More Reflections on The US Real Estate Market

MSN came out with an article today about how the real estate market in the US has ‘dropped to 2005′ prices.  The article’s tone and sensational journalistic style made it seem as if that were an unprecedented disaster and the world was coming to an end.  Imagine!  House values are now at 2005 levels!

The surprising thing to me is that people have such short memories.  God gave us a brain and the ability to remember, so why not use it?  The real estate market in the US (or at least most of the US) was stagnant from the mid 80’s to the late 90’s with typical appreciation of 3-5% annually, maybe less.  It was common knowledge that to  break even you had to stay in your house for at least 5 years after buying it, otherwise you’d take a bath.

When the stock market went kaput in the year 2000 and the tech stocks plummeted in the year 2000, everyone dumped what little money they had left into real estate, thus dramatically increasing demand for real estate and coupled with low interest rates, created unprecedented ability to buy.  Naturally, prices started to rise and just like every other bubble,  everybody jumped on the bandwagon because nobody wanted to miss out on quick and easy money.

So, from the year 2000 through 2005 prices escalated very quickly (in real estate terms) and certain demand markets like California, Florida, Nevada and Arizona of course, went through the roof.

In 2005 fear started creeping into buyers since everybody already knew prices were too high (in the year 2005 mind you) and in 2006 demand started to slow down and the rest is history.

The point is prices were already way too high in 2005.  To read now, in 2008, how ‘tragic’ it is for housing prices to fall to levels that were already unsustainably high in 2005, doesn’t strike me as a tragedy.

I remember reading in the Fort Lauderdale Sun-Sentinel (in 2005) that the median wage of income earners in Broward County was approximately $46,000 a year and the median house price (in 2005) was approximately $325,000.  Now I ask you… how is somebody making $46,000 a year going to buy a $325,000 house?  They aren’t.

I can deeply and sincerely sympathize with people who bought their house at high prices and now their house is worth less than their mortgage.  It’s a terrible position to be in.  However, the same thing happened in the early 80’s when housing prices suddenly took off (although not nearly to the extent they did in the early 2000’s) and also at that time interest rates rose dramatically and people were scrambling to lock in their mortgages at 12%, 15% and even 17%.   But the point is that many, many people ended up owning a house where the mortgage was way more than the house was worth.  The suggestion of such a thing now-a-days is met with a look of horror and shock as if you were telling them a lie. They seem to think this is the first time it’s happened.

Nobody remembers.

But the answer is ALWAYS the same.  When you buy a property, buy it only if you can afford to hold on for the long term.  In the end, property is just about the surest way to build long term wealth.  It hasn’t changed.  Historically, it’s always been a long-term asset.

Are you worried about how horrible the crisis is in California, Arizona, Florida and Nevada?  Well, listen up…

One time I was on a plane and sat next to a realtor from Laguna Beach.  We were talking about prices in Orange County and she said that for the last 100 years  Orange County real estate has gone up, then dropped somewhat, then gone up again, then dropped, etc… The drop in price after the rise was NEVER as low as the previous low.  She then mentioned that people will ALWAYS want to live in Southern California.  Nice weather, beautiful scenery, healthy economy etc. etc…  Guess what?  She was right.  I would like to expand her comments to Arizona, Florida and Las Vegas too.  People will always want to live there.  Right now times are tough, but hang on to your house and someday, when you least expect it, the market will take off again, demand will increase and there will be a short supply.

Tips from Florida Power & Light (FPL) on how to save on electricity

I live in Florida and for most Floridians, the power company is called FPL or Florida Power and Light. Anyway, they sent out an email today that contained a few tips and a survey which will ask you some questions about your power consumption and then respond to you with ways you can cut back and save money. They also have a program where they will lower your bill if you voluntarily sign up for a program where you offer to have your power cut for a short period of time if they ever have excess demand and are short supply. Read more