Thursday, February 09, 2006

I'm Losing X Per Day on My Home

Remember last summer when real estate cheerleaders were saying "My house is going up $300 dollars a day." Now, if prices go down 10% this year on a 700K San Diego home will people be saying "My house is losing $200 dollars a day." ?

NOPE. People have a tendency to boast and spread the word about their financial gains, but stay quiet about their financial losses.


  1. I don't think we're even in that "hiding it" stage yet. We are still in denial. I saw that "zillow" site being discussed on another website (completely unconnected to real estate) and half the posters were saying "that's impossible- homes on my street are worth much more; just last year Joe sold his house for 2 zillion" yada yada.

  2. Near as i can tell my home has lost 100-150k from the peak. there, i said it. I've moved beyond denial. I'll equally have no problem accepting the next $150k as well. From Jun '95 to Oct '05 the stupid place gained $11 per hour every hour. Since then it has been giving back $33 per hour yet somehow I don't wake up and feel $800 poorer every morning. Why? It wasn't real on the way up, why should it feel real on the way down? Personal residences are not investment vehicles. Now if you are planning on only staying a very short time, say 6-8 years then it doesn't hurt to make sure the underlying asset value isn't exposed but that just a form of prudent buying practices.

  3. So if you view your home only as an investment what do you do when prices plummet? Do you sell? With the way the market is changing that might not be an option.

  4. ed said...

    " Personal residences are not investment vehicles."

    Yes they are, whether you like it or not.

    It is possible to to just say no to the investment component of personal residences. Just because other people chose to use their homes as financial instruments does not mean everyone must. 40% of all gold is used in industrial applications, that doesn't stop people from speculating there either. One of the things that always amazes me is how whitewashed the TCO gets in the transaction. Somebody is all proud of getting a 50% return on sales price without admiting to taxes and the new roof and carpets, dishwasher and water heater. On the flip side, everyone has to live somewhere so you need to consider how much more you have because you weren't paying rent.

  5. " Personal residences are not investment vehicles."

    Yes they are, whether you like it or not.

    Then why isn't my car an investment vehicle?

  6. If homes are investment vehicles then they are not very good ones, regardless of the market.

    When I buy a stock, the cost to enter that investment is the cost of the shares and (maybe) a brokerage fee (and if you want to get picky, the time I spent researching the stock). When I sell, the cost is perhaps a brokerage fee. If you are using a good online brokerage service, you might even avoid these fees.

    To invest in a home, I have to pay closing costs (which can be thousands) on the loan, just to enter the game. While owning the home, I have to put money into it just for it to maintain its value – such as driveway repaving, exterior paint, etc. This does not include upgrades made in the name of re-sale value. Finally, when it comes time to sell my investment, I have to sell the entire thing (I could sell half my position in a stock) AND I have to pay at least 3% to my realtor to exit.

    I am not even going to get into the leverage aspect of all this (which implies if you were this leveraged in the stock market, i.e., buying on margin - you would make a heck of a lot more in stocks for the same cost).

    You may choose to view your house as an investment, but the costs to enter and leave your position are huge when compared to other (real) investments.

  7. I laugh at all the people who talk about the home as an "investment vehicle" and only talk about the downside (then again, this is a bubble blog, right?).

    I've got a house in NW DC with over $200K in appreciation. And I'll never sell, because I can sweat it out with my savings and earnings and I see tremendous improvement in dowtown DC (condos are another thing- homes are solid as far as I see in NW DC- properly valued homes, that is).

    I get great tax savings, live downtown in the smack of things and have a great quality of life. If I ever move, I'll rent it out and still make a profit (trust me- I know many transient students, and misc. workers in DC who'll be renting for ages).

    Take a look at the real estate in a positive light as well, will ya?

  8. Housing can be a good investment, if it is bought at a low price.

    No price in the DC area in the last three years seems to be to have been low.