Will Real Estate Ever Recover?

According to a front page story in the New York Times, the days of building wealth by owning a home are over and probably for a long time.  I agree with many of the conclusions reached by the author and those he was quoting, which is that people will no longer make a huge fortune owning their own homes. The fact is, however, that except for the last 15 years or so, most people never really made a fortune on their own homes, which appreciated to keep pace with inflation and a small real return.  Therefore, the reality was masked by people misunderstanding how inflation eats into the returns of long term investments, a common mistake.

The real argument in favor of homeownership has always been, and should remain, that it forces you to save and build up equity over time so that when you are approaching retirement you have a stable place to live or an asset that can be sold to allow you to move elsewhere to enjoy retirement.  Quick flip gains were unique to a crazy time with a crazy bubble and should not return, as they made it more and more difficult for ordinary people to afford homes.

How long will prices decline? As both a prospective house purchaser and in my professional life representing individuals in foreclosure, the answer seems to me to be for a very long time, as there is no way for people to exit these homes with the high mortgages they took out based on boom time valuations, and therefore, they cannot sell them at the price the market will bear.  In Bergen County, I see the market piling up with houses as these two things collide.  Until the foreclosure process and pain of paying an overpriced mortgage squeeze out the bubble, the prices will keep declining.

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3 thoughts on “Will Real Estate Ever Recover?

  1. Agreed, but there is one thing to keep in mind.
    When everyone says BUY NOW because prices will keep going UP forever and you will never be able to buy again it might be time to run away and head for the hills.
    When everyone gets bored with real estate, and looks at you with pity for owning, thats usually a sign that the tide is about to turn and things are about to get better…. The question I pose to my real estate customers: ‘Is it totally uncool yet to own real estate?

  2. Pingback: More on housing as an investment « The Law Office of Avram E. Frisch LLC Blog

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