HOUSING BUBBLE -MYTH VS REALITY

REAL ESTATE MARKET MYTHS VS REALITY


Hello there. I just returned today from the Prudential Fox and Roach “Master’s Conference” in Cambridge, Maryland, and thought you would find the following very interesting.

We were addressed by the CEO of our firm, Larry Flick IV, and Earl Lee, the national president of the Prudential Real Estate Organization.

Here are some statistics. First of all, when discussing “the” real estate market, you need to specify WHICH ONE. Real estate is a regional commodity and there is lots of variation in different areas of the United States. I will be discussing the Greater Philadelphia area.

Second, there is NO real estate “bubble.” The slowdown appears to be psychology oriented and has been egged on by constant articles and comments in the press. The reports are greatly exaggerated and inflammatory and designed to cause trepidation amongst consumers. It is a known fact, that negative news sells many more papers and garners more attention than positive news.

Consider the following facts: Appreciation rates are slowing but not declining. That means prices in most of our market areas will continue to climb but at a more gradual pace than in previous years. The economy is healthy in our area and is generating jobs. This leads to continued demand for real estate. Mortgage interest rates are NOT going up. In fact, in the past 13 weeks they have been gradually DECREASING!

The pool of buyers is fewer now than it was last year. That is because some people accelerated their buying decisions in fear of rising interest rates and home prices. Yes, INVENTORY is definitely up from what it was a year ago. Right now we have an eight month supply of houses. A year ago at this time there was a five month supply and two years ago there was a four month supply.

The average number of days on market has increased from 22 days to 32 days – This was reported in the local newspapers as a 50% increase in number of days on market. In actuality, however, 32 days is still a VERY SHORT TIME historically! With the 3rd quarter sales reports now in for 2006, it has now been determined that 2006 will probably turn out to be the 4th best year ever in real estate. No, not better than last year, but still an excellent year!

The fundamentals leading to a continued vigorous real estate market are strong. There are 78 million baby boomers. Single women are the single largest growing segment of our population and they buy more real estate than other segments of the population. There is still a high rate of immigration and as many as 25-30% of houses purchased are purchased by someone not born in the U.S.

So, in contrast with the past few years, housing is slower, but market fundamentals are still very strong.