Posted by
John Stone on Tuesday, February 24, 2009 2:07:34 AM
If you follow media reports, listen to your elected officials and
believe what you hear, you will surely believe the housing market has
collapsed. Now, this may or may not be true depending where in the
nation you live.
In the last few days it has been reported that the housing market woes
have primarily effected five states, California, Nevada, Arizona,
Michigan and Florida. To this I would add many localized areas that
specifically include the coastal areas of the south eastern US, the
beach communities.
It is true that we have a seen a dramatic decline in new housing starts
and existing home sales along with a mortgage industry that has found
itself in a world of financial hurt. We all now why the mortgage
industry is in the state that it is in. It is however, a shame that
many honest, hard working families have found themselves in the middle
of this mess. This is all thanks to the lack of control by the federal
government and Wall Street greed.
As for the housing industry, lets take a look at what I believe is
going on here. Now, I will say that I am not a real estate
professional, economist nor developer. I have however, followed the
market closely over the last several years in anticipation of making a
home purchase which I did last August.
The quiet before the storm came in the early years of this decade, 2000
- 2004, where the housing industry was fairly stable, as was the market
pricing. Based on the S&P/Case-Shiller index, there was an increase
in the index of just under ten percent in 2001 and 2002. 2003 saw an
increase of just over twelve percent and 2004 about sixteen. This is
where developers and homeowners saw a growing trend of sales and price
increases which lead to a twenty percent jump in the index for 2005.
This was driven by speculation and greed, get the most you can at any
expense. Another twenty percent jump was seen by the first quarter of
2006 where the peak was reached. The market flat lined through 2006
with less than a five percent fluctuation and then the fall began. 2007
saw a decrease in the index of almost fifteen percentage points and by
the end of 2008 the index had dropped a whopping thirty five points (
S&P/Case-Shiller Home Price Indices).
Here's what I know. In our free market society we strive to make as
much money as we possibly can, and here it is again, at any expense. We
are very short sighted when it comes to gaining wealth. It's not how we
play the game but, whether we win or loose. It's that mentality that
has driven the housing market into the disaster it is today. We can
blame the government on the mortgage "crisis" but the housing crisis
must be blamed on us.
Here's what I have seen. Housing prices soared in 2004 - 2006 at an
unhealthy rate which decreased the available buyers to only those in
higher income brackets. In actuality, the higher market prices blocked
out the average American's ability to afford to buy a home therefore
creating an abundance of homes with too few possible buyers. The
result, home prices were forced down because of the large inventory of
available homes. I, for one, took advantage of this price drop.
Here's what I believe has happened. The housing market has corrected
itself and is now back to where it was in the first quarter of 2004.
There really isn't any crisis, contrary to popular belief. The crisis
only effects those, who without looking at the big picture and driven
by greed, blindly jumped on the real estate band wagon to make as much
as they could with the sale of thier home. Or, those who's speculative
endeavors fell flat because they wanted to get rich quick.
In the movie What About Bob, the primary focus in Bob's therapy was
"Baby Steps". We must think along these lines when we strive for
wealth, "Baby Steps". For every action there is an equal and opposite
reaction. That has occurred in the housing market. We have returned to
a more normal state with regard to home prices.
So there you go, no crisis, just correction.