There was a long time where home mortgages were known as “the most essential investment a person ever makes”. The housing crisis set in though. This came and has stayed longer than necessary. Home prices dropped a ton from what they were. Within the last 15 years, home sales haven’t been this low. Deflation concerns are going up as a result of falling home prices. A Federal Reserve official gave an opinion on the matter. Home investments are poor investments. One financial expert advises that when it comes to housing, people shouldn’t confuse an expense with an investment.
Why to stay away from investments in housing
The end of the 20th century showed a large amount of wealth in real estate. Experts believe that it will never be as good as that. The New York Times reports that the inventory of homes for sale may soon rise to a 12 month supply — twice the level of a healthy housing market. As all those sellers compete for buyers, home prices will continue to fall after already losing as much as 30 percent in value. 20 years could be needed to get back the $ 6 trilling that was lost just since 2005 within the housing market. This was explained to the Times by Dean Baker who’s the co-director of the Center for Economic and Policy Research. Home values may never catch up when considering inflation.
Considering housing a living expense
When assuming a house is an investment, one is making a huge personal finance mistake. This is the opinion of Charlie Farrell from CBS Money Watch. Farrell said housing should be looked at as a lifestyle expense like getting a car. A house is a depreciating asset, just like a car. Unless money is constantly added to the home, it will lose a ton of value. In 20 years, homes are likely to just keep up with inflation in price. This is assumed by economists. A home will return the cash an owner puts in each month, but will not multiply the investment within the mortgage. There is maintenance and taxes on a home, whether or not it is paid off. That means you are likely to get less overall out of your home than you put into it.
Trying to get yourself a home mortgage
In the aftermath of the housing bubble, the U.S. housing market is the last place people should put their hard-earned money, as outlined by 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.”. Linda Stern, Farrell’s colleague at CBS Money Watch, said Hoenig is right, but it could still be a good idea to lock in the price of a depressed asset and pay for it with other people’s money at 4.5 percent. Paying rent for 30 years returns nothing. With a mortgage, there’s a house at the end of the tunnel. Regardless of what it’s worth, it’s something.
Additional 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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