How important is home ownership to you?

Has your view of the rewards of home ownership changed? Permanently?

Housing will eventually recover from its great swoon, the New York Times reports. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg, NYT writes.

The wealth generated by housing in those decades did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming, the NYT writes.

More than likely, that era is gone for good, the NYT says.

“There is no iron law that real estate must appreciate,” Stan Humphries, chief economist for the real estate site Zillow, told the NYT. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”

Instead, Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up, the NYT says.

With that in mind, what is your game plan?

Sell when you can? Stay put?

Buy when you get a chance, especially at these depressed prices? Buy, but spend less than you would have before the housing crisis?

Rent? Now or forever more?

Is your home worth less than the mortgage amount? Think it will get back to that level over time? How long? Plan to bail out before that?

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98 comments Add your comment

A.S.Mathew

August 23rd, 2010
7:53 am

It is another great lesson of life that there is nothing solid in life other than God. Based on the
economic principle of “demand and supply”, we were overconfident that the the real estate
value will go up without any break, but that false dream was totally shattered.

Now, high rise apartment buildings can be built to put hundreds of families, so even less land
can meet the need, as the technology of building construction is improving.

This recession has taught everybody a great lesson which they will never forget.

Live within their means and not on credit. Less material goods are better. Smaller houses and
cars. And finally, nothing is solid on this world and no guarantee in life.

Palin fan

August 23rd, 2010
9:11 am

Thank you Mr. Mathews for that insipring lecture and for teaching people morality about GOD.

Nonia

August 23rd, 2010
9:38 am

Homeownership, really isnt important anymore. When its all said and done, even if the house is still standing when I retire, and is paid off, I still must pay property taxes on it or the state will take it. I say all of this to say we should stop calling it “Homeownership” and call it “Homesitting” because you will owe someone else to keep using it until you or the house cease to exist, which ever comes first-

J.B. STONER

August 23rd, 2010
10:24 am

Now they want to give you a home, even when you can’t make the payments if you live in Atlanta.
Saw it on tv, people lined up, like heathens.

Now the question……….

When you can’t make payments ,are you evicted, do you stay for free, do you keep the equity ,or does govt. steep in and own

R

August 23rd, 2010
10:48 am

These economists are full of it and are asinine in their statements. They are narrow mindedly making comments about the housing market and not even looking at how that would impact everything else. To say that houses are never going to be worth even half of the high is just ludicris, then you must devalue everything else. The economy will never recover if the billions of current homeowners out there can’t sell, move, etc. The RE market will rebound, later than sooner, and houses wull not appreciate at the fast clip we recently saw.

Contractors for homes, apartments – ALL housing – need to just shut their doors for good because in this scenario we have enough housing and nothing else should be built because it is going to be worthless!

The end is here acording to these economists!

Belinda

August 23rd, 2010
11:08 am

I’m staying put for at least 6 years. Maybe longer.

I’ve already bought an investment property. I’m not expecting to make tons of money on it. But I think it will hold it’s value and possibly rise some. I may buy another one.

Neither or my homes is worth less than the mortgage.

N

August 23rd, 2010
11:40 am

You fail to mention the quote from another expert in the same article in the NYT that disagrees and believes houses will come back and appreciate. Times are tough and uncertain but I’ll still take a real estate investment over the next 30 years. Even if it doesn’t go up in value I’ll have paid for houses + you know inflation will increase its value and I’ll be ahead of where I would be otherwise. For many, if they weren’t forced to pay on their house they wouldn’t be investing elsewhere either, they would be spending the money.

Dang

August 23rd, 2010
11:44 am

I was one of the unfortuante souls that bought during the great bubble, during July, 2006 to be exact. As a newlywed and recent college grad with and new job there were no viable choices to rent in my area (either next to crackheads or in a mansion that I couldn’t afford) and few homes for sale at decent prices. We found a pretty good deal (at that time) but we were planning to sell after about four years. Well, now that we are upside down on the loan to value of the mortgage by about $15,000 it looks like we are stuck. This dilemma greatly diminshes our professional mobility as well.

MR164

August 23rd, 2010
11:44 am

@J.B. STONER Those vouchers were for section 8 [RENTAL] vouchers, not to purchase homes. Also that was East Point. Try watching the news with the volume up.

