Online Calculator | The Days Of Homebuying As An Investment Opportunity Are Long Gone

The Days Of Homebuying As An Investment Opportunity Are Long Gone

A home mortgage was known as “the most important investment a person ever makes” for decades. Next there was a housing crisis that has been here way too long. Home prices went too low. This was following the home prices were already too high. Sales of homes haven’t been this low in 15 years. Falling home prices are raising concerns about deflation. An official with the Federal Reserve feels like an investment in homes is a bad one. One financial expert advises that when it comes to housing, people shouldn’t confuse an expense with an investment.

Why housing is no longer a good investment

Some think, including experts in real estate, there will never be as much wealth in real estate as there was at the end of the 20th century. According to the New York Times, home sale inventory has risen to twice the amount of a healthy housing market. Which means it is at a 12 month supply. After losing 30 percent in value already, sellers are losing more value on homes. The Times spoke with the co-director of the Center for Economic and Policy Research, Dean Baker, who explained that since 2005, $ 6 trillion has been lost in the housing market which will take 20 years to gain back. Adjusting for inflation, home values will never catch up.

Contemplating housing a living expense

Charlie Farrell at CBS Money Watch explained that the biggest mistake one can make in personal finances is assuming a house is an investment. Think about a house as a living cost. It is just like purchasing a car, says Farrell. A house is just like a car in that it is a depreciating asset. The home will fall apart. The only way to stay away from this is to pump money into it constantly. In 20 years, homes are going to just keep up with inflation in price. This is assumed by economists. A home will return the bucks 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 will have put more money into houses than they get out of them.

Getting 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, according to Thomas Hoenig, president of Federal Reserve Bank of Kansas City. He said, “If the American individuals are looking at the housing market to be their investment opportunity, I think they’re 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 although 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. At the end of a mortgage, you get something. It is a house that you own. In the end, you end up with something. That’s 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/

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