Here’s a little reality check on the positive spin we are seeing today on real estate.

I read and listen to a wide variety of news sources and I have to just shake my head in disgust when someone touts the great growth of the current real estate market. Recently the Standard & Poors/Case-Shiller Home Price Indices released figures showing a 9.3% increase in home prices in 20 major metro areas. Sounds good hu? Before you get too excited, lets look at some facts.

First, even after the recent price increases, home prices are still about 30% lower than they were at their peak in 2006. Current prices are at the level of those in 2003. So simply put, prices today are the same as they were were a decade ago. When you couple that fact with the bargain basement mortgage rates of today (that are more than 40% lower that they were in 2003) you realize that any strength being show is largely a result of the mortgage rates. If rates were where they were ten years ago (almost twice as high) I suspect that the housing market would still be sliding down and not climbing up.

The single family home market was unfortunately fueled by greed and stupidity, a deadly combination. Too many people acted as though it was a huge-profit investment opportunity and it became the equivalent of a Ponzi scheme. New buyers kept paying the profits to the previous buyers, until the bubble burst.  Yes some people made money, but look at how many lost everything. There are far better ways to invest than to count on the “One greater fool theory.”  This theory says that “Even if I was stupid enough to pay too much, there will surely be one greater fool who will pay even more to but it from me.”  That’s just bad business.

If an investor will replace the greed with intelligence he/she can still find excellent ways to build wealth with real estate today. Opportunities abound. Real Estate has always been and always will be the basis of all wealth. It happens every day for those that know what they are doing, and it can happen for you. Good luck.