Fear, hope and loathing in the housing market

Add comment June 20th, 2009

I remember when homes weren’t so … well, disposable.

Back when they weren’t comfortably furnished ATMs, that is, with money practically pouring out of the marble fireplace. When they were still valued by the people in them, in other words, and not only as a short-term investment opportunity.

At the height of the housing boom, too many people treated homes like cars — a new one every two years or so.

And that might have been a good plan five years ago, when property values were guaranteed to go up. That’s what Wall Street was determined to believe, anyway.

But somewhere in the boom, another belief began to take root. We cast away the joy of owning a house as it became the latest get-rich-quick scheme for Joe America.

It’s another consequence of the decidedly deflated housing bubble — in addition to several others, like the worst recession since the first time Chrysler asked the government for a bailout — one I fear will have further consequences down the road.

Even today, too many people are “waiting” to sell their homes. Just waiting for a year or two, they say, largely because they don’t seem at all confident that they’ll be able to find buyers. But they’re also waiting until the value of their homes goes back up to 2005 (or 2006) levels.

Such folly. They’ve managed to convince themselves — most likely because they really want to believe it, much like those Wall Street financiers — that their home’s true value is the highest one.

Don’t get me wrong. Their homes will return to those levels. But it will take years to get there, just like it’s supposed to.

A house, like a retirement account, is a long-term investment. Checking every month or so to see how much yours has risen in value makes about as much sense as checking your 401(k) balance every day. It’s really not worth it.

Assuming no catastrophic changes to the neighborhood, such as a hurricane or a hasty gentrification, your home’s value should rise at roughly the same rate as inflation, which averages 2 percent to 3 percent every year.

It’s not a very exciting process to watch.

And it’s one of the reasons more people should have seen this coming — in 2005 and 2006, home values across the country rose by 11 percent and 15 percent, respectively.

In other words, your home was never worth the value it was assigned at the height of the bubble.

It was phantom money. It never really existed. Your house, remember, is only worth what somebody else is willing to pay for it.

But humans are usually driven by hope and fear, and this is where we could get into trouble again — with the resultant consequences.

Too much fear, and the housing market never gains ground, which I believe it must (not everyone does) before the economy can start moving in the right direction.

But too much hope is just as dangerous. We’re too willing to buy into another bubble — even to will one into existence, just so we can get back to buying a house every two years.

Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.