A house as an investment (in the real world, not in the bubble)
I have never owned a house. For a variety of reasons ranging from not having had any money with which to purchase one over the vast majority of my life to always sort of thinking I'd leave where I was living sometime soon to fear and loathing at the prospect of having to do my own maintenance and stuff like that. I love riding lawnmowers and would consider that a huge plus!
I 100% get that a house can be a good investment via being a savings account for people who would live there for many years. By buying a house -vs- renting an apartment or condo, you gradually build equity from paying down the loan and from appreciation (if any) of the home itself. This is partially offset by the cash drains of property taxes and maintenance. Further, in the first few years of a mortgage, the payments on principle are only a small fraction of the overall payments. A further negative in this is realtor fees. In my area its about 7% of the sale price of a house to have realtors sell it, and the realtors (while I've never owned a house, I have shopped for them on several occasions) work hard to make sure that "for sale by owner" homes don't sell. Slandering the quality of the house, its price, and everything else in each of the cases when I've asked them what they thought of one as we drove by, etc. And last, buying the house and getting a mortgage seems to come with considerable upfront fees as well. Origination fees on the mortgage, appraisals, and so forth.
So overall, you start out (in realtor fees to sell, and bank fees for a mortgage) down 10% right out of the gates, meaning you'd have to sell for a fair bit more than you paid to break even, much less turn an actual profit.
So the fees (realtor and bank) and the fact that the first payments on the mortgage are largely interest and the fact that as we've seen, house prices are volatile, much like stocks. You buy a share of a big dividend paying blue chip stock and sit on it for 10 years (think JNJ, or T or PFE or whatever) and the odds become extremely high that you'll make money. Lower, of course, if you grossly overpay for the initial purchase, but very good historically. Sitting on it for 1 year, historically, is a much bigger crapshoot.
These downsides are offset by the ability to write off interest on the mortgage for taxes. This gives you quite a reasonable write-off in the first several years. If the house you bought was 2x your annual household income, this would allow you to write off about 1/8th of your income in the first year of the mortgage.
But, imagine you lived in that house for 20 years. You paid off what, then? Perhaps about 60% of the principle. And over 20 years its likely to at least have held its price, and perhaps shown some appreciation. If the neighborhood is still "in style" its likely worth more. Now, assuming that the value of the house was 1-2x your annual household income, you've saved one years pay plus some tax benefits. And the payments that you made are, in my area at least, lower than the rent for comparably nice living space.
So what I'm trying to get at is that the hyperactively-touted-by-all-realtors investment value of a house never has been that good. Between taxes and fees on a mortgage and realtor fees, I calculated 3 years ago when I thought about getting a house that I would have to get 15% more than I paid for a property to come out ahead -vs- renting where I was living at the time in 3 years. Granted, I could have lived in a nicer space.
Its also worth noting that as I've hit up a realtor or 2 here in my town lately to shop for some houses, they have both pushed me to buy their own house, "guaranteeing" i'd make money on it if I bought at the price they were asking. That implies they can't sell it at that price and are hoping i'm a sucker born last minute.
In my town, from spending an hour or two sundays looking at houses-for-sale int he paper, I would estimate that the best investments are low-cost new houses. Twinhomes for that $100-120 range, often with unfinished basements, sell for $120-150 quite quickly with finished basements all the time. Ditto bi-level houses, also often with unfinished basements. They typically sell for $140-160 new and bring $160-180s with finished basements and sell very quickly.
The best formula for actually not losing money ona house you're only in for a few years in my area seems to be that: new houses with unfinished basements, finish the basements and they sell quickly, consistently, and for prices quite better than you paid.
Higher end homes in this area can languish on the market for months or even years, and we have, per USA Today, the best housing market in the country through this recession.
I am moving in about 2 months, to a town a bit outside a major metro area that has seen major house price declines over the last 24 months. Its possible that I could find a distressed property that could be purchased at an actually significant value. But assuming that I prove to be a house shopper of only average talent (likely), I should assume that if I buy a place there i will lose money on it if I don't stay for several years...
Anybody agree or disagree with that conclusion?