An excerpt from the weekly report (9/4/06 – 9/10/06) of the President and COO of Coldwell Banker, San Francisco Bay Area:

Homes in today’s market are either flat from last year or slightly lower (10% or less). Sellers need to remember that prices went up 50% plus from 2003-2005. A small reduction from the highs of last year still leaves outstanding returns, as real estate is a leveraged investment. The gains are substantial and well beyond any other asset class.

A great reminder if you purchased your home pre-2004, probably a bit surprising if you purchased in the past year (and were expecting continued “outstanding returns”), and something to consider if you’re in the market today.
Keep in mind that with leverage, the converse is also true, and a “slightly lower” market can yield “outstanding” losses. And while real estate gains from 2003-2005 might have been “well beyond any other asset class,” over the long run, the equity markets outperform real estate as an investment. And yes, we’re well aware that you can’t live in a share of stock.
In the Long Run, Sleep at Home And Invest in the Stock Market [New York Times]
Real Estate Vs. Stocks [Forbes]

2 thoughts on “On The Market, Leverage, And Investing”
  1. Timing the market for purchase of a home is a sad exercise. If you are looking at our home as an investment to track quarterly, sell you home and invest in something more liquid, like the the stock market. Events that determine when you should buy or sell a home should be motivated by your circumstances and your families needs, not by some need to out perform quarterly changes and natural fluctuations in the real estate marketplace.

  2. Kathleen – we couldn’t agree more (except that you shouldn’t try to time the stock market either). We do, however, think it’s important to set expectations for buyers and sellers alike. And as we wrote sixteen months ago:
    “If you’re a first-time buyer looking to purchase a primary residence and you can easily afford the down payment, ongoing mortgage, taxes, and upkeep – just do it. Don’t try to time the market, just do it. Current mortgage rates are fantastic and even if a “bubble” does burst, over the long-term home values will rise.
    Now if you’re anyone else, think twice. And if you’re stretching to afford the payments on an interest-only ARM, are banking on appreciation over the next couple of years, or are considering a property in which you really don’t want to live, think three times.”

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