Long Term Gain

The current reversal in residential real estate values has been a source of consternation generally and very practical difficulty personally. However, as this article from the San Francisco Chronicle correctly points out, real estate, if it is to be considered a growth investment at all, must be evaluated on a long-term basis. By that measure, most people who have been fortunate enough to have owned property for more than just the last two years have done pretty well.

According to the article, houses in the county in which we will soon live have dropped about a third of their value over the last year. However, over the last four years, the same market has only lost approximately 4% of its value, and is up almost 67% over the last eight years. Similarly, although the losses in real estate value in the Los Angeles area have been substantial, the values have only retreated to their 2004 levels. Thus, real estate purchased prior to that time has most likely yielded a gain for its owners.

Unfortunately for many people, much of the long-term gain was soaked up by second mortgages, lines of credit or refinancing. People in that position are now feeling just as much pain as someone who purchased property within the last five years. I know too many people who bought cars with money they gleefully "took out" of their houses. Thankfully, although we did borrow money against the increased value of the house a few years ago to pay for our landscaping renovations, the value of the house at that time still exceeded our total amount of indebtedness by a substantial amount, and the property appreciated more from there.

Although it has been a bit painful to wait (and wait and wait) for a buyer to come along who is brave enough to buy property in a falling market, we take comfort in knowing, as we always have, that we will realize a gain from the sale even after the price reductions that will be necessary to get the house to sell. We also know that we are very blessed to be in this position, something we never forget and a fact that makes it easier for us to remain calm and patient.

Sort of calm and sort of patient, anyway.