Quote:
Originally Posted by retiringby50
I love it when other people do the math for me because I have no clue if I'm missing out on anything other considerations. All seems to make sense... guess coming here and reading more helps!  Plus seeing the same info repeatedly helps reinforce what I've been reading (which is why I don't ever mind newbies asking the same questions over again, but I understand it can be pain if you've been on this board for years). |
I agree that it is always good to either refresh our memories or learn it for the first time.
However, it never ceases to frustrate me when I see statistics, and can't help but think "and I wonder how objective this is?"
[from the story cited by Martha; subject: "To buy a home or rent?"]
"That's a low bar considering that home prices nationally increased by an average of 6.4 percent a year between 1963 and 2005, according to the research firm Winans International.
Okay, so what's the problem with the above? How about where to stop your calculations? While I don't know the specific impact of changing the end of the range, I do know that historically, housing has barely kept up with inflation in the long-term. So if you take the average housing price range from, say, 1963 and 2000, how much would that drop the average price increase versus taking the average through 2005 (with absurd record-high prices)? If someone sees the article and thinks "Gee, that 6.4% annual increase is fine - I'll live here for at least 10 years, so I'll be ahead 64% on average", they were just done a big disservice.
Even worse:
"But wait. What if housing prices keep tanking? No question, that could happen. That's why you need a long time horizon to ride out the ups and downs. Between 1963 and 2005, the worst 10-year home-price return was 2.5 percent."
Yes, they point out a downfall of homes not increasing at 6.4%/year - but is it worth anything?
How much have prices gone up in the past 5 years - 30%-100% in some areas? That's easily twice up to 10 times as much as they've gone up in the past. If the past 5 years have had gains that were 2x-10x as big as average, then surely the price declines following these booms could be 2x-10x as large as before?
Granted, I acknowledge that an average range always has a beginning and an end, and those dates are subject to anyone's whim: pick any two dates to start/stop, and at least 10,000 people could find faults with the date selections.
My beef with the above article is that people pick certain dates/ranges (kind of like the comments by financial pundits of "never take out a loan on a depreciating asset because the value goes down") without really saying ANYTHING more. I'm not asking for a 10-page footnote thesis worthy of a dissertation - all they'd need to do is point out "Hey, if you look at 1963-2005, the average gain is x% - but it includes a record-breaking gain of 100%. Compare that to the average gain from 1963-2000 of y%." or say "for most people, never take out a loan on a car - but there are extreme circumstances where the finance experts could make it work".
IMO, they aren't truly trying to educate people - they're only trying to indoctrinate them with their personal opinions, not mathematical concepts and proofs. True, they have helped countless people get out of debt and improve their finances - but I just wish they could let them know that their words are crude simplifications that aren't anywhere near absolutes.
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