There was a long time where home mortgages were known as “the most significant investment a person ever makes”. That changed with the housing crisis that has been here too long. Home prices went too low. This was following the home prices were already too high. Home sales have not been this low in a long time. It has been about 15 years. Prices on homes are going down making deflation concerns go up. A Federal Reserve official gave an opinion on the matter. Home investments are poor investments. Investments and expenses shouldn’t be confused in housing suggests one more financial expert.
Why is housing a bad investment to make?
Real estate experts believe home ownership will never again generate wealth like it did in the second half of the 20th century. The New York Times reports the inventory of homes for sale may soon rise to a 12 month supply — twice the level of a healthy housing market. After losing 30 percent in value already, sellers are losing more value on homes. Dean Baker, co-director of the Center for Economic and Policy Research, told the Times it will take 20 years to recoup $ 6 trillion in housing wealth lost since 2005. Adjusting for inflation, home values will never catch up.
Housing as a living expense
Treating a house as an investment is the biggest personal finance mistake a person can make, according to Charlie Farrell at CBS Money Watch. Farrell suggests considering housing costs as a cost of living that is needed. Just assume your house is a depreciating asset. It is like a car in this way. The home will fall apart. The only way to avoid this is to pump money into it constantly. Economists thinks home values will barely stay with inflation in the next 20 years. A home will return the cash an owner puts in each month, but will not multiply the investment in the mortgage. Even when the mortgage is paid off, paying maintenance costs and taxes on a home means owners can have put more money into houses than they get out of them.
Trying to get yourself a home mortgage
In the aftermath of the housing bubble, the U.S. housing market is the last place individuals should put their hard-earned money, as outlined by Thomas Hoenig, president of Federal Reserve Bank of Kansas City. He said, “If the American people are looking at the housing market to be their investment opportunity, I think they are making a mistake.” He was at a hearing by the House Financial Services Committee’s oversight subcommittee when he said this in testimony. Farrell works at CBS Money Watch with Linda Stern who thinks that despite the fact that Hoenig is correct, it might be a good investment to get a depressed asset and then have it paid for with a super cheap loan at 4.5 percent. Paying rent for 30 years returns nothing. With a mortgage, there’s a house at the end of the tunnel. Within the end, you end up with something. That’s much better than ending up with nothing.
Further reading
CBS Money Watch
moneywatch.bnet.com/retirement-planning/blog/retirement-roadmap/housing-dont-confuse-an-expense-with-an-investment/3376/
CBS Money Watch
moneywatch.bnet.com/economic-news/blog/daily-money/is-housing-still-a-good-investment/1259/
