Is owning your own home still a good investment? Some people will tell you no. But they probably bought a Colonial in someplace like Bridgeport, Conn., in 1987, just before the stock market crash, and later transferred out of the region and had to sell their houses at a loss.
Some people will argue yes. But they are just as likely to have bought a bungalow in the Chicago suburb of Berwyn in 1947, just after World War II, and lived in it until last year, when they were able to sell for probably 10 times the original price.
There is no simple answer to the question. A home is unlike any other investment. It needs to be looked at as shelter first and as a part of the balance sheet second. Too many people forgot that in the 1980s.
Many became mesmerized by the rapid appreciation of all forms of real estate and the seemingly endless flow of money and investors into the market, flows that made selling a building about as easy as trading a stock or a bond.
Caught up in the go-go mentality of Wall Street, people thought that they could buy and sell their home just like any other financial instrument: If the price started to slide, they could sell out after a few ticks down and take the profit.
That seemed to be especially true of those who bought in areas where home prices were rising at double-digit annual rates, in California and in New England. And it is no coincidence that those have been the two places hardest hit in recent years by housing price declines.
There is a reason why mortgages are set for terms of 15 and 30 years. Real estate is a long-term asset; for it to produce a worthwhile return, it should be held for a long period.
Clearly, we have entered an economic arena where that aphorism will become all the truer. With the bulk of baby boomers having passed what analysts say are their peak years of housing demand, the kind of appreciation that homeowners saw in parts of the 1970s and '80s is unlikely to recur.
"Realistically, we can't expect a housing boom with the declines in the number of first-time buyers and with the current modest level of economic activity," said Lyle Gramley, a consulting economist with the Mortgage Bankers Association.
But there are positive signs for housing as an asset. Supply-side constraints against new housing do exist.
Homebuilders face an increasingly difficult time financing the DTC development of raw land. And the time and money needed to produce a new subdivision are growing as municipal requirements, environmental regulations and infrastructure engineering increase in complexity.
And even in the worst of times, housing has tended to outperform inflation. In fact, housing prices in America outpaced inflation in 15 of the 21 years between 1970 and 1991. Since 1969, the median price of existing housing sold in the United States has increased 37 percent more than inflation.
"Although home prices might not have kept up with inflation the last couple of years because of the recession, they will catch up," said Robert Van Order, chief economist with the Federal Home Loan Mortgage Corp.
With inflation at the consumer level rising only about 3 percent a year, housing is still managing to eke out 4 percent and 5 percent gains in most markets. And housing values are expected to at least keep pace with inflation through the rest of the 1990s.
The Midwest has been a particularly steady performer. Home prices there have generally not experienced the rapid run-ups that were common in parts of the West and Northeast.
Members of the National Association of Realtors have long used the phrase "the best time to buy a house was yesterday" to compel people to buy, on the ground that any house is worth more tomorrow than today. Although you might be skeptical of the motives, in all but the most unusual circumstances, they have been correct.
From a macroeconomic perspective, then, homeownership has proved it can hold its own with any other investment -- in the long run. Yet, as with all investments, past performance is no guarantee of future returns.
As of March 24, 1993*
3' ..... ..... Current ..... Prev. wk
City ... ..... Rate Pts. .... Rate Pts.
Atlanta ........ 7 3/8 2 1/8 ...... 7 1/4 1 3/4
Boston ......... 7 1/2 1 3/4 ...... 7 1/2 1 7/8
Chicago ........ 7 5/8 2 1/8 ...... 7 1/2 2 1/2
Dallas ......... 7 1/2 1 5/8 ...... 7 3/8 1 1/4
Denver ......... 7 3/8 1 .......... 7 1/2 1 1/4
Houston ........ 7 1/4 1 1/2 ...... 7 1/2 1 1/2
L.A. ........... 7 1/2 1 3/8 ...... 7 5/8 1 1/2
Mnpls. ......... 7 1/2 0 3/4 ...... 7 1/8 1 1/4
N.Y. ........... 7 3/4 1 1/4 ....... 8 1
Phila. ......... 7 1/2 2 7/8 ...... 7 1/2 2 1/2
Phoenix ........ 7 1/2 1 1/8 ...... 7 5/8 0
Seattle ........ 7 3/8 1 3/4 ...... 7 5/8 1 7/8
Tampa .......... 7 1/2 1 7/8 ...... 7 3/8 2
D.C. ........... 7 1/2 1 3/4 ...... 7 1/2 2
* Average mortgage rates for single-family homes, as compiled by the Chicago Title Insurance Co. The rates are for 30-year, fixed-rate mortgages for 80 percent of the value of the house. A point is a one-time fee equaling 1 percent of the mortgage.