Real estate prices are sort of like the weather. The only thing that is certain is change. When, however, your clients and potential clients see the prices of houses going up, down and even side wise in a hurry they may come to you asking for an explanation.
Of course, they aren’t really expecting you to be able to explain the real estate market any better than they can. They are asking quite a different question even if they don’t know it.
People already owning homes want to know if their investment is safe and people wanting to buy a home want to know if this is a good time to get into real estate.
Everyone has heard stories of people buying at the bottom of the market only to have their home prices explode with inflation as happened before the most recent housing crash. People have also heard many stories of folks who bought at the top of the market only to have at least paper and sometimes very real losses when the market collapsed.
Is a home a good investment?
Is buying a home a good investment?
My father used to strongly suggest that no one consider the home they lived in an investment. That way, he would point out over and over again, you didn’t have to worry if real estate prices went up or down – you had a house to live in until it came time to sell.
He also recognized that every home will eventually be sold. And it takes a sale for the investment to pay off. There’s no way to know in advance exactly when your client will need or want to sell the home, nor is there any way to predict what the price will be at some future date.
Dad worked with plenty of people who also invested in real estate, but he insisted using thinking about the family home as an investment was a mistake. It’s a position I think is worth considering.
The value of a place to live
It’s so tempting to expect the home we live in will always increase in value. Often it will, but if you look at even our recent history homes can also decrease in value. As The New York Times put it:
Housing is an ambiguous investment to evaluate, because a good part of its real return typically comes in its providing a place to live…
The ‘dividend’ of having a place to live is truly difficult to quantify.
In other words, the up and down of real estate prices isn’t quite as important as many people think it is, particularly if we’re talking about the home they live in.
Help them understand the difference
You can help your clients understand the difference between the home they live in and an investment that is supposed to return a profit.
Unless you specialize in servicing those who actively invest in real estate, most of your clients are looking for the next place to live. For them the ever changing prices in real estate simply doesn’t matter as much as the headlines would have you believe. You can help reassure them by pointing out the value of living there over a period of years.
What’s your approach when talking about real estate price changes?