June Poliachik

“Homeowners may need to look elsewhere for long-term investment returns as housing prices in some areas may not rebound long-term, Bank of America Corp Chief Executive Officer Brian Moynihan said on Tuesday.”

In other words, the CEO of largest mortgage lender on the planet is making the very valid point that some areas of the US will NEVER see a return to bubble prices.

With regards to future appreciation (or ‘value increase’ from inflation): ” low population growth in some regions of the country indicated that prices might not rise in the wake of the worst financial crisis since the Great Depression.”

Frankly, he is right. There already are modern day ‘ghost towns’. Cities, communities that came and went with the loosey-goosey lending standards.

Its always seemed odd to me that financial types would treat a home with a mortgage as an asset. For example, if your $400,000 home had a mortgage owned of $390,000 the entire value of the home (not your actual equity) was counted as an ‘asset’. A home is just that, a home. Residential real estate being sold as ‘an investment’ went out with the sub-prime mortgage. When was the last time you saw any of those infomercials selling their ‘get rich with real estate’ products?

Can real estate be an investment? Of course. When someone else is paying the mortgage (tenant) and you are making money from the cash flow. Better yet, when the property truly owned with no loan. When is a home (or any investment property) an asset? When you own it….or better yet, when its producing an income stream.

Home ownership as a rite of passage in our society needs a serious rethink. Not everyone needs to (or should) be a homeowner. Owning IS a financial decision first and foremost. All too often a home is sold purely for emotional reasons.

“It’s sobering to think, but some people shouldn’t be thinking of (their home) as an asset,” Moynihan said “They should be thinking of it as a great place to live.”Moynihan said the long-term average annual rise in post-war U.S. home prices of 4 percent owed much to the explosion in domestic population and, in more recent times, the relaxation of credit standards across the mortgage industry.”The reality is that the population is not expected to grow the way it did post World War I and World War II,” he said.

Bottom line, welcome to the version 2.0 of the American Dream.

reprinted from realestateinsidernews.com