Sensationalism and the Housing Bubble
Either the National Assn. of Business Economists is full of people with no real business experience or fools. This is a headline from a major online Real Estate publication, “Economists See Credit Problems as Bigger Threat than Terrorism.”
I know they were all alive just six years ago when terrorism cost the lives of 3,000 American citizens. That headline goes beyond sensationalism. It is rude and insensitive.
The article goes on to say that one in three members of the NABE, “ … Said the housing boom can be described as a serious national bubble.” Then later in the article three in four said they would “buy a house today if they intended to use it as their primary residence.”
Would someone please tell these academic fools that housing is local in nature? While many major markets suffered and are suffering from the overzealousness of investors followed by the overzealousness of subprime lenders; there are many markets that are healthy and many more that are suffering a softening but nothing close to a collapse.
These gloom-and-doom headlines supported by a minority of questionable economist opinions feed the problem that they are describing. While the facts support the opposite conclusion. Even the economists' own research supports the opposite conclusion.
In the same article, “Asked to look five years into the future, 42% expected U.S. home prices to remain flat, 41% said prices would rise.” Then how did 34% of the same group call this a bubble that is fed by a threat bigger than terrorism?
Let’s give credit where it is due. “Fifty-nine percent still say there is no national housing bubble, only significant local bubbles. Another 8% said there’s no bubble at all and that the market is functioning correctly.”
Hooray for those groups. They got it right. There are some local bubbles where there were hundreds and thousands of development parcels and homes developed and built in anticipation of future sales and the sales that were feeding that demand was investor speculation (Boise and Sarasota to name two).
In late 2005 and through 2006 the investors realized that the boom was being fed by their own demand and they withdrew from the market. This left tremendous inventory in some cities or areas of cities and unfortunately in 2006 this was immediately followed by secondary market lenders realizing that they allowed a not-so-smart combination of underwriting standards for the previous five years or so. They were buying loans that allowed buyers to have both, little, or no down payment and marginal credit. How this happened (and who should be prosecuted for it) is a mystery that will likely to remain such.
The result was that in some communities around the country, particularly where there were high priced homes and with less sophisticated buyers, many of these mortgages were used to purchase homes. That created additional pockets of excess inventory which stalled prices in those areas.
Notice the language dampen prices in some areas. Most of the country is experiencing a normal buyer’s market that normally follows a long healthy seller’s market.
The latter group of economists put it perfectly. The market is functioning correctly. In 1986, after two to three years of a soft buyer’s market not unlike what we are experiencing now (although it was driven by different causes), there was a long strong period of a healthy sellers' market with steady appreciation.
There was a momentary softer buyers' market around the Gulf War in 1991 (although not caused by it) followed by over a decade of a healthy buyers market that lasted until 2006. If we learn from history ,strong sellers' markets last longer than softer buyers' markets.
Again, the economists got this right. The same article said 58% of the economists “predicted a ‘meaningful’ recovery in U.S. housing markets before the second half of 2008 or in the second half of 2008. The majority of the other 42% predicted the recovery in 2009.
This is completely consistent with history. This two or three years of soft buyers' market with slightly flattening prices will likely be followed by five or more years of a healthy sellers' market with equally healthy price appreciation.
Real Estate Market Driven by Supply and Demand
REALTORS® all learn in their first real estate class that the market is driven by supply and demand. So as long as there is an increasing population of people with reasonable or better incomes, the demand will keep the market healthy.
Add to that the fact that the Federal government repeatedly states that they realize that the real estate market is critical to the health of the economy and they will do whatever is necessary to keep mortgage money available.
It all adds up to a principle residence continuing to be the safest and smartest investment for a person living in this fabulous nation. (Just be careful of areas that have experienced rapid appreciation for more than 24 months. There could be a windfall or just a fall looming.)
If you are associated with real estate, please separate the sensationalism from the truth. If you are in most communities in this country everything is pretty normal. Prices are appreciating a little slower but still appreciating. Houses are on the market longer. Buyers are fussier. Yes, it is tougher to sell real estate. But you still have one of the best jobs in the world with more personal freedom and opportunity for success than any other business person or professional on earth.
If you are in one of those tougher markets, my heart is with you. You do have an uphill battle for another 12 to 24 months. You have my strongest wish that you can survive and succeed through this. If not, come back to the business in a couple of years. I feel comfortable promising you that the good times will roll again in the not too distant future.
I love this business for what it provides to our society, the people in it, and the strong bright professionals that make me proud to be a part of it.
(Rich Levin is a coach, trainer ,and speaker who specializes in raising agent production through highly effective training programs for real estate companies and individuals. Rich Levin is President of Rich Levin's Success Corp. Contact Rich at 585-244-2700 or firstname.lastname@example.org or blog with him at RichLevinBlog.com.)