Blue Sky or Head in the Clouds? Home Ownership Dreamin’

Downtown Phoenix, Arizona, county seat of the ...

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What has the residential real estate crash taught us?

The survey says: NOT MUCH!

Fannie Mae published a study on the attitudes about home ownership and we haven’t learned much from the experience.  What about my fellow residents of the Grand Canyon State?  Well, they are still daydreaming too.

Sixty-six percent of all those surveyed believe that home ownership is a safe investment, as safe as a savings account.  Your home is not an investment! It’s amazing to me that people still think this way.  If the housing crash has taught us anything it’s that our homes are consumption of shelter and not a primary retirement-planning tool.  It’s more like an investment widget than a sledgehammer.  But some homeowners insisted on using it like a hammer and now have a splitting financial headache.

Fifty-one percent of survey respondents in Phoenix would buy a home knowing they will live there 3 years or less; the average payback period in Phoenix is 5 years.  The average payback period in 2006 was 17 years!

If you reasonably believe you’ll be in your house for less than three years why would you be happy with a 5-year payback period?  You really love your location, schools and home design or you may need a math tutor or a borrowing coach.

And here’s a newsflash from the survey:  41% of mortgage holders in Phoenix are at least 5% underwater and home prices are down 45% in Phoenix from the 2007 peak!  Where’s your payback now?

The best reasons listed in the survey for buying a home are lifestyle choices, safety, having a good place to raise a family, location and quality of living space.  These are the only solid reasons to buy a home regardless of where we are in the real estate cycle.

The survey said 38 percent of Phoenix respondents expect home price appreciation would range from 5% to 25% over the next five years.  The real estate crash has not dampened enthusiasm for unrealistic home price appreciation.

As I pointed out in my post about homes not being investments, the entrance, maintenance and exit fees for real estate ownership are among the highest of any investment class if you want to consider it that.

The Wall Street Journal quoted Fannie Mae’s Chief Economist as believing accelerating home price appreciation is still far away.

What did we learn from this survey?

  1. People still consider their primary residence an investment.  I’ve made a strong case that it is not.
  2. Many people don’t know how to do a basic cost-benefit analysis.
  3. The best reasons for buying a home are related to lifestyle choices.
  4. We are still in la la land with our expectations for home price increases.

What have you learned from the real estate crash?  How have you changed your money management habits to adapt to the new normal?

About Michael Shelton

Your Business Coach Facilitating Delegation and Work Group Engagement Michael Shelton has over twenty-five years of business and military accomplishments, including extensive experience with one of the largest, publicly traded real estate investment trusts (REIT). He is a qualified business coach with assignments in cross-functional work group management, strategic planning, unit leadership, joint venture acquisitions, executive education, mentoring, training and merger integration. Michael has accumulated best practices for building committed work groups from more than $4 billion of capital markets transactions and commercial property development. He served as a commissioned officer and helicopter pilot in the U.S. Army, and earned his MBA from The University of Arizona. Michael has served as a major conference panelist and is the author of Cash Flow Rich, Winning Ways to Evaluate and Finance Real Estate. Today, he helps business owners get more work group engagement as President and CEO of Shelton Business Services, LLC in Scottsdale, Arizona. Disclaimer: I don't offer investment, legal or tax advice. Talk to your broker, accountant or lawyer for investment, tax and legal help. I might own stock in the companies I mention on-line. My posts, tweets and other on-line activity are my personal thoughts and don't represent my employer or company.
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2 Responses to Blue Sky or Head in the Clouds? Home Ownership Dreamin’

  1. Pingback: Thanks for no Memory of the Mortgage Crisis: Grab a Loan Shovel and Start Digging! | Pro Borrower

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