Real estate as a religious belief

When I was growing up, occasionally my mother would remind me that there were two topics one should refrain from discussing in public: politics and religion. Recent real estate commentary reminded me of the religious nature some players seem to possess in this business.

Consider the following quotes from recent real estate blogs:

• I believe in real estate and I will always believe in real estate.
• [Mortgage] rates are low, prices have come down and it’s a great time to buy.
• An intensive media campaign has led to declining real estate markets whether real or perceived.
• No investment has ever been as solid as real estate.
• Home ownership will always be a solid goal for all.

Can you feel the reverence? The admiration? The blind faith? Close your eyes and you might think you are in church!

Don’t misunderstand, I am all for religious fervor.  But it seems that real estate as a business, as a profession, and as an economic part of our lives, ought to be judged by the known facts rather than by the heart and soul of its advocates.

Real estate returns over long periods of time are quite similar to long-term corporate bonds: relatively low and with moderate risk. Real estate does not appreciate faster than everything else. This is the result of study after study. During short periods, returns might be higher (or lower) but it is almost always difficult to pick the periods to invest before the returns happen. This is the evidence.

A 2006 Federal Reserve Bank of Philadelphia study documented that from 1995 to 2006, real house price appreciation in Pennsylvania was significantly lower than in the neighboring states of New Jersey and Delaware, and even lower than in the United States generally. These are the facts.

Finally, some have noted that many parties pushed and encouraged too many households into becoming home owners in recent years, sometimes when it made no sense at all to do so. Does anyone really believe that households can or should owe 75 percent or 100 percent of their take-home pay to the mortgage lender each month?

Yet, two-thirds of the nation’s wealth is land and buildings.  Households are willing to pay large sums of after-tax dollars to own housing and they are thrilled to do so. Private ownership is one of the most precious freedoms we have in this country and life would be unthinkable without private property. We should not forget that access to and the ability to own private housing provides the foundation for every day life and much of our well-being in Pennsylvania and the rest of the country.

My dear mother was right: we don’t need religious debates. When it comes to real estate, the fundamental benefits are important enough.

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Tags: estate, real, religion

This entry was posted on Tuesday, February 17th, 2009 at 6:26 am and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed.