In my last blog, I wrote about whether only the rich could afford to buy a house. Here's another question analysts are pondering in this real-estate environment: Is homeownership a means to build wealth anymore?
During the past 50 years, despite a few housing declines, it's become generally accepted among buyers that a home was more than a simple shelter; it was a financial investment in the future. A few of my friends told me during this past real-estate bubble that they were staking their entire retirement on the value of their home. With prices skyrocketing year after year and homes selling before they were even on the market, the strategy seemed like a no-lose proposition to them. Now, of course, the flaws in that plan have become painfully evident: not only in lost real-estate value, but in the fact that homes are not selling quickly or at all in this market.
In a sobering article in the New York Times, Dean Baker, co-director of the Center for Economic and Policy Research, estimates it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.
Short-term news for the housing market is just as bad, if not worse. New-home sales fell 12.4 percent from June to July, according to the Commerce Department. The number is 32.4 percent below what it was a year ago, and The National Association of Realtors reported that sales of existing homes are at the lowest level in a decade.
Home values have always been cyclical, and in previous prolonged recessions, notably 1973 and 1982, residential construction declined, but some analysts believe the current housing crash is not only more severe, but may have been the cause of the 2008 recession, unlike in past recessions.
What do you think: Is homeownership a means to build wealth going forward? Are you counting on your home for all or part of your retirement?
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