I don’t usually feel the need to clarify, but once again, this blog is meant to be my opinion only, and a perspective on how I plan to live.  I have laid out my case for why, but if you choose another path, more power to you. 

As you all know, we are in the process of selling our house.  A time of great stress and change in our lives to be sure.  It has also led to me re-examining some things about the very basis of home ownership.  My wife and I got married very young, and of course, one of the things we did was rush out and buy a house.  A townhouse in Pennsylvania to be exact.  We lived there for a few years, and we sold it.  Then when we got to Tucson, we rented for a few months, but again, we ran out and bought a house.  It’s what people are supposed to do right?  After all, aren’t we told our entire lives, your home is your greatest asset.  Right?

Not if you do the math on it.  I was playing with these examples this morning, and I will include links to the calculators I used.  These are two fairly static examples in a field that could use literally hundreds of variables.  So I am in no way saying these case studies represent the summation of America.  Nor am I saying I am either a financial nor economic expert.  These are illustrative examples only.

So the two most common mortgages used today are 30 year and 15 year mortgages, and for the sake of example, we are going to say both of these homes pay off this month.  Thus one home was bought in 1983 (oh god, I am almost 30) and one bought in 1997.

1983 House:

Median Home price according to US census in 1983: 72,800

Interest rate in 1983: 12.8%

Total Interest Paid: 215,065

Total Investment: 287,865

So in order to break even on your 1983 investment, just in terms of the principle and interest, no even counting the things you would have to put into the house to ensure it would sell for this price, you would have to sell it for 287,865.  Just on paper.  More on that in a minute.

Lets run the 15 year example now.

1997 House:

Median Home price according to US census in 1997: $148,000

Interest Rate in 1997: 7.9%

Total Interest Paid: $105,050

Total Investment: $253,050

So it’s clearly a better deal, at least on paper with the newer house, yet its still a big chunk of change.  The US census lists the most recent median price in America at $212,000, which was the newest information from the same source as the rest.  Which is the best way to keep the numbers consistent.  The only other problem, is our money isn’t worth the same as it was when you bought your house.  Inflation has been happening, and it has been making your money worth less and less.

So using an inflation calculator, we find the inflation adjusted total costs of the above houses.

1983 House: $380,267

1997 House: $315,303

Does anyone really think you can sell an average house that’s that old, for that much in most parts of the country?

I am not saying to never own a house, obviously.  We are moving up to Idaho so that we can find a piece of property to live on, hopefully for the rest of our lives.  We are looking for a place to start our family.  That is certainly a worthwhile use of money.

What I am saying is that we need to change how we look at housing.  It’s not an investment.  It’s an expense.  It isn’t worth sacrificing everything you have to get a big mortgage and work on paying it off.  You will never get the REAL cost of your money back out of it.  You wouldn’t go get a big loan to invest in the stock market or to buy gold with (hopefully).  Yes, houses do appreciate over time, but they appreciate at not a lot above the inflation rate.  At best, its a safe place to park your money to hope it keeps its value over time.  This is NOT where you save for retirement.

So what should you do?

Never buy a home with debt.  Yes, that means renting longer and saving up money.  Trust me, owning is not cheaper than renting.  Whoever said that was huffing glue.  Debt takes what is already a risky proposition and makes it downright suicidal.  With the numbers used above, if there had been no mortgage interest, the scenarios would have played out much better. 

The other thing paying cash forces you to do, is slow down.  We buy houses assuming when we get bored with them in 4 years, we can sell it at a profit.  That idea was at best a rarity, and will soon be a downright pipe dream for the majority of people and areas.  Slow down and rent for awhile when you save money.  A home should be a purchase made when you plan on living there for a good long time, maybe forever.  If you rush into something, you don’t have time to let that sink in.  Taking the time to ensure you are making the right choice, keeps from backing you into a corner when life changes.

I wish I had learned this 5 years ago, but at least I have learned it young.  Debt has never been a blessing to anyone, why wuld you want it to curse your home?

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