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Article - Don't view a house as an investment
Old 08-23-2010, 07:38 AM   #1
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Article - Don't view a house as an investment

I always considered mine to be an expense, something I needed, a place to live and something that generated bills because I never sold. Looks like I was right but it took 25 years since I purchased it for my theory to prove true. Quite a bit of pessimism here, only time will tell.

NYT: Homes fading as means to build wealth - Business - The New York Times - msnbc.com
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Old 08-23-2010, 08:00 AM   #2
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I never saw it as an investment either, I just wanted one to fix the cost of housing. Long ago I moved from two apartments because rents were rising faster than my income and I saw home ownership as a way to head that off.

That and if I wanted to paint the walls orange with purple stripes I could without asking anybody. As far as price appreciation goes, that only works if one moves from a high cost area to a lower cost area, which is what DW and I did.
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Old 08-23-2010, 08:02 AM   #3
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Too bad these people couldn't look in to their crystal ball and give this warning 3-4 years ago. Nice to see them advocate closing the barn door after the horses already escaped in any event.
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Old 08-23-2010, 08:08 AM   #4
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Interesting ... I can remember similar articles in the early-mid 90's. Similar to "stocks are dead" in a bear market.

People have short memories. Herds gather quickly.

Took ~12 years to get "rolling" after the 90's downturn. This one might take longer because of the steriods the fed is pumping in the economy. But it'll pass then "happy days are here again."
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Old 08-23-2010, 08:11 AM   #5
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I am wondering if the current decline in home values and predicted lack of appreciation beyond inflation for years to decades to come is an indicator of coming deflation. Not just the decrease in home prices but the fact that the house ATM (borrowing money against the appreciating value of one's house) will no longer be there to fund lavish vacations, new cars and college costs to name a few. Could the lack of this money being available to consumers in the future push prices for many items down?
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Old 08-23-2010, 08:14 AM   #6
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I am wondering if the current decline in home values and predicted lack of appreciation beyond inflation for years to decades to come is an indicator of coming deflation. Not just the decrease in home prices but the fact that the house ATM (borrowing money against the appreciating value of one's house) will no longer be there to fund lavish vacations, new cars and college costs to name a few. Could the lack of this money being available to consumers in the future push prices for many items down?
As I've heard it said before, the problem is that the price of things I consume is rising but the price of things I own is falling.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 08-23-2010, 09:06 AM   #7
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I look at a home as in investment in the sense that over time, a fixed-rate mortgage costs you less and less because of inflation, and once it's paid off, you have a rent-free place to live. True, you still have property taxes, utilities, upkeep, etc, but all that combined should still come out cheaper than renting an equivalent place.

Plus, as you build equity, you can pull some out and invest...just don't get TOO greedy!

I'm not looking at a home as something that you buy and flip after a few years for a big profit...so not an investment in that sort of sense.
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Old 08-23-2010, 09:44 AM   #8
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I definitely do not view a house as an investment. I do expect my house to roughly keep up with inflation over the years whereas my mortgage principal balance will continue to decline. Eventually my house will throw off a tax free stream of imputed rent payments. Houses are definitely expenses in my book. Maintenance, property tax, insurance, remodeling, etc.

If I viewed a primary residence as an investment, then I would be dumping all my money into buying a bigger home or expanding my current home. I know that my house will not return 5-6% real return over the long haul like equities MAY do.

I think those who think housing is the secret to wealth are suffering from recency bias. The 20+% per year appreciation in CA, FL, New England were anomalies that lasted just a brief time. If you think 20+% long term is sustainable, then I have some prime real estate in NYC to sell you - it provides vehicular connectivity between Manhattan and Brooklyn.
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Old 08-23-2010, 10:08 AM   #9
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I don't view our house as an investment, but that doesn't mean I don't plan to make some bit of profit on it. However, anything we did earn is just an "icing on the cake" situation and in no way is factored into my retirement planning.
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Old 08-23-2010, 10:38 AM   #10
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This is the sign/time to buy your primary residence. Lower prices plus very low interest rates. When the so called 'experts' write fluff articles (blood in the streets) then we can be assured that the bottom is near.

