News Column

It's Your Money: Ouch! There's No Place Like Home

May 30, 2008

Rick Munarriz

There are opportunities in a declining housing market

What do today's slippery housing market and The Wizard of Oz have in common? If "falling homes as a weapon of destruction" is your answer, step right up and claim a prize.

The news was bleak for those with homes to sell this week. The Standard & Poor's/Case-Shiller index revealed that existing home prices fell by a sharp 14.1% during the quarter over what they were fetching a year earlier.

The news gets even worse for city slickers, where a different S&P index that tracks 20 of the largest metropolitan markets showed a 14.4% year-over-year dip in March. The pain was piercing in what used to be some of the hottest markets during the residential housing boom, with prices in Las Vegas and Miami falling by 25.9% and 24.6% respectively. Put in a more troublesome light, if you thought you were out of harm's way by buying a Miami condo last year with a 20% down payment, you may owe more than your property is worth.

A series of factors have contributed to the problematic predicament for those with "For Sale" signs collecting cobwebs on their lawns. Stingy lenders, overconfident developers, and a glut of existing homes on the market have combined for today's toxic cocktail.

The good news is that this is a dinner bell if you're a buyer. Home prices may very well head lower until all of these negative elements work their way through the system, but if your credit is sound, you're going to find great deals from distressed sellers.

The more important lesson, for those who treat real estate as an investment, is to save your speculation for the Monopoly board. Real estate remains an attractive hedge against inflation. It continues to be an appreciating asset, historically. However, there were too many inexperienced condo-flippers and speculators who overextended their financial means without learning the cruel lessons of gravity.

You don't have to stay away from the market, just because you got burned. However, prepare yourself accordingly to avoid getting burned again. The one difference between today's housing market and The Wizard of Oz is that Dorothy was just three shoe taps away from returning to the point where it all started. Today's scorched realty investors don't have the same luxury.

Rick Munarriz is a personal finance columnist for He has written for sites such as The Motley Fool and Citysearch, with appearances on NPR, TechTV, Sirius, and CNN en Espaņol. He can be reached through where he discusses his latest articles.

Source: (c) 2008. All rights reserved.

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