This was recently sent to me and I thought it was post worthy:
If a message is repeated often enough, then the effect of that message can have unintended consequences that go beyond the intended. An example is the flood of attention given in the media these days to the poor state of housing in the United States. While the intent is to inform the public about relevant information concerning the housing market, the overemphasis on market weaknesses (like the ubiquitous “Sub Prime fallout” we’ve all heard so much about) creates unwanted effects which practically shut things down. By the way, how many of us are sick of hearing the words “Sub Prime fallout”? One would think that Sub Prime fallout is solely responsible for the extinction of dinosaurs from planet earth. As a result of focusing so heavily on problems in the housing market, real as they may be, many potential home buyers have consequently become paralyzed by fear. As a former U.S. president once pointed out to a frightened public, “The only thing we have to fear is, fear itself.” In the aftermath of all the negative press about the housing market, let’s not lose sight of some rays of sunshine that point toward recovery and which should quell some of that fear.
To begin, what the press (and by extension, the public) so often overlooks is the fact that American’s have just come off of an unprecedented wave of home price appreciation. In other words, “So what” if home prices have fallen a little bit lately? Consider: If someone owns a stock that appreciates 50% to 100% over the course of 4 years, and then that stock drops off 5% in value during the 5th year, is the world coming to an end as a result? Why is it, then, that housing is now being treated like the bane of our society’s existence? As I‘ve noted in prior newsletters, there is a price we must pay because of unrealistic expectations that fueled the speculative boom – consequences brought on by a symbiotic relationship between an undisciplined base of speculative buyers, as well as a contingent of some equally undisciplined lenders. By way of comparison, the experience is akin to one where the whole class of kids is punished because of the agitation a few kids have brought about on the teacher.
A deeper issue, in my opinion, is the extent to which the public seems willing to be paralyzed by fear – because of what the experts say. What do I mean by that? Simply this: “Experts” ultimately have no business running our lives. This is not to say that expert opinion is without any merit or benefit to the public, but it is to call into question the way in which we allow those opinions to determine our own choices. It seems that the public at large is unsure how to make choices anymore – especially in the housing market. If an appraiser says that your house is worth $275,000 – but you decide you want to sell for $250,000, it’s okay, friend. It’s especially okay if you only paid $200,000 for the house in the first place. You basically just made a profit of $50,000. (But, of course, inflation means that it wasn’t really a $50,000 profit after all. See? There we go with the fear again!).
The time has come, I believe, for the home buying public to be empowered, by setting aside their fears of the housing market and taking control of their own destiny. The last time I checked, Real Estate, historically speaking, has only gone UP in value over the decades. What other asset can boast this fact? Certainly not my vehicle! My 1999 Jeep Grand Cherokee is not worth what I paid for it. It’s gone down in value roughly 75% since the time I first drove it off the lot from the dealer. How about my computer? I think it went down in value roughly 75% from the moment it was first booted up. The public seems to have forgotten that Real Estate, while not recession-proof altogether in the short run, remains the single greatest investment that a person can make. While in an economy of “Supply & Demand” we are feeling the effects of too much supply, this situation can only last for so long.
For new home builders, on their part, I believe they should drop the major incentive programs and just lower the prices on their homes. In fact, we’re finally seeing that become the case in the greater Albuquerque metro area, and more and more as the slump lingers on like a never-ending treadmill of inventory. It seems that for every spec / inventory home sold, another one just crops up in its place. The word “oversupply” is an understatement these days.
Lastly, what the public also needs to grasp is that mortgage interest rates, by and large, remain at historic lows. It was only 27 years ago that home mortgages were 17% on average. Can you imagine? What if the mortgage interest rates go back to 17%? If it were to become necessary in the fight against price inflation for interest rates to rise substantially (as they did during the late 1970’s and early 1980’s), then don’t think it couldn’t happen again. Home buyers today are in the “buyer’s market” of all buyer’s markets . . . and they may not even realize it. Just as it’s not a crime to sell your house for an amount below what an expert appraiser has advised you of, so too it is not illegal to accept a mortgage interest rate that’s 7% or even 8%. The time for buyers to act is NOW, in my opinion. Life goes on, and this is the message we should spread to help the healing begin.
Respectfully submitted,
David Murphy – Publisher
SALESTRAQTM of New Mexico“It’s More Than an MLS for New Homes”
office: 291-8988
mobile: 270-3323
