Home Ownership: Popular, But Not Good Investment...

…per TIME Magazine.

Only towards the end of the article, did they hit upon the truth of the matter.

“That means that the American Dream is not necessarily a dream about profits or upside. It’s a dream about designing and keeping maximum control over your own lifestyle, tax-advantaged. It’s about the prospect of one day owning where you live, free-and-clear.”

Home Ownership is always unpopular when the going gets tough, and it’s not only “Good Investment” for most of us, but the “Very Best.”
There’s no doubt that the Real Estate market is gathering momentum in many localities.

No way am I leaving our Home except in a Pine box … Roy

Very nice Roy.

Hopefully you last a very long time.

Thanks Mickael and you the same .
Happy fourth to all our southern Friends tomorrw from Char and Roy Cooke

July 4.jpg

Beautiful flowers Roy…

Buying a home is not a good investment for most people because they either sell and move (Americans do this on average every 7-9 years) or they never actually manage to pay off the mortgage which means they are renting from the bank all their lives. If you can pay off the house and continue to live in it then and only then is home ownership an investment.

Most long term sensible investments pay substantial return. Housing is such, look around you, a house bought 20 years ago has on average doubled and we are not talking NY city. Property value do increase as it has done since the advent of shelter popularity. One has to pay significant down payment or all cash, to purchase dwellings in many part of this world.

If you have noticed, the good Lord has stopped making habitable land. There is only so much resources for 7 billion of us. We are blessed, while you are paying mortgage you are getting deductions and tax write offs. When things get hard, the offspring live free. If you, the majordomo, has saved and paid the mortgage then its time to collect rent. And there is no prepayment mortgage penalty like in the past, as many have been paying within 15 years.

Short term investments are speculation, real estate is an investment for the future, protection against inflation. It has always gone up and will do so as long as the cost of living increases. Truism, indeed.

This is not a political statement and I will not respond to the usual nonsensical and off-the-wall ramblings that may be prompted…but I simply invite you to do a little math.

Shortly after WWII, there was a big need for housing as the soldiers returned from war. Real estate began to boom and, as these men and women settled into these homes and began to pro-create…we had the “Baby Boomer” generation that … when they began to purchase homes in the 70’s and 80’s … and upgraded into bigger homes in the 90’s…fueled the exponential increase in houses being built and their prices.

As the Baby Boomers begin to retire … and downsize … and die … they are replaced by a generation of Americans of dwindling numbers. You can blame abortion, birth control pills or any other factors … but there are millions of homes becoming available to only hundreds of thousands who will be habitating them.

The supply already exceeds the demand and that number, while it may fluctuate from quarter to quarter based on investment purchases, is likely to continue to increase into the next generation.

Already, builders are realizing that there is more work to be found in remodelling and “weatherizing” existing homes than making new ones. This is not, IMO, a temporary phenomenon.

Buying a home in 2011 and expecting it to “double” in value in one’s lifetime is no longer a likely event if the next generation — much smaller in number and much more focused on efficiency than size — are the ones buying the houses that their much more populated predecessors leave behind.

It’s all in the numbers. Buying a house will be a good thing for someone wanting to own and control where they live and not be subjected to the will or control of someone else over how they decorate or otherwise maintain their dwelling … but the idea of making $2 for every $1 they invest in a home was a temporary thing that is gone until the generation following the next “Baby Boom”.

The attractive land to build are diminishing and getting extremely expensive, that is why the builders may want to remodel, etc. The era of WWII had a unique metamorphic aura, the USA was building, exporting and collecting from the know how in all fields of the economy, globally.
To expect a windfall in a short duration from real estate investment is not thinkable but when oil jumps to $150 plus and the drought and commodity rush reaches to unthinkable stages then all may become evident. History repeats in unfashionable style.

A little math.

**U.S. Population:

1950 - 152,271,417**

** 2009 - 307,006,550**

A* little *logic.

A large majority of homes built within 10 yrs. or so after WW II were junk and have either been torn down or need replaced.

