Buy a Home as a Place to Live

A house should not be viewed as an investment. When investments go bad, it causes financial hardship and anguish. When the bad financial investment is a family home it ruins everything. The joyous memories that are supposed to be associated with a person's home instead become associated with the financial distress of a losing investment. Nobody wants that.

To be financially conservative is to accumulate wealth and to be risk adverse. It requires managing equity, paying down a mortgage loan, and allowing net worth to accumulate rather than depleting it via consumer spending through mortgage equity withdrawal. People became motivated to own real estate, not as a place to live, but as a source of income through appreciation and equity extraction.

Many people do not realize the risk they take on when they use some of the innovative loan programs developed during the bubble. Exotic financing terms are not exotic anymore. Interest-only, adjustable rates and negative amortization have become so ubiquitous that nobody seems to remember why 30-year fixed-rate mortgages are used. A home should be financed with a fixed-rate conventionally-amortized mortgage and a sizable downpayment. The reason for this is simple stress management: nobody wants to spend the next several years worried about a loan reset or the need for increasing house values or future salary increases.

During the Great Housing Bubble, greed replaced need as a motivation to own real estate. People should not buy with the desire to make a fortune in real estate. Instead, they should purchase with the intent to have a stable housing payment, and a stress-free life.

Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall? Learn more and get FREE eBooks at: www.thegreathousingbubble.com/ Read the author's daily dispatches at The Irvine Housing Blog: www.irvinehousingblog.com/ Visit Buy a Home as a Place to Live.

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