Posted 3/25/2011

HAS YOUR HOUSE BECOME A CAR?

In the midst of all the excitement about the Middle East, the deficit and the Euro crisis, we seemed to have missed out on an earth-changing event: new housing construction plunged to a new low.

The experts seem to think the problem results from too many foreclosure sales and short sales, which crowd out new home sales. They talk about so many months of housing inventory and other technical terms.

But there is another, more dire explanation.

It seems that, to many people, the house has become a car.

A little explanation:

When you buy a new car, it depreciates between 25% and 40% the minute you drive it off the dealer’s lot. All new cars depreciate rapidly. No one in his right mind believes that buying an auto is an investment. No one expects the value of a car to increase (outside of a few relatively rare antiques).

Houses before 2008 were different. Houses were investments. Many a baby boomer was counting on his home’s highly appreciated value to fund his retirement.

But then things crashed. In some markets, home prices have dropped over 50 percent without a clear bottom in sight.

At this time, the home has become an anchor around the family who has seen its value fall below the level of the mortgage.

All this is psychologically devastating. It means that people no longer look at their homes as investments. Instead they look at them as expenses – just like cars.

And just like cars, homes have tended to depreciate sharply since 2008. Who wants to buy a new house when bigger used houses are selling for less? Who wants to walk out of a real estate closing only to discover that the value of his home has plunged 25 percent or so?

With new homes priced considerably higher than used homes, the fear of “buying new” is being strongly imbedded in the mind of the potential home buyer. With the new negative psychology rampant, the housing crisis is going to last many more years.

What are people thinking these days? Skip the new home.

Better to go after foreclosures and short sales.

Or simply rent and buy gold and silver.

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