Home prices back to 2001 levels
With values close to what they were in 1989, after calculating inflation, should a home ever again be seen as an investment?
Now that the holidays are over, it's time for us to dissipate the holiday glow generated by that little bit of positive housing market data at the end of 2011.
Sure, pending home sales are up, but consider this: Home prices are now at 2001 levels.
Taking into account inflation, prices not only are at 2001 levels but close to 1989 levels, says David Blitzer, chairman of the index committee at S&P Indices, analyzing the latest S&P/Case-Shiller data.
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"This shouldn’t suggest that home prices never rise faster than inflation any more than the arguments for investing in your home — they’re not making any more land or everyone has to live somewhere — should be ignored," Blitzer wrote at Housing Views. "Rather, the runup and the rundown in prices in the 2000s didn’t do much for average home values while they wreaked havoc on the economy."
The country is littered with the damage caused by the runup in home prices of the mid-2000s. Yes, some people who timed their buying and selling well ended up with a lot of money. But others, like many people who bought homes during those years, ended up losing their home and everything they had invested, or owing tens of thousands -- and in some cases hundreds of thousands -- more than their home is worth.
Blitzer's comments are a reminder that rising home values – unless we get high inflation – are unlikely to bail many of those people out.
Plus, we're also reminded that one lesson of the real-estate crisis is to think of your home as a place to live, not as a way to acquire wealth. University of Southern California economics professor Robert Bridges wrote earlier this year that $1 invested in a California home in 1980 would have yielded $2.98 in 2010, while $1 invested in the stock market would have yielded $11.49.
Still, Americans see homeownership as their best investment. Perhaps they are taking into account the intangibles, such as neighborhood ties and the right to paint the rooms any color you please. While your house may not be your best retirement savings option, owning a home gives you a cheaper place to live once you've paid off the mortgage.
Is buying a home a good idea? It depends. Writes Blitzer:
There isn’t a general answer to the question because it depends on the economy, the real-estate market and, most of all, on the needs, desires and finances of the potential buyer.
What do you think? Is buying a home a good investment?
I have heard stories like your daughter's before. That's is tough to hear about. I hope it all turns out okay for her. We are currently in Kentucky - not that far North but it is for us.
The only way to "invest" in a home is to buy it and pay off the mortgage as soon as you can. Never borrow against it. Do periodic upkeep that is in your budget. Then when you get to an age that you can retire, you will have a 'rent free' place to live out your final years.
"That is what owning a home is all about, Charlie Brown".
Ga Peach....I think what Obama was probably trying to say:
Can't find that decent job because the economy is screwed....instead of taking a mediocre job, go back to school and get trained in a field that actually might have some potential!
My daughter has an MBA also. Worked for a Mortgage Co. Wanted to buy a new car because hers was getting to be old and she had a long commute. She went to to the Manager. She told her what she wanted to do and asked if the company was going to be on solid ground for her to go out on a limb for the car. She was assured that everything was fine...go ahead and buy the car. One morning, without any prior warning, 33 employees entered the building, were herded into the meeting room and one by one escorted to the managers office. They were notified that effective immediately their employment was terminated. They had their legal rights and what the company was offering to them explained to them. They cleaned their desks or whatever while security watched them and they were escorted out the BACK door without anyone still waiting their turn knowing what was happening.
This was an opportune time for my daughter to retrain for another field. She didn't do it. By the way...she hadn't made the SECOND payment on that new car when all this came down! Two years out of school with no job and no prospects. To me, being around for awhile, I seen this as a great time to for her to retrain for a field that would offer some opportunity. You see Obama's message as being out of touch with reality when in fact I believe he was 100% correct! My daughter has been hit and miss with employment. She has too much education, she's told, to qualify for any business related jobs being offered. That's the biggest crock I've ever heard. They use it to cover up the fact that they for all practical purposes, 'stole' my daughters money by training her for a field that was already flooded with trained people while giving her all manner of data trying to convince her that she would have skills that were in high demand!.
The point of all this gibberish is that you MUST be willing to go where the work is. It might be in the same city....but in another field. Or it might be a different field in a different city. Also, be prepared for a big disappointment on compensation. I'm not trying give you a 'downer'.....just a true picture of the way things are. Having an education in a field with no opportunity isn't a great deal for sure....having to compete in a field you have no experience in is even more difficult. I'd say that education can be a good investment if you are being educated for a career that has potential. Don't listen to the schools!! They've already proven they'll BS their students to keep the income up....theirs of course.
Also...just wondering where north is? A few more states UP is the blue area. You might want to try Texas. They claim it's the place to be....if you believe Rick Perry.
My home owner insurance told me that it will cost them more than what the Tax Assessor's estimated value or Zillow estimated value in case my house is totally lost by fire (structure only) so they use their own figures. I guess we need some kind of standards for home value/price evaluation/ assessment so every businesses in housing are in the same page.
