Monday, December 8, 2008
BAD NEWS ~ GOOD NEWS
When you analyze what's going on in the real estate market today, it's easy to focus only on the bad news. But for every negative, you can find a positive if you look hard enough. For example:
Bad news ... prices are dropping. Good news: the market is coming back to reality. In all honesty, real estate prices had gotten too high. There was a fundamental imbalance in the relationship between rents and mortgages. By that I mean, it was becoming increasingly advantageous to rent instead of buy. It was becoming harder and harder to make a rental property produce an acceptable return.
What sustained prices was the expectation of continuing appreciation, and the prospect of re-selling for a handsome profit. It seemed like it could go on forever, but the momentum has shifted. And now there is a glut of inventory on the market, with most buyers sitting on the sidelines waiting for the prices to bottom out. Right now, it's painful for all but a few. But it is a necessary adjustment for the health of the future market.
Here's another one: Bad news ... people in real estate and related trades are suffering financially. Good news ... most of those people have found or will find other sources of income. During the gravy years, it was a little bit too easy to make money in real estate, new construction, and mortgage lending. Now I see fellow realtors taking on jobs that have nothing to do with real estate, but take advantage of their sales and interpersonal skills. A homebuilder/remodeler I know just sold off his tools and has finally commited himself to playing music full time (his true passion). So yes, there's a shake-out going on. And while it's painful for many, it's a necessary and ultimately beneficial process.
As for the stock market, I'm trying to hang on to my stomach as we ride this roller coaster. My broker keeps telling me to stay the course, and so far I've taken his advice. The most comforting thought I can offer is a quote from a business associate from 20 years ago. During a downturn in the market, he said: "Oh well, it was just paper then, and it's still paper now."
Bad news ... prices are dropping. Good news: the market is coming back to reality. In all honesty, real estate prices had gotten too high. There was a fundamental imbalance in the relationship between rents and mortgages. By that I mean, it was becoming increasingly advantageous to rent instead of buy. It was becoming harder and harder to make a rental property produce an acceptable return.
What sustained prices was the expectation of continuing appreciation, and the prospect of re-selling for a handsome profit. It seemed like it could go on forever, but the momentum has shifted. And now there is a glut of inventory on the market, with most buyers sitting on the sidelines waiting for the prices to bottom out. Right now, it's painful for all but a few. But it is a necessary adjustment for the health of the future market.
Here's another one: Bad news ... people in real estate and related trades are suffering financially. Good news ... most of those people have found or will find other sources of income. During the gravy years, it was a little bit too easy to make money in real estate, new construction, and mortgage lending. Now I see fellow realtors taking on jobs that have nothing to do with real estate, but take advantage of their sales and interpersonal skills. A homebuilder/remodeler I know just sold off his tools and has finally commited himself to playing music full time (his true passion). So yes, there's a shake-out going on. And while it's painful for many, it's a necessary and ultimately beneficial process.
As for the stock market, I'm trying to hang on to my stomach as we ride this roller coaster. My broker keeps telling me to stay the course, and so far I've taken his advice. The most comforting thought I can offer is a quote from a business associate from 20 years ago. During a downturn in the market, he said: "Oh well, it was just paper then, and it's still paper now."
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