It has been assumed that the real estate prices will always be on a steady upward spiral. Therefore, making it a sure investment bet. But, real estate prices are volatile and unpredictable, with intermittent periods of booms and busts.

The boom

Real estate enjoyed a boom from 1968-2004, a period of 36 years. This is based on data from National Association of Realtors. The data show a steady increase in housing price of 6.4% during this period.  The National Association of Home Builders reports indicate that the average home size in America in 1950 was 983 square feet, 1,500 square feet in 1970, and 2,349 square feet in 2004.

The bust

The year 2004, seems to have marked the last excellent year for the home owners.  Prices for houses started on down ward trend. This culminated in the busting of the housing bubble and the consequent real estate crash.

Historically, house price decline also occurred   during the World War I, the Great Depression, World War II, the 1970s, and 1980s.

Inflation

House prices are expected to augment as the size of homes get larger and cost of building materials escalate due to inflation.

However, this seems not to be case. The home prices continued on a stable decline prior to estate crash of late 2000.

Regional disparities

House prices do exhibit regional disparities. Housing prices do vary geographically. One state may be experiencing a price decline, while there is a boom in the neighboring state. Prices may even vary within the state. It is advisable, therefore, not to relay only on national and regional statistics but to also check the reality in your state and neighborhood.

Investing in real estate

When investing in real estate, is prudent to   consider the following. First, your investment will only pay off by selling. The doubling up in value of your house is of little comfort. As the value of your house increases, so do the real estate taxes.

Secondly, using your home as equity is not advisable. This is because the interest on the loan eats into your profit, while payments you make towards the loan destabilizes your financially.

Thirdly, reasons for buying the house:  to live in or to sale and make a profit. If for the latter, then fix a selling price for the house. Once the house has appreciated to the desired price mark, dispose it off. But be aware that prices will not always be in upward trend. House market is volatile and unpredictable.

However you might decide to buy a house to stay in, pay off the mortgage quickly, live till retirement, downsize and move to a less expensive home. Though not a sure bet, but it enhances your chance of making a profit.

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