Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.
The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.
More than likely, that era is gone for good.
“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special ”” that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land ”” didn’t hold up.”
“All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.â€
But, many people are still moving out of the densely peopled urban centers and into the suburbs and even farther ‘out.’ There has been a migration ‘of sorts’ out of California, for an example, on a mega-scale.
And these people will need jobs, homes to live in and stores to shop in. We live on a farm near a popular western New England resort lake which has a large number of camps around it, suitable for year-round living. And, over the past couple of years, we have seen more and more people at the local grocery store who are from Boston, Connecticut and NYC who seem to spending a large part of their year living at their camps.
Maybe these folks are turning their camps into homes and are using a scaled-down residence near the cities and their jobs as a pied-a-terre at which to ‘crash’ during the work-week.
as the owner of 5 properties, wow, I really want to believe this is not true. But it is.
My take is that run up in house prices during the 2nd half of the twentieth century is due to one thing: Housing costs shifted from one wage earning buying a house to two wage earners buying a house. It’s not going to go to three (at least I hope not), so it’s not going to happen again.
When I was buying a new home back in the early 90’s and having difficulty selling my current residence (real estate sales were way off), the builder’s representative gave me some advice which I value quite highly:
“It’s been your home for xx years, which you’ve gotten to use and enjoy. You didn’t buy it to make money, you bought it to live there, like you buy a car to drive, or a television to watch. So if you don’t end up making money on selling the house (I didn’t; I lost quite a bit) is it so unfair to think that you have to pay something for having had that use of the house?”
He was right, of course. His advice has made selling houses so much easier ever since, as I am no longer fixated on pricing the house to make a huge profit. My last sale required only three days on the market – and I did make a profit (not a big one). But mainly, I was able to sell quickly in a depressed market because I set the price according to current market conditions, and didn’t treat the house merely as an investment or profit tool.
Well, as the owner of ONE property….in a semi-rural area…..I’d say my wife and I are living pretty well….and we’re not wealthy, by any means.
Family-wise, though, we’re filthy rich…..and that’s what counts.
A lot of this assumptions during the last 30 years that are wrong. For me it was credit score now I had 20,000 in debt and no job. Others was housing as investment and empowerment rather than shelter.
Uh Clint thank you. Your attitude is refreshingly christian. I often cringe when here so many christians talking about stuff as though they’ve never read the Gospels and their clear teaching about wealth. We are pilgrims.
Peace.
Should be ( when I hear)
Uh Clint, you’re a wise man. Growing up in the Bay Area during the heyday of real estate market craziness, it would be easy for me as well to succumb to the attitude of those prospective buyers mentioned in this article, the ones in Alameda and LA counties who somehow expect 10%-per-year increases in home values to be a given. Fortunately, my dad and other wise elders taught me to regard a house as primarily a place to live, and not to regard it as some kind of ATM or investment account that would guarantee one’s future well-being.
Perhaps we will see a return to some sanity in how houses are treated and purchased: no more than 30% of one’s monthly takehome pay for your monthly mortgage payment, saving enough to put 20% down, and taking a fixed-rate mortgage rather than rolling the dice on some ARM that balloons just as you get laid off from your high-tech job.
And perhaps people will start realizing that living within or below one’s means, having only one or two credit cards and paying them off each month, and saving for retirement rather than hoping that your home will pay for your golden years (question: where will you live, pray tell?) aren’t archaic virtues.
One of my colleagues state that he had bought a a home in Dallas and then sold it many years later for quite a bit of markup. He said that he bought it for x dollars and sold it for y dollars some n years later. He said that he asked many people what his rate of return, r, was and thought that it was considerable. I calculated it for him and I think it was about 4% per year. (Hint: use logarithms.) He said that it gave shelter for his family for many years and that was what was important…and he was right.
During the downturn, my wife and I haven’t been concerned with the loss in value of our home and property, since it’s we plan to live here for the rest of our lives, and we really don’t think too much about what it’s worth; we’re not going anywhere.