N

August 23rd, 2010
11:49 am

Dang – Hang in there. Have you looked at the possibility of making it a rental instead of feeling stuck. With little down its hard to cash flow in the short term but over the long term should do well. Take the tax benefit and slowly pay down principal. We do that with a house we have. You are long and can have a long term horizon, it will be paid off well before you retire. Looking back at the housing depression of the early 80’s its easy to see when thing recover a bit that your $15k upside down will come back in no time and probably settle in the middle of where it was before and where it is now

Valerie

August 23rd, 2010
11:50 am

I will probably remain in my house for another couple of years. I bought the house 20 years ago; it’s paid off, and in a good location. I have dogs, so an apartment isn’t in my future, but a small house or townhouse with a small yard would be ideal. I’m not sure if I would remain in the greater Atlanta area, or move to another area of Georgia or even out of state.

Steve

August 23rd, 2010
11:51 am

This is just typical overreaction. The economy comes and goes in cycles. Right now it’s down, but it will eventually swing the other way. Now is the time to get into real estate simply because the market will improve eventually. As Warren Buffett says, “Be greedy when other are fearful, be fearful when others are greedy.” This has nothing to do with God so just keep your religion and your morality to yourself and stay out of my life.

Homeowner

August 23rd, 2010
11:58 am

Regardless of what rate my home may or may not appreciate at, I earn in equity what I pay in principal on my mortgage each month, and I can deduct my mortgage interest on my taxes. When I retire, my goal is to have to pay only taxes and interest as my monthly housing cost rather than facing a monthly rental payment. Even if I don’t walk away with a $100,000 check when I sell, I will still come out financially ahead of where I would be as a renter.

RJ

August 23rd, 2010
12:00 pm

Economists are blowing things out of proportion. Property values will increase – over a long period of time – 8-10 years. Many of our kids/teenagers will go to college and will come out immediatly looking for a place to live… DEMAND will rise. The banks currently are not loaning money to build so SUPPLY is dwindling. Our kids won’t pay attention to the cost due to our over-indulgence to live a lifestyle that is outside our means. They will continue to strive for that lifestyle.

I bought a house in 1996. 1700 sq ft ranch on a basement (unfinished). I owe $85k on the house now. I have a 1991 model vehicle and my wife drives a 2002 model vehicle that are paid for. We live within our means. We are both professionals that choose not to “keep up with the Joneses”. We are an exceptiong to the norm.

Ryan

August 23rd, 2010
12:01 pm

Dang, I too bought in July ‘06 as a grad student. Have since moved and now rent it out but could only rent for half of the current mortgage payment. Will probably let it tank soon at a loss of $40,000 and my credit.

chiu

August 23rd, 2010
12:01 pm

Well, if you put money in the stocks look what happen. My 401 is now 201, at lease I can control my housing expensive. I enjoy the house while I’m living in it. My 401 someone else enjoy my money, I was just mind my own business and keep put money it 401 like fools.

bert

August 23rd, 2010
12:02 pm

Homeowner: Not really sure about you calcualtion. I think you are omitting the cost of taxes, upkeep, and inflation; not to mention the cost to sale when that time comes.

Yurtle_the_Turtle

August 23rd, 2010
12:03 pm

I agree with you Steve. It is overreaction as the economy will eventually pick up. It may take longer this time. I still blame Clinton whose grandeous idea was to loosen the banking laws to mandate that everyone who can breathe basically can get a home, regardless of their ability to make pay a mortgage. However, Steve, don’t hate so much for crying-out loud. Someone else’s opinion on God should shatter you so stinking much.

AJ

August 23rd, 2010
12:04 pm

The housing market (along with the economy and most things in life) goes up and down. The housing market will likely/hopefully never get as overheated as it was a few years ago, but that is NOT to say that values will never return to their highs. It will just take some time. My guess is that 2006 values will be reached in another 10 years or so.As noted above, there is a silver lining in the current tough times. A lot of folks have learned that they need to live well within their means and use credit responsibly. That is only going to make us stronger as individuals and as a nation.

