What part of buying a house would make my net worth go down?
Buying a house can definitely make your net worth go down because there are expenses involved (interest expense, closing costs, taxes, maintenance, etc.). So unless the house appreciates in value enough to offset these things, you will see a drop in your net worth from buying a house. More specifically it can have a negative impact on your net worth, since changes in your net worth are the cumulative result of all your inflows and outflows of money. One way to think of net worth is to think if you sold everything you owned, how big of a pile of money would be standing next to you (assuming your net worth is positive). If you started with $100K and then bought a house worth $100K you would have $0 in the bank and a house.   If you sold that house for $100K you would pay the realtor 6% (typically) or $6K leaving you with $94K.    This means the act of buying your house has reduced your net worth by $6K. I asked a related question about how to value your home in your net worth. Cosigning a loan for someone else will make net worth decrease, whether backed by security or not. In general, buying a house will improve your net worth over the long haul, because unlike cars, houses don't suffer as much from depreciation.  The problem with real property is that markets are very cyclic and aren't very liquid assets. Farmers with thousands of acres of valuable land are often cash poor for that very reason. A lot of people here are negative about housing ownership — this is illustrative of the fact that 2010 is a year where real estate is on the down-side of the cycle. Houses depreciate. Period. Things break: the hot water heater explodes, the AC cuts out in August, the roof leaks, the basement floods, toilets back up, raccoons dig up the garden. Each time something breaks, the house loses value. Every year the paint fades a little, the house loses value. Every time GE comes out with a more efficient washing machine, the house loses value. The only reason a house appears to maintain its value over time is because the money you spend repairing and improving it offsets this unavoidable depreciation. Even then, over extended periods of time it will typically just track inflation--so you're treading water. Not that there's anything wrong with that. You need to live somewhere. You can look at buying a house as being a long term investment in not paying rent.   In the short time there are costs to buying (legal, taxes, etc).   This depends on only buying house of the size/location you need e.g. no better then what you would have rented. House buying tent to work out best when there is high inflation, as the rent you would otherwise be paying goes up with  inflation – provided you can live with the short term pain of high interest rates.
This is of course a perfectly normal thing to happen. People trade up to a bigger house every day. When you've found a bigger house you want to move to and a buyer for your existing one, you arrange 'closing dates' for both i.e. the date on which the sale actually happens. Usually you make them very close, either on the same day or with an overlap of a few weeks. You use the equity (i.e. the difference between the house value and the mortgage) in the old house as the down payment on the new house. You can't of course use the part of the old house that is mortgaged. If the day you buy the new and sell the old is the same, your banks and lawyers do everything for you on that day. If there is an overlap then you need something called 'bridge financing' to cover the period when you own two houses. Banks are used to doing this, and it's not really that expensive when you take into account all the other costs of moving house. Talk to them for details. As a side note, it is generally reckoned not to be worth buying a house if you only intended to live there one or two years. The costs involved in the process of buying, selling and moving usually outweigh any gains in house value. You may find yourself with a higher down payment if you rent for a year or two and save up a down payment for your 'bigger' house instead. "I don't like buying individual bonds for my own portfolio.  I actually used to buy long-term government strip bonds (Canadas or provincial bonds) but I stopped.  Here are some reasons why: My broker allows me to purchase bonds via their web application.  However, to sell a bond, I had to call in to the fixed-income trading desk.  That was inconvenient.  (But your broker may be different.) Bonds don't typically trade on a formal exchange.  So, there's no cheap & easy way (as far as I know) to get an independent quote for a bond's value – I had to trust what my broker said my bond was worth when assessing my portfolio performance.   I asked my broker once how they arrive at the ""market value"" shown – i.e. whether it was last bid, ask, or actual trade – and I was told they use a third party bond quotation / valuation information provider for the data, and that quotes are an estimate of what the bond would be worth, based on similar bonds.  I quickly learned that wasn't the value I could actually get when selling it: When you're dealing with your broker to buy and sell bonds, you're likely dealing with theirs or a related investment bank which makes a market for specific issues of bonds.  While I wasn't being charged an explicit commission to buy or sell bonds, it was evident the broker makes money off the spread:  That is, the difference between what they would be willing to sell a bond for and what they would be willing to buy that same bond for.  They will buy your bond back from you cheaper than what they could turn around and sell it to somebody else for.  That's why they don't charge an explicit commission... it's built in and hidden! Anyway, when I finally discovered my broker would seldom actually offer me the ""market value"" quoted for my bonds (typically, it would be bought back for a few percent less than it were theoretically worth), I gave up.  I don't think bonds simply are liquid enough, nor the costs transparent enough for retail investors.  (Or maybe it's just me :-) However, I do think bonds remain an important part of a diversified portfolio:  Bonds ought to be represented in a diversified portfolio using low-cost bond index mutual funds or exchange-traded funds.  Since these funds buy & sell bonds in large quantities, they get a better deal on the spreads.  