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Owning a Home Still Pays – It Will Just Take a While

With foreclosures at an all-time high, many caused by homeowners walking away from underwater mortgages, it's important to note that owning a home in this country has really been a good investment for the long haul.  Certainly, there are a large number of homeowners paying on mortgages that have balances higher than the current value of the home, but that's today.  Since World War II:

  • Homes have appreciated an average of 4% per year
  • They provide a hedge against inflation
  • As a leveraged investment, a 10% down payment produces a 1000% return if the home's value doubles over time

Now, none of those items are short term happenings.  In the boom years, the time to realize the benefits of home ownership compressed, but it's very important to always keep a long term perspective.  Many of those in trouble today had traded up in a rising market, buying a larger or nicer home when financing was easy.  If they had stayed in the home they had before the switch, they would probably be in much better shape today.  But, that's all hindsight.

Looking forward, those who stick with their upside-down mortgages will probably see their home values increase, and at some point actually show positive equity again.  Of course, that's only possible if they are still employed and  can afford the mortgage payments.  On the flip side, and not trying to hype the market, it really is a great time to buy a home.  If you have good credit and the down payment, current prices are very attractive, and you can start near the bottom of the next appreciation curve. 

Just settle in for the long haul though.  We're unlikely to see another period like the 1990 - 2006 home price boom in our lifetimes.  Treat it more like a retirement plan than a short term stock play and you'll likely be much happier five to ten years from now.

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