Compared to other assets, houses are tough to sell at short notice (unless you’re willing to offer a huge discount), they require constant maintenance to avoid losing value, and they’re extremely exposed to their local economy. Yet many people put the vast majority of their savings into the equity of a single home.
Tax policy, differences between the quality of what you can rent and what you can buy, and the desire to hedge against the risk of rent increases all help justify this seemingly perplexing financial decision. But simple ignorance of the risks must also be a major factor.
We were reminded of this by a recent conversation with Jed Kolko, the chief economist of Indeed and an expert on housing. He pointed out that house prices in much of the oil-producing regions of Texas and Oklahoma have yet to recover from the bust in the mid-1980s.Continue reading: Recalling the OK/TX housing bust of the mid-1980s