Housing as a Nest Egg Returns to Mainstream Financial Advice

by 14 Feb 2013
The endless debate over the merits of residential housing as an investment seems to be alive and well despite the painful aftermath of the first housing bubble of the 21st century. Now that home prices are on the rise after nearly five years of vertiginous drops, the idea of housing as the ultimate nest egg or long-term investment is once again making the rounds. For real estate investors, the housing market in the United States has been ripe with profit opportunities since around 2010, but personal financial advisors have been careful not to mention housing in the same breath as retirement funds or long-term investment strategies. According to a recent article by Robert Farzad of Bloomberg, recent median home price increases in the U.S. are bringing housing back to the financial planning table. Not everyone is ready to admit homes with white picket fences back into the construct of the American Dream. Even Robert Shiller, the Yale academician whose eponymous Standard and Poor's Case/Shiller Home Price Index has tracked nationwide values since the 1980s, thinks that housing is not the most desirable investment. The problem with housing, Shiller explains, is that it belongs in a long-term depreciation asset group. Aside from being subject to depreciation, there are also issues of speculation and maintenance to consider. The Contrarian View It is hard to disagree with Shiller when he makes the case that after crunching numbers based on U.S. real estate values during the 1980s, the pure investment value of housing is zero. Still, those who work on the real estate industry continue to take the opposite view by arguing that housing has the potential to produce income. Prevailing wisdom would label housing as shelter, an expense crucial to human survival, but an investor who spoke to Bloomberg explained a different opinion. The words of Andrew Jeffrey, a real estate acquisition expert from San Francisco, are a good example of the sentiment brewing among American investors in the budding recovery. Jeffrey told Bloomberg about leverage; the practice of putting down a considerable initial payment to purchase a home and immediately renting it out and waiting for its vaue to appreciate. After some time passes, the mortgage payments and tax deductions should have mitigated all losses and began to turn profits. This should all sound very familiar to those who lived through the housing bubble of the early 2000s. It should be easier to support Shiller's holistic idea of housing as an investment that distributes invaluable dividends around the clock, beginning with a roof above the heads of loved ones and the comfort provided when people return to their homes tired from work. Such a view, however, is not one commonly adopted by investors who insist that housing must produce monetary returns.


  • by Bob | 2/15/2013 5:22:46 PM

    Leverage or other peoples money (OPM) is important but so is the tax advantage of Real Estate. Not only while your living in the property (write-offs) but also when you sell (tax free gain for most). What other asset class allows for a tax free gain? None. For an investor there is always the 1031 Exchange. Is a home an asset or a liability? An investors definition might be sometthing like- an asset generates income. An owner occupied residence is a liability (no income). Additionally- equity in a home isn't safe, it isn't liquid and provides no rate of return. I could debate either side.


Is TILA-RESPA a good or bad thing long term?