Sensational? Yes. Accurate? No.

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.

December 1, 2007

“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.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.

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