Housing Market Media Mayhem
As a homeowner, I have a heightened interest the housing market, to which my financial future is closely tied. But it’s not just “the housing market” in the abstract that makes me nervous right now. More than that, its the ways different media spheres are talking about the market that make me shudder.
Given my position, when I ended up reading the eFinanceDirectory article “Rent Vs. Buy Myths That Ruined the Housing Market,” I got a little sad. For reasons I’ll explain later, I’m confident this deeply troubling article will reach millions of people positioned to read uncritically.
First, Don’t Be Wrong
In short, the article is a run-down of five “myths” that, the unnamed author claims, caused the demise of the housing market. Each piece of the argument has problems, but I’ll focus on two:
“Myth #1: Renting is Like Throwing Your Money Away”
The argument here is that renters, unlike homeowners, “pay for one thing every month: shelter. They don’t pay interest to the bank, property taxes, or maintenance fees.” With “the money they save by renting,” they can “invest in stocks, bonds and other vehicles.” This argument—that renters pay less money, all else being equal, than owners—is echoed throughout the piece.
There’s a massive misunderstanding of real estate here, if not of basic capitalist economy. Renters write only one check each month, but it’s a rare landlord who’s not making sure her costs—including mortgage, taxes, insurance, and upkeep—are covered, and indeed that she’s making a profit. If I can rent an apartment for $850 each month, my landlord’s monthly PITI payment is perhaps hundreds of dollars less than that. In other words, landlords, in the interest of making money at their jobs, take a profit.
So, in seeking shelter, my choices are to come up with some initial capital (a noteworthy hurdle, to be sure) for the privilege of building equity with, let’s say, a $550 payment each month. Initially, only a small portion of my payment goes towards the principal of my loan, but out of an $850 rent check, none of it builds equity. Ever. So not only am I spending more for shelter if I’m renting, but I don’t get to keep any of my money. If I am lucky enough to have the choice, then renting is, indeed, throwing my money away (unless I really like my landlord).
“Myth #2: There are Tax Benefits to Owning”
There’s more weird logic here: “Mortgage interest can only be deducted from taxable income. This essentially means that buyers pay a dollar just to save 30 cents.”
The first sentence is true, but what it “essentially means” is that homeowners save “30 cents” on the dollars that they have to spend anyway for shelter. Again, given two equal payments, the renter comes out behind, every time. (And again, the payments, rent and PITI, are never equal.)
But it doesn’t end there: “Furthermore, deducting interest has no tax advantage unless a buyer pays so much in interest that the amount exceeds the standard deduction that everyone—including renter—is allowed to take.”
The first sentence is false. Deducting interest has no tax advantage unless the interest combined with all the myriad other deductions one can itemize exceeds the standard deduction. I should note here that I’m a homeowner in Pittsburgh, a city with relatively low property tax, and that I bought when the market last bottomed out, so I pay about as little interest as one can in this country (5.625%).
Despite the insane bargain I’ve got, I’ve itemized my deductions every year since I bought the house, and not once before. In other words, my mortgage interest presents a significant tax advantage, as it would for just about everybody out there.
Beyond Wrong: Myths and Motives
The “Myths” article is worse than just being inaccurate, though. There is, in the end, a particular political agenda advanced in the piece, one that ought not be part of something that projects itself as impartial financial advice. (“Our goal is to provide you non-biased original articles about the housing and mortgage issues that matter to you most,” reads introductory copy on the site’s home page.)
The piece reads, “Potential buyers bought into all sorts of rent vs. buy myths to justify buying houses that they could not afford during the boom.” Placing blame on the buyers make a certain amount of sense, on the face of it: Why didn’t they understand that an adustable-rate mortgage, for example, would come back to bite them?
That’s a valid point. However, holding buyers solely responsible is also a tactic that conservative pundits often use to keep government spending down. Proposed ARM bailouts, for many conservatives, aren’t appropriate use of tax money. If you blame the borrowers, then you don’t have to give them anything. For me, that argument doesn’t hold, as it’s unclear how the history of the situation should have anything to do with economic arguments for and against bailouts. The point is, it’s a popular argument for a conservative position on the mortgage crisis.
(Another article on the site, “The Truth About Home Prices and Mortgage Bailouts,” makes good on this hidden motive, with falsehoods more problematic than in the “Myths” piece.)
There’s an obvious problem with purportedly “unbiased” advice that’s so deeply biased. Notwithstanding that issue, there’s a larger lesson here. As readers, we have to look out for ourselves. I found the “Myths” piece linked to from one of my favorite sites, kottke.org. Though I find absolutely no fault with the site for posting the link, I worry for its visitors, who numbered 600,000 per month two years ago, and who has at least 100,000 subscribers in Google Reader alone.
It’s our human propensity to believe trusted sources—the limits of which can be extreme indeed—that can get us into hot water in situations like this. A site I and many others trust and respect linked to an article that’s misleading, untruthful, and deeply biased. My worry here is that because of our relationship to the site, we might shed our usual skepticism and read a troubling article more favorably than we should. I hate to advocate widespread suspicion, but surely some measure of caution is in order, no matter where we get our reading material.