Leaving the Myths of 2005 Behind

What home ownership could not sustain in 2005 - 2007 is the myth that housing is just another financial investment in a commodity that offers a quick, risk-free return, which readily can be converted into cash; and that this commodity investment is best made through the maximum use of other people’s money and none of one’s own.



As the residential real estate bubble burst now bears out, the appropriate expectations of home ownership are achieved through an investment having a duration greater than simply a few years, with many of the rewards for that investment being non-monetary and where financial reward is not the result of “quick flips”. In the future, as in the recent past, the phrase “quick flips” should not describe things done outside of a frying pan or the gymnastic floor.

With the ruinous results that follow from pursuing false myths in home ownership being exposed, today’s home buyer can be confident that their expectations will be met when they are guided by the following:

• Expect and experience intangible, but real and significant personal rewards associated with owning a home. Each of our homes is indeed our “castle”, for all that the notion of “castle” implies for security, privacy and a place of refuge from an ever-busy world outside.
• Realize financial rewards that arise through the disciplined pay-off of mortgage debt on a home that represents a careful balance between what one can afford and the home one needs. If there is a conflict between “needs” and “wants”, needs should take precedence, If there is a conflict between “needs” and “affordability”, affordability should prevail. As noted above, if a successful “quick flip” is the only way for satisfying expectations for owning that first or next home, keep leasing or stay put.
• Recognize that home ownership, like any goal worth pursuing, requires long term planning, preparation, commitment, and often personal sacrifice. Certainly one fallout of a burst bubble in residential real estate is that lending banks will require a higher degree of home buyer financial commitment in the forms of higher credit scores and/or down payment. For many, improving credit scores or accumulating a greater initial down payment will be a sacrifice requiring trade-offs among competing priorities. From the lender’s perspective, an increased down payment simply helps insure that there is better alignment between the lender’s belief in the value in making the loan and the home buyer’s commitment to repay the loan.
• Recognize that as part of long term planning, achieving ownership of the home that embodies all or most of what one wants in a home is most likely achieved over the course of multiple “move up” purchases, each accomplished at intervals of 3-7 years. Similarly, with home ownership occurring in an era where limitations on resource availability are more widely recognized, a home’s “green attributes, those promoting energy efficiency, sustainability and indoor air quality, are features most likely to promote and sustain long-term home value.

Whether the preceding perspective reflects a new way of understanding the expectations that home ownership can satisfy or simply reaffirm what some have known all along, a home investment made with the foregoing guidelines in mind should meet with success.