N

August 23rd, 2010
12:07 pm

Bert: As a homeowner with a loan inflation is your friend, its a benefit, not a cost. If your home is worth 100k and inflation over the years takes it to 150k but you still owe 100k or less you are ahead. Taxes are paid regardless, if you rent your landord pays but in essence you pay via your rent.

bert

August 23rd, 2010
12:07 pm

20 years may be an overreaction, but it will be at least 10-15. If you are old enough to remember the housing contraction in the 80s, you probably remember it took 13 years (79-91) to recover .

RG1979

August 23rd, 2010
12:07 pm

Personally I’m not surprised. I’ve always been of the impression that when I buy a house I’m buying it to live there for the rest of my life provided I don’t move before kicking he bucket. So when I hear all of this I’m of the mindset I don’t care. Maybe now people will get back to buying houses to live there rather than as an investment.

bert

August 23rd, 2010
12:10 pm

N: If you have a 100K that never appreciates, and you sell after a steady rate of 3% for 20 years, you 100K is 55,367 is rel dollars. Not really a good investment. I understand your argument, but people need to start looking at real dollars

AJ

August 23rd, 2010
12:10 pm

Yurtle makes a good point about Clinton being heavilly involved in getting us involved in the current mess we’re in. However, I would expand the blame to include the entire Democratic party. Their campaign to increase home ownership among lower income and minority citizens was nothing more than a way to pnder to their base. Government needs to stay the hell out of the market. When they meddle, bad things happen.

Mrs. Freeman

August 23rd, 2010
12:12 pm

I think that a lot of folks that bought houses right before the housing bubble burst weren’t really buying for long-term use. Many people bought houses during the height of the real estate market with the intention of only staying there maybe 3-5 years. My husband and I bought our house new nearly seven years ago and always planned on being there long enough to raise our children. We currently owe about $20,000 more on the mortgage than what the home is worth but that’s ok because our kids are fairly young (10 & 5) and we always planned to be there for at least 15-20 years anyway. Between our payments and the market recovering to some degree, we will certainly make up for that deficit.

Mrs. Freeman

August 23rd, 2010
12:15 pm

RG1979, I absolutely agree with you! t That’s the point that I was trying to make in my statement.

Mr. doom and gloom

August 23rd, 2010
12:15 pm

I am a realtor in Atlanta and have been for many years. Unfortunately, I believe that there is a lot of truth to the article, but I don’t think the outlook is quite as negative. I think that what most everyone can agree on is that we are no where close to coming out of this mess. I am hopeful that within 2 years we can get stability in the market and possibly within the next 5 years begin to see some appreciation. Regardless, there are still a lot of people on a sinking ship thinking that the market will improve soon and they will be bailed out. They need to understand that it is not happening any time soon so they should take action now. It is truly amazing how naive most sellers and home owners are. Most people still think that the real estate melt down has not impacted them. They are living in lala land.

bert

August 23rd, 2010
12:16 pm

AJ: At this point I don’t care whose fault it is. How do we fix it, w/o getting into the trap of DNC/GOP banter?

Homeowner

August 23rd, 2010
12:16 pm

@bert Yes, it costs money to own a home, however, it would cost more to rent a comparably sized home and at the end of the lease you have nothing to show for it. When I retire, having no mortgage and paying $200 a month for taxes (another tax deduction) and insurance is cheaper than paying $1300-$1400 for rent for a smaller home on a fixed income. Homes are not meant to be turned over every two years. The purchase of a home is (should be) an investment you make only two or three times during your life. It’s the same logic of purchasing my car over leasing it. Yes, it costs money to own my vehicle, but my paid for car costs me only insurance and gas each month, not a leasing cost. If I sold my vehicle today, I would get less than I paid for it. That is still more than the zero I would get turning in a leased vehicle. In the long run, which is how you should look at home costs, ownership trumps renting. If you’re going to move every two years, then yes, you should rent.

Renter

August 23rd, 2010
12:19 pm

I am in the market for a foreclosure right now. I pay $700 a month to rent a one bedroom apartment and I will pay about that for a 3-4 bedroom foreclosure if I keep the sales price under $90,000 (give or take for property taxes and insurance). My concern is credit. What is going to happen to the credit reporting industry when 3 out of 4 people has a credit rating in the 500’s. I understand banks will be able to charge more interest for people with lower scores but those people will just go to sub-prime lenders. I am being treated like a queen with my 690 credit score but what about everyone else?

