Has Investing in Your Home Become Financial Suicide?

When you add to the out-of-employment statistic the fact, that of the jobs that do remain in the United States today a much higher percentage of them are low income service sector jobs than ever before, it becomes painfully clear that investing in the American dream is no longer a smart decision. According to a July 5, 2012 article in the New York Times over 90% of the jobs in the United States were service sector jobs. Today, that percentage has only increased.

With the dismal employment situation in the United States, it is no wonder why banks flush with cash are extremely hesitant on providing loans for home purchases. With mainly low service sector wages and declining personal incomes for the past 13 years, according to an October 1, 2013 report on the Business Insider website, many people today simply don’t qualify for home mortgages, even at the lowest interest rates in decades. Banks would rather invest abroad, or not at all, than make bad risky loans to people who have a high probability of default with drowning collateral, i.e. their house.

When it comes to investment, it’s important to keep in mind that investors invest first and foremost in prospective growth. Remember a bank, like any business, is in business first to make money for their stockholders, as they should. And to make money, they need to invest in growing businesses or entities. A textbook example of this fact is with Apple, Inc. It has tens of billions of dollars in cash in its coffers; however, for the past couple of years its stock value has fallen and maintains a low price to earnings ratio. The chief reason for the low stock price is that Apple’s ability to continue to expand at its historical growth rate over the past decade has come into question by investors. So, like would-be-investors in Apple, a bank would rather invest elsewhere, where there are more prospects for growth, e.g. Asia and/or South America. Even though wages are extremely low on these continents the near term prospects of income growth for the people of these regions, due to the growth in manufacturing jobs, are much higher than in the United States.

The secondary effect of this situation is that since banks are flush with cash they have no need for raising additional monies, and thus part of the reason why passbook savings and money market accounts are effectively at zero interest rates today. The sad truth from all of these facts is that the United States Middle class is very rapidly vanishing due to societal and government policy changes. And as it does so, so goes the demand for the traditional three bedroom house and all its modern day trimmings. Until the mass United States population recognizes what is happening to itself and affects necessary personal and political change, an expected reversal of fortune in the housing market is unlikely anytime soon. This is not to say, however, that the housing market and home improvement space are completely dead.

People will always still need shelter and a roof over their head. It’s just that the future of the American home, or residence, may be more utilitarian and less feature rich, akin to what is found today in rural Mexico, China and Russia.

So before making a large financial home improvement investment, think twice about whether or not it is important to you to recoup your investment. It is highly likely that it will take a very long time to recoup your costs, and there is very much the possibility that you may never do so. If you are willing to accept the potential financial suicide because the other benefits out way the loss, then proceed with your home improvement project with your eyes wide open.