I also noticed that brand new houses get Zillow estimated values which are lower than what they are sold for. This could hit the home building business hard in the near future.
Commenting on Catz New question about Zillow. Zillow's "Zestimates" are based on algorithums that calculate the zestimate based on recent activity for comparably sized homes in relatively close proximity to the subject property. The algorithum is proprietary, and they don't give you much info on it, but it is trying to locate similarly sized homes with similar room counts, etc. If there are no recent sold comps in your specific tract, it takes data from surrounding communities. This can distort the valuation because those comps may not be very comparable at all, i.e. true custom homes within a short distance of comparably sized tract homes can boost the price in the tract home or vica versa. I wouldn't bank on any of their valuations. Better off getting a local specialist to do a market analysis.
As to the subject, it is true that when you look at the trend line through the charted historical pricing, the bubble goes away and the market is close to where it should be. The problem will be there will be some over correction before it gets back to the normal trend line.
Don't be fooled, your home is a GREAT investment, just not a piggy bank.
A home is the best investment you can make. It is the only investment where you are allowed to leverage 97% or more of the investment and live, work and play in the investment at hand.
Everyone needs a place to live. You can either rent or buy. A home in Scottsdale Arizona purchased in 1991 for $116,000 has a value of $290,000 today. The home would have had a mortgage payment of $850 and would be paid off in ten years. Renting the same home today would cost you well over $1850 per month and you have nothing to show for it. In ten years, when you would be ready to retire, you have a home paid in full that you lived in paying less than you would have in rent over the same period. It is just like being given $290,000 for nothing.
The problem is when we think of our homes as piggy banks. When we fall into the trap of re-finance and putting our credit cards or auto loans into the mortgage. Sure the interest rate is much less but the problem is you will pay for the car or credit card over 30 years rather than just five, in the end it costs us much more.
America is the richest nation on earth because we own our homes. We need to continue to own our homes and stop borrowing against them every chance we get.
In spite of that, time will heal this mess. People need housing. They want a home of their own. Costs of materials and labor will go up.
So, whenever the banks are finished foreclosing and liquidating properties, the wounds should heal and the market should strengthen.
No thanks to the federal government, mind you.
Banks are the problem. They did the bidding for the Democrats and Clinton's "House For Every Pot of Chicken." Rep. Barney Frank's and Chris Dodd's arm twisting to give everyone a loan or else feel the wrath of the Congress helped set up the debacle we have today. He can deny it all he wants, but they have the tape where he said it. This is one guy they should hang from the nearest lamp post. If there is one single person to start heaping the blame game on, he is Number 1. Clinton is near the front of the pact, although Hillary is a few in front of Bill. So if you want this country to turn into a banana republic, vote for the same people in office today. I really don't care which party, if they are the incumbent, vote the idiots out.
These are two of the guys responsible why people don't have jobs and lost their housing.
About a year ago Obama made a speech about "this is the time to further your education". I am with you on the reset idea. Education does not grant you anything necessarily and it may not be right for everyone.
@GA Peach 122
I take it that $38,000 was waaaay below what you were expecting to earn? Where did you get your estimate of what your degree would be worth? Not trying to be offensive, just curious. I have college-aged kids, and it seems like maybe we're due for a reset of the idea that going to college is always the best thing to do. At least with how CRAZY expensive college is these days. I couldn't stand the idea of going to college and taking on student loan debt that is as high as a mortgage.
I have recently gotten married and my husband who got out of the Army following his second deployment in 2010 returned home to American soil with hope of being near family and earning an honest living. With Atlanta's jobs being scarce, he couldn't find work for 11 months and lived fiscally off his military savings. Once married, we uprooted and moved north. Yes, you have to be willing to move were the jobs are but it's not easy. I think many people are being very cautious about home ownership right now and that's why homes are not selling as quickly in certain areas. I pray that the 2012 election does bring new found hope in the job market, housing market, and stock market. I am ready to be proud of this country once again and see our leadership "lead" its people.
Buying and selling isn't neccessarily a activity so very atached to the economics. If you are someone who it makes financial sense to purchase rather than sell, chances are you will make the decision that is correct for your circumstances. Just think about it. Houses sell regardless of market or national economics. There are always houses that sell, and people purchasing and/or selling. The mean price may change, and there are always those who will make predictions about the market. Even if you were selling lefse to norweigians (ya, sure there were other comparisions I could have made, but better to stay safe.) The vanks made alot of very poor leverage decisions that plunged us into today. (Shame, shame!) This is still an economically driven market place, and buyers and sellers abound. For whatever reasons. Just look at the price of milk. Don't see many people not buyingbecause it is perceived as a neccisitty. You want it, you get it. Actually this might be thought of as a time to sell, as you have a larger pool of motivated buyers. People were buying when iterest rates were as high as 18%. I think it is all media hype. Just like the GOP needs a political intervention, and Iowa makes a difference. Bah, Humbug. People do what they will ... regardless.