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Real Estate Should Be Seen as a Long Term Investment - 2007-09-22 |
Last week's column examined the recent Home Price Index, which showed that only five states have experienced actual price declines in the past year, and suggested that the areas most vulnerable to declines were the same areas that had seen excessive price increases during the recent housing boom.
Here are some questions I commonly receive about real estate and home prices:
Q: Isn't it smart to buy when prices are low and sell when prices are high? And if so, why would anyone what to buy now, when prices are at their highest?
A: You are confusing long term investing in real estate with short term speculation in the stock market.
You have suggested that it's best to "time the market" in real estate, taking advantage of cyclical swings in price. This is not real estate investing, it's gambling.
Neither you nor anyone else can tell when home values may see a decline in the Atlanta area, although if that were to happen, it would be rare.
Instead, I recommend that you think of real estate as a long term investment. Real estate is a slow, steady performer that tends to increase in value over long periods of time.
When you buy a home, you certainly hope that it will be worth more later than you paid today. And historically, that has happened for many years. But there is no guarantee what will happen to the value of any investment you might make.
Q: Does it make sense to postpone my home buying plans until prices stabilize? A: Not necessarily. Interest rates for loans under $417,000 recently dropped to very affordable levels, and builders have realized that they must price their homes competitively, or they just won't sell.
That makes this a buyer's market, but there is no guarantee this will last. In fact, I can almost guarantee that it will change.
Q: What circumstances might cause this buyers market to change?
A: If the economy were to pick up steam and the Federal Reserve lowered interest rates, it's likely that home-buying activity would increase as well. That could cause prices to firm up and sellers to become less flexible
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Q: So does it make sense to buy now, while sellers are anxious?
A: Again, if we think of real estate as a long term investment, it makes the most sense to consider buying when you have a long-term need to do so.
For example, if you recently got married and plan to live in this area for at least several years, it makes sense to consider buying a house.
You've got to live somewhere, and there are significant tax advantages to owning over renting. In addition, there is a good chance that your home will be worth more in the future than it is today.
Q: You seem to think that real estate will always go up in value. Is that the basis of your advice?
A: The federal government has only been keeping reliable statistics for about thirty years. In that time period, there has never been a nationwide year-over-year price decline, although there have certainly been regional price declines. All of those recorded declines have proved to be temporary.
Q: But isn't it possible that this is the beginning of a sea change in home values, with prices declining year after year from now on?
A: I suppose anything is possible, but no nationally respected economist has suggested that this is the beginning of the end for real estate. Instead, most see the economy in reasonably good condition, with low unemployment and increasing personal income. This typically leads to a sound real estate market.
Q: But what about this mortgage melt-down and the huge increase in the number of foreclosures? Won't those things drive down prices everywhere?
A: The tightening of credit guidelines was an overdue move by lenders to make sure that future borrowers are better able to make their monthly payments.
And the number of homes being advertised as going into the foreclosure process is a tiny fraction of the overall home loan portfolio held by bankers in this country. The vast, vast majority of home loans are well secured and are being paid on time and as agreed.
Q: Is it possible that these foreclosures are being set up by predatory lenders who hope to cheat borrowers out of their homes?
A: There is very little evidence that predatory lending has contributed in any way to the current increase in homes facing foreclosure. Instead, it's important to recognize that no one wins when a home is foreclosed.
The borrower loses a home, the lender likely will experience a financial loss, although a large portion of the debt may be paid off when the home eventually sells. In addition, the neighborhood often loses as the home sits empty for months, then sells for a greatly reduced price because of needed repairs.
Instead, predatory lending typically involves homes with large equity and unsuspecting owners who place too much trust in con men pretending to be lenders. Such activity has decreased in recent years as enforcement has ramped up.
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Upcoming Events
BUYING FORECLOSURES IN GEORGIA
NEW for 2008: Bank-Owned Home Bonanza
This seminar has been updated and revised for 2008 to reflect the dramatic changes in the Georgia foreclosure marketplace. We are literally facing a flood of foreclosure properties, and there is profit to be made in each and every one of these homes.
Whether you want to build a portfolio of homes for your retirement or you simply want to find a better home for yourself and your family, this program is for YOU.
LAST CHANCE THIS MONTH!!
• Saturday, Oct. 11th, 2:00 P.M. until 5:00 P.M. - Renaissance Waverly Hotel in the Cobb Galleria
This COMPLETELY NEW SEMINAR examines the roots of today's foreclosure meltdown and explains how you can take advantage of this opportunity in your spare time.
Advance Tickets: $69; bring a friend for an additional $30.
Couples share materials.
Detailed information available under the “Seminars” button
This course approved for 3 hours of Continuing Education credit by the Georgia Real Estate Commission.
The Real Estate Investor's Institute will be held at Emory University on
November 22, 23 & 24, 2008. Make plans to attend.
Detailed information is
available under "Seminars."
This course is approved by the Georgia Real Estate Commission for 12
hours of Continuing Education Credit. Agents must bring license number.
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