Nobel-Winning Economist Says Homeownership Is for Dummies

Inflation, inflation, inflation

By Evan Bleier

 
Nobel-Winning Economist Says Homeownership Is for Dummies
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13 June 2016

A man’s home, they’ll tell you, is his castle.

What’s it not: a sound investment … at least according to three-time Nobel Prize-winning Yale economist Robert Shiller.

Shiller is an expert on market inefficiencies and the value of assets, in particular the difference between actual value and perceived value due to human miscalculation. While traditional rhetoric will tell you that a home is an asset that appreciates in value over the years, Shiller’s research indicates that over a 100-year period, the return on owning a home has been nearly non-existent.

While there are many factors that contribute to this, the primary one Shiller identifies is the failure to take inflation into account, which he refers to as the “money illusion.”

“Imagine that your grandmother dies, and you’re managing her estate,” Shiller says. “Her house is worth $30,000 now, and you look at what she paid — $5,000. You think, ‘Wow, that’s a lot.’ Now why does it seem so big? Because you’re not reflecting that all prices went up sixfold ... you’re basically not making a profit after taking inflation into account.”

If you’re looking for an alternative place to invest your money, we suggest booze.

Just try to keep the cap on.

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