Price of homeownership wondered by skeptics

Owning a home is a large part of the "American Dream." It’s designed to be a fantastic booster to the financial security of the family unit, or at least that is what many individuals are certainly told. However, there are an increasing quantity of people who assert that buying a home is actually a lousy expense, and the charge comes from individuals who really know what they are talking about. There is some evidence that could support home-ownership skeptics' argument.

Housing costs may not perform that well as assets

The popular belief that homes are a good investment when owned is something finance industry experts are starting to questions, USA Today states. A book on home values from 1890 to 1990 was written by Case-Shiller Index co-founder and Yale economist Robert Shiller in 2000. The real value of a home did not really move. The real value stayed the same. Stocks on the Standard & Poor's index would get an 11 percent return typically while real estate only had a 6 percent return, in accordance with former Federal Reserve economist Jack Francis. Not very many individuals are getting any profit out of their homes considering the change in real estate values in the past few years.

Prices going down and bringing equity with them

Home prices have gone down continuously since 2008. They have not stopped this drop yet. Reuters states that in February 2011, home sales and prices went down. Existing home sales dropped four percent during Feb. 2011, and home costs dropped 5.2 percent between Feb. 2010 and Feb. 2011. The amount of equity in a home is a statistic that isn't looked at very often, but is even worse. In the most recent “Flow of Funds Accounts of the United States” release by the Federal Reserve, the average household was estimated to hold 39.5 percent equity in the family home as of Sept 2010.

Need to try a new model

A home paying off as an expense depends on a lot of assumptions that cannot necessarily be taken for granted. After getting a 15 or 30 year fixed rate mortgage on a home, it can be paid off and then become a way to retire when selling the home. This doesn't happen very often though considering most families have to move a lot. The profit could be nullified if a home sells for more than it was purchased for. The costs to get the home and sell it also add up. This will contain closing costs, real estate agent fees, property taxes and even home repairs. A mortgage that has been defaulted on will mean a loan lender can reposes the home. A foreclosure can also occur. It’s much better to invest in stocks, bonds and mutual funds. They could be sold for money much easier.

Citations

USA Today

usatoday.com/money/economy/housing/2011-03-20-home-ownership.htm

Reuters

reuters.com/article/2011/03/21/us-usa-economy-housing-idUSTRE72F3XG20110321

Federal Reserve

federalreserve.gov/releases/z1/Current/z1r-5.pdf

Federal Reserve

federalreserve.gov/releases/z1/current/default.htm