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Now They Tell Us: Experts Say Housing Is A Lousy Investment And Always Will Be

Posted Aug 23, 2010 10:49am EDT by Henry Blodget in Recession, Housing
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Well, the experts are weighing in again. And, once again, they agree: Housing is a lousy investment.  And it always will be.

At least that's what they're telling the New York Times:

“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “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.”

Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.

But wait. Just a few years ago, weren't the experts saying that housing was always a great investment? That house prices would always go up?

Yes, they were. 

One thing you can be sure of with respect to market punditry is that experts will extrapolate recent trends into the hereafter.  As will most people, actually.  That's why, no matter how many times markets overshoot, people get burned.

But are the experts right this time? Will housing always be a lousy investment?

Of course not.

At some point, house prices will fall far enough that housing will become a very attractive investment, just as it was in the early 1990s, before the great housing boom began.

But the pressing question for those who are thinking of buying or selling a house today is whether we've reached that point...or whether house prices still have a ways to fall.

Most fundamental analysis suggests the latter.  Housing inventories are still inflated (we built too many houses), and the end of the housing tax credit has removed one near-term incentive to buy.  Interest rates are low, which has made houses more affordable, but, nationally, house prices are still above their long-term average.

Demographics are also becoming less favorable: As baby-boomers retire, many will seek to downsize, selling off second homes and moving into smaller residences.  And with high unemployment and debt loads still crippling many consumers, it's not clear who will be buying the houses the boomers want to sell.

For a particularly dour view of this critical topic, check out:

15 Signs The Housing Market Is About To Collapse

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