Are homes bad investments?

[marmar]

WSJ, via Yahoo:



Is Your Home a Good Investment?
by Brett Arends

Wednesday, May 27, 2009


There's the usual talk about what the latest Case-Shiller house price data mean for the next short term move in the real estate market. Has housing bottomed? If not, has the rate of decline slowed? And when will we see an upturn?

Human nature likes the short term. Which is why so little attention is paid to something that is probably more important, if less urgent: What the latest data show about the long-term of the real estate market.

And it's startling.

We have just been through the biggest boom in real estate in American history. The subsequent bust surely hasn't finished.

Yet look at the numbers. Since 1987, when the Case-Shiller index of 10 major cities begins, it's risen from an index value of 63 to 151. Annual return: Just 4.1% a year. During that period, according to the Bureau of Labor Statistics, consumer prices rose by 3% a year. Net result: Home prices produced a real return of just 1.15% a year over inflation over that time.

Critics may point out that the analysis is unfair -- after all, it starts counting near the peak of the 1980s housing boom. Fair enough. Look at the performance since, say, early 1994, when home prices were near a historic trough. Surely someone who bought then has made a bundle. ........(more)

The complete piece is at: http://finance.yahoo.com/real-estate/article/107122/Is-Your-Home-a-Good-Investment

[Lex]

1. We bought ours 11 years ago for 176K and now it's worth 300K

according to what similar homes in this neighborhood are selling for. With a 5% fixed rate at 15 years (we refinanced in 2003 at that rate), I'd say yes, it's been a very good investment for us. It will be paid for well before retirement for either of us.

For folks in the bubble areas who got high LTV loans would be in a different situation however.

[xchrom]

2. i hope so -- i want to start my own business --

my is/was how i'm going to do that.

but right now? -- oy i'm in the bay area -- i've lost a lot of equity.

[Fresh_Start]

3. Its not just an investment, its also a residence

So part of the 'is it worth it' evaluation needs to compare the cost of ownership to the cost of renting. One of the factors which led to the real estate bubble was the increase in rental prices.

[Lisa0825]

5. Exactly.

My house isn't worth much, but the money I pay every month at least partially goes toward equity, whereas renting is paying someone else.

[question everything]

19. Plus, it is my home

I can move walls, change the landscape, replace appliances when I want to, etc.

This is what has been the problem at least in California and in Florida in the 90s, when people started flipping and treating houses as investments, instead of a place of stability to raise a family.

[Lisa0825]

20. Yep.... and no one else cares if my cats claw the door jams! LOL

And I don't even have to deal with ahomeowner's assoc so no one nags me about my grass getting too high! :rofl:

[carlyhippy]

23. My door jambs look like someone took a hatchet to them, thanks to my cat

the scratching post is nearby, but I guess he likes the feel of painted wood on his claws instead....

[Commie Pinko Dirtbag]

4. I think homes shouldn't be investments. They should be something you buy for using.

Unless, of course, you're in the business of building houses and selling them.

[Johonny]

6. I agree

I want a house to live in. The invest in houses idea has now made it nearly impossible for the younger generation to buy a home.

[fasttense]

7. Here is something interesting about our home.

We bought the land with cash in 2000 and then built a house on it in 2002. The house has gone down in value but the 14 acres of woods, fields and spring fed streams have gone up in value. So we have basically broken even on the cost/value. And with all the land, we are able to grow hundreds of bushels of food and raise livestock.

God was smiling on us when he showed us this property.

[cabbage08]

8. If you include the tax savings it is a good investment n/t

[cbdo2007]

9. Unless you pay cash for the full price, a home is generally a bad investment.

An "investment" being something that you buy and hold on to, so that when you sell it you make a profit over the price paid. Your "return" in this way when you add up all of the interest, taxes, insurance, and many other miscellaneous expenses - minus your selling price is going to be very small.

Now, owning a house and not having to put up with upstairs neighbors and all the other BS that comes along with renting, is worth a lot itself. So, is it an investment in your happiness and general well being? Yes. A good financial investment, unless you pay cash up front for the whole thing, probably not.

[slackmaster]

12. I disagree - I rented from the time I left my parent's house until I was 37

My mortgage payments, considering the effects of inflation and the tax benefits, are lower than I was paying at the last home I rented. At that time I was married with a child at home.

I have built up equity in my home. It has increased signficantly in value, even with the recent drop in prices. I could sell it now for probably a lot more than I would have had in investments had I continued to rent.

The other benefits are the intangibles you mentioned, and they are very important to me. I have a yard that I can do whatever I want with, no asshole landlord to deal with, no threat of eviction on one months's notice hanging over my head.

Renting sucked. Owning a home is great.

[slackmaster]

10. To me, my home is and has always been a place to live

Not an investment. But it has turned out, in the long run, to be far more economical than renting was.

[Dappleganger]

11. For us, it's a place to send our kids to good schools.

There are no apartments or townhomes to rent around here and very few rental homes. The only way to get our kids into these particular schools was to buy a house in this area.

A home isn't an investment, it's a place to live. Kids also can depreciate your home so that needs to be taken into consideration.

[11 Bravo]

13. We bought ours in '92 for 199K. Today it's worth 475K. Seems like a pretty good investment to me.

[Mari333]

14. it comes in handy to have a roof over my head

if thats what investment means. otherwise, Im not considering how much the place is worth or isnt worth anymore. Im just glad I have a house to live in at this point.

[Xithras]

15. Is rent a good investment?

Other than some tax credits, there is no investment-benefit to renting.

Here's the best way to look at home ownership: It's just like renting, but you get a big refund check when you move out. If you're lucky and the market goes up, you may get some extra money too. If you're unlucky and the market goes down, your losses will still probably be less than you'd have spent on rent in that same time period.

[pnutbutr]

18. If you buy a home to live in long term

it will almost 100% of the time increase in value.

[david13]

16. Generally speaking, homes are one of the best

investments that can be made, that are made by people in the usa in all history.
dc

[pnutbutr]

17. It all depends on the market you buy in but yes, homes generally are a good investment

I know someone who bought a townhouse in 2000 for $80k, he fixed it up, new floors, paint, bathroom fixtures, kitchen counter and appliances. Sold it in 2005 for $280k. The area around that townhouse community has been built up significantly in that time. He then bought a single family home for $300k in a stable area that has seen very little to no growth. That home is now worth $350k.

He played the market perfectly. Not everyone has the insight on real estate to be able to do that but he taught me what to look for depending on the local and national economy and the growth rate/potential growth rate of the areas.

[nolabels]

21. When republicans run the government just about anything could be a bad investment

Haven't you heard, it's all relevant and besides blaming inanimate objects rather than the persons who caused the problem never solved anything

[janx]

22. If you're careful and realistic, if you save for a downpayment

on a modest home and choose a fixed rate mortgage and hang onto it, then a home is one of the best investments going.