As is sometimes the case here on AR, I'll read a posting and it will inspire me to write a post of my own on that or on a related topic. This is the case here.
I just read a post about being careful with what you say to your buyers regarding real estate as an investment. It's not that I disagree with Ms. Harley, I do think that a real estate or mortgage professional should be careful with the advise that they give out. However, I honestly don't think that you need to be fearful of telling people that buying a home is an EXCELLENT investment!
That's not to say that it's guaranteed that home prices will appreciate into the future, but it's highly likely in most real estate markets in the US. Here in the St Louis real estate market, I think that it's a pretty damn safe bet that in the long haul that real estate values in St. Louis will rise.
I base this believe (and that's what it is) on the fact that the US population is expected to increase to 400,000,000.00 people by the year 2050 based upon various population studies. I also believe that the current negative trend in home prices is based upon something related to, but not to the economics of the housing market itself.
I might be wrong, but if the big Wall Street investment houses hadn't started packaging CDO's (collateralized debt obligations) where the risk to the investors was obscured by their having been rated AAA+ by the various rating agencies, the housing market would still be chugging right along.
As I've pointed out in other blogs, even the worst of the sub-prime or other non-conforming mortgage products weren't evil in and of themselves. While I doubt that giving 100% stated income loans to people with bad credit was ever a good idea, if the investor who bought into a pool of mortgages made up of these had been properly disclosed to and still made the decision to buy the security, then it would have only been a risk management decision on their part.
The reason that the housing market is suffering isn't because the economics of the market having changed due to sociological or demographical reasons. It's because the credit markets have collapsed.
The credit markets didn't collapse because of sub-prime mortgages. They collapsed because investors were mislead as to the quality of the CDO's that they were buying. If the various sub-prime and other non-conforming mortgage products had been packaged by themselves, they would have been rated appropriately and investors could have bought or not bought these packages accordingly.
Even still with hindsight being 20/20 and CDO's being water under the bridge, I'm still optimistic about home values in the long haul. Even if the government does nothing, eventually the credit markets will straighten themselves out. The population will continue to rise, people will still need roofs over their heads and buyers will return to the markets. Prices will stabilize and then start to appreciate again.
I felt so strongly regarding my interpretation of the economics of the real estate market that I just purchased a home in September and have dumped a good deal of money into fixing it up. I wouldn't have done this if I thought that the current crises in the housing market was anything more than a bump in the road. A big bump, but still just a bump in the road.
Having made this investment myself, I have absolutely no problem telling a client that I believe that investing in a home is still one of the best investments available to the average American. If you don't believe me, ask Warren Buffet or any of the other riches people in the country. I don't have the statistic handy, but I believe that it said something like 98% of the richest 20% of people in the country own their own home. When Mr. Buffet jumps ship and sells his home in Omaha, then maybe I'll change my tune. Until then, I am gung ho on the real estate market!
R. B. Mitchell
Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com