From the LA Times:
Signs of distress are piling up in the California housing market, where prices are falling at three times the national rate of decline. Statewide, median sales prices fell by a stunning 26% from year-ago levels in February, with home prices dropping at a rate of nearly $3,000 a week, the California Association of Realtors reports. Further, the CAR says the Fed’s interest rate-cutting campaign “will have little near-term direct effect on the housing market.”
That’s right. If you live in California chances are your 401(k) has outperformed your home over the last year. Normally that would be expected, but we’re in a bear market for equities!
I am amazed that it has become conventional wisdom that a house is the best way to accumulate wealth in this country. Hopefully a year-over-year decline of 26% in the California housing market will diminish some people’s desire to accumulate as much property as possible. Remember everybody, homes appreciate by 3% per year over the long term, so they don’t even outpace inflation.
That reminds me. Has anyone seen the television ad currently being run by the National Association of Realtors? It states that homes “nearly double in value every 10 years.” I’m shocked they are claiming such a ridiculous statistic.
If we go back to high school math class, we recall the Rule of 72, which lets us divide an annual appreciation rate into 72 to determine how many years it takes for something to double in value. A double in 10 years implies a 7% annual return. That is twice the actual long-term appreciation of U.S. housing. Does anyone really think that homes return 7% per year?
How can the NAR get away with this ad? Because they simply chose a time period where the average return was 7% (yes, it includes the recent housing boom) and implies that was a “typical” period. Gotta love the fine print…