skeptics taking aim at whether homeownership is a good investment

One of the longest standing hallmarks of the "American Dream" is becoming a homeowner. A increasing quantity of well qualified experts are starting to openly and notoriously challenge home ownership as an investment, as they assert it doesn’t hold up to scrutiny as a serious expense. Normally, such challenges to conventional wisdom would be dismissed out of hand as the act of a crank. However, there is actually a lot of evidence that sides squarely with the skeptics.

Do not expend in housing

There are numerous experts within the finance industry that are coming to seriously question the long-held assertion that owning a home is a good investment, in accordance with USA Today. There was a book released in 2000 written by Robert Shiller, Yale economist and co-founder of the Case-Shiller Index. This book reviewed, between 1890 and 1990, home values. The real value of a home didn't really move. The real value stayed the same. Jack Francis is a former Federal Reserve economist. He pointed out that real estate had an average 6 percent return while the Standard & Poor's index stocks would get an 11 percent return on average. Given the fluctuations in real estate values during the past several years, it would seem plausible that not as many people are realizing that much of a profit.

Decrease in equity and prices

Overall home prices have been plunging since 2008, and the decline has not slowed drastically as yet. Home sales and home prices both dropped in Feb. 2011, in accordance with Reuters. During Feb. 2011, there was a four percent decrease in existing home costs while between February 2010 and February 2011 there was a 5.2 percent decrease. A more disturbing, however less prominently disclosed statistic in the press is the amount of equity the average homeowner holds. As of September 2010, people had about 39.5 percent equity in their homes. This figure was shown in the “Flow of Funds Accounts of the United States” report the Federal Reserve recently released.

Need to try a new model

A home paying off as an investment depends on a lot of assumptions that cannot necessarily be taken for granted. If a person buys a home with a 15 or 30 year fixed rate mortgage and pays the mortgage off, the homeowner has property free of encumbrances that is not costly to live in and could be sold to raise a retirement nest egg. Most families move too often to accomplish that though. It’s nearly impossible to do. Sometimes a home will sell for more than it cost to buy. It can be a nullified profit though. The costs to get the home and sell it also add up. This will contain closing costs, real estate agent fees, property taxes and even home repairs. A mortgage loan lender can easily foreclose or reposes a home too if somebody defaults on their mortgage. It’s much better to expend in stocks, bonds and mutual funds. They can be sold for money much easier.

Citations

USA Today

usatoday.com/money/economy/housing/2011-03-20-home-ownership.htm

Reuters

reuters.com/article/2011/03/21/us-usa-economy-housing-idUSTRE72F3XG20110321

Federal Reserve

federalreserve.gov/releases/z1/Current/z1r-5.pdf

Federal Reserve

federalreserve.gov/releases/z1/current/default.htm