The Future of the U.S. Real Estate Market (Intro)

"A few decades ago, the real estate and mortgage industries devised a marketing campaign to increase business. They began preaching a myth to Americans that home ownership is always a great investment with no risk, because “home prices always go up.”  

 

As a matter of fact, these industries have even made claims that real estate is a better investment than the stock market and has led to more millionaires. These statements are simply not true as historical data indicates. 

 

As a result of this propaganda, most Americans have the misconception that they can buy a home and it will always go up in price. But this is not necessarily true, especially when buying during the last stages of a real estate bubble.

 

Even without the effects of a bubble, in many cases the annual expenses associated with home ownership wipe out most of the gains in appreciation, yielding relatively modest returns.  

 

For the average American, the fact is that residential real estate typically provides about the same rate of return over a twenty- to thirty-year period as a money market mutual fund after you deduct the total costs of property ownership. However, unlike a money market fund, owners of real estate have significant liquidity risk as well as other risks specific to this asset class.

 

Of course, there are several variables that can deviate from these results, such as obtaining a low-interest fixed mortgage, buying a home in an area that becomes rejuvenated, and so forth. But these are not typical conditions and therefore cannot be relied upon with much certainty. Regardless, widespread speculation continues to fuel perhaps the biggest real estate bubble ever seen in America. And the consequences are going to be devastating for millions."