Thursday, November 29, 2007

Chicken Little Never Had It So Good

I’m sure everyone has seen the latest doom and gloom, “S&P: 3Q home prices fall by 4.5 percent.”

“U.S. home prices fell 4.5 percent in the third quarter from a year earlier, the sharpest drop since Standard & Poor's began its nationwide housing index in 1987 and another sign that the housing slump is far from over, the research group said Tuesday.”

I’m not here to sugar coat market trends. By now, Sellers would have to have their heads buried in the sand to believe that their house is worth what it was a few years ago. However, with the continual “Chicken Little” reporting, it’s surprising that any Buyer has the courage to venture out into “the market is falling” world.

But let’s keep things into perspective.

Yesterday, the Dow jumped 331 points and had its best two-day rally in five years. While the traders continue to high-five, let’s remember that for the past five years, the Dow has had its own struggles. Yet despite its “Chicken Little” media, the Dow maintained around a 5% growth rate. What’s this got to do with the housing market?

In April 2002, I bought a townhouse in Northern Virginia for $242k. In 2005, it appraised for over $482k. Today, I’d be lucky if I got $400k. Now, I can look at the current situation in a couple of ways. (1) Cry how I’ve lost almost 20% on the price in the past two years; or (2) Celebrate the 11.9% annual growth rate seen over the past five years.

I’m not a financial advisor; but I am a thinker. Like the Dow, the housing market fluctuates. Like with stocks or mutual bonds, the average buyer purchases a home for the long term. Like the Dow, home prices have historically increased over the long term. For past few years, it was reported that many Buyers were discouraged from buying because of affordability. Now “Chicken Little” wants Buyers to be discouraged because prices are dropping?

What I see is an opportunity. As prices drop, more people will be able to afford to purchase a home. Serious Sellers can encourage offers by being reasonable on their list price. For most, there is enough room to lower prices and still make a hefty gain. Buyers who are waiting for signs that the market has hit bottom run the risk of missing the window. Just as quickly as prices shifted downward, they can reverse. From what I can see, the housing market has created a situation that should be bringing Sellers and Buyers closer together. With the strong job market, low interest rates, and a good local economy, I see a forecast in which even “Chicken Little” can enjoy the view.

1 comment:

The Broker said...

You are a natural at blogging.