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Yes, it's wealth because you were smart enough to cash out at the right time - and lucky enough. What you did, though, happened during a very unusual period in U.S. economic history. The general trend for house prices has been one of very, very slight appreciation over the long-term.
Owning real estate and putting it to productive use through renting or producing something there is a good way of building wealth, as there are constant returns. Simple equity in one's home does not provide returns. Flipping houses is as sure a strategy to building wealth as going to the casino. If you buy houses, fix them up, and then resell them, that's different, as you're involved in a business that adds value.
It's the same with stocks. Simply throwing money into the market and hoping to cash out higher is not a good way to build legitimate wealth. Putting money in a company that promises to create real value and achieve solid returns on investments is a much better strategy for build real wealth.
Darn it, you beat me to it: although I was planning on using the analogy of buying Red Hat/Dr Koop/Pets.com stock in the late 90s as a way of building "wealth".
What simply happens with too much appreciation is that the loss is transferred to the next homeowner in the form of a larger mortgage. What should happen with all prices is for them to fall over time, given that productivity is higher. Houses can be built with much greater ease and cheaper labor, therefore they should cost less (per sqft) over time. It is the same as food, electronic, or any other commodity. Since there is still a very ample amount of land left over, the offset of lack of acreage would play only a small part in suppressing the drop in price.
Thanks StoneOne for bringing some sense into the discussion concerning true wealth creation.
"North Carolina's capital seems to have gotten a free pass where the housing slump is concerned......Total sales in the first quarter of this year were the fifth highest on record......the real growth has come in suburbs like Cary,Morrisville & Apex.....
This is realtor spin for "1Q 2008 sales are lower than they've been since 1Q 2003". We were still feeling the effects of the dot-com crash at that time, so basically what this is saying is that the RE market here is behaving as if there is a recession going on. That's hardly encouraging.
Also note that this data is 6 or more months out of date - lots has happened since then, such as sales falling below not only 2003 but 2002 levels as well. If the area's getting a free pass, why have we lost 5 years of gains in sales in just 6-9 months?
Quote:
The subdivision of Preston, where prices are up 3.5 percent over last year, reigns as the area’s übersuburb."
If price appreciation in the "ubersuburb" can't even keep up with inflation, should we really get all that excited? Normal appreciation for an average house here is about 3-4% a year - the fact that the best of the best in this area can barely match that tells a lot about the market here.
The Raleigh section of the article is a measure of how low our expectations for real estate have become, not one of how well this market is doing in an absolute sense.
Lets' talk about wealth creation.
I bought my first home in April 1999. Sold it in April 2003, Moved to Cary. Sold home in Cary in October 2007 and moved to another home in Cary. My initial 5% down payment on that first home had grown by 2200% as of last November AFTER ALL of my real estate expenses-my down payment on the home I live in now was 22 TIMES the down payment on that first home in '99.
I never borrowed against any of my homes. I think that's just plain stupidity. If you need to borrow against your home you bought too much home, period.
Even if my home has lost 10% of its value in the past 11 months (and it hasn't) my equity position is equal to 15 TIMES that initial investment.
If anyone here can document a 1500% return on another investment of ANY TYPE over the last 9 years, I'll come over to your house and wash your feet.
The real estate market is not good right now. Neither is the stock market, in case you haven't looked lately. The real estate market may never do what it did for me again, but the same could be said for the stock market. My house could drop further in value. So could my 401K. The difference to me is that I get to LIVE in my house and ENJOY it RIGHT NOW.
Lets' talk about wealth creation.
I bought my first home in April 1999. Sold it in April 2003, Moved to Cary. Sold home in Cary in October 2007 and moved to another home in Cary. My initial 5% down payment on that first home had grown by 2200% as of last November AFTER ALL of my real estate expenses-my down payment on the home I live in now was 22 TIMES the down payment on that first home in '99.
I never borrowed against any of my homes. I think that's just plain stupidity. If you need to borrow against your home you bought too much home, period.
Even if my home has lost 10% of its value in the past 11 months (and it hasn't) my equity position is equal to 15 TIMES that initial investment.
If anyone here can document a 1500% return on another investment of ANY TYPE over the last 9 years, I'll come over to your house and wash your feet.
The real estate market is not good right now. Neither is the stock market, in case you haven't looked lately. The real estate market may never do what it did for me again, but the same could be said for the stock market. My house could drop further in value. So could my 401K. The difference to me is that I get to LIVE in my house and ENJOY it RIGHT NOW.
HUH? If you did not borrow, and you only put down 5% on the first house where did the other 95% come from?
HUH? If you did not borrow, and you only put down 5% on the first house where did the other 95% come from?
I think he meant that he never borrowed against the home equity that had grown.
At any rate, the phenomenal growth is paper-only wealth. It's not real. It becomes real only in the event that someone's not too greedy and is smart enough to cash out at the right time, in other words, to do the opposite of what everyone else is doing.
Paper wealth cannot be considered real wealth. If everyone were to decide to cash out at the same time, the paper wealth would completely evaporate with nothing left over - except a place to live in the case of real estate.
HUH? If you did not borrow, and you only put down 5% on the first house where did the other 95% come from?
Here's the math.
Bought in 1999 with $10,000 down
Sold that house in 2003-NET proceeds at closing $136,000
Put that $136,000 down on new house in 2003
Sold that house in 2007-NET proceeds at closing $228,000
$10,000 invested into real estate in April 1999 converted to a CHECK for $228,000 in November 2007 two transactions later. That gain came completely tax free. I could have put it in the bank. I could have gone to the bank and asked for 2,280 100 dollar bills. That's not paper-only wealth. It's real live money.