The older population–persons 65 years or older–numbered 39.6 million in 2009 (the latest year for which data is available). They represented 12.9% of the U.S. population, about one in every eight Americans. By 2030, there will be about 72.1 million older persons, more than twice their number in 2000.People 65+ represented 12.4% of the population in the year 2000 but are expected to grow to be 19% of the population by 2030.

Aging Americans will be buying fewer cars and houses as they increase in their share of the overall population. Demand decreases … prices decrease, as well. It has already begun.

Increases in revenues and decreases in overall entitlements (which our government is presently…and reluctantly…moving toward) are not going to decrease a deficit but simply maintain the status quo in a shrinking economy.

Buy a new home because you want to live in one, but do not expect your “investment” to increase at the rates you saw in the previous decade or two. It just isn’t going to happen because the demand is simply not there (or projected to be in the immediate future).

For homes of older householders in 2007, the median construction year was 1970 (it was 1974 for all householders). Older people, while increasing in percentage of American households, are not the ones buying the newer homes. That percentage of the population is decreasing in size.

Look at the number of real estate salesmenin the U.S. as the Baby Boomers began to mature and buy houses in the early 70s. Note as to how the number of salesmen grew exponentially — not based upon population growth in the U.S. but strictly based upon the unprecedented increase in demand that was created by that segment of the population at that time. Then, note as to how it peaked in 2006 and has declined as these same Baby Boomers begin to retire and fewer are in the market for new homes. Retired people make fewer moves due to job changes, etc. Their families are not growing in size demanding bigger, newer spaces. They don’t buy “second homes” to enjoy vacations in. Instead, they are downsizing and many are retiring into multi-family “community” type dwellings…or simply dying…and leaving more vacant dwelling units instead of demanding more dwelling units as they did in the preceding decades.

If I were a real estate saleman looking to comfort myself or encourage others to work for me for a straight commission … I would be seeking and arguing some other short term condition that is sure to turn itself around next quarter, too. I would also be preparing myself for another line of work. I, too, would be jumping on any monthly statistic that seemed to provide evidence that the trend of the last five years is turning around instead of accellerating. Who could blame me?

We will certainly see fluctuations during this long period of decline and … regionally, as people leave one unfavorable climate or economically depressed area in favor of other areas … there may be pockets of temporary “recovery”. Still, the fact remains that the generations that are following us Baby Boomers are less in number, have less in buying power and are not too impressed with the “investments” that they have watched bottom out before their very eyes as they look at the present glut of houses.

They will buy houses. Not in great number and not in extravagant and energy inefficient sizes … and definitely not as “investments”, but simply as places to live.

2006, 2007 was a great time period to offer advise that Housing and Real estate were bad investments, one would have gained significant fame and fortune. But one was “gung-ho” like at present only this time equally opposite.
Investment is not for everyone and understanding investment is even harder, much to our dismay.

As you have just pointed out (and contradicted one of your previous posts) real estate is not always a good investment. Those that bought in 2007 might never recover the cost of what they bought the house for. Some have lost their homes and others have walked away from their homes and obligations to their lenders, ruining their credit in the process. As I stated earlier, real estate is only a good investment if you hold onto it. Most American homeowners used to sell their homes on average every 7-9 years and buy something bigger or in a “better” neighborhood, thus in reality they were renting from the mortgage company. If they had taken their downpayment and invested it in other forms of investments (stocks, bond, mutual funds, annuities etc) many would have substantial savings instead of loosing it all to a home they no longer can afford to live in. If you have to borrow to buy your house then you need to put every last extra penny you can into paying it off. I managed to do so in 12.5 years and now my home is a good investment because it is now cheaper to own than to rent unlike many others who are upside down in their loans.

Markets can remain irrational longer than you can remain solvent. One sets the sail according to the wind, such is the case.

