Housing fading as a means to build wealth?

This article was featured in the New York Times recently.

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.
The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming. More than likely, that era is gone for good.
It also allowed for a lot of people to buy homes in Puerto Vallarta!

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg. The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming. More than likely, that era is gone for good. (Read more here)

Doesn’t sound like great news for real estate investing does it? But Barry Ritholtz, who is quoted in the article, had this to say afterwards on his blog:

It is safe to buy 2 kinds of properties right now: The first is simply math: If you are planning on living in a specific location for at least 10 years , then the calculus of rent vs own likely favors the buyer once you figure in mortgage tax deduction. The numbers are obviously determinative, so do the math of your income, tax situation, and alternative rental options. Renting might put you into a less desirable school district in parts of the country; that is a non-monetary factor that needs to be considered.

Second, I would not be afraid to buy a “unique” or vacation property. By unique, I mean not a tract home or development, but a something special: Beach front, lake side, mountain view, etc. kind of place that cannot easily be replaced or reproduced. The kind that 10 years from now, you kick yourself for not buying. A truly unique purchase avoid Real Estate regret.

There you go. Buying a unique vacation property, especially beachfront, is still a good investment, the kind you can look back upon, ten years from now, and were glad you made the purchase, or regret that you didn’t!

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10 Responses to Housing fading as a means to build wealth?

  1. Its always a function of price

    If you get a decent buy, and get to live (or vacation) somewhere for 10 years, and get the tax advantages — even if you sell the property for breakeven, that is a giant win.

    Its initially a function of what you pay, then what you derive from the property . . .

  2. Keith Cowan says:

    It really boils down to the purchase price and the amount of readily comparable properties in the area. With over 7000 new properties under construction/for sale in greater PV, it is unlikely that any of those would qualify.

    Well-priced SFH might be a different story.

    • johnlifestyles says:

      7,000 properties may be over stating it. The MLS for resale properties has 1,000 listings and the MLS for new product (development listings), has about 850. You probably got that number from a study done a couple of years ago. At that time (2008) all new inventory was included, even if it was going to be released in phases. Since then many projects have scaled back the size of their projects, or are only releasing in phases over a longer period of time (therefore the product is not being built at this time or available for sale), and some have decided to convert the project into hotel space instead. Very little new developments have been launched since then and sales have been taking place (although certainly not at the pace of pre-2008). Our estimate is that there are approximately 3,200 units available for sale in the PV area.
      But yes, it comes down to price, and there certainly are more condos than homes available. But demand has been stronger, much stronger, for condos.

  3. Dave Alders says:

    Lets not sugercoat the reality, yes PV is generally safer from the narco violence, but only because there is one gang in control of the area, if that changed it will be become perilous. The security situation has worsened in 2010 all over Mexico including Jalisco, from a safety point of view. A lot of people were saying it was getting better. There is no real public safety or a police force that can serve and protect in the area.

    Have to wonder how this news story today will play out in the media about bombing in PV.

    At least 20 people were wounded when unidentified miscreants tossed a bomb into a bar in a resort city on Mexico’s Pacific coast, police said. The attack occurred at the Pink Cheladas bar in Puerto Vallarta city, where about 150 young people in their 20s were partying, a police department spokesmen

    said on Thursday.
    Two of the victims had to have their limbs amputated.

    The assailants threw the bomb inside the bar and it exploded nearly in the middle of the establishment, the spokesmen said.

    No threats had been received by the Pink Cheladas bar before the attack, police said.

    • johnlifestyles says:

      Okay, let’s not sugarcoat reality, but let’s be realistic and put the violence in PV in perspective, especially when compared to other North American cities. It seems that this attack was narco gang related, taking out someone from another gang – a turf war. But is it a trend? There have been a few of these incidents over the past couple of years, but nothing like its a regular occurrence.
      And it wasn’t in an area frequented by tourists or Americans who have homes there, the violence that has occurred has not involved Americans or Canadians (unless they were involved with the drugs themselves). I know its starting to sound repetitive, but there are areas of every American city that regular citizens just stay away from, especially after midnight. This was one of those places. It happened big time in Chicago last month with many killed. Read the American newspapers about the killings that take place regularly in their cities – but does that stop you from living or visiting there?

  4. Very interesting article. Having been born and raised in Miami Florida and other than the time I spent away in school I have never lived anywhere else. For 65 years I have been an observer of the real estate market here in Miami. Admittedly there have been ups and downs throughout this period of time. This one is unique. Two years ago my house was appraised at 750 today I’ll be lucky to get 5-550 for it. Right now bottom looks like up.

    http://www.concepts4building.us

  5. tom carlson says:

    20 year property owner.
    Greed is involved. The prices will be coming down.
    Probably now is the time to get out???
    Tom Carlson

    • johnlifestyles says:

      Prices have come down, as in other markets in Mexico and the USA. Some more than others. Timing is everything, if you’re a speculator – just exactly is the best time to get in or to get out? But if you are just someone who wants to have a home that’s situated somewhere that’s warm in the winter, then timing isn’t as important as quality of life.

  6. Keith Cowan says:

    Property in PV is a lifestyle expense. Anyone speculating in real estate deserves whatever happens. If you want to own RE as an investment, buy a REIT!

  7. ALIANZA de la Costa Verde says:

    Result of a July 2010 survey by VALLARTA OPINA: 5300 properties for sale in PV and Bahia de Banderas. Just 300 sold in the first 6 months of this year, i.e. long time to go to just sell “the stock”. Prices down, down, down.

    http://rivieranayaritnuestra.blogspot.com/2010/09/en-puerto-vallarta-y-en-la-riviera.html

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