We can’t accurately predict where housing prices will trend at the moment as it has had the appearance of a Texas Two-Step lately and the same goes for Mortgage Rates. In the past, low interest rates would drive up prices as buyers could afford more “home” for the same monthly budget. But, our past year’s worth of historically low interest rates haven’t really had the buoying effect that most economists would have suggested.
So, the only thing an economist has left in their “bag-o-tricks” (one to be confused with Halloween Trick-or-Treat Bags) is to look at the returns that have been generated since 2000. We all know that home prices skyrocketed from 2000-2005 and that they have plummeted since.
But, are you aware that if you bought/invested in a home in 2000, your return on investment would trump the Dow’s 6.7% ROI by over 6X? Yes, Home prices are still showing a 43% ROI if you bought 11 years ago and after the major slide.
The problem with all of us is that we have a hard time about having “lost” the additional run up in home prices and equity up until 2006, which would have provided you with a 71% ROI.
The bottom line is that you can keep you cash under the mattress, but it won’t earn a thing (it also won’t lose unless a cleaning person or burglar finds it); you can keep your cash in the DOW with its 6.7% ROI (as oppposed the losses if you put your money in NASDQ or S+P; or, you can buy a home and live in it, thereby taking advantage of a the tax credits available to you and watch your investment ROI grow over time!
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Maplewood, NJ 07040