Relay for Life
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It's no secret that housing has been through a tough period. The turbulent economy of the past few years has led to some fundamental misconceptions about how real estate works as an investment, along with a loss of confidence in the value of home ownership.
It's time to restore some perspective.
Historically, real estate prices track closely with the rate of inflation. Unfortunately, the last 10 years led many to believe that real estate "should" appreciate at 5 percent to 10 percent per year, or more.
Because all real estate must be affordable for the people who live there, whether tenants or owners, such rates of appreciation are rarely sustainable. We've seen recently what happens when prices lose touch with their fundamentals.
The good news is that, in the aggregate, prices have returned to their long-term baseline. Because everyone has to live somewhere, demand for housing grows steadily over time.
Once today's relatively high inventories are worked down, most economists predict housing will resume its slow, steady appreciation rate. With slow appreciation, housing remains one of the safest long-term wealth builders there is.
Consider the illustration. At 2 percent annual appreciation, a homeowner with 20 percent down and a 30-year mortgage will have almost 30 percent more equity after five years than a tenant who invests the same down payment in stocks at 8 percent annually.
More importantly, at low appreciation rates, prices generally are not volatile. If policy makers can avoid a repeat of the reckless lending of the last decade, we should once again be able to rely on the value of our homes over the long run.
We're very lucky to live in North Georgia. On average (with some exceptions), our housing prices have only fallen about 5 percent from the peak.
At today's record low interest rates, buyers with a long-term view have a tremendous opportunity. If you focus on future fundamentals rather than the distorted market of the recent past, you'll see there's rarely been a better time to become a homeowner.
Frank K. Norton Jr.