Has the NY times benn right about anything? Their MO is wait for time to pass, check hindsight then write an article about it.
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Old 08-23-2010, 10:39 AM   #11
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Best forced savings account out there. Given that many have a problem contributing to their savings each and every month it is a good deal.
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Old 08-23-2010, 11:19 AM   #12
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After accounting for time and money on home repairs and remodeling I've been wondering lately if renting isn't the way to go.

I've been considering lately that maybe we could make more money in the long term by renting and spending the freed up time on our business instead of fixing up an older home.
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Old 08-23-2010, 11:51 AM   #13
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Having a mortgage on a property that is "underwater" is renting plus having debt--I read elsewhere recently. Plus, when was the last time I wanted orange walls with purple stripes?
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Old 08-23-2010, 12:08 PM   #14
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DW and I plan on this being our last home. Maybe our kids could look at it as an investment, but for us it is something we never intend to sell. I don't care if it goes up or down in value. Well down would be ok, as it would save me on property tax. I do not, however, feel the same about stocks and bonds! They are investments.
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Old 08-23-2010, 02:04 PM   #15
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Quote:

Having a mortgage on a property that is "underwater" is renting plus having debt
Yes, everyone paying on an upside down mortgage would be better off renting and DCA into a savings account. Same would be said for carrying a negative cashflow on a investment property.

There is a right time - and a wrong time - to buy every investment class. The Nasdaq is still trading over 50% below is peak ... a decade n'counting.
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Old 08-23-2010, 02:39 PM   #16
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Wonder if this changes the thinking of the RE crowd... most rental properties do not make a good return without the gain in RE value..


I have never thought of a house as an investment... and I was proven right... my house that I sold earlier this year was sold at 174% of the purchase price... after 23 years!!!... not a return you would be looking for...
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Old 08-23-2010, 04:46 PM   #17
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From the article in the first post of this thread,

Quote:
Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.
We are starting to agree with this sort of thinking, which is why we finally decided to go ahead with the move north. There doesn't seem to be much sense in waiting for New Orleans real estate prices to increase drastically in the next 2-5 years.

Since we are downsizing, our loss on selling will not be fully compensated for by our gain on buying up north. We'll probably end up with about $20K less (each) than we had projected. The compensation for us will be in going ahead with our life and in doing what we want to do.

I do feel sorry for those Californians and others who borrowed every penny they could on adjustable rate or interest only mortgages on homes that they considered to be investments. Like many of them, I was blindsided by the housing crash and never in a million years would have thought that real estate could decline in value nationwide like this. Unlike many of them, I will not be losing too much but really, their situation is so sad.
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Old 08-23-2010, 05:14 PM   #18
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We are starting to agree with this sort of thinking, which is why we finally decided to go ahead with the move north.
Yep, "waiting for the market to recover" could be a lifetime event - seems a shame to forgo a dream when you have the funds available to make it happen. I'm very happy to see you and Frank are moving forward (and northward ) with your retirement plans.
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Old 08-23-2010, 05:27 PM   #19
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Yep, "waiting for the market to recover" could be a lifetime event - seems a shame to forgo a dream when you have the funds available to make it happen. I'm very happy to see you and Frank are moving forward (and northward ) with your retirement plans.
Me, too! His budgeting is a bit tighter than mine right now especially since his house has become a money-pit this year, so I hope he doesn't feel the need to take a contract job after we arrive up north. With the cost of living (other than housing) also being less up there than it is here, it might end up being a wash and I hope it does.
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Old 08-23-2010, 05:28 PM   #20
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I was an appraiser in Texas in the late 80's early 90's. I heard predictions that the apartment market, condo market, residential market, strip shopping center market, (get the picture) would not recover. We would not see good times in our lifetime. However, things did turn, and I believe every real estate asset class recovered. It also seems like I remember in 1999 how 'it's a new market, you have to look at investing a new way', then the bottom dropped out.

Needless to say I don't put much faith in people that forecast gloom and doom forever, or good times forever.
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