22 Year Annualized Home Price Appreciation = 4.28%

Many people talk about residential real estate as an investment.

Over the past 22 years, according to S&P/Case-Shiller Home Price Indices, the average home has appreciated at a compound annual rate of return of 4.28% per year. This is a little on the high side from the longer term average price appreciation because interest rates have been dropping for decades from where they were in the 1980s.

After residential real estate goes down again this year I suspect that the average will drop back towards 3% which is the long term norm. [To get the 4.28% above I used the 10 city index starting back in January of 1987.]

So how do investors make money investing in residential real estate. Well many ways:

1. They find homes or land that is distressed (foreclosure, short sales, tax liens, or other financial emergency for the home owner). In other words they buy at a lower than current market price.
2. Real estate investors leverage themselves. They borrow money to invest in real estate, then hope that the price appreciates and sell the home at an amplified profit because of the initial leverage that was used in the purchase.

What happens to these investors when real estate prices drop? It is different for everyone. However, many of them just file bankruptcy and start all over again borrowing money and investing in land hoping it appreciates so they can have exagerrated profits from the leverage. Right now you see real estate investors and small business owners getting mad at their lenders for various reasons.

My questions are:

What does God think about all of this?

How does God want Christian borrowers to respond to this mess?