National home sales data will come out tomorrow, and economists are bracing for a big drop in sales from last year. And that may have significant implications on economy overall. It may also signal a shift in long term economic thinking among many families. Over the second half of the Twentieth Century, a lot of Americans built "wealth" through their homes. After the housing bubble burst three years back, and helped drag down the global economy, the days of netting big returns on housing appear to be gone, but for how long? David Streitfeld has a front page article in the New York Times in which he writes that "more than likely, that era is gone for good." And he shares the thoughts of some leading analysts:
“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”
Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.
Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.
“People shouldn’t look at a home as a way to make money because it won’t,” Mr. Baker said.
Read Housing Fades as a Means to Build Wealth, Analysts Say here.
Related Post: Read Richard Green's Is housing the best way for low-income people to build wealth? here.
Posted
08-23-2010 8:35 AM
by
Graham Griffith