N

August 23rd, 2010
12:19 pm

Bert – Good point on inflation and very true if your house is paid for. But for those with mortgages it still benefits you. You would get 150k and only owe the bank 100k, $50k ahead. If no inflation you would be even.

bert

August 23rd, 2010
12:21 pm

Homeowner: Think of the opportunity costs that you have been giving up on the upkeep, and taxes of you home. Do a simple NPV calculation. There is a pretty good chance that you are close to breakeven

N

August 23rd, 2010
12:23 pm

Renter – yes many people have had their credit scores go down. But remember less then 10% of homes are facing foreclosure etc so most people are fine and I don’t believe that 75% of people have credit scores in the 500’s. If 690 is a good schore that is news to me. Many are well into the 700’s and I always thought you needed at Least 720+ to get good loans.

AJ

August 23rd, 2010
12:24 pm

Bert asks the million dollar question- how to fix things? I’m no expert, but I think that a return to common sense in nearly everything related to housing and a good chunk of time is the key. Smaller homes that are appropriately sized for today’s families, reasonable lending practices requiring a meaningful down payment, less government involvement in housing, and most importantly, all of us learning that we need to save our money and not spend every penny that we earn and can borrow.

gooberpeas

August 23rd, 2010
12:27 pm

So what if you are upside down in your home? You have a place to live don’t you? I have a 4 bedroom 3 1/2 bath with a mortgage payment of less than half of what a 2 bedroom apartment would cost. Mortgages end eventually, but rent goes on for life.

bert

August 23rd, 2010
12:28 pm

AJ: You mentioned some great ideas, but most are relative. What is an appropriately sized home? What are reasonable lending practices? What is less government involvement? Sure things need to change. I am not happy about paying for peoples’ bad decisions, but that is the cost of living in a free society.

Chris

August 23rd, 2010
12:28 pm

Long-term housingcould continue to power the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming…

We should remember that the housing bubble was created primarily by unscrupulous private lenders making home loans that, had they applied fundamental underwriting standards, they would otherwise have rejected. These loans were either made to buyers who lenders knew or should have known wouldn’t be able to make the payments or the loans were made against properties with purchase prices that were higher than an honest appraisal would have revealed (e.g., read about Washington Mutual’s approach to appraisals during the housing bubble). Yes, buyers were responsible as well. But the lenders are more sophisticated and knew exactly what they were doing–making bad loans and then shifting the risk of loss onto somebody else (e.g., purchasers real estate securities/derivatives).

There’s no reason to fear another housing bubble as long as reasonable underwriting standards are implemented and maintained by lenders.

bert

August 23rd, 2010
12:29 pm

Chris: As a former bank employee, I completely agree.

Homeowner

August 23rd, 2010
12:31 pm

@Bert, you are so right. My $1600 a month mortgage payment that will still be $1600 a month 30 years from now (and then go to $200 once paid off) compared to a $1600 monthly rental payment that would be $4,300 a month 30 years from now @ 3.5% inflation is a ludicrous financial move. My landlord also certainly won’t pass any of his property tax costs along to me through the rental payment, he’ll probably just eat that cost along with the cost to him to upkeep the property. I should be smart, blow my money by not acquiring capital assets, and enjoy living in the room next to you at our government funded nursing home in my old age.

R

August 23rd, 2010
12:32 pm

“I’ve always been of the impression that when I buy a house I’m buying it to live there for the rest of my life provided I don’t move before kicking he bucket. So when I hear all of this I’m of the mindset I don’t care. Maybe now people will get back to buying houses to live there rather than as an investment.”

While this is true for some folks, our society is very transient. Now we are seeing that people can’t move unless they dump their house. I was offered a job in Houston, but I would take a loss here and the market has not been as heavily hit there, so I decided not to move. Too much financial loss.

I am glad that people are starting to get it that this housing mess started with Clinton. It is true Bush didn’t stop it (what President is going to halt a seemingly robust economy!), if he did he would have probably been blamed for holding back the lower incomes to be able to afford housing!

In 2012 when Obama is out of office, there will finally be some confidence and that is when the money will start to flow. The powers that be and banks will sit on that money until then!

bert

August 23rd, 2010
12:36 pm

Homeowner: total you cost of owning a home, versus rent. Assume investing in a 6% tax-free muni, and what do you get. If you can’t do the calcualtion, just tell. I will be more than happy to do it. BTW, your calculation assumes that rent cost are parrallel to inflation. Good try, but that is invalid. Thanks for playing.

