Housing Myths

Tuesday, October 20th, 2009 | Uncategorized

Hey Gang,

I wanted to continue my thread on housing myths.  There’s too much to write for any one post, so when I get that chance I’ll jump in and share something new.

I’ve already mentioned in previous posts how part of becoming a successful real estate investor is learning to incorporate some practices that appear to be counterintuitive.  We already covered one myth in a previous post . . . remember what that myth was?  You got it . . . that now is a great time to buy because interest rates are low.

But we haven’t addressed the grand-daddy of housing myths, so here’s my favorite:

Housing prices always go up.

This was what got me into real estate investing several years ago.  I was told time and time again that real estate was a “can’t miss” because it would always increase in value.  What have I learned since, and what should be apparent to everyone, is that housing values are linked directly to current salaries and interest rates. Houses don’t increase in value on their own over time, they provide the same value as they did when they first were built.  Moreover, they are a drain on resources, sucking money through taxes and maintenance.

People who look at buying a house as an investment haven’t learned from the past two years.  Don’t believe me?  Well, maybe you’ll believe Yale Economist Robert J. Shiller who recently released a report he did on the history of the U.S. housing market. What he found was that since 1890, the housing market appreciated 4 percent after inflation. Home prices were on this trend up to 2000.  However, there is ample argument that factoring in the years before World War II may not be relevant; therefore, if the start date for the study began in 1960, that rate of appreciation increases to 8 percent.

But wait!  What happens if we leave out the bubble years of this decade?  That 8 percent rate drops dramatically to 2 percent!

Again, housing prices reflect interest rates and salaries.  Right now we have an economy on the ropes, a high rate of unemployment and partial employment (23%) and despite the government pulling out all stops, prices have inched up only slightly in most areas.

What that means for those of us in real estate investing, is tremendous opportunity to buy low and provide excellent value to our buyers.

What do you think?  What are some other housing myths that you’ve seen or experienced while out in the market?  Click on the box in the top right corner (for free silver coaching), and add your comments. Thanks.

~ Josh

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