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Andrew Tobias
Andrew Tobias

Money and Other Subjects

Prepayment Versus Investment – Part 207

March 19, 1999March 25, 2012

Following up on yesterday’s discussion of this eternal question, Jeff Serenity (well, I’m guessing from his e-address — and hoping! — that’s his last name) notes that the ratio of the S&P 500 to the price of new homes over the past 36 years has never been more favorable for the ‘home’ side of the equation. “In other words,” he says, “it’s never taken so few ‘units’ of the S&P 500 to purchase a new home.”

So maybe this is a better time to buy real estate than stocks (or to buy Japanese stocks than US stocks, but that’s a whole different question/issue). And, Jeff suggests, it could be argued that one way to invest more in real estate, if you can’t actually afford another home, is to pay down a mortgage.

Well, yes and no. You’ve already bought the home; paying down the mortgage will not increase your real estate gains. When you pay it down, it’s not so much like buying more real estate as investing in a bond whose interest rate is precisely identical to the interest rate on your mortgage.

Still, I found the column by Dallas Morning News columnist Scott Burns from which Jeff drew this information to be just as interesting as Jeff did — http://www.scottburns.com/990119tu.htm . Thanks, Jeff! (Seinfeld fans: “Serenity now!”)

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