Why Housing Is Alive and Kicking

Last week the New York Times published an article with a headline as ominous as any “The End is Near” sign in Times Square: “Housing Fades as a Means to Build Wealth.” The author, Sally Ryan, and several quoted “experts” insisted that housing as a profitable investment was an aberration and a thing of the past. Ryan noted that “…many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century…” and Dean Baker, co-director of the Center for Economic and Policy Research, added that, “people shouldn’t look at a home as a way to make money because it won’t.”

Andrew Jeffery notes in his Minyanville rebuttal, investing in the “housing market” isn’t always a great investment, but investing in a good house and community is. Housing markets around places like Phoenix, Las Vegas, or South Florida will probably never see the kind of recent, unsustainable growth again, and many baby-boomer communities will see their prices stay constant rather than grow, but does that mean that housing is dead as a way to build wealth? Not hardly. A good house in a growing community will always increase in value, while speculative housing market bubbles will always burst.

It is nothing but sensationalism to panic an already jittery public with ridiculous blanket statements like “Housing fades as a means to build wealth.” To compare investment strategies in cities like Manhattan or San Francisco and say that they are the same as investment strategies in Phoenix or South Florida would be analogous to saying you treat a common cold the same way as you treat a decapitation.

In the decades since WWII, investment in the housing market took on the aura of a failsafe investment. Conventional wisdom seemed to be, “of course it’s a good investment, and it’s going to go up in value. That’s just how real estate works.” But, of course, that’s not how it’s been working for the last few years- and everyone is scared. Stan Humphries, chief economist for the real estate site Zillow, correctly pointed out that “There is no iron law that real estate must appreciate.”

But it is equally true that there are plenty of real estate investments that will appreciate, if you know where to look. Here is a hint, if you are thinking of investing in the middle of the desert with no industries to support a local economy. Dont do it.  If you are thinking of buying on an island with very limited space with  industries that include Wall Street, Fashion and Film and you have an exit strategy that exceeds 4 years,  that might be a better idea.

Photo Credit: .A.A.

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