Homes not a path to riches


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Some leading national experts argue that gone are the halcyon days of wealth being created by the home you own.
"People shouldn't look at a home as a way to make money because it won't," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C.
Southwest Florida became the poster child for bloated home prices.
The median price of a single-family home sold in Lee County with the assistance of a Realtor reached an all-time high of $322,300 in December 2005 before declining steadily over the next four years and leveling off over the past year.
In June, the last month for which statistics are available from the Florida Association of Realtors, it was $96,600.
Homeowners, though, can't look at that roof over their heads as a personal ATM, like so many did during the go-go years, said Michael Reitmann, executive vice president of the Lee Building Industry Association in Fort Myers.
"Too many were using the values of their homes that had become so inflated in value to live the high lifestyle," Reitmann said. "They used equity in their home to purchase other things. They have spent that money, and now they are under water."
Baker said that because housing is such a highly leveraged investment the implications can be huge.
"For example, if someone puts $20k down on a $200,000 home and it loses 20 percent of its value, then they are $20,000 under water," he said. "The fact that home prices can fall makes homebuying a very risky investment."
Also falling into that camp is Stan Humphries, chief economist for the website Zillow.com.
"There is no iron law that real estate must appreciate," he said.
He said homeowners will likely keep up with inflation, but their home won't necessarily be a ticket to great riches and a carefree lifestyle.
Fort Myers Realtor Brett Ellis agrees on one hand, but not another.
"I don't care if we ever go back to five years ago," he said, referring to a time when people were flipping houses, making easy money, and values were sky-rocketing to unheard of highs. "That was an irrational market. It wasn't founded on anything that meant anything."
"Most experts would say that traditionally a home is a good long-term investment. Real estate has been one of biggest wealth builders. Too many people look at the short term."
Unlike a lot of commodities, a home you can live in," he said. "You can't get to do that with gold."
Growth in real estate value began in earnest after World War II, when returning GIs helped create a construction boom. In the 1970s, inflation exploded, driving up the value of hard assets, and then in the late 1980s interest rates declined, further escalating the value of dirt and the buildings sitting on it. Then came the go-go days of the early 21st century when things got all out of whack, the boom went bang and Southwest Florida became a symbol for housing foreclosures.
"No lot in Lehigh was worth $50 or $60,000," Reitmann said. "In some places, there was no infrastructure. They had been $1,500. It didn't make sense.
"Now with the adjustment, these homes and lots that were inflated are coming down to market value."
Ellis said that the real estate market here has improved, and he estimates only an 8.5-month supply of homes on the market.
Reitmann said there is far more than just the nest-egg mentality to owning a home.
"It adds a certain social stability to the community," he said. "There's the pride of home ownership . ... You take care of it, and it brings stability to family.
"And that's not just a theory. There have been major studies on the subject, including one Harvard did."
The allure of white-sand beaches, golf course communities and the sky's the limit demand for new homes, Zillow's Humphries said, could be over.
"All those theories advanced during the boom about why housing is special - that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land - didn't hold up."
Reitmann, though, said it's far too early to tell.
"Until the market stabilizes, I don't think you can predict anything," he said. "I don't think you are going to lose by going back to true investment qualities ... putting 20 percent down."
Reitmann said people will return to buying homes.
"You have to live somewhere," he said.
Courtesy of the Fort Myers News Press. Search Fort Myers Real Estate
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