Sage Advice Applies to Housing Market

I once attended a conference in which Wall Street whiz kid Peter Lynch spoke about the ups and downs of the market.  Mr. Lynch was the manager of one of the biggest stock market funds in the U.S., the Fidelity Magellan fund which averaged an amazing 29.2% return a year.

During his speech, Mr. Lynch said something that has stayed with me years later: You haven’t lost money in the stock market until you cash in your stocks for less than your purchase price.  He said this in response to people who always comment that they’ve lost money when stocks dip, when actually they don’t lose anything because the market inevitably comes back.

I believe the same applies to the housing market.  If you are a homeowner and home prices dip – as we’ve seen this year – you don’t lose money.  Home prices will come back in a year or two or five.  It’s when you sell the home and have to bring money to the table that you’ve lost money on your housing investment.  My husband and I refinanced our home about two years ago and I shudder to think of being forced to sell it right now… I think we’d break even, but I don’t want to take that chance.  I think I’ll sit right where I am for a few years.

I’ve said it before, I’ll say it again (and I agree with Chuck Newton) – If you can qualify, now is a good time to buy!  And on a side note, I thoroughly enjoyed a delayed Boston Legal the other night when Clarence fell behind on his mortgage payments. The fireside post sums it up nicely,

I thought they summed up the mortgage crisis pretty well. Everyone loses. The borrower and lender both lose. Mortgages are not new inventions in the world of finance.  Borrowing money is older than the Bible. Regulated lending of money has protected the uneducated masses and simultaneously made fortunes for banking empires. The system was working pretty well until the government, in the interest of less government and free trade, deregulated the lending industry. That deregulation led to the predatory lending practices we have seen the past 15-20 years.

2008 should be a very interesting year.