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

[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.