For generations of Americans, a home was seen not simply as a dwelling, but as an engine of personal wealth. That view was promoted by the home-building and real estate sales industries as well as the U.S. government, which subsidized home loans and provided tax deductions for mortgage interest.
There have been booms and busts along the way, but from the second half of the last century through the start of this one, nothing derailed the real estate locomotive on its uphill climb. The train stalled here and there and rolled back now and then, but each time it roared back up and got homeowners to the mountaintop.
Now, however, the worst housing crash since the Great Depression may mean that a home purchase ought to be considered with the same warning issued to investors in securities: Past performance is not indicative of future results.
The economic fundamentals that drove home values up in the 20th century -- sustained growth in incomes, population and household wealth -- have been sputtering for decades. Though the future isn't necessarily bleak, economists say there's no reason Americans should continue to see a home purchase as a path to wealth.
"We can no longer assume that housing will be as good an investment for the future as it has been," said Robert Reich, public policy professor at UC Berkeley and U.S. Labor secretary in the Clinton administration.
"We can expect a gradual rise [in home values], but not the bonanza we've become accustomed to between the end of World War II and 2006, and especially the last 20 years."
Millions of homeowners have been rewarded handsomely as house values climbed steadily for decades after World War II. Houses in Valencia, for instance, sold for $22,000 to $33,000 in 1967 when that suburb was brand-new. Many of those homes sold in the mid-$500,000 range during the housing bubble and are now hovering in the high $300,000 range, property records show.
If you paid $33,000 for a house in 1967 and sold it in 2006 for $550,000, the annual return would be about 7.5%. If you missed the peak and sold this year for $375,000, you'd still have about a 6% annual return. Adjusting for inflation, $33,000 in 1967 would be equivalent to about $213,000 today.
But a broader look at home prices over time in Southern California shows that price appreciation usually has been more gradual than magical.
