More room to fall?
For every $100 spent on a house in 1950 the investment rose slightly through 2002, then soared to about $192 in 2006, adjusting for inflation. Then credit dried up, and the bust began.
Rick Wallick moved into a new, three-bedroom $200,000 home in Maricopa, Ariz., in October 2005. Today, the home is worth $80,000.
The disabled software engineer stopped making mortgage payments this month. His $70,000 down payment is now worthless. His dream house will be foreclosed on next year.
“We’re so far underwater it’s not funny,” says Wallick, 57, who had to return to his original home in Oregon to care for a sick family member and tend to his own medical problems.
Based upon the chart for those who owned their homes in 2000 or bought soon thereafter they are still way ahead. It is only armagendon for the speculators of 2004-2006 in select parts of the country – like Miami and Vegas. Speculative bubles burst. Many California investors towards the end were shifitng money to Texas – this has not been good for Texas. As you can see in the Chart Dallas didnt have a speculative boom – except in a few seclect areas that were gentryfying and probably the Higland Park areas. Conversly Dallas has also not fallen much.
Prices will drop a little more, most likely, however I think they will then turn around. A house is something real. You can buy it, pay it off, live in it, rent it, and give it to your kids.
By contrast, I anticipate stocks/bonds and treasuries to have another false bull, and then slowly or rapidly make their way to under 5000 by 2012. They are based on nothing.
Me, I have two houses, both paid off, one is rented and I am making about 2% on the principal. My other I live in, and I plan to rent it also. Then I will buy a farm and plan on paying it off within 5-7 years. I have no stocks, bonds IRAs or 401ks. If my houses drop in value, I don’t care. I can rent them and live on the proceeds, just as well as I could have lived on the interest on my 401k. If I can’t rent them, I can give them to my children, and hope they will let me stay with them when I am old and unable to work. I plan to grow chickens, buckwheat (for the chickens and for bread) fruits, nuts, berries for jam, bees, a fish pond for trout and a vegetable garden. We may have llamas for milk, wool and cheeze, but we’ll do the other stuff first. If we have a severe depression (or a severe hyperinflation) nobody in my house will starve (hopefully).
If there is depression, a paid off house (even if it has dropped in value) is worth far more than stock funds, particularly if one cultivates actual food, instead of inedible grass. If there is hyperinflation, it will be even more valuble.
But what is more valuble than any sort of portfolio is simply adjusting one’s expectations. I may well give homes to my children instead of hoarding them for myself as rentals, particularly if my kids are having trouble finding jobs. I will certainly house my adult children, and any children they might have. Hopefully they will house me if I need this. Children are more important than either stocks, bonds or real estate. They too are risky, and may wish nothing to do with me when I am no longer useful monetarily. However I think they are likely a better bet than the stock market. Or real estate.
My two cents.
Clueless should change his name to “Clued-in”.
My wife and I had a new small home for two built in 2003. Both of us are retired, have only one credit card between us, few bills, our cars are paid for, and we’re staying put!