Home Ownership, Inflation and Banker Relations

          Owning your own home can be a very rewarding experience, especially during inflationary times. Usually, home prices adjust to reflect inflation. Back in the 1970's home prices appreciated at the rate of 12% + per year. Some people bought and sold within one year and doubled their money. My belief is that housing should not be viewed as an investment. Everyone needs housing of some sort and owning a home satisfies that requirement. There are costs to owning a home that must be considered : Mortgage interest, taxes, maintenance, lawn mowing, water and sewer, capital improvements like a new roof, and so on. If you are the type of person who cannot do many of these things and does not have the extra income for the expenses, then maybe you should consider renting. President George W Bush decided that every American should own their own home. He established policies that made it easy to get a home loan with little or no money down. Bad idea! Within a few years, people were defaulting on mortgages by the millions. The abandoned homes became a blight in many neighborhoods, bringing down property values for neighbors. If you are a person who wants to own a home, can afford the taxes and repairs, go for it, try not to use your house as your ATM by borrowing any equity from it. It's ok to have equity in your house. You will find that your house offers a reasonable hedge against inflation. Speaking of inflation, I suspect that it will pick-up slightly in the coming years. Stocks also offer some inflation protection if the dividend is increasing and the business is strong. Gold has traditionally been a hedge against inflation also. I like to hold a small amount of gold just as speculation-about 5% of my assets or less. I have always believed that the best strategy against inflation is to control my spending. Inflation only hurts the buyer in a transaction. Finally, about Bankers, if you are considering buying a house, it is important to have a banker in your corner. Establishing a good relationship with your local banker can make the process of financing much easier. What I look for in a financial institution, whether its a Credit Union, S&L, or Bank is that they will service your mortgage. Some banks sell the mortgages and the servicing of it to other companies, which means that you may have to send payments to the new owners, wherever they may be. So stick with a reputable banker and make his bank your PFI (primary financial institution).