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Old 10-25-2011, 11:59 PM
 
Location: in my mind
4,624 posts, read 6,151,527 times
Reputation: 9178

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I want to add that I am not being facetious or snarky.

I truly do not understand where this idea that homes are only supposed to go up in value came from.

I mean, if you decide to pay for a $150,000 mortgage on a house, doesn't that mean you have decided to pay $150,000 ? If it later becomes "worth" $400,000, you aren't expected to then increase your mortgage to $400,000 are you? Why would it be any different if you agree to pay for a $150,000 mortgage and it later becomes "worth" $100,000?

I am not very knowledgeable about this topic, so if someone who is can educate me, that would be great, because I would like to understand it better.
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Old 10-26-2011, 03:47 AM
 
Location: Southern California
3,115 posts, read 7,014,445 times
Reputation: 3657
Quote:
Originally Posted by E E View Post
Where did this idea that it will only go up come from, anyway?
It came from the personal experience of millions of Americans, over decades and decades. My parents, my grandparents, my great-grandparents, and my great-great-grandparents - all of them bought homes as soon as they were able to, and watched not only their equity grow but also the value of their homes. And when they were able to, they traded in that starter home, on a nicer home, gradually moving up, over the years, into their dream homes.

It was expected that everyone would eventually get their dream home - after all, what was to stop you? Just invest in a home early, and move up over the years - no one in my family ever experienced a loss. Homes just didn't lose value - they were the best investment you could make.

That was the past - and obviously it's very different now - but that was the mindset for millions of Americans.
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Old 10-26-2011, 06:45 AM
 
Location: Albuquerque
5,549 posts, read 13,881,817 times
Reputation: 2669
Quote:
Originally Posted by E E
Where did this idea that it will only go up come from, anyway?
Short time horizons.

I remember during the dot-com boom, it was assumed that we had entered
a "new normal" where stock prices would be going up by 20-30% every year.
People extrapolated what had happened over the past 20 years and assumed
that money set aside at that time would soon grow to a fortune.

I remember being chastised for buying high-grade corporate bonds that yielded
8-9%. I remember clearly, many people saying that they wouldn't put up with
an investment that "only" returned a sub-10% payoff.

With real estate, the old saw " They aren't making any more land. " is extrapolated
to include housing - forgetting that housing is a manufactured product which can
effectively be produced in unlimited quantities.

Another thing is that housing is subsidized by the government. It was assumed by
many ( including me ) in 2005-2007 that even though the market was overheated,
the worst that could happen would be that prices would just level off due to the
supportive effect of subsidies and tax breaks. I never thought we would see this.

Now, it turns out that housing is just another commodity and commodities go up and down over time.

As the housing crisis has continued, we are starting to hear a lot of people saying
that housing will "only" be going down for the next few generations. They are also
wrong, of course. Sooner or later, we will see price inflation which makes it appear
that housing values are going up. It's just a question of when it will happen.

Housing values and housing prices are not the same thing in the long run.
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Old 10-27-2011, 12:11 PM
 
2,401 posts, read 3,820,709 times
Reputation: 2169
Quote:
Originally Posted by mortimer View Post
...

With real estate, the old saw " They aren't making any more land. " is extrapolated

Truth & FACT... They aren't making more "land".

to include housing - forgetting that housing is a manufactured product which can
effectively be produced in unlimited quantities.

Houses can be built in unlimited quantities... that is only when the material, the money, the labor, the demand is there....

...
Yup... they are not making more land the last time I check.

Buy the location, location, location... that is what they always say...
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Old 10-27-2011, 02:04 PM
 
Location: Albuquerque
5,549 posts, read 13,881,817 times
Reputation: 2669
Quote:
Originally Posted by hueyeats
Yup... they are not making more land the last time I check.
So what is your point?
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