An interesting take on what "Market Correction" actually means in today's terms. Happy 4th, and please let me know how I can help you with your real estate needs. GP
Article courtesy Realtor® Magazine
This article was published on: 07/01/2007
FRONT LINES: Economy
The Wrong Correction
BY LAWRENCE YUN, NAR SENIOR ECONOMIST
Consumers are hearing a lot in the media
about the correction in housing, and they’re understandably concerned
about whether now is a good time to get into the housing market. This
hesitancy is evident in home sales volume: Even though interest rates
fell to 6.2 percent in early 2007 from 6.8 percent in August 2006, and
the economy added 3.5 million new jobs, existing-home sales were down
8.5 percent in 2006, with further softening expected in 2007. The
irony, of course, is that although declines in sales volume have hurt
real estate practitioners, they may be a plus for consumers.
To a great extent, we can thank steady
media coverage of the real estate market “correction” for unfounded
consumer concerns. In Columbus, Ohio, for example, the median home
price is about $150,000, and price appreciation during the boom years
was modest. So when Columbus buyers stay out of the market, you know
there’s a lot of misunderstanding about today’s markets.
If there’s a correction in markets today,
it’s in home sales volume and housing starts, not in home prices. You
see the effects of those declines in weakening practitioner income and
construction employment. There’s pain out there.
But there’s no real correction where
consumers are concerned. Yes, home price appreciation has slowed
considerably, and nationally we’re expecting a price drop of 1 percent
for 2007. But that drop comes at the tail end of a five-year spurt that
increased home prices by 53 percent. We may have taken one small step
back, but that’s after taking 53 steps forward.
Even a relatively large price decline,
such as the 12 percent drop we saw in Sarasota, Fla., cannot reasonably
be called a correction when that market had a 150 percent price
increase during the boom.
When today’s consumers look at real estate
markets, they need to use the same analytical approach as investors in
the stock market. Those buyers aren’t generally concerned about the
volume of stock trades on a given day. Why should they be? They’re
focused on price trends. And by that measure, now is a great time for
consumers to be in the housing market: Prices have steadied, and
inventories are healthy.
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