Is our new house a depreciating asset?
As I pondered the latest dismal housing market news, a funny thought popped into my head. There’s an old saying that goes, “Never borrow to buy a depreciating asset.” Usually that means something like a car. With the current climate, though, it could apply equally well to a house purchase. That’s a bummer.
We’re buying a new house (from the builder). When we made our counter-counter-offer, we got the price we asked for…if we closed within 30 days. We couldn’t do that, so they wanted us to pay the carrying (interest) cost for the extra month. I’ve had the thought since that we probably could have waited a month and gotten an even better deal than what we offered. Oh, well.
Anyway, it’s pretty clear that we’re violating that personal finance maxim to avoid paying for a depreciating asset (at least near-term) with borrowed money.
Balancing this thought is my strong belief that inflation will accelerate in 2008. In a time of high inflation, you should get rid of your dollars as fast as possible. So if I’m right and we are headed for high inflation, we’ll be paying the mortgage with cheaper dollars each month. I guess it’ll be a race to see if inflation outpaces the drop in home prices. That’s a curious situation.
March 8th, 2008 at 5:47 pm
No, a house is not a depreciating asset, like a car.
The real estate market goes up and down, but the trend is usally up, in the long-term. My house quadruppled in value from 1996 to 2007 and now it’s headed back down again. Most of that was luck, since I bought my house within one month of the 90s market low. But, if I had bought it a couple of years sooner or later, it still would have been a great investment.
I predict that you are going to buy your house and then it’s going to drop another 20-30% in the next two years. But, in ten years, you will be sitting pretty and happy you made the investment.