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DISCUSSIONS > BUDGETING & SPENDING > HOUSING

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A bad investment

Housing, Mortgages | 4 Comments | 659 Views |

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By: sirsky , May 28 2009

I purchased my first condo when I was 24 yrs old, putting down 20%, a little over 4 years ago. At the time, it seemed like a good investment. Now, it seems like it has "bad idea" written all over it. The value of the condo has gone down 30-40% and it doesn't look like the housing market is going to go up anytime soon. In addition, I don't have the money to purchase another home right now and even if I did, 2 mortgages as a single gal is a crazy thought. To top it all off, none of the housing programs or re-fi options apply to me because I'm able to pay my mortgage "without hardship" according to the bank. The mortgage lender now ignores my calls.

So now, at the age of 28, I am living in a small 1 bedroom condo while the rest of my friends are purchasing nice 3 bedroom homes for the same price as I purchased my condo and with a much lower interest rate. While they can sell their homes for a profit when the housing market improves, I will *maybe* just even-out.

All this being said, had I not purchased my condo, I would've lost my 20% down payment in stocks which I was an avid fan of. At least I have a roof over my head, right? Still....I have to laugh when people say that purchasing a home when you're young and can afford it is a good investment. I'm finding this very hard to believe. Hoping that time will prove me wrong.

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COMMENTS (4)

The shift from the notion of buying a house for a roof over your head to one of it being a good investment is actually a fairly recent phenomenon. I think that today people all over the country are learning that home ownership has to be about these other things in order to make sense: stability, pride of ownership, etc. Otherwise, those in your situation will surely drive themselves crazy. Buying a house won't make you rich in dollars, but it still can make you rich in other ways. The American Dream and all that. Anyway, there's a lot being written about the value of mortgages. I read this on WSJ this morning and thought it was pretty interesting: http://online.wsj.com/article/SB124352291846962809.html

by lynn2008 on May 28, 2009 at 03:14PM EDT

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Thanks for the WSJ article lynn2008. I think this sums up how complicated/unknown this issue is: The real benefits of home ownership are any capital appreciation, plus the imputed rent, minus the effective cost of the mortgage and property taxes, other costs, and the return you could earn on your down payment elsewhere.

by sirsky on May 28, 2009 at 03:35PM EDT

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Sirsky, Thank you for sharing your experience. I'm skeptical you'll ever look back at your condo purchase and think of it as a good investment (though I too, for your sake, hope I am wrong.) Yet because you purchased a condo you could afford, you made a small mistake - not a big one. I usually tell people five to seven years is the minimum you should expect to live in a home when you buy it (or just keep renting). Who knows what the next three years will bring? Also, as you said what would you have otherwise done with the cash? The stock market. Now you have an opportunity to invest in the market at lower prices than you would have four years ago (while your friends, including your's truly, sits on sizable losses on investments made during 2004.) Net: look forward, not backward. At only 28, if this should prove to be your biggest financial "mistake," you will have done quite well in your financial life!

by Michael Rubin on May 28, 2009 at 03:44PM EDT

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Thanks for the encouragement Michael. I forgot to mention that besides stocks, I would've spent it on some nice purses; then again, those would be out of style by now too. So all in all, it's not so bad.

by sirsky on May 28, 2009 at 05:59PM EDT

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