Home vs. Investment

Home vs. Investment

A quick query…. Should a house be a home or should it be an investment?  It’s a simple question most people just answer by saying “both”.  But what if we phrase it differently?… Should a house be MORE of a home than an investment? Or MORE of an investment than a home?  That’s a bit trickier,  especially when you live in a place with some of the highest real estate prices on the planet.  

We all recognize the warm and fuzzy qualities of life that home represents: comfort, security, privacy etc. and all the ways home nurtures us on a daily basis. But in the middle of the craziest real estate market ever,  it’s hard not to succumb to the ca-ching of that internal equity calculator that most homeowners possess.  

Here in coastal California,  home prices are three times higher than the national average ($1.3m vs $430k).  Mixed messages are coming at us from all directions and it’s tempting to see home as the place where the best ROI (return on investment) lies rather than the place where the heart resides.  

We’ve been talking a lot about the role of home in our culture and how it has changed since World War 2,  starting with the GI Bill, the birth of all those baby boomers and the wave of consumer-driven prosperity in the 1950s.

An idealized notion of home was central to it all – think white picket fences in suburban neighborhoods full of happy nuclear families. That was the stereotype the U.S. government tried to engineer with easier, cheaper finance options,  30 year amortization rates and a steady stream of tax incentives designed to subsidize homeownership.  

Between 1940 and 1960, homeownership rates rose from 40% to 60% as more people leveraged into the American Dream.  In California, homeownership hit 58% in 1960  but in the 60 years since, homeownership in California has declined to 55%,  the second lowest rate in the country.

Thanks to record levels of appreciation over the last thirty years,  baby boomers have compiled the greatest generational wealth of all time.  Two million Californians,  most older than 65 and most living in metropolitan/coastal areas of the state,  now have more than a million dollars of equity in their homes. They aren’t all rich, but they’re  “house rich” compared to the 45% of people who don’t own homes. 

Most have lived in their homes for 20+ years and most pay less in property taxes than the majority of their shorter-tenured neighbors do ( Prop 13.)   Their biggest worries?  How to avoid paying capital gains taxes or increased property taxes in the future.

Next Week:  Are we genius investors or lucky homeowners?