I was spending time with a friend from church this past weekend. At one point the conversation turned onto the insane appreciation of our homes' values over the past few years. My friend said that he didn't earn all of that equity. That's exactly the right answer. I've said that of my home's value, but this was the first time I had heard it from someone else.
On paper, a lot of people who bought homes a few years ago (like myself) are a lot wealthier than we were before we bought. This wealth is a product of easy monetary policy, greed, and speculation. It certainly was not from prudent buying on my part. I bought really naively actually — so naively that I'm convinced that just about anyone who bought when I did made out like a bandit.
Now that the tides are receding, indiscretions are being called out. The really smart ones sold their properties while people were lining up to outbid one another, and those who stripped out that equity are finding themselves upside down and in trouble. Then there are folks like me, that still have their house but are watching its appraised value decline. I had thought about selling and renting, but didn't have the guts to displace my family while things went down. (Doing this to myself is one thing; doing it to others I care about is another.)
But if you're of the mindset that all of that appreciation is unearned, then it perhaps makes it easier to watch it go away as home prices go down. This may be rationalization, but if you're happy where you are and aren't overextended, thinking this way may make it easier to remain where you are.
Personally, I have no idea why people care about their home value as much as they do.
It largely only matters in two circumstances: (1) when you sell it and (2) if you are using it to secure a loan.
There are a few, limited cases for doing #2.
As for #1, unless you are moving quickly after buying, the odds are that you will break even or lose a little bit in the worse case. People who are being forced to sell right now because of inflating ARMs are not losing their shirt because of the housing crisis. They are losing their shirt because they couldn't afford a house.
The rule used to be that you shouldn't buy a place unless you planned to be there for at least 5 years. Anything less than that was sheer speculation if you were expecting to make money. At best you were preserving a way to recoup a percentage of your rental costs.
The way I look at it, my home's value to me is in removing a recurring cost from my budget once it is paid off. Nothing more.
Every time I hear the people mention renting v owning, I cringe. I have spent at least $36,000 over the last 8~9 years on rent. I could have been well on my way to owning my own home by now. It makes me sick. I also had to move around, just about every year and sometimes more than once (or twice) a year. It's not that I wanted to move, except when I had problems with neighbors, landlords, uninhabitable living conditions or other such issues. I also lost a few security deposits for invalid reasons. In that case, the loads of $$ I spent moving could've made it top $40,00.
Renting has many disadvantages. In many buildings, renters are stacked on top of each other. This gives you the ability to listen to neighbors as they play their jungle music, get it on, sometimes guys waking up both you and your neighbor at 3 am for a booty call. Neighbors can be the nosy type, especially those who don't work, checking out who is coming in/out of the building, knocking on your door to ask you stupid questions as an excuse to check out your company.
There are so many restrictions on what you can do: pets, modifications, noise, parkins spots/# of cars allowed, sometimes # of guests allowed. Things break, you run out of oil and freeze while the land lord contemplates parting with $400. If your hot water tank goes, the land lord might make you wait the better part of a month while contemplating its repair/replacement. Worst of all, You give someone $$ every month and get nothing except a roof over your head.@ least with owning, you work towarde owning.
Unless you actually want to sell, the price your house is believed to be worth (which is purely an estimate, anyway, until you can persuade a buyer to agree to it) is totally irrelevant.
We didn’t somehow earn more money from the family home when the property market was exploding, and we haven’t suffered any drop in income by the market going down.
It often balances itself out, anyway – if you sell, you’ll have to pay the current market price for your NEW house. That means your profit in a boom market will probably be wiped out, and your losses in the current one may largely be restored.
Incidentally, it’s annoying that the media have hyped up the emotion surrounding the whole issue by constantly referring to “the value of your home”.
It’s a HOUSE that has financial value. A home is beyond price.