Conventional wisdom is just that - conventional, and an important thing to teach people is that there are times when convention should be broken.
Back during the height of housing bubble (2006/2007), a friend of mine decided to buy his first home. It was so obviously a "bubble buy" that even before things started to get bad, it was visible from a mile away that he was making a bad decision: He was buying a new construction K. Hov. cookie-cutter apartment in Edgewater, NJ, which was just close enough to Manhattan to tempt those "I'm buying a NYC apartment!" types but just far enough away that there wasn't a real fundamental demand to live there. He got a terrible no-verification mortgage ("liar loan") that we all warned him was trouble. He paid way too much -- something like $600k for a 1BR condo (near Manhattan prices, not Edgewater NJ prices).
When our friends warned him of these issues, when we pointed out that he could rent a very nice 2BR apartment a few blocks away for $2500/month that he and his wife would be plenty comfortable in, when we pointed out he was likely buying at or near the peak of a heady real estate market, he didn't care. His only refrain - over and over - was the age-old:
"But I'm going to be a _homeowner_. You guys are just throwing away money towards rent every month. I don't want to do that."
Fast forward a few years: Not surprisingly, his interest rate reset, his apartment is worth about $400k, and he had to go through mortgage default to get a modification on his loan.
And yet he still clings to his decision - "yeah but I own my place, and it'll even out over the next few years."
Sometimes buying for the sake of buying just isn't the right decision, despite what "we were all taught."
These types of people are irrational, irritating, and the root cause of so much social strife:
"But prostitution is wrong!" So we make it illegal and cause prostitutes to get roughed up by pimps and Johns. They attract more diseases and end up straining our social support system.
"But drugs are bad for the community!" So we make drugs illegal and we have gang turf wars and a "fuck the police" vibe from the poorer areas of our cities. Tell me again, what was worse for the community?
"But I don't want to live in a city with lots of condos!" So we make it illegal to build new condos. Then a bunch of google employees start moving in and now the original votes are economically squeezed out.
"It isn't right that Wallmart's (or McDonalds, etc) employees require subsidies from the government!" So we raise minimum wage and (through perverse incentives and lobbying) cut welfare benefits to the partially employed. Minimum wage companies replace people with machines and the government gets higher unemployment and less productivity (since engineers are creating machines to replace the unskilled, instead of the skilled).
It's all the same thinking over and over again. An emotional appeal that has nothing to do with good policy. This is why Khan's video is so important. It reaches out to people and educates them without judgement. Talking to your friend he may feel like he needs to stick to his decision, otherwise his friends will see him as weak, but if he comes to these facts on his own maybe it will enlighten him.
Conventional wisdom is just that - conventional, and an important thing to teach people is that there are times when convention should be broken.
Back during the height of housing bubble (2006/2007), a friend of mine decided to buy his first home. It was so obviously a "bubble buy" that even before things started to get bad, it was visible from a mile away that he was making a bad decision: He was buying a new construction K. Hov. cookie-cutter apartment in Edgewater, NJ, which was just close enough to Manhattan to tempt those "I'm buying a NYC apartment!" types but just far enough away that there wasn't a real fundamental demand to live there. He got a terrible no-verification mortgage ("liar loan") that we all warned him was trouble. He paid way too much -- something like $600k for a 1BR condo (near Manhattan prices, not Edgewater NJ prices).
When our friends warned him of these issues, when we pointed out that he could rent a very nice 2BR apartment a few blocks away for $2500/month that he and his wife would be plenty comfortable in, when we pointed out he was likely buying at or near the peak of a heady real estate market, he didn't care. His only refrain - over and over - was the age-old:
"But I'm going to be a _homeowner_. You guys are just throwing away money towards rent every month. I don't want to do that."
Fast forward a few years: Not surprisingly, his interest rate reset, his apartment is worth about $400k, and he had to go through mortgage default to get a modification on his loan.
And yet he still clings to his decision - "yeah but I own my place, and it'll even out over the next few years."
Sometimes buying for the sake of buying just isn't the right decision, despite what "we were all taught."