21 April 2010, a Wednesday

I retired from the real estate business in 1999 and moved to Costa Rica early the next year. Since then I have watched the market fluctuations with some interest, both up north and down here, more because I spent nearly three decades at it than for any other reason. Plus, there was the fact that for me the matter was academic: we were here, settled, and planned on never moving again, anyhow.

I always considered that residential dwellings were of two types: houses, and homes. A house was a place where renters lived temporarily, primarily an investment property for the owner or buyer, whereas a home was where a family intended to live ‘permanently’ and its investment value was secondary in importance and long-term in nature. A buyer of rental property has to be able to carry the costs of the property from the rents received or else it is not a sensible investment, and it really doesn’t matter what amenities the house has except as they affect market value and rentability. The home buyer, on the other hand, had only to consider if he or she could afford the monthly payments, including insurance and cost of maintenance and property taxes.

It was clear to me, therefore, that these were two different classes of people with distinctly different goals.

It seems to me that the bubble got out of hand when people who should have been only homeowners, buying a safe place for their family to live, started simultaneously thinking about it as a short-term investment, confusing their goals in the process, and also too many unseasoned investors jumped into the housing market with less thought or research than if they had invested in the stock market.

This resulted in people betting on short-term gains in what have always been long-term investments, as well as HOMEowners taking OUT their equity rather than adding to it! The American Dream of the day that the mortgage on the family home got burned simply ceased to exist.

My advice for my HOME buyers was to buy the home they could afford which best suited their needs, get a fixed-rate mortgage without a prepayment penalty, and then make monthly payments as if it were only a 20-year or even 15-year loan, building equity as rapidly as possible. Your home can never be "under water" if it’s owned free-and-clear, and it’s market value is immaterial to you if you intend to live in it a long time.

I know, I know, these are rules of thumb and circumstances change, but that’s still the broad-brush way to think about home ownership.

Residential investment property is another story entirely, so the two should never become confused. The last decade has been a good example of what happens when you do that.

Here’s another item that jumped out at me:

In my day, I used to figure 10, maybe 12. Renters do not have to insure or maintain a house; homeowners do.

It offers safety and security to your wife and children and represents stability for the community. Homeowners CARE about who else lives in the neighborhood, whether they drink too much or do drugs or drive too fast, because they cannot easily simply move and run away from those problems.. Homeowners CARE who their Representatives are in Congress, because they expect to live in their district year after year. Homeowners are far more likely to know their mayor, their police chief, their fire department captain, the city council members, and so on.

Your home is the place where you can choose any colors you like, tile versus carpet versus hardwood floors, add a window or a wall, or remove one, do all sorts of things...because it is YOURS.

Yeah, yeah...I know. I’m still a residential real estate salesman and home ownership is still the American dream.

And which way are things going, really? Up or down?