Home Values Plummet, But Opinions about Home Ownership Don’t

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First, the good news: Despite the continuing housing crisis and the recent foreclosure mess, more than half of all Americans still think home ownership is a fine idea. Just not right at the moment.

And that’s the bad news: “Right at the moment” is even worse than everyone thought it was going to be.

Two new surveys, when taken together, paint a conflicting picture …

Rent to own?

Housing agency Fannie Mae released a study last week that claims 51 percent of Americans “strongly aspire to own a home and to maintain home ownership” and that “the housing crisis has not affected their overall willingness to buy a home.”

But it’s no shock that reality is keeping them from fulfilling their dreams, and that renting is on the rise …

Overall, according to Fannie Mae’s National Housing Survey third quarter results, one-third of Americans (33 percent) would be more likely to rent their next home than buy, up from 30 percent in January 2010. Among renters, 59 percent said they would continue to rent in their next move, compared to 54 percent in January 2010.

Still, there’s something important in these otherwise unsurprising results: The bad times haven’t turned off Americans to a good idea. So the silver lining here? Maybe the recession hasn’t left scars as deep as we all feared it would.

Home values drop nearly $2 trillion

Then again, if things keep going the way they are, who knows how opinions will change? Real estate website Zillow.com crunched some numbers and announced last week that “U.S. homes are expected to lose more than $1.7 trillion in value during 2010, which is 63 percent more than the $1 trillion lost in 2009.”

Ouch.

“Despite a strong start to 2010, by the end of the year homes lost more of their value in 2010 than they did in 2009,” Zillow Chief Economist Dr. Stan Humphries. “Unfortunately, with foreclosures near an all-time high in late 2010 and high rates of negative equity persisting, it does not appear that the first part of 2011 will bring much relief.”

Double ouch.

According to Stacy, however, all these lemons add up to lemonade – he’s been saying for months that the Great Recession has offered the opportunity of a lifetime to buy both houses and stocks.

From an article he wrote back in July called “Why You Should Buy Stocks and Houses Now“…

Stocks – My two-year prediction: Dow 12,000.

As I write this (before the market open on July 6th, 2010) the Dow Jones Industrial Average stands at 9,686.48, down 13% from April highs and about 10% below where it was 10 years ago. Other indexes are faring worse than the Dow: the S&P 500 is down 16% since April and the Nasdaq is down 17%. Should any of those measures reflect a drop of 20%, that would mark an official bear market, which could trigger additional selling, driving the averages even lower.

So things aren’t looking great in the short term. Time to run for the exits? Nope. Time to buy.

I think the stock market will be at least 20% higher two years from now than it is today. The primary reason is simple: in order for stocks to stick to their historic growth rate of approximately 9% annually, they’ll have to go higher. As I mentioned above, stocks are about 10% lower today than they were 10 years ago. In order to equal their average annual return over the last 100 years, a sustained move higher has to appear at some point. The only real question is when.

Since Stacy wrote that in July, the Dow has already gone from 9,700 to 11,400 – a gain of 17%. (Stacy does more than talk about stocks – he puts his money where his mouth is. To see what stocks he owns, check out his personal portfolio here.)

From that same July article, here’s what he says about housing

Real Estate – My two-year prediction: Higher, especially in hardest-hit and hardest-to-build markets.

Nationwide, we need about 1.5 million new houses a year to accommodate new households being formed and to replace old houses that are lost to fire, flood, age, etc. The annualized rate of homes being built however, was only about 700,000 in April, and less than 330,000 in May: the lowest number ever recorded and around 20% of what’s needed. Result? Sooner or later the pent-up demand for houses will materialize as higher housing prices. As to when that will occur, it will happen when the economy improves, unemployment begins to recede, mortgage money becomes more readily available, and the huge inventory of foreclosures is worked off, especially in bubble states like Florida, Arizona, California and Nevada. (See How to Buy a Foreclosure.)

What do you do when an investment with long-term promise has a short-term crash? Whether you’re talking stocks or real estate, the answer is the same: if you have long-term money available, you buy more.

For other stories on housing, see Houses Are Now Selling for Less Than Used Cars and you can Buy Property for Back Taxes. Also check out Rent or Own Your Home? New Rules.

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