Real Estate a Permanent Investment
Despite recent local reports that the housing market and lending institutions are in dire straits, national statistics do not apply to this particular area of the country.
It is widely and falsely believed that the housing market is “bottoming out” and that we may be facing a major housing crisis. What the local media doesn’t report is that, as suburbs of New York City, many New Jersey cities are statistically above national averages.
Real estate is not strictly a commodity; it is made up of submarkets within markets across the country. Every town, county and region and every price range within them is different. Looking at what is happening in the nation’s real estate market is not a true picture of this region of the country.
We do not live in a statistic or a commodity. We live in a house. Shelter is a basic human need, and we as humans will always look for ways to possess it. The American dream will not evaporate due to a mortgage situation or any other short-term reason. The mortgage industry has returned to sensible lending practices.
In recent years in our area, the incredible rise in real estate prices made heads spin and buyers began to talk in terms of investments instead of homes. Our level of expectation of quick and unorthodox profits made some forget the other reasons for owning a home: the warm fireplace to come home to, the neat row of hooks for soccer shoes, or the porch where one can sit, relax and say “Hello” to our neighbors on a warm summer evening. Suddenly, I was expected to double our money at a place where we hang our proverbial hats.
Real estate can be a quick turnaround win. But it has always been, and will continue to be, a stable long-term investment, and a very good one. Even with this current real estate problem, residents of Monmouth County and many parts of Ocean County still have a lot to be happy about.
Historically, real estate goes up, goes down, and then goes back up. Using Rumson as an example, the median closing price of a home in 1997, as reported by the Monmouth County Multiple Listing Service, was $521,510. In 2000 it was $819,027 and in 2006 it was $1,435,004. Today that number is $1,426,856. Although the price is a little lower, more homes have been sold in Rumson to date than last year. This represents an overall increase of about 173.6 percent, or 17.3 percent per year.
Take a small town like Red Bank and the median home sales prices from 2004 to 2007. As reported by the Monmouth County MLS, in 2004, it was $346,630 and in 2005, it was $427,341. It was $440,924 in 2006 and this year it has been $477,086. This represents an increase of about 37 percent, or 9.25 percent per year over the past few years. Not bad for an investment that also provided him with a roof over his family’s head.
As for the plethora of foreclosures that were expected to dramatically change the market, this seems to be a misunderstanding of the numbers. Major foreclosure sources report a foreclosure action on the property multiple times throughout the foreclosure action. Some properties are reported three and four times, which clearly distorts the real numbers. Additionally, many foreclosed homes are listed prior to the sheriff’s sale and are sold at market value. Leading New Jersey experts say we are experiencing far fewer foreclosures than other states, as few as 10 per county per month. Not exactly a wave of real estate opportunities.
According to USA Today, there has never been a better time to buy a home. Interest rates are at historic lows. If we all waited for the right time to buy a home, or for the market to bottom out, many families would either live in houses that are too small for them or pay off someone else’s mortgage by renting.
Buying a home is like getting married or having a baby, a big decision, and it’s rarely the “right” time. However, people do it every day; we don’t wait for the media to declare it safe, especially when many daily newspapers are losing readers and are looking for dramatic stories to keep the reader’s attention. If the time is not right for you or your family, don’t buy a house. However, if you are waiting for a “bottom” to drop, it may never happen.
The situation is very different from 1987. There was a lot more unemployment, and more importantly, home prices shot up as much as 30 percent in about a year and then started falling again the next year. That was fleeting fairness. There is a lot of equity in the houses now, except for very recent purchases. Even then, if it’s a trade, who cares? The house above will be more attainable. The differential is key, not the price.
Buyers won’t wait forever. They have a continuing interest in owning a home and a low interest rate. In the last month, I lost two income properties for not bidding high enough. I lost out to buyers who were willing to pay more. Food for thought.