Is real estate investing a bad bet in today’s economy or does the media just love doom ‘n gloom stories? Take a look at what leading economists say about the real estate market.
Statistics Challenge Murky Media Coverage
We’ve all been bombarded recently by reports in the various media about how the real estate boom of the past few years is over. Whether you read it in the newspaper or a magazine or see it on television, it seems as if the media has decided the real estate bubble has burst and the housing market is in the initial stages of a major swoon. Not so fast, say a number of leading economists who are challenging the negative view being portrayed in the media.
If you look at the numbers, they seem to back the opinion of the economists. For instance, the median home price across the country has dropped only 1.7 percent in 2006. That statistic certainly doesn’t signify a bust in the real estate market. They way property values have been increasing over the past decade, that figure is more of a bump in the road than a major disaster. Most homeowners are still far ahead, even with the slight decline in home prices they experienced this year.
According to most economists, America’s housing market is simply undergoing a badly needed price correction after five years of record-breaking sales and double-digit appreciation. It’s really more of a confirmation of the soundness of our supply and demand economy than the catastrophe being reported by the media.
Even the Federal Reserve’s vice chairman, Donald L. Kohn, recently told a group of New York analysts that the Fed expects the recent housing correction to be much less dramatic than the media would have us believe, and that the correction will be relatively short-lived.
Interestingly, Kohn’s speech received hardly any mainstream media coverage. Kohn told his audience that the current downturn may actually be good for the economy as a whole, because it represents a chance for America’s supply and demand system to rebalance in areas that have seen dramatic increases over the past few years, allowing buyers who may have been priced out of their desired neighborhoods to begin looking for homes again.
Encouraging Economic Factors
There are other factors that may also spur a fairly quick market recovery, including the number of new households being formed and an increasing population. Kohn believes that the inevitable turnaround should begin relatively soon. Statistics from the National Association of Realtors (NAR) also would seem to back up Kohn’s optimism. Kohn’s same optimism is also supported by the fact that long-term mortgage rates are only about a percentage point above historic lows.
The recent decline in both gas prices and the country’s unemployment rate both indicate that Americans are better positioned to make their house payments. To further debunk the doom-and-gloom predictions of a housing swoon, the Fed has stopped raising interest rates, as well, which indicates that they are comfortable with the situation.
So the next time you turn on your television and hear about the catastrophic condition of America’s housing market, remember that you can’t believe everything you hear. The actual figures simply don’t support what the media is reporting.