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Homebuying As A Long-Term Investment



While the era of get-rich-quick real estate investment may be gone, a new era of increasing wealth long-term by investing in a home is back. A study released by Businessweek.com, using inflation-adjusted data from the National Association of Realtors, shows that in 18 of the 25 largest metro areas in the US, the value of homes purchased in 1990 had increased significantly by 2010. Many of the areas' price increases were of ten percent or more.

Considering that prices have tumbled over the last few years, the increase would have been substantially greater in 2006 when housing prices peaked. While these facts are not exactly comforting to American homeowners who have lost more than $1.7 trillion in the value of their homes, it does underscore the fact that homeowners who buy for the long term have historically seen the value of their investments increase over the years.

After adjusting for inflation, the median sale price of US homes during 2010's third quarter is approximately 9.5 percent higher than in 1990, and that's despite a 26 percent drop from peak levels set several years ago. Investment counselors around the nation are recommending their clients look into buying a home. With prices still well below peak levels, and interest rates still near record lows, analysts say that now is definitely the time to buy.

Based on data collected since 1968, nominal US home prices have risen 5.5 percent annually, outpacing inflation by 1 to 2 percent. The reason this is so is that more people have wanted to buy homes in areas with limited developable land, which has driven up prices. Home prices have followed this basic pattern throughout most of the 1990s, but began rising faster in the early 2000s. Nominal prices increased an astounding 89 percent in the decade's first six years.

Analysts predict that US home prices will continue to outperform inflation, but do not expect the rapid price increases of the early 2000s to happen again anytime soon.

Of the 25 metro areas examined in the Businessweek.com report, Portland, Oregon had the largest price gain over the last 20 years, with the median sale price for homes in the third quarter up 85 percent since 1990, in terms of inflation-adjusted analysis. Homes in Denver, Baltimore, and Seattle also gained more than 50 percent in the last twenty years, according to the report.

January 7, 2011



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