The Third Economic Revolution: The AI Revolution


Imagine if AI could help the average American family with a “Rent vs. Buy” calculation? We’ve all been taught that owning a home is the ticket to the middle-class, but the arithmetic shows a very different story.

NMHC | Putting Rent Increases into Perspective

Also interesting that the “Rent vs. Buy” analysis in that article ignores maintenence expenses and the cost of “home upgrades” that people never recover at the time of sale. A full accounting is even worse for home ownership.



[quote=“intercst, post:2, topic:92665”]

Also interesting that the “Rent vs. Buy” analysis in that article ignores maintenence expenses and the cost of “home upgrades” that people never recover at the time of sale. A full accounting is even worse for home ownership.

Back in the late 80’s/early 90’s I was watching one of those home fix-it shows on PBS one weekend. The discussion was “What was the best home upgrade that will add the most value to your house when you sell it”? They ran the list “swimming pool?” “Extra bedroom?” “3rd Bathroom”, “finished basement?” The answer, according to the Bob Vila-like character, was “remodeled kitchen.” Yes, it was very expensive BUT… when you sell you could recover, get this, UP TO 90% of the cost of the new kitchen! So, the best way to add value to your house is to lose 10% on the best thing you can do to your house !!!

I still hold that it’s a life-style choice you’re paying for. If the solitude , driveway, yard, apple trees, work shed, or just the extra space is what you want, well, like anything else it has a price. So, I don’t knock people (at least not directly) for buying a house. I do, if they give me the schpiel about it being like a forced savings plan, or some American Dream thing.


Out of all the places you could go to find supporting data on renting vs buying, you turn to the NMHC - an organization that advocates on behalf of the apartment industry?

With unbiased sources like that, who needs AI to tell them what to think?

I bet the National Association of Realtors might have a different opinion.

Two sources that have no axe to grind:

As we have seen, the benefits of homeownership are not restricted to consumption. As an investment, homeownership offers a potential capital gain and tax-preferenced imputed income in the form of OER. In addition, when purchased with a fixed-rate mortgage, a home is a hedge against unexpected rent increases. These benefits, however, also come with considerable risk, particularly for low-income households. Nevertheless, for a policymaker with the aim of increasing the wealth of lower-income households, mortgages can act as a forced savings plan. While a homeowner makes mortgage payments to enjoy the continued use of their house, they are also potentially building wealth through home equity.

Whether homeownership causally increases wealth relative to renting is quite challenging to uncover from the data. Although it is true that the rate of homeownership rises with income and wealth, it need not be the case that homeownership leads to more wealth accumulation than renting.

Careful studies that compare homeowners to renters over time find that homeowners on aggregate do accumulate somewhat more wealth. This is true for both low-income and high-income households, though the effect is usually relatively smaller for low-income households.

In terms of lower income households, non-housing wealth accumulation is at best minor and, for minority families, often negative. Thus, over the nine year period of our study, owned housing is an important means of wealth accumulation. Indeed, our results may be broadly interpreted for lower income households as implying that housing wealth is total wealth.


I would think it would be difficult to control for selection bias. Do people who buy have a higher propensity to accumulate wealth irrespective of home ownership?


That is a good question. Additionally, we need to wonder if the data is intentionally skewed to push a particular agenda. For decades now, the media has repeatedly been pushing a narrative that people that conform to the approved lifestyle: married, children, church, house, live better.

Nothing proves Shiny-land is the center of “freeedom” and individual choice, like a constant flow of propaganda that everyone must conform to a particular lifestyle.



Careful studies that compare homeowners to renters over time find that homeowners on aggregate do accumulate somewhat more wealth. This is true for both low-income and high-income households, though the effect is usually relatively smaller for low-income households.

The most careful studies, over time, show …“somewhat” more wealth.

  1. An excellent example of damning with faint praise.
  2. “Somewhat” sounds like “within margin of error.” IOW as my own calculations have shown over the years, it’s a wash at best.
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Sure. But even the apartment industry isn’t accounting for the full cost of home ownership in their analysis.

Economist Robert Shiller points out that over the past 100 years the average US home has appreciated at a rate of a bit less than 1% plus the rate of inflation, while the stock market is returning inflation plus 6% to 7%. And most of the time you can rent an equivalent property for less than the cost of ownership. Why have your money tied up in a poorly appreciating single-family home if you can rent it for less than the cost of ownership?

Now if I was able to buy a home for half the cost of renting, that might be attractive.



In terms of random wondering and not trying to say it’s true:
I wonder if the enforced saving part of home ownership has any bearing on wealth accumulation. When you own your home, you are adding to your equity every month with your mortgage payment - through the principal portion of the payment. That equity comes back to you a long way down the road - at the time of sale.

Of course, those who don’t like saving money can avoid doing so by periodically refinancing and using that equity to pay off the credit card debt accumulated over time - or refinancing a LOT and simply blowing it all on refi costs.

But I wonder if there are some folks on the margins who benefit from the enforced discipline of that monthly mortgage payment. When things get hard and you are paying for your home, you find a way to cut back and keep your home. But when renting, you can be tempted to ditch the property and find something cheaper rather than cut back on other parts of your lifestyle.


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How many things can you buy, use for a few years, and then get 90% of the purchase price back? For example, most cars you can buy, you wouldn’t even get 90% back after using it for 1 week!


C’mon now. You know that’s not even the focus of the conversation. Nobody talking about that

It’s because I, like @intercst, look at housing different than most people do. Housing is an expense, not an investment, not a forced savings plan, but an expense. It could come in the form of a purchase, or a rental, but either way it is one of those expenses of life. Now, a car is similarly an expense, and depreciates rapidly. But after you mentioned the kitchen thing, I thought about it a bit, and it may actually be a good deal - you “buy” a new kitchen for a similar price of a nice car, and then you use it, and enjoy it, for a few years, and then “sell” it and perhaps get back 90% of the purchase price … or even 80% or 70% of the purchase price. It might be a pretty good deal overall!


Yes. The study mentions that as well. Very difficult to separate correlation from causation.

They do. One of the studies mentions that fact. And in response to a comment above, people that chose renting over ownership are not necessarily going to take the savings and dump it into the stock market.

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That’s why I favor buying a 1 or 2 year old car that still has a lot of miles on the original warranty. I’d rather find someone who’s bad at arithmetic to pay the first year or two of depreciation.

When I bought my current vehicle (a 2005 Nissan Altima) in November 2005 a new one was about $25,000 and I bought a used one with 13,000 miles on it for $17,500 in a private sale. For some reason Nissans (and Infinitis, their premium brand) don’t hold their value like Toyotas and Hondas, yet Nissan has the same reputation for reliability and value. That was one insight I took from the book “The Millionaire Next Door” 30+ years ago.

I’ve been trying to replace the Nissan with a new car for the past 5 years, but every time I get close to a purchase, I think, “What are the odds that the new car will be as reliable as what you have?”, and I back off.



Renting vs buying is an absurdly muddied close run race, but what really matters is knowing and using the basic arithmetic and sense of reality to do either well. I have known so many disasters down both alleys that I want to scream.

The difference across the population is insignificant compared to the differences between being sensible and being a financial idiot.

Real Estate companies, homebuilders and apartment owners make a ton of money by bilking and milking the average USAian idiots, who think they are walking into “their dreams!”

david fb
(made a lot of money off each house I.owned, but (as dear old mom and dad taught me) I never rented or bought without having a business plan for the prospective property that I shared with smart folks to criticize).


Every tech generation or revolution is for a come back of the middle class.

All animals are equal
Some are more equal than others

The idea that tech is for the middle class is true. If you can sell it to them.

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We keep our cars on average for 8-10 years, and pay them off quickly. In that length I prefer to buy new, because I want to best, most trouble free 100k miles that car has to offer. So I don’t want to be giving away that first 12-25k miles to someone else.

Regarding renting versus buying, I would only rent a house at this stage in my life and not an apartment. I really don’t want to share walls, floors and ceilings with other people. This house is a way of life for my wife, daughter and me. It’s not a “builder of wealth” or means to retirement. Yes, home ownership has potentially large expenses that go with it. I’ve written the checks. :frowning:

POLL!: Are you:

  1. Miser (think Uncle Ebenezer in Stevenson’s Kidnapped)
  2. Cheapskate (takes joy in “penny saved is penny earned”
  3. ValueBuyer (I am careful in my purchases and dubious about spending)
  4. NiceThings (are Worth It!)
  5. Spendthrift (Whheeeeeee!)

Is there poll capability here? Could not find it.

I am a cheapskate! What are all you? And what might this poll that tell us about METAR’s biases? The old MF boards frequently claimed we were perma bears, but I disagreed vehemently. We just are people who hate malinformed decisions about spending…

Seems to me that this hardy bunch of METAR investors adores not only good investments for the long term, but THRILLS with money saved and doughnuts/cars/cdplayers etc bought at great savings. And DesertDave long time picked up bottles and cans with great pleasure and an occassional brag on his walks.

I am definitely a cheapskate.

david fb


3 Value Buyer

That also means not being penny wise pound foolish till a bigger bill comes along to pay.