The stock market has not fully recovered, therefore, the loss remains. In the USA Real Estate will be in vogue, as it has for generations. More wealth has been created from Real Estate than any other investments, with many tax benefits for generations to enjoy.

Again, Investment is not for all, as it involves risk. One must be prepared to sustain irrational events for a favorable outcome.


If you think that RE is for you, then it is.
If you think that RE is not for you, then it isn’t.
You are right in both instances.

I think I will wade in on this thread as it is something both nonpolitical and may not provoke the rabid responses other threads seem to and it is a subject I believe is on many people’s minds. Just recently I had occasion to discuss this home ownership issue with a local businessman. His take on the issue led us to basic economy and then to what our society is predicated on.

I believe James is very close to the mark when it comes to home sale futures, although he uses population figures as a basis for his reasoning. I would argue that basic economy and the way our society is built reveals the truth behind what is coming and is in fact beginning to be evidenced now.

In our societies, both U.S. and Canadian, we developed a post war boom in both population and economy based on growth. Growth in population both native and through immigration and growth in manufacturing fueled the consumerist society. More was better. Bigger was better. As long as we produced the goods to sell outside our internal markets then producers, us, could buy anything we ourselves produced, and the individual members of society had a surplus to buy outside goods. Consumerism drove the bigger, better? home sales for buyers moving up in the market. As James so rightly points out the population demographic has changed yet with immigration as a factor there could still be pressure at the bottom of the market to push buyers up the property ladder yet that does not seem to be happening on any scale.

There is a simple additional factor at play here. The manufacturing sector that allowed workers to buy goods both internally built and from outside has disappeared. Well truthfully it did not disappear, the consumers in going for the bargain price bought from outside sources, the manufacturers driven by consumer demand for lower prices took plants outside the country, and the banking industry stopped loans to internal manufacturers as high risk, poor return deals. So where does that leave us?
Now, with hundreds of thousands fewer midlevel income jobs in the general overall goods manufacturing sector, and with corporate involvement in farming eliminating large numbers of employment in that sector, we are left with the service industry, and what is left of the manufacturing, auto and war materials in the US. auto and raw resources in Canada. Now we come back to basic economics.

If Billy makes $10 an hour cutting Sam’s grass, and Sam makes $16 dollars an hour fixing Ted’s plumbing, and Ted makes $27 dollars an hour building moderately priced thirty thousand dollar cars, notice only one of those laborers ( and in reality it is very much worse it is more on the scale of 16 to one), is producing anything and with the current auto industry, and industry in general, that item is for internal use. Someone in the internal economic picture has to buy that item yet no one within the service sector makes the money to buy that item.

Cars, boats, homes, everything, goes unsold and people lose their jobs in industry as downsizing and automation take place. Ted now goes out and becomes a homie to put food on the table and discovers that, just as he cannot afford a new car neither can what was the middle class buy a new home. Generally they too are losing income and afraid for the future income prospects. More than 70 percent of all jobs created in the last ten years are in the service industry.
First thing homie does is cut his own grass, diy plumbing, and guess what, people in service industries get left further behind or eliminated. They cannot get on or in many cases hold on to the property ladder. Bigger homes for the sake of having more are a thing of the past, and that applies to automobiles too.

We as a society whose economy is based on more people consuming more goods and thus driving economic growth for everyone, have been shipping production jobs outside our borders for years now and just as importantly the export dollars that went with them. We are well along the way to eliminating the manufacturing sector as a viable economic factor and that includes those many hundreds of thousands of mid-level jobs as well. The interim result will be far fewer homes changing hands, smaller homes on smaller lots being built ( think Britons row houses) fifty and sixty year mortgages like Briton has too. As the green generations evolve, fewer consumer goods will be available, just as selection of foods will become constrained, and a much lower standard of living for our children and grandchildren will be in place.
Clearly the up and coming producing nations like India and China have no need of our labor force so the end result if nothing interferes is decline until we become the nations stripping all raw resources to export to producing countries in an effort to maintain some economic function. We are on the way to becoming the third world nations.