Real estate has always been a long term investment. Housing will recover.

September 9, 2010

There have been numerous articles recently about the fall in home sales locally and nationally in the month of July.  The Greater Milwaukee Association of REALTORS released a powerful statement to members via email in response to some of the negative articles. The content of the message is repeated below:

There was an article in the New York Times last Sunday that has been getting a lot of attention in recent days. The article, titled, “Housing Fades as a Means to Build Wealth, Analysts Say,” plus the release of NAR’s existing homes sales has launched a wave of pessimistic news reports.

People across the country are hyperventilating over the negative sales numbers the industry is posting this summer. REALTORS® saw this coming months ago for two reasons: 1) the tax credit pulled a lot of business forward into the first 4-months of the year; and 2) we are comparing July 2010 numbers to July 2009. There was a tax credit partially fueling sales for most of 2009. We will probably see negative comparative numbers for the rest of the year.

Yes, the return on housing as an investment is much less than earlier this decade. It only got out of control because the natural laws of supply and demand were temporarily suspended, allowing real estate to increase in value by 20% a year, or more. But, that was actually for a very short period of time, about 18-months in the Milwaukee market. Real estate has always been a long-term proposition.

Except for those who bought at the top of the market, most homeowners are still realizing a decent capital gain on their home. A buyer who purchased a home in 2003 for the 2nd quarter average sale price of $212,221 would realize a 5.1% gain on that purchase if they sold it for $222,983 today. Not the astronomical increase in value people seem to expect today, but not bad during a recession. And, what would their gain be if they had rented during that time? Zero! Most people who read the “Housing Fades” article completely overlooked the first sentence, “Housing will eventually recover from its great swoon.” Yes, it will! (emphasis added)

What do YOU think?

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