Is a House Ever a Good Investment?

This is a questions that can create quite a discussion.  In a very well written article by Vedran Vuk of Financial Sense the answer lies in your own perspective.  A house can a great investment if used solely for it's purpose as a home, a place that provides shelter.  On the other hand a house can be a poor investment if it is treated as such, an investment like a stock that is expected to grow higher and higher each year.


I fully resent the idea that the government should be trying to prop up or continue trying to inflate house prices.  With government intervention you arrive at a distorted costs in which the true market value can not be ascertained.  If housing prices are rising faster than income levels or the overall pace of the economy, you create the makings of an asset bubble that will eventually pop.


Via Financial Sense article here

• Consider the difference between your house and an investment such as Apple (NASDAQ: AAPL) stock. At a major company, the opportunities can be truly limitless. Apple can produce cashflows from computers, iPods, iPads, and future innovations that are just dreams and concepts today. If the local market is oversaturated, Apple has the option of spreading out all across the world. As a result, Apple's stock price has gone from $17 in 2005 to $540 today. Can your house do the same? Unless there's a hyperinflation ahead or your house is located in the New York City or London of the 21^st century, the answer is no. Why? Because your house is ultimately a product – and products have an upper bound to their prices.

• Unfortunately, policy makers still view homes as investments and are always worried about low prices. But is it really healthy to play another round of the same Ponzi scheme? Suppose the Fed manages to inflate housing prices again. There will be another boom in which some folks will make a tremendous amount of money. Eventually, housing prices will hit an unrealistic upper bound. Again, home prices will violently drop, resulting in homeowners deeper underwater than now. Of course, the banks will again take a hit as the mortgage holders. As long as real incomes trail the rise in housing prices, there will ultimately be a correction of some sort.
• If US companies such as Apple are creating greater abundance in society, it makes sense for housing prices to grow with greater wealth. But, bringing those prices higher on a wave of printed cash does not make us wise investors, but rather willing participants in a Ponzi scheme where someone else will be left holding the bag. Though that might be an attractive solution for those underwater on their mortgages, it's no solution for the economy as a whole – nor for the next buyer.