Housing: Don't believe the conventional wisdom

by Gerri Willis

A growing number of us don't believe in the housing market anymore. And, it's not hard to understand why. Even after prices have fallen, many of us still can't afford a home. Others don't trust the market because of the crash in prices. As a result, we're grooming a generation of renters - people who simply don't believe the market will ever recover enough to make investing worthwhile. I disagree and I think that that kind of thinking is dangerous. That's because owning a home is essential to building wealth long term - the federal government gives one of its choicest tax writeoffs - the mortgage deduction -- to homeowners. What's more, the Federal Reserve has found that the largest store of cash for retirees isn't a 401(k) or a pension or savings - it's the value they've built up in their home. Look, clearly, confidence in the housing market is at an all-time low. Housing values have plummeted. But housing is just the latest in a series of economic bubbles that have popped - like tech stocks did more than a decade ago. I don't know if you've noticed - but tech stocks are back. LinkedIn, a dotcom that went public last week, is the hottest initial stock offering since 2006. Recently its shares traded at 22 times revenues, while rivals traded at just 9 times sales. And, in a similar, if not identical way, housing will come back too. The value of investments moves in cycles. To be sure, some of these cycles have experienced higher highs and lower lows than those in the past, but housing will come back and when it does, you'll want to own a home. Conventional wisdom is no basis for complex financial decisions - in fact, it's more likely to destroy your wealth than expand it.