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?

By Teresa at MSN Real Estate Jan 3, 2012 12:24PM

© Robert Llewellyn/CorbisNow 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?

Jan 31, 2012 4:18AM
waaaaait a minute! why is our govt. not holding the banks accountable for this mess. oh that's right, the banks own the govt. This country is badly in need of a major overhaul. WAKE UP PEOPLE!
Jan 3, 2012 10:33PM

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. 

Jan 3, 2012 10:23PM
Its so good to see someone else feels the same way I do. I see reports that suggest otherwise, but when I pull up actual sales, and compare it to previous sales from the exact same property - 8 out of 10 times, its right on the money with late 2001 sales, early 2002 sales.  
I think like any investment, your crazy to buy at the peak, lucky to buy before anybody knows its going to take off. 

Jan 3, 2012 10:07PM

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".

Jan 3, 2012 9:50PM

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.

Jan 3, 2012 9:36PM
NO, never again, unless we get a complete overhaul of our government.  This means no more insider trading for congressmen and all congressmen forbidden to pass any laws that are beneficial to them and no one else.  Laws passed for the populace must be obeyed by congress as well. 
Jan 3, 2012 9:05PM
At these prices we are buying. It may be a mistake, or it may be a brilliant investment - time will tell. Meantime interest rates are lower than inflation, making savings accounts and bonds  lousy investments, and the stock market is so volatile that one must have a strong stomach to participate. So far, we have not had much difficulty finding renters. There is an old adage that says "Be bold when others are fearful and fearful when others are bold." Lots of people are afraid of housing right now, so maybe its a good time to buy.
Jan 3, 2012 8:32PM

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.

Jan 3, 2012 8:00PM

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.

Jan 3, 2012 7:57PM
I don't know where they get these numbers, homes that sold for 70000 in ,my hometown when I left  in  1995 are ,selling now for 140000 and they are 16 years older and more out of date inside..
Jan 3, 2012 7:33PM

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.

Jan 3, 2012 7:32PM
A massive leap backward for the public,  a massive leap forward for the banks.
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.

Jan 3, 2012 7:21PM

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.

Jan 3, 2012 7:05PM
No offense taken.  I didn't really know what to expect honestly.  It was a bad time to be graduating in general (or so it seems).  I was just comparing  to the $30,000 starting salary Chekc Please said was 25 years ago.  I do think young adults want what we can't afford and think we are entitled to much.  My parents taught me that hard work makes a living and we don't get handed anything.  My dad taught me that  where he and my mom are financially today took years of getting there.  They didn't have it all at my age.

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. 

Jan 3, 2012 6:57PM

@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.

Jan 3, 2012 6:55PM
Seems like prices are right where they should be. Homes are homes not investments
Jan 3, 2012 6:52PM
To go off what Chekc Please said earlier... I graduated from a top-ranked university in 2009 and went on to complete my MBA in 2011 while working full-time during my MBA program.  Upon graduating and landing a close-to-dream job, I was only offered a $38,000 annual salary at best.  No wonder college graduates are renting or moving back home.  Many of us can't afford a single family home, townhouse, or even a condo on these yearly salaries when the level of our education does not justify the low salary.  I am young (26) and still learning many things about the market, but the city of Atlanta's job growth has been declining since 2007, and it does not at all come to a shock to me that it has the highest foreclosure rating in the nation over the last year.  This is where I grew up.

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.

Jan 3, 2012 6:43PM
You people are stuck on blaming the banks for this mess. you need to be looking at past administrations for the real blame. They were the ones that were forcing banks to make risky loans all in the name of " affordable housing for all" as being a right. No home ownership is not a right. Never has been
Jan 3, 2012 6:35PM
It all started when we went off the gold standard.  These kinds of whip-sawing prices didn't occur when we had sound money backed by gold.  The value of a dollar shouldn't be a daily guessing game, rigged by crooked bankers who create money and debt out of thin air.  This nightmare will never end unless or until the FED is dissolved and real money (backed by gold) is restored.  What do you think the odds the Banking Cartel will let that happen?  Exactly.
Jan 3, 2012 6:35PM

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.

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