Posted by: Ben Steverman on April 8, 2010
On the New York Times’ Economix blog, Harvard economics professor Edward Glaeser points out that home values don’t necessarily increase. Like stocks,
Houses are assets, too, but it’s a mistake to expect them to offer a regular rise in price. Houses pay hefty dividends to their owners in the form of living space — that’s the real return on housing investment — and the basic economics of housing doesn’t point to perpetual price growth.
It’s a good analysis of a complex issue. Of course, your house — like any investment — has the potential to increase in value. There’s just no guarantee.
As on other assets, the return on a home depends on the details, especially local demographics, how much it costs you to maintain it, and what your renting alternatives are. Some contend that real estate can serve as a hedge against inflation.
If you would rather rent but are still looking for a way to invest in a housing sector rebound, you might buy homebuilder stocks.
Listen to the warnings of Stifel Nicolaus (SF) homebuilder analyst Michael Widner before you do so. In a sobering Apr. 6 report, he says:
The hope that homebuilders will benefit in the future by buying up cheap land now is largely a pipe dream. There’s not enough cheap land, and there’s lots of competition from other buyers, he says.
Builder won’t “return to normalized earnings levels” before 2014.
Homebuilder stocks will be volatile, yet they are likely to provide an annual return of just 3% through 2013. “At current prices, we see little appeal for buy-and-hold investing,” he says.
If you “buy and hold” a house, at least you get to live in it.