If you are still clinging to the idea of your house as a great investment, better read on then.
In an interview with Bloomberg TV, housing guru and Yale economist Robert Shiller likens the idea of buying a house as an investment with buying a car and trying to sell it years later and then expecting to hit the jackpot.
You wouldn't expect to get a big gain trying to sell a car after owning it for 20 years. Well the same is true for your house, which is also going to be dated and in need of work after a couple decades of wear and tear, Shiller argues.
After reading it, I am almost ready to call it quits on my cash hungry Natick fixer-upper and go rent! Just kidding. Still I can't get the used car image out of my mind.
Here's an excellent replay/take on the interview by The Business Insider, which puts it rather bluntly in the headline, "Robert Shiller Destroys the Idea of Investing in a Home."
These were some of the issues Shiller addressed in his classic book, "Irrational Exuberance."
"So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000's. And I don't expect it to come back. Not with the same force. So people might just decide, "Yeah, I'll diversify my portfolio. I'll live in a rental." That is a very sensible thing for many people to do."
Adam Johnson also noted that this was in line with Shiller's assessment that real U.S. home price appreciation from 1890 to 1990 was just about 0 percent. This is explained by the falling costs of construction and labor.
For people who can't wrap their heads around this, Shiller offers an analogy.
"If you think investing in housing is such a great idea, why not invest in cars?" he asked. "Buy a car, mothball it, and sell it in 20 years. Obviously not a good idea because people won't want our cars. It's the same with our houses. So, they're not really an investment vehicle."
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