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

[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.