You lose money when you HAVE to Sell. The same is typically said about stocks. If you are forced to sell a stock when it is dragging on the bottom of its value cycle, you are likely going to lose money. With real estate, those folks that invested in property for whatever reason at whatever time, will almost assuredly come out on top if they have the time, capacity and patience to wait for the market to rebound. That said, I think we are all aware that this recent downturn was not really a “drop” in the value of homes but a correction to the over-valued prices people were paying back in the early 2000′s. I’m not saying that property values in the North Conway, NH Real Estate market are still strong and climbing, but we can be very comfortable in saying that appropriately valued homes have not lost their value in the last 10 years.
Once again our friends at the KCM Crew have summed this up quite well.
Thank God I Didn’t Buy Gold at $400 an Ounce
We hope that headline grabbed you. The reason we used it was to bring some perspective to the debate as to whether or not homeownership is a wise investment in today’s troubled market. A family should never look at the purchase of a home simply as a financial investment. It is so much more than that. But, even if we look at it as only an investment, we must look at it in the long term. Let’s use gold as an example.
Gold had dropped from over $400 an ounce to $250 an ounce (a 40% decline) from February 1996 to August 1999. People were so glad they hadn’t bought at $400 an ounce.
Lord William Rees-Mogg, the current Chairman of The Zurich Club, in 1997 said:
“No investment has been so thoroughly exploded as gold; most people think that there will no more be another gold boom than there will be another boom in tulip futures in The Netherlands.”
Everyone knows what happened next. The proclamation of gold’s death was rather premature. Gold rose from $250 an ounce to over $1,500 an ounce in the next twelve years.
If we look at real estate in the long term, we can see that it has been a great vehicle for building family wealth. The Federal Reserve’s Survey of Consumer Finances, conducted once every three years, provides a snapshot of family income and net worth. There survey has shown every time that homeowners’ net worth far exceeds that of renters. Here is the breakdown of the last several surveys:
- 1998 – Homeowner net worth exceed renters by 31%
- 2001 – Homeowner net worth exceed renters by 36%
- 2004 – Homeowner net worth exceed renters by 41%
- 2007 – Homeowner net worth exceed renters by 46%
The 2010 survey is not out yet but the National Association of Realtors’ has estimated that number to be approximately 41% in 2010. You may be thinking this is no longer the case based on the current fall in home values which have dropped back to 2000 – 2002 prices.
Harvard University just completed a study that showed:
“Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.”
We are not predicting that real estate will see the same levels of appreciation that gold did. However, we do believe that the real estate market will rebound strongly.