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. The investment of a mortgage will return only what is put into it each month. More money could be put to the home than is received out of it when it comes to the maintenance and taxes on it.
Getting a mortgage yourself
In the aftermath of the housing bubble, the U.S. housing market is the last place people should put their hard-earned money, according to Thomas Hoenig, president of Federal Reserve Bank of Kansas City. During testimony at a hearing held by the House Financial Services Committee’s oversight and investigations subcommittee, he said “If the American people are looking at the housing market to be their investment opportunity, I think they’re making a mistake.”. Farrell works at CBS Money Watch with Linda Stern who thinks that even though Hoenig is correct, it may be a good investment to get a depressed asset and then have it paid for with a super cheap loan at 4.5 percent. There is no return when paying rent for 30 years. At least with a mortgage, there’s something at the end. At least it is something at the end.
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/
