”The most essential investment a person ever makes” is what home a home mortgage used to be considered. This was for decades. Next there was a housing crisis that has been here way too long. Homes prices were too high and suddenly became too low. Home sales are at their lowest level in 15 years. Deflation concerns are going up as a result of falling home prices. A Federal Reserve official recently said it was a mistake to look at purchasing a house as an investment opportunity. 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
Real estate experts believe home ownership will never again generate wealth like it did within the second half of the 20th century. A 12 month supply, or two times the amount of a healthy housing market, is where the inventory of homes may rise to, the New York Times reports. As all those sellers compete for buyers, home prices will continue to fall after already losing as much as 30 percent in value. 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. Then you have to add inflation to the mix. That means home values may never catch up.
Housing seems to just be a living expense now
. Think about a house as a living cost. It is just like getting a car, says Farrell. A house is a depreciating asset, just like a car. It falls apart unless money is constantly pumped into it. Economists thinks home values will barely stay with inflation within the next 20 years. The investment of a mortgage will return only what is put into it each month. Even when the mortgage is paid off, paying maintenance costs and taxes on a home means owners may have put more money into houses than they get out of them.
Getting a home mortgage
Thomas Hoenig who’s the president of Federal Reserve Bank of Kansas City explained that the U.S. housing market isn’t somewhere you should be putting your money as an investment. He explained at a hearing held by the House Financial Services Committee’s oversight and investigations subcommittee, “If the American people are looking at the housing market to be their investment opportunity, I think they are making a mistake.”. Linda Stern, Farrell’s colleague at CBS Money Watch, said Hoenig is right, but it could nevertheless 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. 30 years of rent gives no return. At least with a mortgage, there is 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/
