A house is still a good investment
A house is still a great investment for many people, and there are several reasons why it can be a good choice. One reason is that owning a house can provide you with a sense of stability and security, and it can give you a place to call home. Another reason is that a house can be a good investment because it can appreciate in value over time. This means that if you buy a house and hold onto it for a long period of time, it is likely to be worth more when you sell it than when you bought it.
Another reason why a house is a good investment is that the loan that you take out to buy the house becomes cheaper over time due to inflation. Inflation is the general increase in prices over time, and it means that the money that you borrow to buy a house today will be worth less in the future. This means that your monthly loan payments will be smaller in real terms, even if the nominal amount of your loan remains the same.
For example, if you take out a loan for $200,000 at an interest rate of 4%, your monthly payments will be about $954. If inflation is 3%, this means that the purchasing power of your money will be reduced by 3% each year. After 10 years, the purchasing power of your money will be reduced by about 30%, and your monthly loan payments will be worth about $670 in today's dollars.
Is home buying always a good idea?
While owning a house can be a good investment for many people, there are also situations where a house purchase may be a bad investment. Here are a few scenarios when buying a house may not be a good idea:
If you are planning to move in the near future: If you are planning to move to a new city, change jobs, or start a family in the next few years, buying a house may not be a good idea. This is because the transaction costs associated with buying and selling a house, such as real estate commissions and closing costs, can be significant. If you are planning to move in the near future, it may be better to rent instead of buying.
If you cannot afford the monthly payments: Another situation when buying a house may not be a good idea is if you cannot afford the monthly payments. This is because missing mortgage payments can have serious consequences, such as damaging your credit score, losing your home, and incurring additional fees and penalties. If you are not sure that you can afford the monthly payments, it may be better to wait until you have saved up a larger down payment or until your income increases. It may even be better to not only have a larger downpayment but also have 6-12 months of mortgage payments and expenses stored away in case your household income takes a significant hit. As an example, my wife and I have been storing cash for the past few months in order to buy a home sometime soon; however, we also have our major expenses covered for the foreseeable future. In these uncertain times, having cash can certainly be an ‘asset’.
If the local housing market is overvalued: Finally, buying a house may not be a good idea if the local housing market is overvalued. This is because if the market is overvalued, it means that the prices of houses are higher than what they are worth based on the underlying fundamentals of supply and demand. If the market is overvalued, there is a risk that the prices of houses will fall, and you may end up losing money if you buy a house at the wrong time.
So, while owning a house can be a good investment for many people, there are also situations when a house purchase may be a bad idea. If you are planning to move in the near future, if you cannot afford the monthly payments, or if the local housing market is overvalued, buying a house may not be right thing to do. But, an affordable home (i.e. a house you can very easily afford) can provide you with a sense of stability, security, and appreciation. Additionally, the loan that you take out to buy the house becomes cheaper over time due to inflation, which means that your monthly payments will be smaller in real terms. Overall, owning a house can be a smart and effective way to invest in your financial future if you get the right home.
Note: This is for entertainment purposes only. Please remember, I am not a financial advisor; find yourself a good fiduciary advisor if you need specific help. Go here to get started.