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Housing Buying Still Sweet? Think Long Term
| For all the doom and gloom about the housing market, it still generally pays to own a home. That might be a tough fact to consider right now, especially to the 16 million homeowners who owe a higher amount on their mortgage than their house is worth. But the record suggests the American Dream is a reasonable secure bet. Houses have appreciated by an average of 4 percent per year since World War II. Homes act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent down payment produces a 1,000 percent return if the cost of a house merely doubles. Plus there are intangibles: Owning a home provides a sense of independence, security and community. And you are able to reside in your investment. You can't do that with a stock.nnOf course, historical trends don't actually make payments on the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or cost and must sell quickly, can get burned. But if you own for a decade or longer, price appreciation usually overcomes even bad slumps.nnTony and Liz Iacobelli, who are far under water on the home they bought in the Phoenix suburb of Buckeye three years ago, aren't alarmed. They owe about $177,000 on their loan on the house that is only valued at $132,000, which is about 40 percent of what they paid. "Houses generally go up in price, and this one will go up again, too," says Tony, 51, a retired New York City policeman. Several booms and busts have happened in the modern era of housing, which began when 30-year loans became widely available after World War II. This bust has been severe: Nationally, home prices are down an average 30 percent from their peak in 2006.nnThe collapse of the housing market may have placed an end to the notion of using a home as a speculative investment ilke a hot stock. And that may not be a bad thing, economists say. "People should recognize that value comes from a lot of other things besides a possible return on the investment," says Joel Naroff, head economist at Naroff Economic Advisors. Economists say home prices have risen by about half a percent a year above inflation, or roughly 4 percent, since the 1940s. That number, which is based on the median cost of homes sold each year, was inflated a little by baby boomers starting families and building bigger houses. Since the National Association of Realtors began compiling statistics in 1968, the median sales price has climbed 6 percent annually, from $20,100 that year to $195,200 this past August.nnIn the late 1990s, home values started growing like stocks. For the next five years, they appreciated at 8 to 9 percent a year, or about 5 percentage points ahead of inflation. You won't find many skeptics among people who bought homes in the '90s and still live in them. Their homes may be worth tens of thousands of dollars less than at the peak, but they're still frequently valued at double what the buyers paid. For example, a house in Ewing, N.J., that sold for $160,000 in 1996 was valued at about $410,000 three years ago. It's still valued at $375,000 today.nnHome buyer beware, however: Price declines do occur with some regularity. Besides the 30 percent price meltdown of the last three years, the Standard & Poor's/Case-Shiller index of home prices in 10 cities shows four declines lasting six months or more since 1990. The declines averaged 3 percent. And whether large or small, a reduction can be followed by several years of flat prices. After the 1990-1991 market depression ended a housing boom, prices didn't start increasing nationally until 1997. Yet housing has proved a reasonable investment if you stick with it. And with prices already having fallen so far, buying now could make it an even better one. |
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San Diego Mortgage Group areCalifornia home mortgage experts, with over 28 years of experience. Our experience and honest approach make us the premier mortgage brokerage firm in California.n
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