The answer to that question depends on who is asking the questions, as well as whose asset your house really is. A person’s monthly budget or a family’s finances will include either income, or expenses. All expenses can be classified as liabilities, and the income generating activities will produce assets.
Where do the houses stand in relation to being an asset or a liability? Most often, it’s being paid on a mortgage. A $300,000 mortgage paid at 5.1% amortized over thirty (30) years will realize a total payment of approximately $700,000. That’s paying more than twice the value of the house, with the extra $400,000 going to the bank.
Now, back to the question, is your house an asset or a liability? An asset gives you value, a liability reduces your value. In this case, your mortgage is your personal liability, and your banks’ asset.
So, your house is actually as asset, it’s just not your asset. On the banks balance sheet, your mortgage is listed as their asset. On your balance sheet (and this should be prepared on a monthly basis), your mortgage is under your personally liability section. Your house can be your greatest liability.
This is a difficult concept to accept by a lot of people, and discussions usually become heated, and tempers can flare.
In her book, Debt Free Forever by the hit TV series (Till Debt Do Us Apart) host, Gail Vaz Oxlade, she surmises that a person should not spend more than 35% of their income on housing, and this includes mortgage, taxes, utilities, maintenance, and home insurance. Anything more than 35% will render a person/family unable to become wealthy on a long term basis. It is likely that after 30 years, all that is left is a house, with no investments, and limited assets to generate income.
One of the best researches on the habits of the wealthy, The Millionaire Next Door by Thomas Stanley and William Danko, documents the success rates of people who spends excessive amounts of money on homes they cannot afford to live in, and barely exist on their income, with most of their money being paid to the banks monthly for mortgages and consumer debts. The results were staggering.
Rich people live in small modest homes, have investments in the stock markets, and typically have their own businesses and other income generating assets. The poor, on the other hand, often lives in large upscale neighborhoods, with fat mortgage liabilities to pay and live from pay check to pay check. The rich lives within their means, and continually build assets to increase their income.
Summarizing, your house is an asset, it’s just not your asset. It’s your bank’s asset, and your liability. Any housing expenses over 35% of total income most likely will render a person/family poor in the long term, while those who are frugal will build assets, and then use the proceeds from their assets to buy homes.