Here are seven things I hope we have learned as a result of this real estate and financial crisis.
1) Housing fills the basic human need of shelter. A home keeps us warm and safe and dry.
2) Homes are the foundation for lasting memories. Whether one entertains friends, or raises a family, or hosts holiday dinners, homes help create the memories that will last us a lifetime.
3) Equity is realized by paying down one's principal on the mortgage. Making just one extra payment per year will accelerate equity growth and decrease the interest one pays on the loan. Of course, equity can be realized through appreciation, but that's not something we can (or necessarily should) count on.
4) Consumers should live within their means. Bigger is not always better. Newer is not always nicer. More expensive is not always a good thing. A house does not define us as individuals. Rather, as individuals, we make our houses homes. We define the home, but the home does not define us.
5) This is a corollary to Point #4: don't over-extend. Home equity loans and lines of credit are a great idea, but like credit cards, they can also serve to over-extend us. In a rapidly burgeoning market, it may make sense to take out a home equity loan and live beyond our means. But as we have painfully witnessed, rapid appreciate can lead to drastic and painful losses if that appreciate bubble should burst. If a property increases in value through appreciation, that's great. Just don't count on it, and you won't get hurt.
6) Maintain your home! It is an asset, and it will hold its value much better if you maintain it on a regular basis. It may even appreciate through careful guardianship.
7) It is not practical to expect one's home to appreciate so much and so rapidly that it will fund one's savings, vacation, and retirement accounts. We need to do that the old fashioned way, through savings. Those who banked on large scale appreciation to fund retirements have learned a painful lesson. Don't set yourself up to repeat that same mistake.
I'd love to hear your thoughts on this matter. Please share your comments!
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