Housing Boom is Great for Boomers
As a boomer I am trying to figure out how to retire comfortably. I've been in the stock market for years without making a killing. After adjusting for inflation, my progress has been rather slow. I live in the Baltimore / Washington metro area and I've done well over the past 25 years with house appreciation on multiple properties.
Why are so many pundits worrying about a pending real estate crash? Stop holding your breath. The specter of the real estate bubble may indeed be just an apparition. Even if prices fall back 25% over the next 5 years that would not constitute a crash or bubble popping. In fact, a five year decline followed by a normal upward resumption would mean that most of us will still have done very well indeed. I have lived through previous price declines such as 1990 to 1997 here in Annapolis. Many waterfront homes did indeed fall 20% or more. However, by 2000 all of that loss had been recovered with a vengeance.
Take Baltimore for instance, my father bought a row house in Bolton Hill for $12,000 in 1955 and sold it for $33,000 in 1966 the home later sold in 1999 for $347,000. Nearby homes are now selling in the mid 500's. Where was the bubble? When that house tripled in 10 years, was that a bubble? Apparently not because it went on to increase another 11 fold over the next 40 years. He bought a waterfront rambler in Middle River in 1966 for $26,000 and sold it in 1970 for $35,000 the home later sold in 2001 for $297,000 and then $395,000 in 2004 and now nearby homes sell for the upper 500's. Again, where was the bubble? Which of these price points was absurd or represented a bubble and when did it occur?
My point is that generally neither stocks nor homes are ever sure things. A specific home can be a great investment as can a specific stock. Take care in the picking. What I can say is that when people are generally getting rich in the stock market it is hard for homes in desirable locations to languish at low or descending prices. As overall wealth increases, so do home prices in desirable areas.
I think that homes will also remain a good hedge against inflation. Having been a homeowner in the 70's and 80's it could be said that inflation was actually my friend. My first house had an interest rate of 11.75% and I still did pretty well on it. My salary increased rapidly and my mortgage was fixed so my payment shrank in size with each passing month.
If you were a boomer and you invested $250,000 toward retirement 10 years ago you would probably have done better putting that money in an Annapolis area waterfront home than by putting it into the stock market. The home would have more than doubled, perhaps even tripled. I see no evidence that there is anything wrong with housing doubling in price again over the next 10 years. Many times in the 20th century housing safely doubled in price and statistically it should continue to do the same in the 21st century. Yes, there will be fits and starts and declines, but in the final analysis housing generally does well if America does well.
Why are so many pundits worrying about a pending real estate crash? Stop holding your breath. The specter of the real estate bubble may indeed be just an apparition. Even if prices fall back 25% over the next 5 years that would not constitute a crash or bubble popping. In fact, a five year decline followed by a normal upward resumption would mean that most of us will still have done very well indeed. I have lived through previous price declines such as 1990 to 1997 here in Annapolis. Many waterfront homes did indeed fall 20% or more. However, by 2000 all of that loss had been recovered with a vengeance.
Take Baltimore for instance, my father bought a row house in Bolton Hill for $12,000 in 1955 and sold it for $33,000 in 1966 the home later sold in 1999 for $347,000. Nearby homes are now selling in the mid 500's. Where was the bubble? When that house tripled in 10 years, was that a bubble? Apparently not because it went on to increase another 11 fold over the next 40 years. He bought a waterfront rambler in Middle River in 1966 for $26,000 and sold it in 1970 for $35,000 the home later sold in 2001 for $297,000 and then $395,000 in 2004 and now nearby homes sell for the upper 500's. Again, where was the bubble? Which of these price points was absurd or represented a bubble and when did it occur?
My point is that generally neither stocks nor homes are ever sure things. A specific home can be a great investment as can a specific stock. Take care in the picking. What I can say is that when people are generally getting rich in the stock market it is hard for homes in desirable locations to languish at low or descending prices. As overall wealth increases, so do home prices in desirable areas.
I think that homes will also remain a good hedge against inflation. Having been a homeowner in the 70's and 80's it could be said that inflation was actually my friend. My first house had an interest rate of 11.75% and I still did pretty well on it. My salary increased rapidly and my mortgage was fixed so my payment shrank in size with each passing month.
If you were a boomer and you invested $250,000 toward retirement 10 years ago you would probably have done better putting that money in an Annapolis area waterfront home than by putting it into the stock market. The home would have more than doubled, perhaps even tripled. I see no evidence that there is anything wrong with housing doubling in price again over the next 10 years. Many times in the 20th century housing safely doubled in price and statistically it should continue to do the same in the 21st century. Yes, there will be fits and starts and declines, but in the final analysis housing generally does well if America does well.
posted by Saltworks at 10:32 PM
0 Comments:
Post a Comment
<< Home