Real Estate is a Commodity

The most common quote I hear today from sellers is this:  “I paid $$$ for my home when I bought it”  Most people expect to make a large amount of profit when they sell their home.  Just in case any of you have been locked in a cave or LOST on an island with Sawyer, Jack, & Hurley the real estate market has changed over the past year.  Many sellers still have a hard time understanding that they may not make a profit on their home & in bad cases may even take a loss if they overpaid to begin with.

It’s much easier if you think of your home as a stock/commodity.  Real estate is the definition of a commodity!  Wikipedia says that A commodity is anything for which there is supply, but which is demanded without qualitative differentiation across a foreign market. There can be a lot of differentiation between one home and another, but the principle of a house or the housing market is unified.  Some could argue that with terms like “cookie cutter home”  that many are the same.  The housing market is localized and global all at the same time. 

So lets say you paid $90/share for Home Depot stock ten years ago and you call your stock broker and tell him I need to sell my Home Depot stock for $100/Share.  First he will check the market to make sure he has not missed anything and then tell you that it’s selling at $29.50/share.  That’s pretty much the end of your conversation.  This concept is much more difficult for many people to understand when it comes to discussing the price of their home because it’s always been in the sellers favor. 

Right now you are thinking that real estate is a bad investment.  Trust me it’s still a good investment and here is why.  The following information is courtesy of Excerpts from Blanche Evans the Senior Editor of Realty Times. 

Why Real Estate is A Good Investment?

• Leverage

With Stock you put in ALL your money for a little piece of the company.

With real estate you put in LITTLE money and get the entire house

• Tax Benefits

Government bribes you to own a house with tax breaks.

You put down 5% of the cost of the asset and reap all the appreciation and pay NO capital gains tax after 2 years.  That doesn’t include the value of fixed rate mortgages, interest tax deductions, depreciation, etc.

You will always pay capital gains & tax on dividends from stocks.

• Control

When you buy stocks you’re paying some CEO 500 times the wage of an average worker for a job that would result in most employees being fired.

With a home you have complete control of what you buy & where you live.

Compare that to being heard at the next shareholder’s meeting!

• Value

Unlike most stocks your house will seldom become worthless, even in hard times like we are having now.

Don’t freak out about price fluctuations on your home.  You probably lost more on your stock portfolio value last year than you did on your house!

I know you lost more on your SUV and your IPhone than on your house!

At this point you may think this information is contradicting.  The bottom line is this.  You may sell your home today for much less than what you wanted to, but buying a home today you will be investing much more into your future.  The real estate market will rebound and prices will begin to rise again.  “Buy low and Sell high”  Home prices continue to drop and short sales & foreclosures are abundant.  If you have to sell your home in order to buy then get what you can out of your current home break even if you have to and sell your stocks & 401K and get a great deal on your new home.  Wait a few years enjoy your home and then plan to sell when the market stabilizes.

Let’s face it when it rains would you rather have a roof over your head or a stock certificate!