With some recent media reports about real estate losses, housing slumps and home price declines, it can be easy to lose perspective so it’s time for a reality check.
When you look closely at who’s experiencing real estate gains and losses, the overall picture comes into focus. Short-term fluctuations don’t have as much impact on owners and investors who bought with a long-term perspective.
Over the past three decades, home values have risen an average of 6 percent annually. Of course, all real estate is local, and markets vary by region. In some markets, people who bought homes within the past year or two have seen the value of their investment go down. But real estate is not a quick-in, quick-out investment.
According to statistics from the National Association of Realtors, a buyer who purchased a median-priced home five years ago has seen an average home value gain of $54,000 during that time; in Las Vegas, the gain averages $150,000, and in Miami, the same buyer would have averaged a $200,000 gain.
Real estate market conditions are like the weather forecast – the local conditions are much more meaningful than national data.
Even so, some homeowners who have seen gains over the long term may perceive losses because of short-term market fluctuations. For example, buyers in Anaheim, Calif., saw an average median price increase of 13 percent between 2004 and 2006. In 2007, prices there have declined 0.6 percent – a bit lower than last year, but still leaving a healthy gain from three years ago.
In most cases, consumers and homeowners who are in it for the long-term will come out well ahead.
The long-term value of housing as an investment is compounded by the power of leveraging. A $10,000 used for a down payment on a median-price U.S. home at a typical home price appreciation of 5 percent will return $110,000 after 10 years. The same $10,000 invested in the stock market appreciating at 10 percent annually will return $23,600.
No wonder the Federal Reserve shows consistent year-after-year results of the staggering difference in net worth between homeowners and renters. In a recent study, the average homeowner had $184,400 in net worth versus only $4,000 for the average renter.
History also provides its own type of perspective. In hindsight, times of crisis often turn out to be times of opportunity. With over 4 million net new jobs added in the past two years – a timeframe during which the volume of home sales have steadily fallen – a significant pent-up demand has developed. As a result, home sales and prices are forecast to rise in 2008 compared to 2007.
In many areas, this may be the best time in years to buy a home. Smart and serious investors look at the long term. Those investing in a home and keeping it for a typical holding period of six to 10 years will likely see their investment pay off financially. At the same time, they will enjoy all of the non-tangible benefits of homeownership.
So although some homeowners may be experiencing short-term pain, those with a long-term perspective will more than likely see overall gains.
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