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I was fascinated to read my associate Karl Case’s article on housing published in the New York Times a couple of weeks ago. In it he suggests that the “American dream” of home ownership, rather than being dead in the water, is actually alive although somewhat battered!
Agents, buyers and sellers alike are currently being inundated with market “analysis” and “commentary” relative to the current and, indeed, future of our housing market in the U.S. and the disparity between the opinions is vast. There are some who are projecting a further 20 percent decline in value and others who believe that we have bottomed out and a recovery is around the corner. It is all immensely confusing.
So what is the likely direction of housing as we move forward with our overall economic recovery?
It is my opinion that the mass pricing declines that we saw were a function of a meltdown in the market and that we have seen the worst of the price declines. As we move forward, the recovery in real estate will not on a national level but will be market specific, with some areas faring better than others. I believe that markets with better employment prospects, topographic and political restrictions that limit new development and lower foreclosure activity are likely to fare better than others. The US Census bureau shows that we live in a country with 310 million residents and over 77 million owner-occupied housing units; to suggest that a recovery will be equal across the country is naive.
The core of Case’s argument is that the “Dream” very much depends on what one’s expectations are. If house buying is driven by the expectation of astronomical returns, then it is fair to believe that this will not be the case going forward. However, if buyers are realistic in their expectations of value and a good rate of return, that a home represents stability, offers tax incentives, as well as managing the fundamental need for shelter, then home ownership does indeed make sense. (Historically, housing has always appreciated at a greater rate than inflation and if you believe, as I do, that inflation is certainly headed our way, it will act as a good hedge against it.)
There is an old adage that all real estate is local and I agree with this. As we move forward, expect markets to fluctuate depending on the above criteria. Fear mongering does nobody any good and I hope that we will see less of this occurring as data continues to point toward improving economic conditions.
