”The most important investment a person ever makes” is what home a home mortgage used to be considered. This was for decades. That changed with the housing crisis that has been here too long. Home prices went too low. This was following the home prices were already too high. Sales of homes have not been this low in 15 years. Prices on homes are going down making deflation concerns go up. A Federal Reserve official lately said it was a mistake to look at getting a house as an investment opportunity. Investments and expenses shouldn’t be confused in housing suggests an additional financial expert.
Why to keep away from investments in housing
Some think, including experts in real estate, there will never be as much wealth in real estate as there was clearly at the end of the 20th century. 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 in the housing market which will take 20 years to gain back. Adjusting for inflation, home values will never catch up.
Housing seems to just be a living expense now
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 buying a car. A house is a depreciating asset, just like a car. The home will fall apart. The only way to stay away from this is to pump money into it constantly. Economists say in the next 20 years home values will only keep up with inflation. The investment of a mortgage will return only what is put into it every month. Even when the mortgage is paid off, paying maintenance costs and taxes on a home means owners can have put more money into houses than they get out of them.
Getting 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, according to 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 individuals are looking at the housing market to be their investment opportunity, I think they’re making a mistake.”. With a 4.5 percent loan rate of interest, Linda Stern thinks that it might 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. 30 years of rent gives no return. At least with a mortgage, there is something at the end. 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/
