Billionaire money manager John Paulson was
interviewed at the
Delivering Alpha Conference presented by
CNBC and
Institutional Investor. During his session he boldly stated:
"I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you're the owner-occupier of.”
Who is John Paulson?
Paulson is the person who, back in 2005 & 2006, made a fortune betting that the subprime mortgage mess would cause the real estate market to collapse. He understands how the housing market works and knows when to buy and when to sell. What do others think of Paulson?
According to
Forbes, John Paulson is:
“A multibillionaire hedge fund operator and the investment genius.”
According to the
Wall Street Journal, Paulson is:
“A hedge fund tycoon who made his name, and a fortune, betting against subprime mortgages when no one else even knew what they were.”
Why does he believe homeownership is such a great investment?
Paulson breaks down the math of homeownership as an investment:
"Today financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent. And if you put down, let's say, 10 percent and the house is up 5 percent, which is the latest data, then you would be up 50 percent on your investment."
How many are seeing a 50% return on a cash investment right now?
Paulson goes on to compare the long term financial benefits of owning verses renting:
“And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”
Bottom Line
Whenever a billionaire gives investment advice, people usually clamor to hear it. This billionaire gave simple advice –
if you don’t yet live in your own home, go buy one.
The price of any item (including residential real estate) is determined by ‘supply and demand’. If the supply of an item is larger than the amount of people looking to purchase that item, the price will decrease.
According to the National Association of Realtors (NAR), historically there is a natural decline in buyers looking to purchase a home (also known as foot traffic) as the winter months approach. Shown in the graph below:
