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The Future of the U.S. Real Estate Market (Intro)

Taken from the January 2012 Intelligent Investor
 
Overview
Home ownership has been a vital component of Washington’s economic strategy for decades. The marketing end of this strategy has positioned home ownership as a key element of the so-called “American Dream.” 
For millions of Americans who are under water with their mortgage, facing foreclosure or in one of many stages of default, home ownership has become an “American Nightmare,” riddled with a variety of caveats ranging from millions of foreclosures, the poor effect and other undesirable consequences. 
The Real Estate Bubble chapter in America's Financial Apocalypse* opened with a discussion illustrating why home ownership is usually not a prudent investment choice.
Let’s take a look at a small portion of the discussion presented in this book…
"A few decades ago, the real estate and mortgage industries devised a marketing campaign to increase business. They began preaching a myth to Americans that home ownership is always a great investment with no risk, because “home prices always go up.”  
 
As a matter of fact, these industries have even made claims that real estate is a better investment than the stock market and has led to more millionaires. These statements are simply not true as historical data indicates. 
 
As a result of this propaganda, most Americans have the misconception that they can buy a home and it will always go up in price. But this is not necessarily true, especially when buying during the last stages of a real estate bubble.
 
Even without the effects of a bubble, in many cases the annual expenses associated with home ownership wipe out most of the gains in appreciation, yielding relatively modest returns.  
 
For the average American, the fact is that residential real estate typically provides about the same rate of return over a twenty- to thirty-year period as a money market mutual fund after you deduct the total costs of property ownership. However, unlike a money market fund, owners of real estate have significant liquidity risk as well as other risks specific to this asset class.
 
Of course, there are several variables that can deviate from these results, such as obtaining a low-interest fixed mortgage, buying a home in an area that becomes rejuvenated, and so forth. But these are not typical conditions and therefore cannot be relied upon with much certainty. Regardless, widespread speculation continues to fuel perhaps the biggest real estate bubble ever seen in America. And the consequences are going to be devastating for millions."
 
Source: America’s Financial Apocalypse, 2006 (expanded edition, chapter 10)
 
Today, you hear several individuals preaching what this book proved prior to the collapse in real estate. I would like to remind you that it’s easy to warn of a fire once the fire is ablaze. Such individuals are always late to the party.**

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