Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Home Prices Are Rebounding and That's a Bad Thing?

By Jay Jenkins - Mar 2, 2014 at 2:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The interconnection between home prices and interest rates is hurting affordability for American's in the market for a new home.

When you buy a share of a company's stock, you want that price to rise in the future. Your purchase is an investment in that company's future earnings, future dividends, and hopefully, a higher stock price. 

The same goes for your house, right? You buy your home, and with a little luck, it will be worth more when you sell it in the future. Warren Buffett spoke to this in his much discussed excerpt from the 2014 Berkshire Hathaway annual letter.

The takeaway is that when you invest, you're counting on the future productivity of the asset you buy. For your home, an asset without routine returns like a farm or apartment building (to be fair, I don't exactly consider a home an investment), this means there must be a buyer who can afford to buy your house for more than what you paid. Without cash flow or commercial application, your home's investment potential lies with a buyer in the future willing and able to pay up.

This is, unfortunately, the double edged sword of home price appreciation. 2013 saw marked gains in home prices at the same time as interest rates began to rise. Higher prices plus more expensive mortgages have sent home affordability plummeting. In the video below, Motley Fool contributor Jay Jenkins takes a deep dive into the home affordability issue, explaining the seemingly contradictory nature of rising home prices.

Want more trending business and investing news? Click LIKE here to get these stories in your newsfeed!

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.