Real estate as an asset class is sometimes considered synonymous with property but is usually distinguished as improved or developed property; land that has been or is ready to be build upon. Net global household real estate worth has declined significantly from its peak in 2005, with U.S. residential real estate losing almost $2 trillion in the first three quarters of 2008.
The real thing
Real estate is generally divided into residential and commercial (and sometimes industrial), with residential considered the most important because it is the most widely held. Residential real estate is an especially popular retail investment because it is tax advantaged by mortgage-interest deductions and the 1031 exchange rules for investment real estate. Real estate is considered the asset itself whereas real property is considered the legal context of ownership.
The value of real estate assets held by households in the U.S. and elsewhere grew steadily in the decade to 2007, thanks largely to the expansion of credit markets and the growth of mortgage-backed securities. According to St. Louis Federal Reserve President William Poole, the total figure for U.S. household real estate assets reached almost $18 trillion by the end of 2006, the last year of the most recent expansion, while a recent Forbes report in December, 2008 put the size of the U.S. real estate market (not necessarily the same thing) at $6.5 trillion.
U.S. residential real estate values lost $1.9 trillion, or 8.4 percent, over the first three quarters of 2008 as fallout from the global credit crisis struck ordinary householders. That left more than 14 percent of U.S. home mortgages "under water", where the amount owed on the mortgage is greater than the home's current market price. Some communities in California and Florida saw real-estate price declines of 25-40 percent while others, such as Utica in upstate New York, saw increases of more than five percent.
- Real Estate. InvestorGlossary.com.
- Real Estate in the U.S. Economy. St. Louis Federal Reserve.
- Property Shorts. Forbes.com.
- Home values seen losing over $2 trillion during 2008. Reuters.
- Real Estate Winners and Losers 2008. BusinessWeek.