It's Not as Bad as You Think

It's Not as Bad as You Think Posted: 06 May 2008 11:57 AM CDT Finally, somebody has come out and said what's needed to be said for some time now. The media is overhyping the supposed crash of the national housing market. Here's an article that says two housing data providers acknowledge the statistics are skewed. There are anomalies that are "overstating the degree to which the vast majority of Americans' home values have declined in the past year." In other words, it's not as bad as we're being led to believe. Yes, the national median home price has dropped. But, as one economist in the article points out, that's like saying the national average temperature is 57 degrees. You don't decide if you need an umbrella by watching a national weather forecast. You look out the window where you live. It's the same thing with real estate, but that kind of fact requires work by local journalists and doesn't provide the sexy, sky-is-falling headlines. Another article says that perhaps only five states are actually in a housing recession. The analysis done for this story points out that the areas of the country that avoided the huge run-up in prices have avoided any huge price downturns. Nearly half, 73, of the 150 U.S. markets used in a leading price index are still showing price gains. But if you told that to the average American, they'd look at you in disbelief. If the national weather forecast metaphor wasn't enough for you, let me throw this analogy out there, investor to investor: I see the housing market right now as being a lot like the dot.com stock fiasco we saw in the late 1990s. In that case, we saw a huge, lightning-fast run-up of inflated prices that, in reality, couldn't really be supported. The dot.com stocks, and the mutual funds buoyed primarily by the dot.coms, came crashing to earth in a fiery wreck. The people who had their money tied up in the dot.coms were badly burned. But you know what? The blue chip stocks -- the tried and true players with real value behind them -- did not go belly up. The Microsofts, the General Electrics, the Sonys of the world stuck around and remained good buys. True, they didn't enjoy the super-fast explosion in stock price of the dot.coms, but they didn't suffer the same crash-and-burn fate, either. Just like most of the local markets that make up the U.S. housing landscape, they are still around and going strong today. They were great investments 10 years ago, five years ago, two years ago, and they are great investments now. And there's good news even for the markets with the worst bad news. The difference between the dot.coms and the exponentially growing housing markets of the past few years is that people need places to live, and there is still population and job growth in many of those markets. So, unlike the dot.com stocks, even the markets that had the biggest booms and busts will recover. You'll never read it in the papers or see it on CNN, because doom and gloom sells, but real estate was, is and continues to be a great investment. Mike Sivula, CPA Income for Life-Cleveland