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Greed Got Us Into the Housing Mess, But It Won’t Get Us Out

I recently wrote an in-depth column about the ugly state of the housing market. Some of the highlights included a queue of nearly 4.3 million seriously delinquent mortgages, and the fact that more than 1 in 4 Americans have negative equity in their home. (You can read the full report in my article, “7 Reasons Housing is Headed for a Double Dip.”)

While writing the article, I was struck by a simple fact: Greed got us into this housing mess – so we should be careful about relying on greed to get us out.

It’s time we start thinking about the housing market beyond just its “investment” potential. Maybe then, home sales and home prices will find equilibrium.

Some people may take issue with this accusation of greed. But there’s really no other way for me to phrase it. Homeowners bit off more than they could chew to chase down dream of a McMansion in a shiny new subdivision, a dream many didn’t earn and couldn’t afford. Lenders happily issued the mortgages and resold them for a hefty sum, whether or not those loans were good or bad. Realtors chased commissions, longtime homeowners took out mammoth lines of credit, speculators “flipped” houses for quick profits – it seemed everybody could make a buck in real estate.

Then the music stopped. And instead of making a few bucks, many people lost a bundle.

The housing market is in a shambles as a result, and rightly so. But if we place the same finance-first mentality on the market’s recovery – the idea that the value of a home is a dollar amount in black and white on a tax assessment or bank balance sheet – then we are destined to relive the same story of speculation, boom and bust. Now that the housing market has crashed, we should be very careful about how much hot air we pump back into the balloon.

There are many of us regular folks who view a house as a home –something that can’t be seen as through the same lens of cold finance as a 10-year Treasury note or 100 shares in Apple Inc. (NASDAQ: AAPL).

I bought my first home in September of 2009. I think I was smart about the purchase – the house is in a suburban area of Washington, D.C., that has been much more stable than the national market, I got the big $8,000 tax credit and I swooped in on a short sale just hours before foreclosure to get a heck of a deal.

But my purchase wasn’t an “investment,” per se. While I did protect my financial interests, my motivation for buying the house was simple: I was expecting my first child. I wanted privacy, a yard for my daughter to play in, a guest room for family to stay in, a good school district and a shorter commute. I now have all those things.

A home is not a simply an “investment” to everyone. Nor should it be. If a family finds a comfortable home in a safe neighborhood and a good school district, they shouldn’t be scared to pull the trigger just because of headlines about the 9.1 month inventory of existing homes on the market. Or to speak plainly, if you don’t plan on moving for at least a decade, who cares if your $200,000 house may be worth $180,000 in 10 months?

InvestorPlace is a site for investors. As the editor of this site I’m all too happy to report on the state of the homebuilding business and the pros and cons of buying investment real estate. And for the record, if I had $1 million to invest, I certainly wouldn’t be buying houses with it. (Read my recent column on why the housing market may be headed for a double-dip).

But I simply have to point out that we got into trouble by thinking every home purchase was an investment. If we were to take that same mentality, we would all turn our driveways into used car lots and our closets into consignment stores.

There is indeed something to be said for a savvy homebuyer who just wants to get the best price on a property. But if we insist on becoming a nation of housing investors instead of a nation of home buyers, the market will never find equilibrium.

And we will be doomed to the same boom-and-bust fate in the years to come.

Jeff Reeves is editor of  Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.

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