Considering the number of houses on the market and the number of foreclosures that are still coming on the market, there is no sign of a turn around for many years. The magnitude of the housing market collapse that started in 2007, is very difficult to come to grips with.
First you have to come to grips with the loss in the value of your personal home, which could put you underwater (owning more then your house is worth).
Second you have to come to grips with the fact that the oversupply of houses on the market makes it’s very difficult to change your position in the housing market. It’s difficult to sell because of the lower prices and large supply of houses and its difficult to buy because of the larger down payment that is needed and the rising unemployment that increases your risk to continue to pay your mortgage.
Third you have to come to grips with the fact that purchasing a home or a larger home as your family grows cannot be considered an investment. This has been the hardest for me to rationalize. Several friends of mine including me, who have purchased a starter home several years ago and where told that we were making an investment that we couldn’t loose, are now ready to move into a larger home - but our return is negative.
The idea that real estate is an investment still haunts me as I contemplate purchasing my next house. The advantages of purchasing a house include low interest rates, a large selection and dropping prices. In any other period in history, this would be a perfect time to purchase a home. Yet the deepening recession and continued trend of declining housing prices for years to come, far out way these advantages.
An honest analysis of the housing market is quite depressing. At best the government will be able to flood the market with enough money to stop prices from dropping within the next couple of years, but in the process they are going to create massive inflation, by which purchasing a house will be further out of reach. At the same time, interest rates will be rising and job security will continue to decrease.
Real estate is no longer an investment in anyway. The only rational reason to purchase a home in the current economic condition is to increase your standard of living. With that in mind, you have to consider that you will have to pay for your home and the faster you do that the better.
During the housing boom, paying for a home was the last thing anyone was thinking about. Most people were thinking about living it their homes, making some money and moving on in a few years. But now we are faced with the idea that we actually have to pay for our home.