N

August 23rd, 2010
12:39 pm

There are situations where renting makes total sense but for many the pride of ownership makes sense. Homeowner is right, over the years keeping your payment steady is huge. Rents go up and there wouldn’t be a savings to invest in the market or bonds. Know anyone who bought there house in the 80’s or 90’s and never refinanced money out. Ask them what their house payment is.

Tupper

August 23rd, 2010
12:40 pm

When people who live on entitlements can’t afford a home then it is up to the progressive party to take away any unfavorable advantage to those who work, save, invest and plan for retirement. I mean really. Why should I get to keep what I have earned so those who do not earn can get their fair share…..

AJ

August 23rd, 2010
12:40 pm

@ Bert- I agree about the relativity of the suggestions, and I guess that most of them are individual decisions. Perhaps the best thing we can do to help clean things up is to elect some common sense folks to political office (local and state included) that have a bias toward less government and less involvement in our lives. Left to our own devices, my money is on the individual American, not some government bureaucrat that probably couldn’t cut it out in the real world. Self-preservation and survival of the fittest are strong forces in nature. We need to being them back to life in American.

R

August 23rd, 2010
12:42 pm

@ chris Yes the bank played a major role in this. But everyone was out to make money and no one did anything to stop it! In 2005 you walked into Bank X to get a mortgage loan and they gave it to you, if they didn’t they knew you get approved by Bank Y. The sad part is the vast majority of us did the right thing and bought within our means, knew what we were signing and we are the ones getting screwed! The other sad part is that subprime is here to stay, those with messed up credit will be able to get loans but at a higher interest rate.

My take

August 23rd, 2010
12:43 pm

The economy isn’t going to go back to the way it was several years ago for a very long time. There were way too many flaws that needed to self-correct. I’m not expecting much improvement over the next 10 years or so.

bert

August 23rd, 2010
12:46 pm

AJ: …money is on the individual American. Well, I will say we have proven we can make poor decisions? I wish I could say we are better, but that is not the case. As far as government; to paraphrase an old quote….who is the bigger fool? The fool or the one that put him there. As a nation, we continue to make bad decisions. we laugh at other nations that have “elections” where the people get 90% of the vote. The funny thing is that we re-elect people at a 94% rate. How are things to change when we keep re-electing the same people who rob us.

Rick

August 23rd, 2010
12:47 pm

I believe that real estate will not see the gains we have had over the last 20 years and especially the last 10 years. Here are some of the factors that will drag on the housing market for the next 20 years:

Jobs are going overseas to low wage countries…period! What will make that change? With the globalization of labor, work will be accomplished at the lowest rate possible. That will not be the US. The US has educated many from other countries. They are returning to their homelands and they will lead the offshoring and outsourcing of jobs to low wage countries.

Those that have jobs are not seeing wage increases that would allow them to upgrade their housing situation. Many young people will not be able to save the down payments now needed for homes. Many US citizens are saddled with debt. The cost of energy will be increasing sharply in the next 20 years as the standard of living is raised in all those low wage countries that will be taking jobs that used to be performed here in the US.

The boomers will be retiring and moving to smaller homes now that their children have grown.

We are allowing more unskilled illegal immigrants into our country and burdening our schools, hospitals, and courts/jails/prisons. They are a net burden on the country as they consume more resources that they provide to the country. They also raise the unemployment rate for low skilled US citizens. Taxes must go up to subsidize the social benefits being drained by illegal aliens and their children. These illegal immigrants have swelled the population and led to demand for housing, but they will not be able to pay the going rate for housing in the future.

The US government can not control its spending!

R

August 23rd, 2010
12:48 pm

Agree with N and Homeowner. bert understand that if renting is best for you that is fine, but don’t mock home ownership because it’s obvious you don’t understand it and it doesn’t sound like you want to to.

Grumpy

August 23rd, 2010
12:51 pm

Housing values can generally only rise as fast as income, which means you’ll get 1-2% above inflation each year.

The days of looking for 10% annual value increases are over. They were caused by foolish lending, and that ship has sailed.