WHEN YOU BUY A HOME, is it for shelter or is it just an investment? Or is it perhaps for both?
When my parents were buying homes back in the ’60s and ’70s, properties appreciated some — enough that if they wanted to move they could sell the old place and be able to buy a new one — but the real value in buying real estate was the money saved in reduced income taxes. In those days folks stayed in one place long enough that they would actually pay off a mortgage. There is a whole generation of folks who worked tirelessly to pay off their homes so they could retire and not have a house payment.

Somehow in the early 2000s we lost track of that view, and real estate became more of a speculative investment. But at one point the whole idea of real estate as an investment became a bit stupid, and as a result the entire system went severely out of whack.

As the dust began to settle on the housing crash, folks returned to the old-fashioned idea of real estate as shelter. Any thought of it being an investment became secondary to a deep-seated desire to own a place they could call home.

But as values have climbed sharply in the last two years, the idea of real estate as an investment has begun to creep back into the minds of folks who either own or are looking to buy homes. A glance at the Internet shows a proliferation of websites offering calculators folks can use to compare returns on real estate to stocks, bonds and other investments.

It may be interesting to learn that your home offers a bigger return on investment than, say, an average stock portfolio, but is it really relevant? Do we really want to return to the idea that real estate is an investment rather than shelter? When a homeowner looks at a graph that reflects homes far outpacing stocks and bonds, is it realistic to assume that the pace of appreciation will continue?

If your home appreciated 35 percent last year, is it realistic to assume it will appreciate 35 percent this year, and next year as well? Probably not.

When folks were buying homes based on investment potential, it was easy to walk away from these homes, like a bad investment, when values declined. But all this walking away caused values to plummet even further.

A day doesn’t go by that I don’t encounter a homeowner who toughed it out through the worst of times, watching as their home’s value fell and many of their neighbors walked away. Some of these folks bought at the top of the market and still own homes that are worth far less than what they paid.

There is an old saying: “As housing goes, so goes the economy.” As housing has improved over the last couple of years, our economy slowly improves, as well. Speculating on real estate is best left to folks who have money to lose — not the average homeowner who simply wants a place to call home.

Guy Benjamin (CAL BRE License #01014834) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or gbenjamin@rpm-mtg.com.

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