Bucks County PA News

Real Estate in Bucks County; Historically, how bad is it?

I saw a really interesting article, yesterday, from the Associated Press wire, written by Dave Carpenter.

Basically, the article makes a strong and compelling case, for the fact that despite the current problems with the real estate market, it still generally does pay to own a home.  [issuu viewmode=presentation layout=http%3A%2F%2Fskin.issuu.com%2Fv%2Flight%2Flayout.xml showflipbtn=true documentid=091113212616-8bda209a3f414c8f8f4c79331c07ae7b docname=schiller username=sbgifford loadinginfotext=Historic%20housing%20chart width=420 height=325 unit=px]Please see the graph, which you can find on the website, for Irrational Exuberance , by Prof. Robert J. Shiller. I realize that there are thousands of home owners all over the country, who are in a postition of being, “under water”.  What that means, is that they owe more on their home than what their home is worth.  The majority of home owners who are in that position, are making mortgage payments on time, and waiting for the market to recover. 

If you are not familiar with the term, “short sale”, it refers to cases where a seller is trying to sell a home, buy owes more on the home than the house is worth, and doesn’t have resources to make up the difference at closing.  Often times a lender will work with a seller in that condition, to allow the sale take place, with the lender agreeing to release their lien for an amount less than the full balance remaining on the mortgage.

What this article pointed out, is that since World War II, home prices have appreciated about 4% a year.  There are tax benefits to owning a home, and buying real estate is a highly leveraged investment. 

There have been a number of booms and busts in real estate, and the current collapse of the housing market, may have ended the idea of using a home as a speculative investment.  In my opinion, that really isn’t such a bad thing. 

According to the article, economists say that home prices have risen about a half a percent a year, above inflation, since the 1940′s.

If you are a home owner,  who purchased a house in the 1990′s, although the value of your home has certainly decreased over the past couple of years, it is most likely, still worth almost double what was paid for it. 

The point of all of this, is that, over time, owing a home is still a good investment, and we will eventually come out of the current buyer’s market cycle.  I have consistantly advised clients that real esate has always been cyclical, and the current enviornment is no different.