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There was a long time where home mortgages were known as “the most important investment a person ever makes”. Next there was a housing crisis that’s been here way too long. Home values dropped a ton from what they were. Home sales haven’t been this low in a long time. It has been about 15 years. Deflation is a concern for more people. This is because house prices are going down. Investing in homes is a bad decision, as outlined by a Federal Reserve official. One financial expert advises that when it comes to housing, individuals shouldn’t confuse an expense with an investment.

Why housing is no longer a good investment

The end of the 20th century showed a large amount of wealth in real estate. Experts believe that it will never be as good as that. The New York Times reports the inventory of homes for sale may soon rise to a 12 month supply — twice the level of a healthy housing market. After losing 30 percent in value already, sellers are losing more value on homes. 20 years can be needed to get back the $ 6 trilling that was lost just since 2005 within the housing market. This was explained to the Times by Dean Baker who’s the co-director of the Center for Economic and Policy Research. Then you’ve to add inflation to the mix. That means home values may never catch up.

Considering housing a living expense

Treating a house as an investment is the biggest personal finance mistake an individual can make, according to Charlie Farrell at CBS Money Watch. Farrell said housing should be looked at as a lifestyle expense like getting a car. A house is a depreciating asset, just like a car. The home will fall apart. The only way to stay away from this is to pump money into it constantly. Economists thinks home values will barely stay with inflation within the next 20 years. The investment of a mortgage will return only what is put into it each month. There is maintenance and taxes on a home, regardless of whether it is paid off. That means you are likely to get less overall out of your home than you put into it.

Getting a mortgage yourself

In the aftermath of the housing bubble, the U.S. housing market is the last place people should put their hard-earned money, as outlined by Thomas Hoenig, president of Federal Reserve Bank of Kansas City. He said, “If the American individuals are looking at the housing market to be their investment opportunity, I think they’re making a mistake.” He was at a hearing by the House Financial Services Committee’s oversight subcommittee when he said this in testimony. Farrell works at CBS Money Watch with Linda Stern who thinks that although Hoenig is correct, it may be a good investment to get a depressed asset and then have it paid for with a super cheap loan at 4.5 percent. Paying rent for 30 years returns nothing. With a mortgage, there’s a house at the end of the tunnel. At least it is something at the end.

Additional reading

CBS Money Watch

moneywatch.bnet.com/retirement-planning/blog/retirement-roadmap/housing-dont-confuse-an-expense-with-an-investment/3376/

CBS Money Watch

moneywatch.bnet.com/economic-news/blog/daily-money/is-housing-still-a-good-investment/1259/