Duration trumps location for real estate

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Forget location, location, location.The three most important things in real estate are duration, duration, duration.If you bought a home in the last two years, it's very probably worth less than you paid.But if you bought four years ago, you're probably still above water.And if you bought eight years ago, you're almost certainly sitting on a tidy profit, assuming you haven't sucked every dollar of equity out of your home with a second mortgage or refinance.Nationwide, home prices in February were nearly 15 percent higher than they were in February 2004 and almost 75 percent higher than they were in February 2000, according to a 20-city index tracked by Standard & Poor's/Case-Shiller. OK, I'll admit that location is an important factor in real estate. The point I'm trying to make is that housing, like the stock market, is a long-term investment. All the whining, headlines and public debate over home prices focus on the steep drop over the past year or two.To be sure, these numbers are chilling.In February, Case-Shiller's 20-city index was 12.7 percent lower than it was the previous year and 14.9 percent below its July 2006 peak. (Case-Shiller tracks resales of existing, single-family homes, not new homes or condos. Its 20-city index covers about 45 percent of the nation's housing market by value.)Prices, on a year-over-year basis, were down in all 20 cities except Charlotte, N.C., which eked out a 1.5 percent gain."This the first time in recent history that we've had a national decline in housing prices," says Maureen Maitland, vice president of index analysis for S&P. "In the past, you may have seen this kind of a decline in a particular region, but another region would be going up."Another troubling sign: The rate of decline has accelerated in the past few months, with some markets losing 3 or 4 percent in a single month, Maitland says.What you have to keep in mind, however, is that the nationwide decline in home prices was preceded by 10 years of appreciation. Let's not forget that in the second half of 2004, prices in Las Vegas were soaring 50 percent on a year-over-year basis. Anyone who thought that would go on forever spent too much time in the desert sun.The 20-city home price index is now roughly where it was in January 2005, about 3 1/3 years ago.Some cities have backtracked even further, some not quite as far.Prices in the San Francisco and Los Angeles are about where they were in August 2004. Hard-hit Detroit has retreated to its August 1999 level. Seattle, on the other hand, is back where it was July 2006. Charlotte has lost just one month's worth of appreciation. Because it never really boomed like some cities, Charlotte has so far avoided a bust, Maitland says.Compared with four years ago, home prices in most cities are still in positive territory. Only three of the 20 metro areas tracked by Case-Shiller show losses since February 2004: Detroit (down 11.8 percent), Cleveland (down 7.5 percent) and Minneapolis (down 2.7 percent.)If you go back eight years -- to February 2000 -- only Detroit is below water, with a 3 percent decline. The other 19 cities are showing gains ranging from 7 percent in Cleveland to 118 percent in Miami. Home prices, like stock prices, generally move in multiyear cycles. They often become extremely overvalued or undervalued before they turn around.After the stock market crashed in March 2000, it took the S&P 500 index more than seven years -- until October 2007 -- to top its previous all-time high.That's why stocks and homes should always be viewed as long-term investments.Lynn Reaser, an economist for Bank of America, says the housing market "is likely to hit a low point probably this year. In terms of (new-home) production and sales, we should see some bottoming in the fourth quarter. But prices are likely to fall further in some of the overheated markets in 2009."The simple problem is that home prices outstripped incomes and home construction outpaced new household formations. Until homes become more affordable and the population grows enough to fill up some of those empty houses, prices are likely to fall.On the Web: To see how home prices have changed in 20 metro markets, go to www.sfgate.com/webdb/ushomes/.E-mail Kathleen Pender at kpender(at)sfchronicle.com. (Distributed by Scripps Howard News Service, www.scrippsnews.com.)