Doom and Gloom With a Twist
According to the newspaper articles, the market is going gangbusters, but you hear it beginning..."Why won't my house sell?"
There are five main conditions to selling quickly. Location, condition, marketing, the market, and the price. If you have a great location and your home is in good condition, you probably know it. Your agent shows you their marketing efforts, at least the stuff that is visible. A lot of marketing occurs behind the scenes.
Assume all those are just fine.
There are two things left. The market and the price.
Obviously, the market must be slowing because it can't be the price! That just...isn't....thinkable. Everyone is selling for higher prices. People are getting rich selling their homes!
In just the last six months, the median priced home increased by 18.25%. Since 1968, the highest prices have increased in one year is 14.2%!
We've still got six months to go. If this price-growth trend were to continue, that would be 36.5% appreciation in one year. It's never happened.
The Housing Bubble is here!
Houses were never meant to be liquid investments. Whether you intend to live in the home or rent it out, you buy it...and you hold it. Stocks you can sell in a day. A house can take months to sell.
In the long run, houses are great investments. Those who buy for the purpose of "flipping" a home to make an immediate bundle of cash? Well, it is like playing a game and not obeying the rules. It works for awhile.
But for those investors playing a short-term game who don't have enough cash to switch to the long-term game and play by the rules, they can get burned.
Don't be one of those guys.
So what is going to happen next in the housing bubble?
First a pause in the market while everyone gets their breath and the desperate few start to panic, then...
...interest rates rise. Loan officers look at their bin of refinances, home equity lines, and debt consolidation loans and....they aren't closing. They have a drawer full of nothing but paper.
Then, a return to normalcy, at least for several months. Fewer multiple bids when a house is fresh on the market. By the time we get to year-end, maybe a slight drop in prices. For the year, everyone will still be ahead.
For the "regular folks"...it won't be a problem except those aspirations for ever-escalating prices and immediate sales will have to be scaled back to reality. It will take longer to sell a home. Your price will be more in line with traditional price growth, not craziness.
You see, most people have lived in their home for awhile. They have appreciation. If their price isn't going up as quickly as they thought it was going to, it isn't THAT big a deal. The house they are buying isn't going up as fast, either.
It equals out.
But there will always be some people who HAVE to sell. They are moving for a new job, their house is so leveraged they cannot afford it anymore, or maybe they lost a job and don't have any saving. Unfortunately, those people get hurt.
It would "really" be a housing bubble. Prices would decline maybe twelve to fifteen percent over several years. There would be no collapse like the "dot.com bubble."
Relax...Statistics Can Fool You
This has been fiction.
There is ALWAYS a huge jump in median prices in the middle of the year if you compare them to sales at the end of the year.
Families move during the summer. Single people can move any time, even when it is cold. Families have bigger houses, more rooms, larger square footage. Their houses cost more.
The median price average in July jumps like crazy when compared to December because you're comparing bigger houses to smaller houses. Compared to last year, against the same size houses?
Prices are only up 14% over last year when compared to the same size houses.
The point is that all those people on the news who want to scare you with dire predictions of your house prices going "splat" can do it very easily with statistics. It gets ratings. It sells papers.
Here are the stats that count. Not dollars, but PERCENTAGE growth in prices.
There was more appreciation in the seventies than there has been in the last several years. It isn't scary yet.
Still, expect slower longer time in the future and fewer crazy "flipping" investors. Those guys can go down the tubes at any minute. The market can slow down suddenly, though not in the way a "bubble" bursts.
� copyright June 2005 by RealEstate ABC
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