enlarge 2008 Press Herald file

Michael Donahoe, a financial planner with On Course Financial Group, says that while a home is part of a long-term financial plan, the emphasis should be on long term.

enlarge 2003 Press Herald file

A house is an investment you get to use. It should be considered differently from investments that sit in a vault.

Earlier this spring, Ann Trask started shopping for a new house. A local physician, Trask had owned several homes in the Portland area.

"When I started looking I was sure I would buy a house." After a few months she found herself reviewing her assumptions.

"I kept hearing that this was a great time to buy," she says, "with great interest rates and lower prices." But as she looked at houses, she found herself questioning her reasons for wanting to buy.

Like Trask, many potential buyers are thinking carefully before signing on for homeownership. For years homeowners saw the value of their houses increase by 10 percent or 15 percent every year. Creative financing meant buyers didn't need a hefty down payment to make the leap from renting to owning a home.

Owning a home, a key part of the American dream, had never been so accessible to so many. Today, the fallout from the subprime lending crisis, combined with a stalled economy and rising unemployment, have created a very different climate for homeownership.

Anne Weigel is a real-estate agent with Coldwell Banker Residential Brokerage in Portland. When asked if buying a home is a good investment today, Weigel answers, "It depends."

"For first-time homebuyers, it's a terrific time to buy," she said. "Prices are down, interest rates are low, and the $8,000 tax credit for first-time buyers is a huge advantage."

For a buyer who plans to stay in a home for several years, homeownership is still a good way to build equity. And the current market conditions can offer several advantages to buyers. More sellers are being practical about accepting that the market has changed and are pricing their homes accordingly. Also, buyers can afford to be choosy.

"Buyers who might have been willing to buy a house that needed work, such as new wiring or a new roof, are more likely now to move on," Weigel said. "They'll keep looking until they find a property in solid condition overall."

At the same time, although prices have fallen, there are few real bargains to be snatched up in the housing market. And even if a buyer does find a bargain, the slowdown in sales means any profit will be in the long term, not the short term.

The long term is exactly what Michael Donahoe, a financial planner at On Course Financial Group in Portland, wants his clients to consider.

"Owning a home is part of a long-term wealth strategy, but it's long-term – you can't expect to make a substantial profit in just a few years," he says.

Over the past few decades, house prices climbed so steadily that buyers felt they could afford to take risks. "Because the home was going to appreciate 10 to 15 percent annually, buyers didn't need to worry if they made a mistake. They'd still make a profit."

Today, says Donahoe, would-be home buyers should be realistic about what prices are going to do going forward. The appreciation rates of the past were an aberration; 3 percent to 5 percent a year is a good long-term appreciation rate. This means you shouldn't buy a house unless you plan to stay in it for at least three to five years; any less time and the costs of buying the house won't be covered by the appreciation in value.

While the outlook in the housing market has changed, there are still sound reasons to buy a home. Homeownership provides tax benefits and allows you to use the principle of leverage to build equity – even if it's at a slower rate than in past years. Homeownership also provides benefits that other investments don't offer. Says Donahoe, "If you buy municipal bonds, they sit in a cabinet or safe deposit box; you don't get to enjoy the patio." Buying a home can add to your quality of life, whether it is increasing in value or not.

One mistake some buyers make, says Donahoe, is not making their home purchase part of a long-term financial plan. Many people see homeownership as the centerpiece of their financial...