,
Dialogue: 0,0:05:45.88,0:05:48.68,Default,,0000,0000,0000,,and you have a house and \Nthat employer goes bust,
Dialogue: 0,0:05:49.09,0:05:50.77,Default,,0000,0000,0000,,well your house price is going to fall,
Dialogue: 0,0:05:50.77,0:05:53.80,Default,,0000,0000,0000,,you might lose your job,\Nyour income is all going to fall,
Dialogue: 0,0:05:54.08,0:05:56.37,Default,,0000,0000,0000,,and it's all going to be\Nhappening concentrated,
Dialogue: 0,0:05:56.53,0:05:58.60,Default,,0000,0000,0000,,all in one place all at one time.
Dialogue: 0,0:05:59.86,0:06:03.22,Default,,0000,0000,0000,,{\i1}(narrator) What do you think? To see\Nprevious episodes of Econ Duel,{\i0}
Dialogue: 0,0:06:03.25,0:06:06.96,Default,,0000,0000,0000,,check out our playlists. Or if you're\Ncraving more financial advice,
Dialogue: 0,0:06:06.96,0:06:09.73,Default,,0000,0000,0000,,click to find out if mutual funds \Nare a good investment.