House Prices Dropping Faster Than During The Great Depression
| June 3, 2008 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
A common thread among many comments about this story is concerns about the devaluation of houses. Inherently, there is nothing wrong with these concerns except that in many cases they are based on the premise that one’s home is the central foundation of wealth. Admittedly, I know it bucks popular personal finance advice, but one’s home is not really an asset. However, even famed author David Bach said in his book the Automatic Millionaire Homeowner that one’s home is his or her greatest asset. I disagree, but I do understand that people feel this way because they define an asset as anything that has value rather than something that creates income. Traditionally, the mortgage balance is listed under liabilities and the home value is listed under assets on the balance sheet, but the balance sheet does not give the entire picture. For most single-family, non-rental properties, there is no cash-flow generated from the property. Additionally, it is incomplete to not include maintenance costs, taxes, and other expenses.
Until the last few years, individuals reconciled these losses with the fact that they could sell the property for a profit (tax-free in some cases); however, with the decline in home prices, the current outlook is decidedly grim for right now, regardless of how you define asset.
Perhaps, one necessary shift in thought is for us to stop viewing our primary residencies as investments. There is absolutely nothing wrong with home ownership, and depending on one’s financial position, it is often a wise financial decision. The problem arises when people view their homes as panaceas to all of their financial ailments. For example, homes generally do not cure debt (HELOCs actually move debt to your home) and homes do not generate income in most cases. Homes are recidences, and if you happen to sell yours for a profit, that’s great.
FYI, the profit is truly made when you buy, so this Economist article may be good news if you are a true real estate investor.
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there's nothing wrong with home ownership; the problem is viewing the home as one's primary investment.
Ouch!
Didn't they also rise faster during the previous years?My point is we see these headlines about home prices dropping, but they are coming off historic gains. This is bad news if you bought recently and have to sell for a loss or you lose your house altogether to foreclosure but when you look at 10 or even 5 year trends your home value isn't doing that badly. And isn't that the key to investing, a long term outlook?
Swiggy,The long-term view of wealth is definitely quintessential for investing. My point is that having a house as your primary large investment, in most cases, is not financially wise. Consider all of the individuals who did not appropriately plan for retirement who are now getting reverse mortgages, facing foreclosure, or eating Alpo. This is not an attack on long-term home ownership. Rather, it is an attack on viewing one's residence as his or her central investment regardless of what the "value" is.