So, while you do pay an explicit management fee for a fund, you are probably saving since you're not getting shafted on the spreads." "Stock price is determined by the buyers and sellers, correct? Correct! ""Everything is worth what its purchaser will pay for it""-Publius Syrus What causes people to buy or sell? Is it news? earnings? stock analysis and techniques? All of these things influence investors' perception of how much a stock is worth. If AMZN makes a lot of money one quarter, then the price might go up. But maybe public perception of AMZN changes because of a large scandal. This could cause the share price to decline even with the favorable earnings report. Why do these 'good' or 'bad' news make people want to buy/sell a stock? People invest to make money. If it looks like a company is going to take a turn for the worst, people will sell. If it looks like the company has a bright, cash-laden future in front of them, people will buy. News is one of the many factors people use to determine how well a company will do. Theoretically could a bunch of people short AMZN and drive down the price regardless of how well it is doing? Say investors wanted to boycott AMZN in order to drive down the cost and get some cheap shares. This is pretty silly, but say for the sake of the argument that everyone who owned AMZN decided to sell their shares and no other investor was willing to buy the shares for less than $0.01, then AMZN shares would be ""worth"" $0.01 in that aspect. That is extremely unlikely to happen, though, for two reasons:" Peace of mind is the key to your question. Just before the US housing bust of 2007, I had someone try to convince me to take all the equity from my house which was overvalued in an overheated market. The idea was to put that money in the stock market for a bigger return than the interest on the house. Many people did that and found themselves out of jobs as the economy crashed. Unfortunately, they couldn't sell their homes because they owed more than they were worth. I never lost a night of sleep over the money I didn't make in the stock market. I did manage to trade up to a house twice the size by buying another when the housing market bottomed out, but waiting for a market recovery to sell the smaller house. The outcome of my good fortune is a very nice house with no mortgage worth about 1/3 of my total net worth. That's probably a larger percentage than most money managers would recommend, but it is steadily decreasing because now, all the money that would go to a mortgage payment instead gets deposited in retirement accounts, and it still has 30 years to grow before I start drawing it down. I almost don't remember the burden of a mortgage hanging over my head each month. Almost. "The loan is the loan, the down payment is not part of the loan.  The principle amount owed on the loan at the beginning of the loan is the amount of the loan. If your loan amount is $390,000 then that's below the ""jumbo"" classification.  Your down payment is irrelevant. Lenders may want or require 20% (or any other amount) down so the loan will meet certain ""loan to value"" ratio requirements. In the case of real estate the lenders in general want a 20% down side cushion before you're ""upside down"" (owe more than the home is worth). This is not unique to homes and is common in many secured lending instruments; like cars for example." "There are several areas of passive fraud by being unclear on what you are doing.  When a citizen buys a house, the mortgage lender wants all the details as to how the buyer rounded up the money.  That is so they can use their own formulas to assess the buyer's creditworthiness and the probability that the buyer will be able to keep up on payments, taxes and maintenance; or have they overextended themselves. The fraud is in the withholding of that info. By way of tricking them into making a favorable decision, when they might not have if they'd had all the facts.  Then there's making this sound all lovey-dovey, good intentions, no strings attached, no expectations. You're lying to yourself.  What you've actually done is put money between yourselves, because you have not laid down FAIR rules to cover every possibility.  You're not willing to plan for failure because you don't want to admit failure is possible, which is vain.  Once you leap into this bell jar, the uncertainty of ""what happens if..."" will intrude itself into everyone's thoughts, slowly corroding your relationship.  It's a recipe for disaster.  That uncertainty puts her in a very uncomfortable position.  She has to labor to make sure the issue doesn't explode, so she's tiptoeing around you to avoid fights.  Every fight, she'll wonder if you'll play the breakup card and threaten to demand the money back.  The money will literally come between you. This is what money does.  Thinking otherwise is a young person's mistake of inexperience.  Don't take my word on it, contact Suze Orman and see what she says. Your lender is also not going to like those poorly defined lovers' promises, because they've seen it all before, and don't want to yet again foreclose on a house that fighting lovers trashed.  (it's like, superhero battles are awesome unless you own the building they trashed.)  This thing can still be done, but to remove this fraud of wishful thinking, you need to scrupulously plan for every possibility, agree to outcomes that are fair and achievable, put it in writing and share it with a neutral third party.  You haven't done it, because it seems like it would be awkward as hell - and it will be! - Or it will test your relationship by forcing direct honesty about a bunch of things you haven't talked about or are afraid to - and it will! - And to be blunt, your relationship may not be able to survive that much honesty.  But if it does, you'll be in much better shape.   The other passive fraud is taxes.  By not defining the characteristics of the payment, you fog up the question of how your contribution will be taxed (if it will be taxed). A proper contract with each other will settle that.  (there's an argument to be made for involving a tax advisor in the design of that contract, so that you can work things to your advantage.)  As an example, defining the payment as ""rent"" is about the worst you could do, as you will not be able to deduct any home expenses, she will need to pay income tax on the rent, but she can cannot take landlord's tax deductions on anything but the fraction of the house which is exclusively in your control; i.e. none." I suppose you can calculate the rate of return on buying a home in terms of appreciation, expenses, inflation, taxes, etc.  Nothing wrong with that. The method justkt came up with is accurate, but when you get the number out I wouldn't worry if the return is negative. Why?  Because you've lived there and enjoyed the house the whole time (I'm assuming anyway that this is your residence you're purchasing).  If you come out even the slightest bit ahead, congratulations!  You had a free place to live the whole time, plus you made a little money on the deal. If you lost money, then oh well.  You still had a place to live. What about the debt attached to more recently purchased properties, purchased at the price before the market gets flooded with baby-boomer homes? I'm not an expert in real estate finance, but it sounds like if that downward pressure on prices isn't slight, financial institutions will be taking that risk for anyone who defaults on a mortgage after their property loses a substantial amount of its value.  It seems like immigration could play an important role in offsetting this and keeping the prices stable, but that's a politically unpredictable issue to say the least.