If you can keep your head when all about you are losing theirs, you'll not only be a man (or woman), but you're also likely to make yourself a few bucks.
This ennobling sentiment has long been the key to enduring success in financial investments, and now it would appear to be an equally useful guide to thinking about real estate in the 1990s.The news, we are told, is unrelievedly bleak. After decades in which one's own home was routinely described as the best investment a human could ever hope to make, the new gospel is that prices are crashing and will continue to do so from here to eternity.
Well, pardon my dissent, but I'm as dubious now about the long-term hopelessness of real estate as I was earlier about its alleged surefire profitability. (Readers may recall the column in which I serendipitously called a precise top in California real estate, based solely on having heard three guests on late-night talk shows explain how enormous returns were "absolutely guaranteed.")
Now, with despondency the norm among homeowners and realtors, it may be time for a different assessment. And I am comforted today by being joined by one of the brightest minds in 20th Century finance, Peter S. Lynch, who retired this year after leading Fidelity Magellan to the best returns of any mutual fund over the past 15 years.
Lynch, who compiled this record in part by being ever skeptical of the prevailing orthodoxies, tells me that he thinks the received wisdom of a national real estate crash is ludicrously overdone.
"There is a consensus opinion in the media that the real estate market is in a state of free fall," Lynch notes. "People do not separate office buildings, shopping centers, raw land, apartment buildings and warehouses from single-family homes. Within single-family homes, they do not treat very expensive housing as being different from low- and moderate-priced homes.
"The fact that the median price has risen every year for 20 years is not considered. In addition, the facts show that the median-priced house in the third quarter of 1990 is higher than the third quarter of 1989. Of perhaps more importance, delinquencies are near 10-year lows and considerably improved over three years ago or five years ago.
"Obviously no one can predict the future, and it is very possible that basic housing prices could decline in 1991 after the massive advances of the last 10 and 20 years. However, it is very hard to argue that today the basic housing market is a disaster, as many people are reporting."
Other clues suggest that Lynch is on the right track. There are undoubtedly problems in some still-costly areas where house prices skyrocketed beyond reason, notably on the two coasts, where so many economists and newspeople cluster. And there is clearly confusion, nationwide, between the quite different situations for residential and for commercial real estate, the latter having been the area of the most flagrant excesses.
The National Association of Realtors reports, for example, that, at $96,600, the national median home price in the third quarter of 1990 was indeed 1.8 percent higher than the comparable sale in 1989's third quarter. The underlying reason was the continuing strength of smaller metropolitan markets.
Nor is the widely publicized "debt crisis" resulting in dramatic levels of loan defaults, as you might have been frightened into surmising. (It's the federal government that is irresponsible about borrowing, not the people.) The Mortgage Bankers Association reports that the percentage of residential mortgage loans past due in this year's second quarter (2.88 percent) was in fact lower than in any quarter of 1989, and compares with highs of 3.32 percent in 1987, 4.00 percent in 1986, and even higher in 1985 and 1983.
In short, while there has plainly been an (entirely normal) interruption in the nonstop rise of U.S. housing prices, it remains well short of a national catastrophe. The suspicion here is that families that buy well-selected real estate they can afford at today's prices may not have a bonanza in the 1990s, but will find over the years that it was both wise and profitable to have kept their heads - and their courage - when all about them were frightened into inaction. Rudyard Kipling was not the worst financial adviser, after all.