By Ron Finke
During the 2006 portion of that idyllic period, about 1.05 million new homes sold and 6.48 million existing homes sold. The inventories of each were about 6.5 months of supply. Life was good and guaranteed to get better and better. Right?
As with all government promotions and guarantees, an end comes and the bubble pops. Whenever it does, it is guaranteed to get ugly. This one has been no exception. The good news is that life goes on and we adjust accordingly, often in spite of the fixes foisted upon us.
Independence, MO —
Long ago and seemingly far away, a couple’s home was not only a castle but a giant piggy bank. Since no one in his right mind would ever default on his home loan in those olden days, the American financial industry grew to a record proportion of the total economy. Why, the federal government set home ownership as one of its highest priorities and proceeded to have you and me guarantee several trillion dollars worth of mortgages.During the 2006 portion of that idyllic period, about 1.05 million new homes sold and 6.48 million existing homes sold. The inventories of each were about 6.5 months of supply. Life was good and guaranteed to get better and better. Right?
As with all government promotions and guarantees, an end comes and the bubble pops. Whenever it does, it is guaranteed to get ugly. This one has been no exception. The good news is that life goes on and we adjust accordingly, often in spite of the fixes foisted upon us.
So how are we muddling along with our housing stock five years after the peak? The new home inventory of the country stands at 180,000, approximately 7.2 months of supply. The pre-owned housing stock is about 3.7 million, about 9.3 months worth at present rates. Although statistics are plentiful and sometimes confusing, we are undoubtedly closer to reality than we have been for many years with regard to housing prices and market equilibrium.
The problem lies with what we desire to be reality, both from our individual perspective as well as from that of the government through the Federal Reserve Board. Let’s look at our own myopia first (pun fully intended).
As usual, we want reality to be as favorable for ourselves as it possibly could be. Take my example. In 2007 we bought a condominium because we liked it and it was in the same building as my in-laws’ unit. (The sellers added $5,000 for the latter feature.) The fact that we overpaid for it is interesting but quite irrelevant in relation to its current fair market value.
What was especially nice (but easy to forget) is the fact that we sold our previous home at a price higher than I ever dreamed possible. In 2011, I guess our current fair market value for the condo is 10 percent less than we paid. As with most assets, it is unwise and definitely not useful to peg hopes and dreams on what we wish its value to be. If we needed to sell it, we should just hire a good Realtor and price it at today’s fair market value, not wish it were different. Real estate is not guaranteed to rise in value.
Speaking of wishes, I wish I had a dollar for every time I have heard someone say, When XYZ gets back to what I paid for it, then I will sell it. The conditions that made its market price higher before might never exist again. A New Yorker would tell you, Fuggeddaboudit! The only wise question is whether in the near future something else will grow more quickly in value. If so, sell it, take your loss (and tax deduction) and reinvest it in the better one.
On the national level, we have given the central bank and Chairman Bernanke two tasks: protect our money’s purchasing power and keep us at full employment. These are smart guys, but they are totally whipped on both counts. First, they actually want inflation so your house price will rise, and second, their policies are hurting instead of helping employment. Join me in muddling on and succeeding anyway.
The problem lies with what we desire to be reality, both from our individual perspective as well as from that of the government through the Federal Reserve Board. Let’s look at our own myopia first (pun fully intended).
As usual, we want reality to be as favorable for ourselves as it possibly could be. Take my example. In 2007 we bought a condominium because we liked it and it was in the same building as my in-laws’ unit. (The sellers added $5,000 for the latter feature.) The fact that we overpaid for it is interesting but quite irrelevant in relation to its current fair market value.
What was especially nice (but easy to forget) is the fact that we sold our previous home at a price higher than I ever dreamed possible. In 2011, I guess our current fair market value for the condo is 10 percent less than we paid. As with most assets, it is unwise and definitely not useful to peg hopes and dreams on what we wish its value to be. If we needed to sell it, we should just hire a good Realtor and price it at today’s fair market value, not wish it were different. Real estate is not guaranteed to rise in value.
Speaking of wishes, I wish I had a dollar for every time I have heard someone say, When XYZ gets back to what I paid for it, then I will sell it. The conditions that made its market price higher before might never exist again. A New Yorker would tell you, Fuggeddaboudit! The only wise question is whether in the near future something else will grow more quickly in value. If so, sell it, take your loss (and tax deduction) and reinvest it in the better one.
On the national level, we have given the central bank and Chairman Bernanke two tasks: protect our money’s purchasing power and keep us at full employment. These are smart guys, but they are totally whipped on both counts. First, they actually want inflation so your house price will rise, and second, their policies are hurting instead of helping employment. Join me in muddling on and succeeding anyway.
No comments:
Post a Comment