Mortgages on homes used to be known as “the most essential investment a person ever makes” for a when. Then the housing crisis arrived and long overstayed its welcome. Home prices dropped a ton from what they were. Sales of homes have not been this low in 15 years. Deflation is a concern for more individuals. This is because house prices are going down. A Federal Reserve official most recently said it was a mistake to take a look at buying 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 is housing a bad investment to make?
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. 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 within the housing market which will take 20 years to gain back. Then you’ve to add inflation to the mix. That means home values may never catch up.
Living expense for housing
Charlie Farrell at CBS Money Watch explained the biggest mistake one can make in personal finances is assuming a house is an investment. Farrell suggests considering housing costs as a cost of living that is required. A house is just like a car in that it is a depreciating asset. Unless money is consistently added to the home, it will lose a ton of value. Economists thinks home values will barely stay with inflation in the next 20 years. The investment of a mortgage won’t go up. The return will only be what is put into it. More money can be put into the home than is received out of it when considering the maintenance and taxes on it.
Getting a mortgage yourself
Thomas Hoenig who’s the president of Federal Reserve Bank of Kansas City explained that the U.S. housing market isn’t someplace you need to be putting your money as an investment. He said, “If the American people are looking at the housing market to be their investment opportunity, I think they are making a mistake.” He was at a hearing by the House Financial Services Committee’s oversight subcommittee when he said this in testimony. With a 4.5 percent loan rate of interest, Linda Stern thinks that it could be a good idea to get a home and have others pay for it with rent, although she admits Hoenig is right. Stern works at CBS Money Watch as well. Paying rent for 30 years returns nothing. At least with a mortgage, there will be something at the end. 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/
