The Perfect Storm

Real Estate Agent with Associate Broker

      You can’t turn on the news today without hearing a new report about all the doom and gloom. Housing starts are down, foreclosures are up, prices are falling and the buyers have all retreated into their dens to hibernate for the winter. So there’s no point in even thinking about selling, right? Hold on, not so fast.

       It’s true, the bubble has burst and the hedonistic increase in home values has come to a screeching halt. However that doesn't mean there aren’t a large number of homeowners who were prudent with their finances and actually do have a large amount of equity in their homes. As well as a number of qualified buyers looking to buy while rates and values are low!
       We’ve been here before. In the late 1980’s we experienced a similar housing rush as “Reganomics” was debated and interest rates plummeted from 16% to 7%. Values took off and then, just like now, it was unsustainable. Certainly, there are some new nuances in the current situation, unscrupulous lenders, uninformed buyers, unrealistic bidding wars and more. Yet in the end it was the synthesis of the perfect storm. Government mandated fair-lending rules forced Lender’s to “find a way to make loans” to certain groups or risk losing their license to lend. The U.S. Federal Reserve and Alan Greenspan compounded it with a monetary policy that took rates down to extremely, some say unreasonably, low levels. All the other sectors of our markets were humming right along with great success while exuberant buyers, sellers, Realtors and lenders all fused together supporting the storm.
       Unfortunately, they all did so without enough oversight and it was, inevitably, unsustainable.
       Either way, we’re here now. In general, anyone who has purchased a home in the last 2-3 years is probably under water. Meaning they likely owe more on their mortgage then the property is worth. That alone is not the end of the world. If you took a mortgage you could afford and are making your payments, be patient. The market will recover. The market IS recovering. The jewel of real estate is that in the long run it will always go up. After all, they’re not making anymore land! (Unless you count The Palm in Dubai, but that’s another story.)
       Extraordinary times create extraordinary opportunities. Statistics from the Metropolitan Regional Information System show 1,395 Howard County detached homes have gone to settlement in 2008 versus 1,686 in 2007. (01-Jan thru 30-Dec). That’s still quite a few people buying!
       We are once again reminding ourselves that a home is, primarily, a place to break bread. To raise our family, give us shelter and enjoy life. Its primary function is not necessarily a financial investment. Yet in the long run, it still provides an investment as well. Historically, and reasonably, real estate returns 4% to 6% annual appreciation. If we take that historic mean average and extrapolate it over the recent time period, we can see that values are almost back in line with where they should be, (see graph) and we can still be thankful for the great amount of equity that built up pre-2005. Conclusion? Selling now, and/or buying now while rates are low, is still a winning strategy!



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Ted Komenda
Dunhill Group - Osterville, MA

Great advice and it is important to remember that yes we have been here before and like all other cycles we will be here again.  It is important to manage your individual finances and help your clients purchase the most for their money with the best return.  If you can weather this storm and bulid equity for your clients they will be with you forever...


Dec 31, 2008 05:14 AM #1
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Adam Rich

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