Is your house your best investment? It absolutely is when you apply the old-fashioned, or back-to-basics, rules of home ownership. It is only in the last two years since World War II that market prices have plummeted.
“Once again, we need to look at real estate, especially our home, as a lifestyle choice, a place to raise our families and enjoy,” says Jim Gillespie, president and CEO of Coldwell Banker Real Estate. “It should be viewed as a long-term investment, not like a lottery ticket as people had been thinking of their homes.”
Gillespie, based in Parsippany, N.J., is glad the high-roller days are gone. “Traditionally owning a home has always been a good investment, especially when the government allows you to write your taxes and interest payments off,” he says.
When you consider that the stock market has plunged from 12,000 points to the low 7,000 range and the National Association of Realtors’ recent national numbers show prices off by only 9.3 percent, the housing market looks downright resilient.
Now could also be the time if you are looking to move up in your primary residence and apply the rules of buying for lifestyle and enjoyment. Make certain that the numbers pencil out, however. Do you have to sell the home you are living in now to do this? Or can you afford to keep it and lease it out for five years? Tom Iovenitti, Irvine-based president and COO of Coldwell Banker Residential Brokerage in Orange County and Desert Region, says 83 percent of Coachella Valley homes sold in the last quarter went for $500,000 or less. “People are buying now because of the good values out there,” he says, not to build equity to access cash with home equity lines of credit.
With inventory high and prices down, you might be able to afford your dream house now. “In today’s market, if prices have gone down in your area, I think it is the best time to move up because of discounts in the market. But, once again, buy for lifestyle reasons and expect to stay five to seven years,” Gillespie advises. Don’t look for double-digit gains anytime soon. Those days are gone for now.
According to Gillespie, a National Association of Realtors survey shows real estate prices are expected to outpace the Consumer Price Index once market recovery begins at “the same old plodding appreciation of 5 to 7 percent annually.”
Brian Shea, senior vice president of Wells Fargo Private Bank in Palm Desert, has many clients seeking advice on the viability of real estate today. “I do believe your home is your best investment today, but not for reasons related to investing,” says Shea, who is shopping for a house in Rancho Mirage or Palm Desert. Forget the emphasis on how much your house is worth. Today and for the future, you should focus on it as the place where your family lives.
Shea also sees great buying opportunities if you apply sane guidelines to home ownership. He’s looking at properties priced at 2003 values. “Sellers who must sell are extremely motivated and have never been more willing to negotiate,” he observes. He recently saw one property drop from an asking price of $1.2 million to $875,000 in a mere five months.
Advice to most sellers is don’t sell if you don’t have to because then you’ll find yourself competing with those motivated sellers who must play “let’s make a deal.” It’s better to rent out your house or investigate a lease option deal.
Elizabeth Leon, broker/owner of Palm Desert-based Twin Lion Inc., specializes in bank foreclosures. In her 25 years in real estate, she has never seen price-cutting and true value like this before. “Banks are very motivated to move assets off their books. I’m actually seeing 50 percent reductions from original prices,” she says. She points to a property at the prestigious Mirada community in Rancho Mirage originally listed at around $3 million and now down to $1.5 million. “It’s a great time to buy if you’re buying for the right reasons and you have cash,” Leon says.
Another back-to-basics aspect to your home’s value is its power against future inflation. “Your home will truly be your inflationary hedge when we start to see inflation rise,” says Haddon Libby, chief financial officer of El Paseo Bank in Palm Desert. “In the meantime, just enjoy it as a place to build family memories.”
That’s exactly what Gary and Suzy Walker of Palm Desert are doing. The couple purchased a 2,600-square-foot home in a gated community seven years ago for $350,000. At the top of the market, they could have snagged close to $800,000. Prices have now leveled off and are in the $500,000 range. “I do think of our home as our best investment. We’re not planning on moving and selling, so I really don’t care what it’s worth on paper,” Gary says.