Published May 24, 2011
Even a bit of good news isn't enough to signal a recovery in the housing market just yet. Sales of newly-built homes rose for a second straight month in April.
Sales increased nearly 7.5% a 323,000 unit annual rate. That's the highest since December. All four regions of the country recorded gains in sales last month - but compared to April of last year, sales are down more than 23%.
And unfortunately there are still too many homes on the market. According to the National Association of Realtors, there were nearly four million previously-owned homes for sale last month.
But economists say the figure could be anywhere between seven and eight million if foreclosed properties and those facing foreclosure are taken into account. This shows we're grooming a generation of renters - folks who either can't afford a home or don't want to own one.
Either way, many feel the market is overpriced; housing too risky an investment or unlikely to appreciate enough to make it worthwhile. When the housing bubble burst four years ago, less than 32% of households were renters. Now it's closer to 34% and rising - the highest point since 1998.
A study by Harvard University points out that since the housing meltdown, nearly three million households have become renters - and at least three million more are expected by 2015.
That's leading to more apartments being built. The pace of construction has surged 115% from October 2009 - with permits for apartments hitting a two-year peak in March.
By contrast, permits for single-family homes are on pace for their lowest annual level on record. But here's the thing – I disagree with the perception of many young adults that prefer to rent, or that say homeownership isn't worth it.
I think that kind of thinking is dangerous. That's because owning a home is essential to building wealth long term.
The Federal Government gives one of its choicest tax write-offs - the mortgage deduction -- to homeowners.
What's more, the Federal Reserve has found the largest store of cash for retirees isn't a 401(k) or a pension or savings - it's the value they've built up in their home.
Clearly confidence in the housing market is at an all-time low. Housing values have plummeted. But housing is just the latest in a serious of economic bubbles that have popped - like tech stocks did more than a decade ago.
I don't know if you've noticed - but tech stocks are back. LinkedIn, a dotcom that went public last week, has no earnings but its stock price is in the stratosphere. And, in that way, housing will come back too.
Conventional wisdom is no basis for complex financial decisions - in fact; it's more likely to destroy your wealth than expand it.