For Sale by Owner News and Articles
Financial Assets Muscle In On The American Dream
|Other residential property||8.1||8.5|
|Nonresidential property equity||11.0||7.7|
|Nonfinancial assets as a percentage of total assets||30.4||40.6|
Source: Federal Reserve Board
The expected return on a home's value -- even a return substantially less than Dodd's -- has contributed to the record of approximately 68 percent of Americans who own a home, which, despite the Fed's study, remains the family's single largest asset -- though not by much.
Nationwide, returns from stocks, bonds, mutual funds and retirement accounts have begun to tip the scales. Together, those financial investments comprise about 27.2 percent percent of a family's total wealth, both financial and nonfinancial. A home represents 27.9 percent of a family's total wealth, according to the Fed's study.
The Fed's study does not account for last year's bullish stock market, which could futher tip the scales in favor of financial investments.
"We knew it would overtake the housing market in 1999. I'd say (the stock portion increase) could be closer to 15 percent," said Steven L. Oliver, a financial consultant with Salomon Smith Barney in Bellvue, WA. The company offers mortgages backed by stocks and other investments.
"For the first time in history, the blue collar line worker at Boeing who has a $300,000 home, but has chucked money in a 401k for retirement, now has $400,000 in his 401k and his home is still worth $300,000," Oliver said.
|Other managed assets||6.6||8.6|
|Life insurance cash value||6.0||6.4|
|Financial assets as a percentage of total assets||30.4||40.6|
Source: Federal Reserve Board
The Fed identifies as nonfinancial assets the home, non residential real estate equity, business equity, vehicles, and artwork, jewelry, precious metals, antiques and other tangible goods. Financial assets include retirement accounts, stocks, bonds, mutual funds, transaction accounts (checking, savings and money market accounts), certificates of deposit, life insurance and other managed accounts (futures contracts, oil and gas leases, estate settlements, loans, etc.).
Its survey of 4,309 families the Fed identifies a "family" as a household with an economically dominant single person or couple, married or not, with or without others in the household financially dependent on the financially independent individual or couple.
The Fed study says, stocks, which comprised 15 percent of a family's financial holdings in 1989, now account for 22.7 percent. Mutual funds represented 5.3 percent of financial assets in 1989, but now account for 12. 5 percent of a family's financial wealth.
Retirement plans, more and more often 401k investments, represent families largest single financial asset, representing 27.5 percent of all financial investments, up from 21.5 percent a decade ago.
The jump in financial assets is largely due to a shift in employee compensation.
"More of a person's compensation is coming from stock options instead of bonuses and salary increases. Corporate America is doing away with pension plans and using 401k programs where individuals choose where to invest the money," said Eric Tyson, a financial counselor and author of IDG Books' "Personal Finance for Dummies" and "Investing for Dummies".
"The baby boomers are more aggressive in the investment market," said Tyson, also co-author of "Home Buying for Dummies" and "House Selling For Dummies."
Forrest Pafenberg, director of real estate finance research for the National Association of Realtors, concedes the dramatic asset shift represents greater access to investment vehicles, but not at the expense of housing. A home remains shelter both from the elements and less robust economies.
"Housing has performed well over 20 to 25 years, easily outpacing inflation. It would be stupid to take the value out of a home for day trading. Housing has always been known as an investment, just as any other asset in your portfolio," Pafenberg said.
Diversification is best
Perhaps, but market corrections in the housing market can be disastrous. Now booming, Silicon Valley recovered from a particularly nasty recession that cost some homeowners as much as 40 percent of the value of their home. Those home owners could have better weathered the storm with a cache of stock market investments to balance their portfolios.
"Ask anyone who bought in the peak of 1998 and had to sell in the early 1990s. Their losses were magnified by the fact that you had a leveraged investment. You lost not only your 20 percent down payment, but all the transaction costs to buy and to sell. That doesn't strike me as a safe investment," says Tyson.
Zelda Holcomb, a single mom and executive assistant at the University of Maryland-University College in Adelphi, MD had a similar, though less severe experience on the other coast.
She purchased her original home in Schenectady, NY for $48,000 and sold in three years later for $75,000, but two subsequent homes swallowed up most of the $27,000 gain.
She used the initial profit to buy a second home in Schenectady for $117,000 which she improved to the tune of $12,000. Holcomb unloaded it six years later for $113,000.
When Holcomb relocated to Columbia, MD in 1997, she moved into a $170,000 home. Since then it's been reassessed at $160,000.
She's recouped some of her financial losses thanks to two managed mutual funds each of which netted her a 10 percent return, just in the last two years.
"The thing about owning a home is that it's supposed to provide you with some security in its appreciation. It's been a big disappointment," Holcomb said.
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