Vol 8 No. 9 - November 21, 2007

Why depreciation might not be such a bad thing

By Louise Bolger
sun staff writer

In June of 2001 I wrote a column focused on why all homeowners should appreciate their home’s appreciation. Since 2001 was the beginning of what would become one of the biggest run ups in real estate value in history, my premise that you can’t go wrong buying real estate proved correct. Unfortunately, all good things must come to an end, and six years later, the housing bubble that everyone hoped was a myth has burst.

Part of the reason so many homeowners are taking this hard is that a large percentage of owners and real estate professionals have never known a down market. The last bad real estate market started in 1987 after the October stock market crash followed by a credit crunch similar to what we’re now experiencing with banks going under and foreclosures aplenty. If you didn’t enter the real estate market until after this time chances are the thought of losing money or losing appreciation on your property never crossed your mind.

Because of this we’ve become accustomed to the idea that buying a house means not only buying a home in a neighborhood but also buying into a segment of a financial market. What we’re painfully learning now is that property-value appreciation reflects everything from supply and demand, interest rates, wage growth and demographics. The only guarantee you have when you buy a home is that you’ll have some place for you and your family to live as long as you pay your mortgage and taxes.

If there is a possible benefit to the housing slump it is that we’ll come out the other end with a different understanding of the value of our homes more as a place to live and less as a commodity. A home’s value is largely intangible, providing a sense of community, stability and basic shelter. When exactly did we start seeing a piggy bank instead of a home?

In addition, the reduction in home prices provides buyers who were previously boxed out of the market a chance to jump in especially since interest rates are still low. Also, buyers applying for home financing in this new real estate environment will be carefully scrutinized, ultimately making for more qualified homeowners and a stronger real estate market.

Not to mention that even with the recent downturn, things really aren’t that bad for most of us. Anyone who purchased his home on Anna Maria in 2001 or before tripled his value by 2005. Even in today’s market, which most everyone feels is at the bottom, most 2001 homeowners have doubled their value.

And just so you don’t think I’m terribly hardhearted, I have tremendous sympathy for homeowners who purchased at the top and have seen the value of their home erode during the last two years. I have somewhat less sympathy for investors who thought they would come in, flip the property and make a killing. As important as investors are, especially on an island catering to vacation and second home owners, frivolous investors not in for the long haul don’t really help values. Keep in mind real estate downturns are the foundation for bull markets; it will eventually come back.  

Remember the price of your home is not representative of its value to you and your family. Home is a refuge, a place to raise your children, retire comfortably or build equity through sensible investing. Through no choice of our own, it appears we’ve been brought back to the basics, so this Thanksgiving Day after the turkey, stuffing and pie, sit back and appreciate your depreciation.

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