Quote:
Originally Posted by Cowboy89
That's ultimately the problem with real estate. Since buying a house is an experience that pretty much everyone experiences it makes it perceptively easy to do yet the financial IQ required to understand leverage and the best means to employ it remains elusive for the common man. Therefore people can easily make boneheaded financial decisions while still feeling like they understand the process. Also worse yet, because it's perceptively easier to go down the street and buy a new place than to research and consult with financial advisors about buying a real estate derived investments these "investment" decisions are done at $250,000 or more a pop instead of in much more manageable denominations that other instruments offer. In other words the higher price points pushes people to lever up more (Possibly more than is reasonably affordable).
I've seen tonnes of people the past few years who I'd consider financially illeterate get into the multiple houses, multiple mortgages game. These are the people who have amplified prices into bubble territory, and ultimately why it got much higher than economic activity alone would have taken prices. Thankfully these are the same people that will pay the price for being ill-informed speculators. It's one thing to take real estate and make it a buy and hold strategy for the long term and quite another to be overly opportunistic and buy because others have made quick and easy money doing it.
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Well said.
History shows that house prices tend to keep pace with inflation over long periods, but don’t usually produce huge profits. People think that since they made big money on their current home that went up over 50% in a few year in a bubble market that they are financial wizards.
Don't pay too much for a home and don’t borrow more than needed. One home to live in, maybe a recreational home for weekends/summers and a few REITs is all that the average person needs to have for real estate in their portfolio. Invest the rest in stocks, bonds, cash, RRSPs and other investments. It's financial suicide to have a majority of your money in an investment that'll barely beat inflation.