Last week I attended an economic update at the Dallas headquarters for Goodwill Industries. The keynote was Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. I’ve heard Mr. Fisher speak before and he really gives a clear presentation, without a lot of fluff or political spin. In fact, he makes a point to mention that he is not political and seems to be perfectly willing to assess
blame and credit (is there any?) to both sides of the political aisle.
He had plenty to say, not much of it particularly positive or encouraging (but just being honest), and one point he made regarding residential real estate stood out to me since I’ve been saying the same thing for years. A common misconception people have is that their personal home is supposed to increase in value, even though historically they have. He attributes a lot of this to the generation of baby boomers who have seen increases in the value of their real estate, strong and steady, for years (or decades!). The fact is that a house, unless it receivesimprovements, updates, etc. is an asset with declining value. The land where the house sits may increase in value (no guarantees) and that is what we’ve all been used to seeing for quite some time now. Until the last few years when much of the real estate market has been turned upside down. Plus, in many parts of the country there has been a history of such massive increases in values that was completely unfounded and unsustainable. And during this period so many people have used their homes as an ATM to fund the “gotta have it now” mentality.
Bottom line, people need a place to live. It seems reasonable to me that we would PAY to live somewhere, not be paid just by putting in time. If by chance your property appreciates in value during the time you own it and you are fortunate enough to receive a gain when you sell, then congratulations to you and I couldn’t be happier for you. The assumption that ALL real estate values will appreciate over time is inaccurate and to have the expectation (some act as if it’s a guarantee!) that your home is going to pay you to live there is setting yourself up for disappointment. Remember, it’s your home first. Not an investment. Make good decisions, buy in the right areas and have realistic (conservative) expectations.
