10-year

10-Year Anniversary Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

The largest discount in the last 10 years

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

Real Estate Has Risen Rapidly. Really?

June 07, 2013 | About:
Real Estate. Is the recovery for real?

Every time I turn on the TV or listen to the radio I hear people telling me that real estate is booming again. The headlines shown below, from Forbes.com and RealEstate.com, are typical of what is being pumped out there on a daily basis. The question becomes whether to believe your own experience or the media announcers.

372286617.jpg

I know many people who have been unsuccessfully trying to sell their homes for more than one year. They have cut their asking prices, switched realtors and run multiple open houses without receiving anything but insulting, low-ball offers. Certainly, this is anecdotal evidence and not statistically significant all by itself.

The June 5 Chart of the Day (see below) was an eye-opener. We all know that housing prices percolated to bubble valuations in the 2004 to 2005 time frame. It is common knowledge that the bubble popped in 2006 to 2007. Most people think that home prices fell to a trough in 2009 along with the stock market. That is totally incorrect. In most areas of the country things kept getting worse until 2010 to 2011.

375431824.jpg

Online realty site Zillow (Z) confirms this as well. Things are much less ebullient that we are hearing on a daily basis. Note: Zillow’s price charts use raw dollar prices rather than inflation adjusted figures.

Nevada and Florida were two of the most inflated, then hardest hit areas during the full housing cycle. They each show only modest rebounds after suffering devastating percentage declines. My own zipcode, in a suburb of Philadelphia, showed the same pattern as Las Vegas and Hallandale, Fla., but with somewhat less dramatic swings.

Most geographical areas now sell for nominal prices pretty close to where they were about 10 years ago, in 2003.

Whoever coined the term "Zestimates" should get a medal. I hope they copyrighted that brilliant name and made a ton of money from it. It belongs right up their with "smog" and "staycation" in the newly-created-word hall of fame.

763390097.jpg

Re-Max, Prudential, Century-21 and other real estate brokers want you to get back in the market. Washington, D.C., hopes you’ll get with the program and start spending more freely due to the "wealth effect" of a higher perceived home value.

Until my friends start getting reasonable offers, put me firmly in the skeptical camp when it comes to believing the media hype.

See my Value-oriented model portfolio here http://marketshadows.com/virtual-portfolios/virtual-portfolio/

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.gurufocus.com/peter_lynch.php
http://www.TalkMarkets.com
http://www.MutualFunds.com

Visit Dr. Paul Price's Website


Rating: 3.3/5 (7 votes)

Comments

varunfriend
Varunfriend premium member - 1 year ago
A house still performs the same function it used to in 1979 - there are a few extra amenities but the real cost of production should be flat to reducing over time. There is no dearth of land in US and as to the concentration of population in cities, technology is probably allowing people to be productive while working remote.

So I am unclear as to why inflation adjusted house price should increase?

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK