Book Review: The Housing Trap by Patrick Killelea

I have been reading on the website for a while now and I really like the message there.

Basically Patrick’s message is that home ownership can be a huge trap, 30 years of mortgage debt can lead to wage slavery, and that most of the misconceptions that people have about paying rent are completely false.
For example, Patrick is the one who taught me (using math, not just theory) that renting is not, in fact, just “throwing money away.” It depends on current interest rates and what it costs for you to borrow money. In my opinion it also has to do with local property taxes compared to local rents.

For example, if you can rent a house for $1,000/month or you have the option of buying the same house for $200,000, which should you choose? The answer depends on current interest rates, and also what kind of return you can get on your money if you invest it instead.

Most people do not think about it like this, because they tend to not have substantial savings and investments. Since they have no savings, it makes no difference to most people what kind of return they can get on their money.

My situation is favorable in that my investment income made up roughly 40 to 45 percent of my total income for the past year, yet I still have a full time day job. Obviously I have substantial money that is “working for me” and I could have just easily taken that money and invested it into a home instead.

The bottom line for me is that because I can rent in my area for $425/month it is not cost effective for me to own a home at this time.

However, Patrick’s book is what finally gave me permission to feel OK about this decision.

Everyone you talk with seems to have a one track mind when it comes to the buy or rent debate: “If you rent you are throwing money away!”

No. Not true. If you own a home then you are “investing” capital into something that is actually a depreciating asset (houses depreciate over time, it is a box that sits in the rain and rots).

If you rent then you can take your savings and put your money to work for you.

Everyone who bought over the last decade or so got burned. Their “investment” went bad on them. People who were renting “won” over that time frame.

Patrick does a good job of warning you about all of the people, groups, and companies that want for housing to get more expensive (inflate). For some reason, we equate housing inflation as being a good thing, and we call that “a healthy housing market.” And when home prices deflate (as they have done in recent years) we call that “bad” even though housing is becoming more affordable for people.

Why is affordable housing a bad thing? One of the reasons (as Patrick points out in his book) is that so many people have used their housing “investment” as a piggy bank for their retirement savings. Their plan was to get old, sell the house, and use the money to fund their retirement to live out their remaining years. Not working so well during times of housing deflation.

Furthermore, it is the elderly population who is getting hurt by this, while young people tend to benefit from housing deflation and cheaper home prices. But guess who gets out there and actually votes for the politicians? That’s right…..the people who want to see housing go up. Many retirement plans are just begging for housing recovery.

And of course there are all sorts of other traps when it comes to home sales and the big push for a housing “recovery” (inflation). Realtors want prices to go up (so they make bigger commissions). Banks want prices to go up (so they make more on loans). And so on. About the only one who wants prices to go down are current or future home buyers.

Anyway this is a killer book about housing if you are in the market to buy any time soon. A must read for future buyers. Check it out on Amazon:

4 thoughts on “Book Review: The Housing Trap by Patrick Killelea

  1. Chris Desatoff

    Interesting stuff. I’m still pretty old school on the issue, but I absolutely agree with the more detached mindset of looking at a house as an investment and considering it along other investment options.

    A bad investment is a bad investment, whether it was in the housing market or the stock market…and a lot of people sure made bad investments in homes a decade ago. Of course, the same could be said about a lot of people who invest in stocks just prior to a huge drop in that market.

    And the debate continues…lol

    Side note: for the first few paragraphs I was like, “Why is Pat talking about himself in the 3rd person?” I knew you’ve talked about this topic before, and at first I was just assuming that this was your latest ebook. Only later did I look harder at the book cover and see that it was a different Patrick. :)

  2. Ray Schmitz

    Thanks for presenting a balanced view of the decision to rent or to buy. Your views have validity, but I would refine them somewhat:

    First, while structures do age and thus could be loosely said to depreciate, land is more durable and so does not. Most homeowners are buying a single family residence, so they are usually buying the bundle very durable plot land, along with a moderately durable structure.

    Land can on occasion loose value, for instance, by becoming better acquainted with the ocean. After Sandy, everyone here in NYC now knows about Zone A!

    Second, housing is some sense like a bicycle, or skis, or a car. One can either rent or buy any of these. Frequency of use is a consideration, as underneath is hidden meaningful transaction costs.

    For the occasional trip, I can rent a car for a day or take a taxi for 1 ride. If I need the car every day for many months, then buying one saves hassles. Negotiation with a landlord over a rent annually is a comparable hassle, especially if one ultimately has to move when that was not wanted!

    At some point it makes sense to just be done with it and not have to haggle with someone else over what you are going to pay for the next period of use.

    Finally, the rate of depreciation of homes is much slower than for other durable purchases. A car may not last 10 years, but the average for a house is perhaps 50.

  3. Bill Rose

    I have followed Patrick for years and am in full agreement with his postulates, because they are just plain common sense. To sign a document promising to make 360 payments over 30 years uninterrupted is utterly ludicrous. There are no jobs with 30-year guarantees, except government jobs. All employment in this country is now temporary, and making a lifetime commitment is blind emotion.

    Add to the fact that employment for 30 years is so NOT guaranteed, that banks love to foreclose and routinely foreclose on people whose payments are current (I am a victim) and even on people whose mortgages are paid off with impunity, and a mortgage is a recipe for ruin.

  4. Dan Mac

    Sounds like he makes some interesting arguments but I have a feeling I would find myself disagreeing with them. Maybe I should check out the book and see if he can convince me otherwise. One question I would wonder is he taking into account the fact that if you purchase a house you are locking in your housing costs at a rate for the long term while I can all but guarantee you won’t be able to find the similar place to live 20 or 30 years from now for only $425/month. I understand purchasing a house comes with other costs such as insurance, property tax and maintenance. But basically I have locked in a $1,000/month rental payment over the next 30 years and free after that while someone renting a similar house in my area will be paying a similar amount but that is increasing as the years pass.

    I don’t know what’s right or wrong and there really are quite a few variables to take into consideration.


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