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Originally Posted by FwdFtl
Wifey and I are in escrow for a house. I've been reading articles and doing some research about real estate in general. Here's my question:
Our lender uses their own approved appraisers and they valued our soon to be home at $55k over the asking price. Logically to me that would mean we instantly gained $55k in equity. Is this the case?
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No. Appraisals are a crapshoot. Residential real estate as an investment is a crapshoot. Over the past hundred years, it's pretty much tracked inflation, with some ups and down. From 1900 to 1995, inflation adjusted house prices went up about 7%. That's about 0.07% a year. For comparison, the Dow-Jones increase, inflation adjusted, from 1913 to 1990 was about 200%, or 2% a year. Including the spasms since 1990 just muddies the water.
So, first time homebuyer, buy your house for housing. As an investment, you may win, you may lose. Just like any other investment. Don't waste too many brain cells on it.
The biggest investment value to you is likely your monthly principal payment. Needless to say, borrowing against your house can wipe that out.