Home Values - More than Paper Value
Filed under: Home Buying, Real Estate Investing, Real Estate Market
At present, the market for residential properties is booming. The following facts give you an overview of what is happening.
- According to the Office of Federal Housing Enterprise Oversight, the average house price has jumped eighty-five percent over the past decade.
- The median home price jumped eleven percent from February 2004 to February 2005. According to a National Association of Realtors report, this makes the median home price $191,000.
- In California, house prices have more than doubled in the past five years.
- In 2004, economists from five leading real estate organizations predicted that home prices would rise five to six percent a year over the next ten years. The experts predicted almost six million home sales a year for the years 2005 through2014, a seventeen percent gain over the years 1995 through 2004.
This thriving real estate market has been a relatively long-lived event and not a passing speculative whim. It did not get much media attention while stocks were still doing well on Wall Street. Investors saw no reason to deal in bricks and mortar when they could make a fortune in electronic transactions. Only when the stock market began to disappoint investor expectations did media attention shift to the real estate market.
A friend told me about a New Yorker from a rich family who went to the best schools, became a member of the right clubs and worked for a “white shoe” Wall Street company. In his wealthy circle, this man said his friends who weren’t smart enough to play the stock market put their inherited money into real estate. He confessed that, years later, most of the smart ones, like him, had lost much of their money in the stock market. However, the ones who had invested in real estate were now so rich they no longer worried about their finances.
Few American businesses and investments have thrived in the opening years of this new century. Real estate has been the startling exception. During these years, many were amazed to see their real estate investments rise as their stock market investments fell. Many cut their losses by selling stocks and going into real estate. They knew all too well that what was bought on Wall Street could be worthless. They were happy to put their money into more substantial things. Many bought bigger homes or made major improvements to the ones they had. In this way they derived the double benefit of living in their investment while seeing it increase in value. They also enjoyed vacation homes as they watched them appreciate in price. Tenants in the apartment buildings they owned paid enough rent to cover the mortgage payments and other costs. Therefore, owning these buildings was virtually free. Not everyone, however, has been savvy enough to benefit from this real estate situation. The initial step of buying a house is too hard for some to understand. They are not yet ready to do it. They may never be ready with their current attitudes. In my seminars I confront people with these emotional realities, which are often the only things holding them back from leading prosperous lives.
It doesn’t occur to some people who own their own home to use it to their own leverage in other investments. They may have been born or raised in the house, or lived in it for years, hardly recognizing its existence as a real estate property. Their house is their safety blanket, their shelter from an uncertain and, at times, unfriendly world. They cannot bring themselves to, as they understand it, jeopardize its existence by leveraging its value in the marketplace. They see the risks of taking action, but not the risks of doing nothing at all.
People often wake up when they see other people prosper, as they would have liked to, if they had acted. It is more a matter, I believe, of healthy competition rather than envy. We all compare our performances with those of our equals, even when we don’t realize that we are doing so. When the couple that rents the apartment across the hall from yours invites you to a housewarming at the new home they have just bought, it is almost impossible not to look at what they have and think that it might have been yours. If only, and here comes the excuse, you could do the same. You think, perhaps you will do something next year. However, next year will be no different, except that you will be a year older and probably no wiser and no richer. In your heart, you know this is true. You have to act now. First make the decision, then act on it. When you do this, your life changes.
