Tags: karen | pence | housing | investment

Top Fed Official: Housing Is a Terrible Investment

By Dan Weil   |   Tuesday, 26 Jan 2010 04:37 PM

Homeowners have been told for years that their abode represents the best investment they’ll ever make.

Karen Pence, head of the Federal Reserve’s household and real estate finance research group, begs to differ.

At a recent economic meeting she offered five reasons why homes are a miserable investment, The Wall Street Journal reports.

And Pence has her money where her mouth is: she’s been a renter for years, though her husband’s need for more space may drive her to homeownership.

Pence’s Points:

• Unlike stocks and bonds, you can’t dump only part of a home to generate cash. “You can’t just slice off your bathroom and sell it on the market,” Pence says.

• Homes constitute undiversified investments. You’re betting on a single neighborhood.

• Selling your home is expensive thanks to broker fees, mortgage fees and moving costs.

• While it’s easy to take money out of your home when prices are going up, it’s difficult to do so during declines, when refinancing terms are strict.

• Your home price is dependent on your neighbors’ employment status.

When they’re out of work, home prices in the neighborhood often drop.

Many experts say the housing sector remains in big trouble.

"We saw this big upturn” in home prices this summer, Yale housing expert Robert Shiller told Reuters.

“But it seems to be flagging. I think it's more likely to be a decline than a rise in the next few months."

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Homeowners have been told for years that their abode represents the best investment they ll ever make. Karen Pence, head of the Federal Reserve s household and real estate finance research group, begs to differ. At a recent economic meeting she offered five reasons why...
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