Stocks -- and Houses -- that Explode

Investing Decisions: Stocks vs. Real Estate

I'm careful to leave financial planning to the financial planners, and stick to real estate when I work with clients. However, given the drop in many real estate markets since 2005, it's hard to avoid at least touching on the subject, at least when counseling prospective Buyers contemplating such a major purchase.

After my standard disclaimer about not predicting future prices -- and to dismiss anyone who does -- I like to point out the many financial and psychic advantages associated with buying and owning real estate.

Those include the mortgage interest deduction for homeowners who itemize; the capital gains exclusion available on sale to homeowners who qualify ($250k for singles, $500k for couples); the accumulation of equity with a standard, amortizing loan (vs. an option ARM where the principal can actually increase over time); and the fact that, while you can't live in your stock portfolio, you can and do live in your home.

Given the stock market's travails lately, I can't resist pointing out that, while numerous, "big name" stocks have exploded virtually overnight (think, AIG, Fannie Mae, Freddie Mac, Countrywide, IndyMac, Bear Stearns, Lehman Bros., Washington Mutual, Wachovia, Merrill Lynch, Citigroup and many, many others), I've never heard of a house exploding.

Make that almost never.

In the course of engaging in shop talk with another realtor at a conference this week, I heard about a house that literally did explode.

According to the realtor, more than a decade ago her son and daughter-in-law purchased a fixer-upper in a tougher part of town. In between the time the Purchase Agreement was signed and when the closing was to occur, thieves stole all the copper from the home. They apparently were in such a rush that they didn't stop to notice that they cut into the home's gas line. Not long after they left, the house filled with gas and literally, exploded.

I'll still take real estate over stocks . . .