Houses =/= Free Money

[firebyrd]

This article from Newsweek disturbs me greatly. A couple (no children are mentioned) spend $750,000 on their 3,500 square foot dream home in Florida. They built some of it using an inheritance, did not get an ARM, and can afford their payments. Now, a little over a year after completion, the husband has buyer's remorse because he chose to build too big and the house's value is dropping because of the real estate crash.

I find this utterly ridiculous. Why on earth would someone build their dream home and then be sad they can't sell it for what they paid for it after a year? If you spent all that money, custom-built your house, etc, etc, why wouldn't you plan to stay there long term and enjoy it? A house is a place to shelter you, and if you go into it with those expectations rather than planning on getting a 52% value increase in five years, it's a lot easier to be satisfied. Even if you are looking at a house as an investment, expecting a return after a year is stupid. Investments are supposed to be long term. Additionally, if you're not going to be in a house for three to five years at the very least, it's stupid to buy one. The insane value increases we've been seeing recently are not the norm and you just won't gain enough equity to even break even without settling down for a few years.

I just can't get over the implication that he would sell their dream home if the price is right. If we ever get to build our dream home, the people at the nursing home are going to have to pry our old, arthritic fingers off the place and then drag us away kicking and screaming.

Comments

[l-l-u-w-d.livejournal.com]

I sorta just want to point out that it isn't exactly stupid to buy a house if you are only going to be staying in it for three to five years. People in the military do it all the time, and often because house payments are less than rent in certain areas. And, if one is in a military area, regardless of the general housing market, there are people out there who are looking to buy houses in those areas, generally.

Yes, the market is insane right now, but, when faced with paying $1300-$1500+ for a small maybe two bedroom one bath apartment/house to rent, or paying the same for a three bedroom 2 1/2 bath house as house payments, when one has children who need rooms of their own, as well as pets, and the people looking at housing can manage it? Yeah, to me, and to some others, the smart money is to buy the house rather than put the money into someone else's pocket.

This is just my opinion, and I see it, a lot, here in the military community. Yeah, on one hand, it /doesn't/ make sense to buy a house that one is only going to live in for three to five years. But, also, in the military, things happen, and you might end up there longer than you anticipated in the first place, anyway. So, a lot of military will buy a house as opposed to renting, if they are able to do so.

[firebyrd.livejournal.com]

Military would be an exception, since you don't necessarily have a lot of control over whether you go or stay. The three-to-five year thing is pretty generally accepted in the real estate business, though, because otherwise you're typically going to lose money on the house if you have a mortgage because of your original closing costs and then having to pay the real estate agents. There would obviously be all sorts of exceptions to this depending on how you pay, but for the typical homeowner who has a mortgage and who paid less than 20% for their down payment, if you move sooner, you lose money, which is stupid if you have a choice in the matter.

[reality-hammer.livejournal.com]

A trend I've seen is for military people to buy properties in higher cost areas and then rent them when they leave, keeping the price appreciation for themselves (and renting to fellow military to lesson the chance of getting the houses trashed).

Risky, but it can pay off big if you have the liquidity to survive a real estate downturn.

[reality-hammer.livejournal.com]

I run into this every day. :(

People came to expect real estate to be a relatively short-term investment instead of the long-term investment it used to be thought of.

Only in the most active housing markets, and then only for short periods of time, can real estate return double-digit gains (or even high single digit caings!).

Every such situation leads to overbuilding and then housing price crashes. This is why people like who push those late night real estate packages kept going from millionaire to broke every few years (and had to turn to infomercials to make money consistently!). :D

Your home should be an investment in the sense that a well-built home will stay ahead of inflation over the long term while it provides you with a place to live. People forget that last part, which is the most important part. Who wants to live in a house that fluctuates in value like the stock market? You'd never want to make major improvements!

[firebyrd.livejournal.com]

Exactly. It's a long term investment that allows you to have one without having to pay rent as well. I prefer not to think of it as an investment at all, that way, when I have one, I won't be disappointed when the market corrects itself, but I'll probably still get the long-term gains.

[seyrah.livejournal.com]

I'm with you. Investment-wise, except in the era of the huge, weird upswing we were having for a few years there, real estate is a slow and not always sound return. If you're looking to make X number of dollars in a year, you're better off with a CD or a money market account. It's only if the combined value of living in the place AND whatever return you get when you sell it are going to be worth more to you than your rent + whatever return you could get on your more liquid money.

[firebyrd.livejournal.com]

Exactly. To me, a home isn't an investment. It's a place to live where I don't have to worry about getting evicted or worry quite so much about people complaining about my birds being noisy and be able to change things to suit me. If you look at it strictly or primarily as an investment, you're inevitably going to be disappointed when the market goes into another slowdown, which it always does eventually.

[icepixyjewels.livejournal.com]

"If we ever get to build our dream home, the people at the nursing home are going to have to pry our old, arthritic fingers off the place and then drag us away kicking and screaming."

I hear ya sister! Let them try to take my dream home away! I thought that was the whole point of a dream home. Once you're there, you will have arrived at your dream and should have no plans to move ever again!Unless disaster strikes. (Heaven forbid!)

[firebyrd.livejournal.com]

Exactly! And if it's your dream home, as long as the neighborhood doesn't become terribly ghetto, who cares if the value goes up or down? Down is better in a way, because then you have to pay less property taxes. ;)