Op Ed Piece

Spending so much time around people in Real Estate lately, I have come to appreciate the recent struggles in that industry. I have also realized how the media is playing directly into our fears and doubts when they report on the industry. It seems that oversensationalism is the only way we can report news these days. I wrote this opinion piece and sent it to the Washington Post. Needless to say they decided not to run it, so now I will post it here for all six of you to read.

Can we please stop reporting the current housing market as being in crisis? I realize over sensationalizing the news is the norm, but can we please take a step back and look at this realistically. The housing market is not in a crisis, it’s in a correction. Anyone of us who has lived in one of the very expensive coastal states over the last twenty years has thought that property values would eventually have to stop increasing and start to level off. Well, that didn’t happen. Instead the dotcom boom drove the already ridiculous property values to a point beyond ridiculous. The dotcom boom caused a huge spike in property values across the country. And these property values could not be sustained after the dotcom bust. So now the market is trying to correct itself.

Despite what you hear or read, I don’t believe the market is as gloomy as we’re all being told. There are people out there selling and buying homes. It is more difficult to qualify for a home loan today than it was two years ago, but there are loans available for qualified buyers. So what makes up a qualified buyer these days?

1. You need to have 10% down
2. You need to have good credit
3. You need to be employed

These don’t sound like unreasonable requirements to get a loan. Probably the same requirements you would ask for if you were going to give someone a rather large sum of money. As a matter of fact, these are the same requirements you needed ten years ago to qualify for a loan, before the lenders decided to cash in on the housing boom and give anyone a loan, no matter if they could meet these requirements or not. Not surprisingly, the lending market could not continue to hand out unqualified loans, so it corrected itself.

The housing market is also trying to correct itself. There are a few things we can do to try and aide in the correction. For one thing, real estate agents should do their jobs and manage expectations with sellers. Have the tough conversation with your clients and tell them that their house just isn’t worth what it was two years ago. Putting your house on the market at an over inflated price won’t do anything except cause it to sit on the market for a long time and make buyers think that your have become desperate to sell. It is not that you can’t sell your home, it’s that your home won’t sell at that price. Real estate agents need to be honest with their customers and explain the current market and price homes accordingly. Remember that something is only worth what someone is willing to pay, and not necessarily what you think you should be paid for it. Pricing homes correctly will help them sell quicker and eliminate the perception that the housing market is in crisis.

Sellers can also help speed up this market correction. Most people probably think that the majority of people selling their homes today are people who bought a few years ago and now can’t afford their loan or are upside down on their house. That isn’t who is selling homes today because they can’t afford to sell their home. They have wait for the market to stabilize and eventually return to the normal appreciation trends we saw before the dotcom boom.

The people selling today bought their homes five to seven years ago, before the unrealistic increase in home values and are now trying to escape with their profits. Their unwillingness to face the fact that their home isn’t worth the $800,000 that it was two years ago is a driving factor in prolonging the perception of a market crisis. Now they can only get $700,000 for their home that, by the way, they probably paid $400,000 for five years ago. And although they may feel like they have lost $100,000 on their home in the last two years, they haven’t. They have really made $300,000 on an investment in five years. Do you know of any other investment where you can see a 75% return in five years? I don’t. So let go of the notion that you are some how due the value of your home from 2006 and move on to 2008. You are still making a lot of money off a very short term investment.

I was one of the people who lived through both the technology boom and bust and I had to battle through the market correction that ensued afterward. And just like the technology sector was able to weather that correction, the real estate market in the U.S. will also survive the correction it’s enduring right now.

I could have written a lot more on the topic, but the Post limits all opinion pieces to 800 words. It was a good exercise for me and I think I will try again in the future. Who knows, maybe I will find a subject that they find suitable.

Have a great weekend. I know I will as I am off to Nantucket for the week. I will try to post while on my vacation using my BlackBerry…love that thing.