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Home Investment Returns
The American Dream is re-awakening.
In a July 2015 survey by bankrate.com, 27 percent of respondents said they’d put their money in real estate if they had cash to invest for the long-term.
Twenty-three percent would keep money in cash and CDs, which was the favorite top choice in both 2014 and 2013. Just 17 percent favored stocks.
The foreclosure crisis is abating, along with the fear that home buying is risky, says Dr. Moira Somers, a psychologist who specializes in financial issues.
Moreover, many shy away from investments that seem complex. “Everyone gets what a house is,” Somers notes.
A home purchase isn’t solely an investment, however, experts say. It’s also a ‘consumption’ item, like clothing and food.
Say, for instance, you want a four-bedroom place with a big yard. The only home that fits the bill with a price you can afford requires a two-hour commute to work.
The commute necessitates a new car and added daycare costs, however. “You have to put home buying in the context of the disposable income it will require,” says Somers.
Home buying isn’t advisable if it “means putting all your eggs in one basket,” says
Andra Ghent, a University of Wisconsin real estate professor. “ You shouldn’t have too much of your wealth tied up in any single asset, and that includes your home.”
Still, buyers “avoid the risk they’ll pay more for rent in the future,’’ says Ghent.
And, with every mortgage payment, owners gain a little more equity, which is the portion of a home’s value they own outright. With equity, owners gain wealth, but only if they don’t borrow against it.
“It should be treated like a 401k, only to be touched in times of great hardship,” warns Lois Vitt, founder of the Institute for Socio-Financial Studies.
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