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| Real Estate |
Safe as Houses
Tom Skinner
01/01/2004
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At over $12 trillion, the total value of housing in the United States is comparable to that of all the shares traded on the country’s stock exchanges and is equally crucial to the nation’s economic health. The plummeting equity markets between 2000 and early 2003 have prompted many homeowners to ask if they should brace for a similar deterioration in housing prices—and what, if anything, they can do about it.
 Nationwide, housing prices have risen every year since records have been kept. However, this masks the true risk to a homeowner. Most people do not own a diversified basket of U.S. housing assets, but a single house in a specific geographic market. Many of these regional markets have suffered substantial price declines. For example, in the mid-1980s, as oil prices fell below $10 a barrel, the price of housing in Houston fell by more than 25 percent. In the early 1990s recession, Los Angeles lost more than 10 percent of its jobs; house prices subsequently fell by more than 20 percent.
Even for those with several homes in different regions, recent softening in luxury housing markets has brought home the fact that everyone with a significant investment in real estate is at risk. Indeed, real estate comprises nearly 15 percent of affluent Americans’ portfolios, on average; equities account for 20 percent, according to a study by Merrill Lynch and Cap Gemini. Home values also are crucial to entrepreneurs because they are important sources of the collateral backing private financing.
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