Per a recent article in the New York Times, popular wisdom may now be off the mark in thinking that housing is a “good investment.” Most people have believed for their entire lives that buying a house made good financial sense. You need a place to live anyway, you get a tax break on the interest, and most importantly houses appreciate in value over the long term, like stocks (but unlike virtually every other “consumer” good, which of course depreciates in value).
But apparently there is a new reality: Given the hangover from the housing bubble, evidence now suggests that housing prices will not significantly appreciate for a very long time, particularly in those areas that were most susceptible to the bubble.
Why is this important? Well, many buyers of real estate do so for the investment. If housing is no longer considered to be a good investment, then many of those potential buyers will seek to invest their money elsewhere. And fewer buyers will translate into continuing downward pressure on buyers. Which in turn will make housing a less profitable investment. In other words, this cycle will feed on itself, depressing home values further in the process.
