Real Estate Bubble? That May Not be the Question
DAVIDSONVILLE, ANNAPOLIS, EDGEWATER, ARNOLD AND SEVERNA PARK REAL ESTATE
“Are we in a real estate bubble?” can still be a nagging thought for prospective Annapolis home buyers. It turns out that it might not be the most relevant question.
When you buy a home in Annapolis , you commit to what is actually a two-pronged proposition. One part is ultra-conservative: its practical utility as shelter. Being master of the roof over your head doesn’t just let you feel like you have a grip on the future—it removes a sizeable chunk of the unknown from your family’s prospects.
It’s that other aspect of owning your Annapolis home that can trigger hesitation. When all is said and done, this is also an investment vehicle—perhaps the largest most people will ever acquire. Although this aspect, too, is often considered to be quite conservative, within the past decade there was a time when common wisdom had it that buying homes was such a risky financial gambit that only the bravest (or wealthiest) were tempted to take the plunge.
So—which is it? Is it simply a 50-50 proposition—or is there a straightforward answer to whether buying a home in Annapolis is more of a chancy venture than a prudent one?
For the risk-averse, the good news is that history does give us a reliable answer—one that depends on just one qualifier. Owning your home is a high-risk investment only if the frame of reference is short term. Over the long haul, it’s about as conservative as an investment can get.
Here’s why. Last decade’s Great Recession—and the residential real estate bust which accompanied it—were preceded by what was unarguably a full-blown real estate bubble. All the earmarks of a real estate bubble were present, here in Annapolis , across the nation, and internationally.
For a buyer who purchased at the height of the bubble, the fall in value was precipitous. From 2007 to mid-2008, the drop in U.S. residential prices was nearly 33%—a plunge not seen since the Great Depression of the 1930s. For a buyer who had purchased at the height of the bubble, selling within a short timeframe could result in a significant loss. In that case, their investment would have been almost as risky as a stock market speculation (the S&P lost 50%).
Yet for homeowners who had no reason to sell, the actual dollar losses never materialized. By this time last year, buyers in most parts of the country were willing to pay prices that exceeded the heights of 2006. Inflation has had an effect—yet current moderate residential price rises have been outstripping inflation in recent years. In fact, last week the Economist found that “across America, prices appear to be at fair value when compared to their long-run averages.”
So the more important question may not be the one about real estate bubbles at all. It’s about whether a prospective home in Annapolis is intended as a short or a long-term purchase. In all cases, I hope you’ll call me to supply my experience and up-to-the-moment market insight.
DEBORAH LAGGINI, Long and Foster Real Estate, Annapolis, MD 21403
REALTOR, Annapolis, Davidsonville, Edgewater, and Surrounding Communities