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Millionaire Now! by Larry NusbaumThis blog is based on the organizational principles found in my new book, "Millionaire Now! - A Financial Toolbox with Seven Steps to Wealth". |
All Real Estate Is Local
Posted on 06/22/2007 08:04:11 | Link | Post Comment
As I noted here yesterday, PMI Mortgage released its annual market risk index.The index ranks the nation's 50 largest metropolitan statistical areas, according to the likelihood that home prices will be lower in two years. Riverside, CA, Phoenix, AZ, Las Vegas, NV, and West Palm Beach, FL ranked highest on the index, with a 60 percent or greater chance that home prices will be lower in two years.
News reports in every one of these markets immediately went into Chicken Little mode. "Your house won't be worth the bricks it's made out of," anchors solemnly intoned. "Now to the deadly vegetable of the week, Brad." (You can read the whole report here.)
PMI officials tempered their findings with the long view, however. "The market's changing tide doesn't mean it is a bad time to buy or own a house, but it is a reminder that homeownership is a long-term investment," said Mark Milner, PMI's chief risk officer. "For buyers, in many areas it's a much friendlier market than it was even a year ago, but you need to choose your mortgage product carefully. If you already own, you need to take the long view and have realistic expectations about how much your property may appreciate. Building equity in a home is still a great way to build wealth over the long term."
Obviously I agree with that. You can't just buy any bloody home and expect it to do well. That's like choosing stocks by taping the Wall Street Journal to the wall and throwing darts at it.
"All real estate is local," said Lawrence Yun, chief economist for the National Association of Realtors in an interview with the Rocky Mountain News.
If you drive into the vast cookie-cutter suburbs of Riverside, Vegas, and Phoenix an hour from downtown, you're going to see hundreds of thousands of homes which look exactly alike, on streets which look exactly alike. It takes almost two hours to drive from the northwest fringes of metro Phoenix to the southwest fringe. You'll see a Best Buy, Linens N Things, and Blockbuster at each side. Builders keep on stamping out more stucco-and-tile SUV houses (Growth for growth's sake! The ideology of the cancer cell!), gas prices keep rising, and people keep wondering why their DelBPulte home that looks like 1,000 others has sat on the market for nine months. And commentators say, "Well, gee, housing's really in the toilet across the nation."
Not everywhere. Even given nuclear war I'll never be able to live on Fifth Avenue in Manhattan. It's not a hard lesson to understand.
This isn't a problem if you live in prestige areas like the Biltmore Estates or historic neighborhoods. Did you buy next to a light rail line? That's a good investment too. We can't all live in the Biltmore Estates, but a home in a well-chosen normal middle-class neighborhood in the middle of the Valley, like East Phoenix or Moon Valley will do just as well. I live in a "neighborhood in transition" (shorthand for "My neighbors occasionally bring home the cart with the groceries"), but during the last cycle's declines by ZIP code chugged up another four percent. This is what Yun meant.
Blanket statements that all of any market will turn to crap are best ignored.
News reports in every one of these markets immediately went into Chicken Little mode. "Your house won't be worth the bricks it's made out of," anchors solemnly intoned. "Now to the deadly vegetable of the week, Brad." (You can read the whole report here.)
PMI officials tempered their findings with the long view, however. "The market's changing tide doesn't mean it is a bad time to buy or own a house, but it is a reminder that homeownership is a long-term investment," said Mark Milner, PMI's chief risk officer. "For buyers, in many areas it's a much friendlier market than it was even a year ago, but you need to choose your mortgage product carefully. If you already own, you need to take the long view and have realistic expectations about how much your property may appreciate. Building equity in a home is still a great way to build wealth over the long term."
Obviously I agree with that. You can't just buy any bloody home and expect it to do well. That's like choosing stocks by taping the Wall Street Journal to the wall and throwing darts at it.
"All real estate is local," said Lawrence Yun, chief economist for the National Association of Realtors in an interview with the Rocky Mountain News.
If you drive into the vast cookie-cutter suburbs of Riverside, Vegas, and Phoenix an hour from downtown, you're going to see hundreds of thousands of homes which look exactly alike, on streets which look exactly alike. It takes almost two hours to drive from the northwest fringes of metro Phoenix to the southwest fringe. You'll see a Best Buy, Linens N Things, and Blockbuster at each side. Builders keep on stamping out more stucco-and-tile SUV houses (Growth for growth's sake! The ideology of the cancer cell!), gas prices keep rising, and people keep wondering why their DelBPulte home that looks like 1,000 others has sat on the market for nine months. And commentators say, "Well, gee, housing's really in the toilet across the nation."
Not everywhere. Even given nuclear war I'll never be able to live on Fifth Avenue in Manhattan. It's not a hard lesson to understand.
This isn't a problem if you live in prestige areas like the Biltmore Estates or historic neighborhoods. Did you buy next to a light rail line? That's a good investment too. We can't all live in the Biltmore Estates, but a home in a well-chosen normal middle-class neighborhood in the middle of the Valley, like East Phoenix or Moon Valley will do just as well. I live in a "neighborhood in transition" (shorthand for "My neighbors occasionally bring home the cart with the groceries"), but during the last cycle's declines by ZIP code chugged up another four percent. This is what Yun meant.
Blanket statements that all of any market will turn to crap are best ignored.
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