Real Estate Facts to Consider

There has been plenty of negative news about the state of the market right now. Much of it is justified but also overblown. Here are some things to consider that may bring some perspective on the soft market we are seeing today.

• Even though national housing prices are likely to dip around two percent this year, 2007 will still be the 5th best housing year on record.
• The East and West Coast typically flex higher and lower than the middle of the country, so it's not surprising that when the housing boom started back in 2002, prices skyrocketed in California and Florida, while going flat in other places.
• Rapid price gains are unsustainable, and will always overcorrect before settling back to normal rates of appreciation.
• Those believing that price gains would go on forever are the ones who were likeliest to get hurt -- speculators and homebuyers who bought beyond their true means.
• Most foreclosures and delinquencies are concentrated in the subprime market, and those who qualify for conventional financing are still seeing extremely favorable interest rates.
• Homeownership is not a quick in and out purchase like stocks. Wealth is built over the long term, which is one reason why homebuying is heavily subsidized by tax savings and generous loan programs that enable people to get into homes without large downpayments.
• Stocks and houses aren't the same. Over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield nearly $24,000. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly 5 times the stock market return, or over $110,000.
• While some markets have reported major losses in home values, they also have extenuating circumstances such as major job loss as is the case in Detroit, or overspeculation, as in parts of Florida. For many communities, home values are going up, not down.

I would also emphasize that real estate remains a "local" game. If you have questions concerning your market, consult a professional in your area.