For over a year now Market Watch has focused on statistical information. I will continue to provide that sort of information on a regular basis. This month, however, I will step back and take a “big picture” look at the housing market, long term trends, and general advice I would give to prospective homebuyers or sellers.
Anyone who reads or listens to the media knows that everybody likes to talk about housing and most of them think they are “experts”. Sensational headlines appear almost weekly and, in my opinion, are not as important as the size of the print. In other words, one week’s statistical anomaly does not necessarily mean the housing market has changed significantly. Homeownership is not a get rich quick scheme. Homeownership works because there are several significant long term benefits. I believe housing statistics are much more meaningful when viewed on a longer term basis.
Residential housing has been one of the pillars of the American economy for decades, accounting for about 17% of our economy. Clearly the housing market is not as strong as it was 3-4 years ago. It is also true that there are more homes on the market today than has historically been the case. Part of the problem was caused by investors treating residential real estate as a short term investment. In addition, there are some existing lending and related securities issues that have hurt the housing market.
All of those things being said, there are several overriding positive aspects of the housing industry that have not changed. First, housing has long been a hedge against inflation and has historically grown fairly steadily in value. Second, taking out a mortgage to buy a home essentially serves as a “savings account”. Paying down a loan is, in many ways, the same as saving money. Third, housing has significant tax advantages based on the deductibility of both mortgage interest and real estate taxes. Finally, there are several reasons that housing’s current problems will lessen. Over the past several years household formation has decreased while population has increased. This trend is impossible to sustain. Currently, America’s population increases by one million annually. Even with this consistent growth there are 2.5 million fewer homeowners that there were in 2004. When our economy improves, our unemployment rate declines, and foreclosures lessen there will be a significant resurgence in home buying. When compared to renters, homeowners make more money, are better educated, are healthier, pay more taxes, and donate more to charities.
The American dream of homeownership has not decreased. The current rate of homeownership in the U.S. is 66.9%. Even in today’s market 77% of American’s believe now is a good time to buy a home. Homeownership has historically, and will continue to be a sound long term investment. Buyers who sit on the sideline today will have missed a golden opportunity.
Please feel free to call or email me at 812-499-9234 if you have any questions.