HOMES ARE NOT NEST EGGS

23Aug10

One net result of our collective housing avarice as exhibited by the pre-2005 collapse, is simple, houses are not nest eggs. We better not only get used to it and change the way we think.

Our homes will not help us make retiring easier. Using home equity to fuel our standard of living, as well as the US economy, will become as passé as “No Doc” loans. Sending our kids to a good colleges by re-mortgaging the family manor ceases to be viable. And expensive vacations, round the world trip, fancy dining, mall shopping as therapy, nope, that part of the American dream is not in the cards if it was financed by your home. The profligate consumerist ways enjoyed by many and ballyhooed by the media, are not coming back. The experts are in agreement. It’s all toast.

There had been some optimism that things would return to the way they were, but reports coming out  show differently. Bottom line, housing will not appreciate as it once did. It may keep up with inflation, but even then it will depend on many external factors. Will housing recoup the nearly $6 trillion of lost wealth since 2005? According to the Center for Economic & Policy Research, those lost trillions won’t be recovered for 20 years or so.

Areas of older housing stock that did not experience huge building spasms like Las Vegas, Florida and some of the other erstwhile ‘hot’ housing markets will take less time to recover their value. Of course, areas experiencing a strong economy will continue to be desirable for housing. Those places where the market was “hot, hot hot”, will be “cold, cold, cold” for a long time.

For the layperson, the key statistic to look at is “housing inventory”. This is a number which estimates how many houses are on sale and how long it will take them to sell. In a healthy economy the number is less than six months. In a boom economy is  can get far lower. Right now, the estimate is expected to hit twelve months. This will continue to put downward pressure on prices. Thus making housing an undesirable place to invest and assuring that housing will not be the key for overall economic recovery.

There are more worrisome signs on the horizon. Perhaps the most troublesome isn’t even in the US, but China. The housing market in China has a similar foreboding look to it as did the US a few years back. When considering the inter-connectiveness of the US-China economies, a body blow to China’s economy could also be a body blow to the already struggling US economy.

What does this all mean? Be conservative with your money. Lower debt when possible. Prepare for rough waters, and above all, stay frugal.

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When it come to saving money or commenting on our culture, the Frugal Yankee is smart & opinionated. Find out more, or find ways to save money, by visiting his site,

Frugal Yankee.com.

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One Response to “HOMES ARE NOT NEST EGGS”

  1. A+ would read again


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