I chose to put most of that down on our current home. That may or may not have been a mistake, but if I had done anything with any portion of that money other than buy a CD I probably would have lost money on it.
It is true that a paper gain only counts if you sell and cash in. It's also true that a paper LOSS only counts if you SELL at that lower number. I don't need to sell my house. I can afford to live in it, and I plan to live in it for the next 15 years.
Stoneone makes excellent points on real wealth. This concept of home wealth is one of the main factors behind the housing boom and bust. Economic values must dictate housing values and not speculation, we all now have to pay up for the greed. Yes Raleigh is not in the huge bursting bubble but in relation to the unfounded increase in home values in other areas that now are comming back to reality by dropping huge % in value they are now more in line with our values which are real economic driven value. The outcome will still effect this area down the road as other areas correct becomming more affordable with better paying jobs, which will take away the huge allure of cheap NC homes. This whole painful process will correct the value in balance and may even start a new wave of migration back to corrected over priced markets. Wake expects to lose $17M in slow economy :: WRAL.com
Here's the math.
Bought in 1999 with $10,000 down
Sold that house in 2003-NET proceeds at closing $136,000
Put that $136,000 down on new house in 2003
Sold that house in 2007-NET proceeds at closing $228,000
$10,000 invested into real estate in April 1999 converted to a CHECK for $228,000 in November 2007 two transactions later. That gain came completely tax free. I could have put it in the bank. I could have gone to the bank and asked for 2,280 100 dollar bills. That's not paper-only wealth. It's real live money.
I chose to put most of that down on our current home. That may or may not have been a mistake, but if I had done anything with any portion of that money other than buy a CD I probably would have lost money on it.
It is true that a paper gain only counts if you sell and cash in. It's also true that a paper LOSS only counts if you SELL at that lower number. I don't need to sell my house. I can afford to live in it, and I plan to live in it for the next 15 years.
I think we're in agreement here. You cashed out. Many people have not were led to believe that their houses would appreciate forever and could be used as easy-money cash machines.
Yes, the gain and the loss only count if you sell, but in the meantime, it's not really accurate to consider that theoretical paper value of the house as part of any real wealth. The only true wealth is having a place to live. That's hard to put a dollar figure on, just as being educated is hard to put a dollar figure on. They are different types of wealth. Real financial wealth involves interest-bearing cash savings, metals as a hedge and investments that provide reasonably SECURE and CONSTANT returns. Any other investment is a crap shoot.
I would definitely agree that it's better to wait for lower prices. I'm certainly doing it myself. As they are now, prices pretty much everywhere are simply unaffordable for most people - even those who can get decent loans. There is simply too much supply on the market now, and sellers aren't being realistic about prices. Most of that lack of realism, I suppose, has to do with this lingering insane notion that home equity is somehow a means of building legitimate wealth. It is not. Home equity means owning a product - a home in this case - to do with as you please and not be subject to the whims and rules of a landlord. Sellers are afraid of losing wealth that never really existed in the first place.
I can't agree more with this. We're about done with our housing search, have a great loan lined up, but can't find a home to save our life. We've looked at 50 or so in the Durham area. Either the home is just built and you can literally touch your neighbor with zero landscaping, or the house is old and decrepid and doesn't have a garage. We've seen plenty of homes that look great on paper, to discover there was something 'wrong'. Two homes we were interested in buying we discovered through comps were 50k over priced. (about 20%). The one perfect home we found on Saturday of this week, we made an offer on Sunday, to discover it had 3 pending offers and a potential offer. We ended up not getting it.
It's sad, we can buy a house, we have the financial means to do so, we have a 20% down payment, we have a loan ready to go. But either the house is structural deficient, or insanely overpriced, ensuring that we'll almost certainly lose alot of money when we put it on the market. There may be a glut of homes on the market, but they are all pretty bad. I think its like getting a prom date, in the summer there were probably a bunch of great homes to choose from. Now it's nearly November and all the low-hanging fruit are gone, and the buyers are in an absolute panic, sellers are pulling out of the market due to lack of interest. What remains is the very hard sellers.
I think give it a year and it will even out, but for now my strong advice is to not to buy a home here in Durham, or at least wait until spring. Winter is definitely not the time to buy a home.
I also think people who buy a home two years ago and put it up for 30k more than they bought it, I can sympathise, but it's not going to happen. Prices have gone down since then, not up. (Seen this several times too)
I've seen very little movement in the prices of homes in my range ($150K-$165K).
In my neighborhood we just had a FSBO sign go up on a house in late August and go to contract in under 1 month. The new residents are moving in today.
Obviously the market pressures vary greatly depending on what price point you are talking about and what neighborhood you are in.
Totally depends on the location and price. We saw a home today that was under offer, good location, good home, not for us. It was listed 11 days ago. We sold our condo in Houston in August in 3-4 weeks. If you price it strongly enough and there is nothing wrong with the home, it will get sold, quickly. THere are alot of buyers floating around, don't be fooled. There are just too many homes that won't sell at their price points.
We submitted an offer today on a home that lists for 270k, whereas its comps are 235k (we offered 235k - we have no expectation of getting this home). Is it a good deal at 270k? No. Is it fair at 250k? Ok. Is it a good deal at 235k? You bet! If it was at 200k it would be on the market for maybe a week I bet. My point is that it's all about the pricepoint.
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