Chicago Relocation

Don’t Stop Believing

June 16, 2014

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John D’Ambrogio

Yes, America has held on to that feeling.

Guess what? Americans still view home ownership as the safest investment they have. While that may be counterintuitive  iven price fluctuations the last seven years, it is nice to see that the big picture long term view is still there (or maybe I should say it is back again).

Gallup Poll released a poll showing home ownership above stocks, bonds, mutuals and the rest.

Not surprisingly, Fannie Mae’s recent National Housing Survey which asked Americans which assets had both potential and safety, home ownership came up number one again. FNME may be a little biased, but the results did fall in line with Gallup.

Why the optimism after living through such a bubble? The S &P has actually outpaced the returns on real estate investment over the past century, but I think you are missing a few things when you try to compare apples to apples.

Here is a list of a few of my reasons:

*The generous tax deductions for both primary and investment property provides far more advantages than simple capital gains/losses.

*Leverage. Few of us buy stocks on margin. Most of us finance 80% or more of our home purchases. So a 20% gain on a $100k home, with 20% down, equates to a 100% increase (commissions another selling costs notwithstanding). Yes, it swings both ways. A 20% loss wipes out all your investment.

*Speaking of cap gains, being able to take hundreds of thousands in cap gains TAX FREE is appealing.

*It would be foolish to not take into account years of rental income and cash flow on investments, as opposed to simply price bought and price sold.

*Oh, and you can’t live inside a stock certificate. Studies don’t usually impute the cost of rental housing against stock investment gains. You remember the jokes about the 401k becoming a 201k. Well, your four bedroom house didn’t become a two bedroom house during the recession (although it may have been valued at one). Which is good because your adult kid probably moved back!

So maybe we practice things in moderation. Fund your IRA, and buy a home. Put a reasonable amount down, and make sure your payment is affordable.

I think in the long run you will be ok.