Article - Don't view a house as an investment

[shotgunner]

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

 

[Walt34]

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.

 

[ziggy29]

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.

 

[tryan]

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."

 

[shotgunner]

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?

 

[ziggy29]

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.

 

[Andre1969]

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.

 

[FUEGO]

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.

 

[Carnage]

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.

 

[jayc]

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.

 

[calmloki]

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.

 

[TooFrugal]

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.

 

[Birdie Num Nums]

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?

 

[Rustic23]

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.

 

[tryan]

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.

 

[Texas Proud]

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...

 

[W2R]

From the article in the first post of this thread,

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.

 

[REWahoo]

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.

 

[W2R]

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.

 

[Rustic23]

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.

 

[traineeinvestor]

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.

+1

Given that a home is usually the biggest purchase that most people will make in their lives, IMHO it would be a mistake not to evaluate it as an investment. (Whether it is the best investment that can be made is another question enirely.)

Also IMHO a lot of the extreme negativity about US property in general is no more than examples of recency bias and herd following.

Lastly, many of the comments I see in the media, on blogs and in forums like this sound very similar to what was being said and the sentiment that prevailed in Hong Kong in 2002/3 when the local property market was at its lowest point - it was a great time to buy.

 

[Keim]

I definitely view my home as an investment. It may not be my best performing asset, and I am unlikely to sell it any time soon to pay a bill, but it is a place where I park a lot of money.

And, when I figure my net worth on firecalc and the like, my home equity is part of my overall portfolio dollar figure.

 

[Dog]

My home is my home. I don't view it as an investment or source of income. I have a place to live that no one can take from me as long as I stay current on property taxes. That allows me to sleep soundly at night. A luxury that my investments do not provide.

 

[RAE]

My home is my home. I don't view it as an investment or source of income. I have a place to live that no one can take from me as long as I stay current on property taxes. That allows me to sleep soundly at night. A luxury that my investments do not provide.

Yep, I agree, Dog. In the town we live in (small town in the Upper Midwest), you are not going to make much, if any $$ on a house when you sell it (unless you have a home with water frontage, which ours is not). In fact, if I were to put my house on the market right now, I'd be fortunate to get the same price that I paid for it (not even figuring in inflation), back in 2000 -and we've made several improvements to the house since then. But, it doesn't really matter, as the house is paid for, we're happy here, and it will likely be the last house we ever buy. So, it's a place to live and be comfortable, in my view - not an investment.

 

[FUEGO]

And, when I figure my net worth on firecalc and the like, my home equity is part of my overall portfolio dollar figure.

This is interesting. I don't know if I have heard anyone on this forum say they include their home equity in their portfolio value for purposes of firecalc or other financial calculators.

How does this work? Do you plan on liquidating your house or reverse mortgaging it as part of your financial planning, or is it basically another safety net in your planning?

I guess in a way the consensus here is overly conservative in that we don't typically include the potential for a reverse mortgage in our planning. I know I always have that choice, but it would be more of a last resort I guess.