There is an interesting, sometimes surreal discussion, going on at Canadian Money forum about buying real estate. It is a bit surreal because it is like listening to two sides have different conversations about the same thing. Those who discourage anyone from buying real estate primarily speak from an investment angle- valuations cannot be maintained, macro-economics are not good, this is only the beginning of the end etc etc. Those who take a more conciliatory or opposite approach tend to view real estate as more than just a mere investment but as a place to live and do whatever you want to do with your life. I am simplifying greatly- there’s actually about 4-5 different themes going on at once in the back and forth.
The fundamental issue really is do you view your house as more of an investment or more of a place to build memories? It is not an either or proposition but a matter of degree.
As pointed out by others, I would argue more than any other investment (and I use this term broadly) buying a principal residence (as opposed to investment property or real estate stock) is influenced greatly by life-cycle and localized factors.
For example, if you live in a 700 square foot condo with you just had triplets, I am not exactly sure your decision would be driven greatly by where you think the valuation trends will head on a 3 bedroom home. Instead, I would venture to guess that 3 wailing babies and a very cranky spouse would basically destroy any argument based on the Case-Shiller Index (any married person relying on economic data in an argument is not married for long regardless).
Correspondingly, in large urban regions, certain neighborhoods are always seen as desirable to live and valuations tend, relatively speaking, to maintain themselves. Neighborhoods like Rosedale, Shaughnessy, Westmount, Upper East Side, Gold Coast, Georgetown etc. etc. were deliberately set up as wealthy enclaves so the question for the residents and the real estate they occupy is not “how bad are you off?” but “how much smaller is the trust fund?”
These are extreme examples but the underlying point is your home is not purely a ROI calculation. There may be family needs for additional shelter or local needs- the school zone for the good school just shifted and you have to move 10 blocks east now to be in it- which may more pressing than looking at real estate through a purely investment eye.
And this may be part of the ultimate problem. In our ADD and disposable culture we live in, we have shifted towards looking at our home as places to build memories to looking at our homes as just another investment we can day-trade in just like a penny stock and worry about its value on a constant basis.
Remember what Buffet said recently, mortgage defaults occur not because you have an upside down mortgage (the mortgage is worth more than the house) but because of negative cash flow. But look at where the dialogue on real estate is- don’t buy real estate because the valuations are too high etc. etc. its like we are talking about a stock and not the place you live.
We shifted the dialogue towards looking at our homes more as investments than places of memory. There is room for both but the pendulum shifted towards the investment end for some.
I don’t know about you but if I lived in a home for 10 years plus and built great memories in it, I am not sure I would be kicking myself if I over-paid for it in the beginning or sold it for less than what I thought it was worth. Instead, I would think it was an integral part of my life’s experience and, if my over-riding memory after all that time is I paid too much or got too little, that says a lot about me.
What are you- do you view your principal residence more as an investment or a place of memory?
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