Housing Fades as a Means to Build Wealth, Analysts Say

[Liberal_in_LA]

Housing Fades as a Means to Build Wealth, Analysts Say
By DAVID STREITFELD
Published: August 22, 2010

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.”

Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.

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Owners in those foreclosure-plagued areas consider themselves lucky if they are still solvent. But that does not prevent the occasional regret that a life-changing sum of money was so briefly within their grasp.

Robert Austin, a Phoenix lawyer, paid $200,000 for his home in 2000. Five years later, his neighbors listed a similar home for $500,000.

Freedom beckoned. “I thought, when my daughter gets out of school, I can sell the house and buy a boat and sail around the world,” said Mr. Austin, 56.

His home is now worth about what he paid for it. As for that cruise, “it may be a while,” Mr. Austin said. Showing the hopefulness that is apparently innate to homeowners, he added: “But I won’t rule it out forever.”


http://www.nytimes.com/2010/08/23/business/economy/23decline.html?_r=1&src=me&ref=homepage

[luvspeas]

1. That crazy inflation of housing prices was artificial to begin with...

expecting such a high return after 5 years is just plain stupid and always has been. Investing in housing used to mean you purchased one house, then you might make some good money AFTER you paid off the 30 year mortgage. Enough to buy a small place somewhere you like after the kids left home and go out to eat once a week or so. not flip flip flip barely fixing up places and conning someone else into buying them for ten times what you paid.

Housing is and will continue to be a good investment over renting, even if you only recoup what you put into it. People really need to get their priorities straight.

[notesdev]

2. Only 5 years too late

seems those "analysts" should properly be termed "historians"

[Warpy]

3. Bloody hell! It was never meant to be that

Taking on a 30 year mortgage was meant to keep a roof over your heads while paying off a loan during your working life on a place to live in that would cost you only taxes and maintenance when you retired. It actually did work like that for past generations who could count on good jobs to sustain them for their entire working life without having to move every couple of years to chase new employment.

With the social contract irretrievably broken, home ownership only makes sense for people who own stable small businesses and who can pretty much count on making a living in the same spot for enough years to build equity that will get them through retirement.

The only way I'd take on a 30 year mortgage now is if housing prices were seriously depressed and rents were rising rapidly enough for that monthly PITI whack to be a good deal compared to rent, even if it meant losing the house down the road due to illness, prolonged unemployment, or other catastrophe.

Remember, you can paint the walls purple in your rental. You just have to make sure they're the original color when you leave.

[bluestateguy]

4. The purpose of buying a house is a place to live

not to build equity or serve as an ATM card for your daughter's wedding.

[Greyhound]

5. There's 5 for ya. K&R.

[MadHound]

6. I didn't buy my house as an investment,

I bought it as a place I can live the rest of my life, and when I'm old and gray and own the house outright, I can live here cheap.

Not to mention that I get to be a steward of the land, doing my small part to make up for the destruction that mankind has wrought.

[cbdo2007]

9. That is an investment :) The problem are the people who see it as a "get rich quick" scheme.

You did well, as did any of us who see home ownership for what it is...a long term commitment/investment where we can own something with value after holding on to it for a long time.

[taught_me_patience]

7. About 3 more years of articles like this

and it will really be time to buy homes as investments. Going against the conventional grain will net a lot of money in the future.

[raccoon]

12. You contrarian you. nt

[county worker]

14. "Going against the conventional grain" is the best way to live.

I am 64 and one thing I believe in is, if everyone is doing it, there must be something wrong with it.

The herd mentality is something to avoid. I'm buying a house now. It won't close until Oct but I'm buying it at 160K less than the seller paid for it and getting 4.65% interest. With the tax deduction for interest and taxes the house will cost me $95 more per month than the rent I was paying. The house is 5 yrs old and has lots of new technology compared to my rented house.

I've owned quite a few houses and always sold for more then I paid until 2009 when I lost all the equity I built up. If it hadn't been for the sub-prime thing I would not be able to buy this house for what I am paying and would never get the low interest rate. So it all evens out over time. I just might get a small bit of equity again, who knows.

So call me a contrarian but going against the conventional grain is my way of living. Take 'The Road Not Taken" it makes all the difference.

[cbdo2007]

8. For the average person, it IS still a great way to build wealth.

These articles are ridiculous.

I also knew people who bought in Phoenix 5-6 years ago and after living in their house for 2 years it doubled in value so they sold it and used their windfall to buy an even bigger house at an over-inflated value.

Anyone who thought that was "normal" and "natural" were idiots to think the market wasn't in some serious trouble. I just bought a house and it's a great investment in my city and with the interest rate and what we paid for it. I wouldn't change a thing and it doesn' t do anyone any good to have these "fear" articles out there, when people should use their brains and not look at their house as a get-rich-quick scheme.

[raccoon]

10. I wonder how much of the rise in housing prices in, say, the 1970's, 1980's,+

had to do with demographics (boomer generation buying homes).

I certainly don't think demographics is the WHOLE story of rises and falls in housing prices, but it does enter into it.

[taught_me_patience]

13. Huge impact from women entering the workforce 70's and 80's

Shrinking average household size
continuously falling interest rates from 1982


There are incredibly strong long-term headwinds for housing as the demographics shift against it.

[Hannah Bell]

11. "build wealth," my ass.

[Xenotime]

15. Home buying will stop being popular when the tax deductions cease.