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This article was published on: 12/01/2007


Sensational, Yes; Accurate, No


“How much have real estate investors lost due to the housing market bust?”

That was the question posed to me by a major evening news producer, who wanted to depict the pains in the housing market during a nationally broadcast show.

Hmm. An investor who bought a property in Las Vegas five years ago would be ahead by $150,000 today. The gain would be $200,000 in Miami, and $54,000 on average in the United States as a whole.

Only people who bought in a few markets that experienced extreme overheating during the boom and who are trying to sell quickly face a potential loss. And that loss on average would be 1 percent to 2 percent.

Lenders and hedge funds with large exposure to subprime loans have lost big. Investors in homebuilder stocks also have lost.

But real estate investors who plan to hold for a reasonable period of time are doing fine.

To be sure, buyers who entered the market during the height of the boom might see a modest retreat in appreciation as a loss. That’s the nature of the human mind. A gain of $190,000 in Miami will feel like a loss if two years ago their property could have fetched a gain of $200,000.

Yes, there is pain out there. Foreclosures are rising and construction workers are getting laid off. Income of the typical real estate professional has been falling as transaction volume slows.

But consumers who are in housing for the long term are poised to come out well ahead. That $10,000 they invested as a down payment on their typically priced home for the typical 5 percent annual appreciation will net them $110,000 over 10 years. That’s what the power of leveraging means to them.

That same $10,000 invested in stocks appreciating 10 percent annually will return $23,600. No wonder the Federal Reserve Board consistently finds a staggering difference in average net worth between home owners and renters: $184,400 vs. $4,000.

As it has always been, housing is our bedrock investment. It will continue to generate a nest egg for us long after we’ve turned off the television and forgotten what was said in the sensation-seeking story of the moment.

Yun is chief economist and senior vice president of research for the NATIONAL ASSOCIATION OF REALTORSŪ.

Rep. John Dingell, D-Mich., the chair of the House Energy Committee, wants the federal government to eliminate the mortgage interest deduction for homes of 3,000 square feet or more, which he calls energy guzzlers, in the interest of global warming. That’s an idea that will cost consumers $34 billion, NAR says.

Untitled Document
MID tax benefit (2005)
$116 billion
Portion of that to large-home owners
$31 billion
(27 percent)
Increase in mortgage debt since 2005          
10 percent
Tax cost in 2007
$34 billion

Source: NAR Research

Business Confidence

Expectations dampened Practitioners don’t expect to see an improvement in market conditions over the next six months. Both buyer and seller traffic are expected to be down. Practitioner confidence was surveyed in October and looks ahead six months.

Results are based on 670 responses to 3,000 surveys sent to large and small real estate offices. The survey asks practitioners to indicate whether conditions are strong (100 points), moderate (50), or weak (0). Responses are averaged to derive results.

Home Sales

Pendings pick up Mortgage problems in the fall continued to hold down sales of existing homes, but NAR’s forward-looking pending home sales index points to upward movement in the months ahead. Total existing-home sales—including single-family, townhome, condominium, and co-op—were down 8 percent to an annual rate of 5.04 million units, from a downwardly revised level of 5.48 million† in August. NAR’s pending home sales index for September rose to 85.7 from 85.5 in August.

*Seasonally adjusted annual rate, which is the actual rate of sales for the month, multiplied by 12 and adjusted for seasonal sales differences.†Adjusted from the figure published in the November 2007 issue.

Source: NAR Research

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