Far better it is to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows neither victory nor defeat.

Theodore Roosevelt, The Strenuous Life

By , on March 11, 2012

Money and Finance, Opinion


Many years ago my then boss explained that you could live in a house for nothing; every payment would be covered by the appreciation in value. What a deal! It will be unlikely for you to agree with all of my conclusions about the housing market, but see how far off the mark the following lists are.

The Old Thoughts

Housing is an investment for the owner-occupant.

You cannot lose money in housing. Finance as much as possible to maximize leveraging.

There will be a growing demand for housing as long as the population increases.

Repair before selling to maximize profit.

Be careful of location. Buy the worst house in the best neighborhood.

Buy in a great school district.

Houses sell quickly, so buying for an upwardly mobile and career-oriented individual is a great decision.

The New Paradigm

Housing is an expense. The land is a small portion of the expenditure, so it’s better to think of a house as a depreciating asset.

You can lose a lot of money in housing. The greater the purchase price, the greater the opportunity for loss.

The demand for housing is amazingly elastic. Even with increasing population, demand can decrease as the average number of occupants per dwelling increases, and those demographic groups who typically buy cannot due to unemployment and low wages.

Caution is warranted with improvements and repairs made in preparation for sale. Cleaning, painting and yard work are okay, and you’ll have to make repairs anyway if the buyer uses FHA financing, which is quite common now. But improvements will yield 50 cents on the dollar at sale if you’re lucky. (The real estate agents will still encourage you to repair houses.  The reason is simple. Most agents still work on commission. Repairs and improvements speed sales. Agents are happy to earn 5% on the 50% of value remaining for each dollar you spent.)

Location is still important, but can be trumped by a shrinking local economy that was impossible to predict.

Renting may be better for those who will pursue career goals perhaps with a move to another city. Career aspirations and where we live can be antagonistic goals now, especially if we own a house.



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