Overpriced Markets

I'm sure that by the time you read this, you will have seen 2007 in the rear view mirror. But, I still wanted to wish each of you a Happy New Year with many things prosperous, whether it be in health, finances or spirituality.

When we move into a new year, we always seem to take this time to look back on the happenings of the previous year. In this case, it would be 2007.

For me, my first thought to reflect back came on December 30th, 2007. I sat down in the evening and finally took the time to look over the days newspaper. As I perused this Sunday paper, I caught myself going through more than my normal sections of Sports, Business and Life sections. I turned over page after page until a headline caught my attention.

Lo and behold (I love using that phrase, it makes me feel like I’m in the country), I come across an article on Real Estate in London. The headline was, “U.K. feeling heat of U.S. Subprime Meltdown”. The reason this headline caught my eye was my feelings that this was just another negative article written about the decline of the housing market that we constantly get bombarded with.

If you recall in my December newsletter, the Subprime market is not the issue keeping the housing market in an uproar. So, what is the cause then you ask? Ahem….I first need to clear my throat and then I need a moment to get up on my soapbox.

Okay...here goes! First off, (note: this is just my opinion) human nature has a very greedy side to it. This is not bad and this is not good. It is just a fact. We all would like to have more of what we have and in most cases, more of what we don’t have that appears to be what we want. Now, before you get a chance to say, “What is he talking about”, I will be more than happy to include myself in this very group. In fact, if you would like, you can even make me the sole member of this group.

Now, back to the point. Yes, we all seem to want more and more and the case can be shown in the housing market. Let me ask a question. Do you want to have your home rise in value? I do! And the faster it rises, the happier I will be (except for the increase in property taxes). But, is this reasonable?

First off, what makes the value of property rises in the first place? Does it just happen on it’s own? Can you force it to happen? Will it happen whether you like it or not? No is my answer to all these questions. What makes a property rise in value is the same thing you learn in economics. Supply and demand. The more people covet an item, the more opportunity there is for someone to make a buck. You only have to look back a few years to the Elmo craze to see this happen. When something is in short supply and the demand is high, the amount that will be asked for it will be way above it’s intended value.

Now, for a brief moment, I would like to take a look at the article on the U.K. Subprime Meltdown. As I read further down in the first paragraph, I come across the real story in the story. It is about a former storage room the size of a walk-in closet that is on the market for $335,000. The total size is 77 square feet (I would like to see where the couch and bed go) and it has neither electricity or functional heating that will have to be added for approx $59,000 more. For a grand total to move in of $394,000.

After I do the long division, the total per square foot is $5,117. WOW! Can you imagine standing in one spot in this soon to be apartment and looking down realizing that you are standing on a $5,000 piece of square. After doing these numbers, I wondered how much my own home would be worth if it were that much per square foot and I could get $14,066,250 for this place. My best guess is that I would be priced not only out of my home, but out of buying at all.

Not buying at all? Would that hurt the market place? You bet it would! I seem to recall that the largest group in America is the middle class. What would happen to America if the middle class were unable to purchase homes in America? You would have little movement of cash. Goods would be unable to be sold. The economy would be stale, the unemployment rate would rise and those that had purchased when the economy was moving well, would now be unable to keep their payments going. This would put more loans in default, more folks on the street, more homes in the inventory and you can probably guess it would also start the market dropping or what the media happily call, “A RECESSION”!

What does it take to keep our markets strong? What can you do as an individual? First off, when you are buying or selling, think about fairness on both sides. Are you gouging your buyers or are YOU allowing yourself to be gouged. A few years back, I was doing a cost estimate on what it would cost for a family of two adults and four children to go to a basketball game. After looking at parking, tickets (middle of the arena) and refreshments, the cost came out to an easy $200. That would be $200 for three hours of entertainment or $66 an hour. Now, as a middle class American, I don’t think I would pay this amount for anything, but many folks do. And those that sale the entertainment realize that due to our greediness to be in the midst of greatness (that’s subjective), then they can charge what the want, because if one doesn’t want it, another will.

If we are lucky, the “Blown Out of Proportion” housing market that is being seen in city’s like London, New York, San Francisco, Los Angeles and Miami will come back down to REALITY and the U.S. and the economy of the world can breath a bit more in 2008.

Happy New Year 2008!

How is the market doing?

It seems like everytime we turn the newspaper or the news channel, there is talk about how bad the housing market is. Seems like everyone is blaming the woes of the American Housing Market on Sub-prime loans.

The problem is not so much that there are sub-prime mortgages going into default, but the way we are perceiving them and how we as buyers and sellers react to them.To put this into place...look at the Real Foreclosure story:


The REAL Foreclosure Story…

A lot of people are nervous about what they are reading in the newspaper and hearing on TV. But how can you blame them? The media is bombarding people with reports about the housing decline and the sub-prime mortgage mess.

However, Chief ECONOMIST for the National Mortgage Bankers Association, Doug Duncan decided last week to set the record straight. In a private conversation, Doug said that people have nothing to worry about in Texas.

Some of his defenses were...
· The foreclosure problem in this country is really a story about 7 states
· The biggest foreclosure problem is in Michigan, Ohio and Indiana. These are predominantly manufacturing states
· Since 2001, Michigan has lost 300,000+ jobs
· The other 4 states are California, Florida, Arizona and Nevada. In each of these states there has been significant overbuilding. 25% of the foreclosures in these states are on properties that are held by investors who were speculating
· California & Florida have been hit very hard
· 35% of the homes in the USA do not have a mortgage
· 98% of the mortgages in the USA are performing
· Only 9% of all mortgages are sub-prime
· 75% of all sub-prime mortgages are performing
· In the other 43 states, foreclosures have fallen in 2007 from 2006
Right now, our local inventory levels are half the national average and well-priced homes are selling fast. You cannot expect this type of factual information to be distributed by the news media channels. We have to be telling folks this story.
Help us spread the word...