Falling house prices could be a good thing

By Jack Naudi
ST. LOUIS POST-DISPATCH
05/25/2008

This column will challenge how most of you view your houses. So let me begin with the most-provocative comment: In general, I think it's a good thing that house prices are falling.

I honestly believe lower house prices will strengthen the national economy in the long term. And, much as the Great Depression helped people understand the risk of stock-market investing, I'm hopeful that what might be the worst national housing market since the Depression will force people to rethink the value of owning a house.

For decades, a hoax has been perpetrated on Americans by a greedy, or naive, residential real estate industry. It's the notion that your house is an investment, a retirement nest egg.
In addition, the real estate industry equates paper profits with actual profits. The truth is, your house is worth nothing until you sell it, which can be difficult.

And even when you do sell it, the "profit" isn't the selling price, minus the purchase price. It's the sales price, minus the purchase price, minus the broker's commission, minus household repairs and improvements, minus taxes and insurance paid. And when add it all up, you could be recording a loss, not a profit.

The absolute worst aspect of house buying is that many people can't afford the houses they buy. Sure, they qualify based on lenders' ratios. But after stretching themselves to the limit on mortgages, many house buyers don't have enough left for real investments, like stocks and bonds.