Given the recent experience in housing is real estate an asset that should be abandoned? Obviously not but that mentality has grown dramatically within many segments of our nation.
Can you blame people for never wanting to venture back into the real estate market? No. It is understandable but it is not the real estate’s fault. The fact is very regrettably far too many people did not fully understand and appreciate the dynamics at work in the real estate market nor did they appreciate the risks involved in the mortgage finance space. I empathise. That said, real estate ownership should not be abandoned.
Let’s take a glance below at a graph of New Home Sales over the last 50 years. Throughout the ’60s,’70s and ’80s, we can see significant support and resistance levels for New Home Sales between 400k and 800k per month. As this graph highlights, New Home Sales have clearly CRASHED over the last few years. The February reading of 250,000 was the lowest in many moons. Thus the question begs, is it time to buy?
New home sales in the United States are now down 80% from the peak in July 2005
If I were thinking of buying, I would be very actively looking. Why? Sentiment is growing that owning real estate as an asset is no longer wise. Bloomberg highlights this reality in writing, Americans Shun Cheapest Homes in 40 Years As Owning Loses Appeal,
“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”
While this thought process may be understandable it is this type of thinking which is a strong indication to me that real estate is likely approaching a time to buy. That said, while some may want to speculate in real estate for a quick flip, I do not think we will see a sharp bounce in real estate. I envision a likely continued gradual mild erosion in prices after the crash that has occurred. From there, we will likely experience a market with flat to mild upticks in prices for a number of years as the excess housing supply is absorbed.
A leg down from current levels as forecasted by many would seem to me to be a good point of entry for buyers who are well positioned to make a solid down payment and live well within their means and ability of making monthly payments.
Never buy a home? Would you rather purchase equities at current levels? Not me.
My mildly positive inclination toward real estate currently is the first time I have expressed such sentiment since launching my literary pursuit in the fall of 2008. Homes once again need to be viewed not merely as an asset but as a place of value in which lives and relationships develop, careers can grow, and people prosper emotionally. These basic principles are core to a real appreciation and understanding of ‘sense on cents.’
I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.