When you drive a new car out of the dealership, the value drops by hundreds or even thousands of dollars. This is an accepted fact of life. So why do people expect to make money every time they sell their homes?
Rising home prices of the 1990s and early 2000s supported the illusion that buying a home was an investment. Then, though, the bubble popped, and the trend reversed with a vengeance. In my mind, we're now back to the natural order of things: Buy something expensive and use it for a few years, and you should darn well expect that the wear and tear you inflicted would make it worth less to the next owner.
Homebuilders and real-estate agents will never agree with this view, of course. Toll Brothers
Even now, homeowners are clinging to the old myth of increasing value, refusing to accept a simple truth: Lower your price tag and you'll sell your house. If you can't accept the more modest reality that took the place of the latest tulip-bulb-like craze to hit housing, you'll never sell and will keep owing mortgage payments until the cows come home.
Moreover, even if you eschew leverage and pay down the entire mortgage balance before passing the home on to your kids or grandchildren, I'm convinced that your family would be better served by renting a home on the cheap and investing the difference in the broad stock market ETFs, SPDRs or Vanguard Total Stock Market ETF. The real daredevils out there can do even better by learning how to separate the wheat from the chaff and beat the overall market in the long run.
But as for real estate, forget about turning your personal residence into big wealth. That dream turned into a nightmare for millions, and it isn't coming back anytime soon.
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Fool contributor Anders Bylund holds no position in any of the companies discussed here. He does own a home, but doesn't expect to sell it for a profit -- ever. Meritage Homes is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.