Is This a Good Time
To Enter the Market?

Question: I am a first-time homebuyer hoping to buy a house in New Jersey in the $500,000 price range. Having been burnt by the stock market, I am extremely hesitant to get into the local housing market, where prices have increased by 50% to 75% over the past three or four years. Is this a good time to get in or should I wait for what seems like a bubble to burst?

-- Murugu, Plainsboro, N.J.

Murugu: I'm sure that many people feel like you do. With the real-estate market so "ridiculously" inflated, how can it sustain itself, let alone go higher?

Perhaps a true story will help to help find an answer. Nearly 25 years ago, I wrote a book (long since out of print) in which I suggested that the late 1970s was a good time to invest in real estate. As part of a promotional tour, I appeared on a Los Angeles radio show hosted by local personality Hilly Rose. One of the first questions was, "With real-estate values so high, how can anyone expect the market to go higher?" Mr. Rose pointed out that he had paid around $75,000 for his home, which was then worth about $125,000. Wasn't it ridiculous to think its value would go even higher?

From today's perspective, his concern seems unfounded. The median price in Los Angeles is well over $200,000 and many homes that sold for $125,000 in 1975 are now selling for more than $500,000. The 1975 prices seem downright cheap when compared with today's.

So, are today's "inflated" prices high or low? No one has a crystal ball -- and I certainly can't tell you what the future holds. But with inflation (even at 1% or 2%), a housing shortage in most areas of the country and the economy apparently strengthening, the market's fundamentals still look promising. Besides, as Wil Rogers once said of real estate, "They ain't making any more of it," so which direction do you think housing prices will go?

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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