Check out this hitpiece by New York Times flunkie Michael Grynbaum. Nothing but doom and gloom from the NYT lately. But, let’s give credit where credit is due. Nationwide, sales of new and existing homes are down. The number of new homes being built is down. And prices of new homes are down. Now, let’s analyze this information.
Like all markets, the housing market works in a cycle. Ebbs and flows; ups and downs. During up-swings, prices skyrocket, demand increases and people build more houses. During down-swings, prices drop because people are not buying. Both sides of this coin have positive and negative effects on the economy at large. I think we all know the positives/negatives of an up-swing. (more home ownership by Americans, increased prices, predatory lending, lack of quality inventory, boosts in tangent markets like consumer electronics and appliances) However, analyzing the down-swing, we find nothing more than simple corrections taking place. People who couldn’t afford the payments are being hit the hardest. More houses are sitting empty as they wait for buyers. But, the smart money isn’t going in until the asking price comes down. This causes aggregate home prices to fall across the board. But, as construction stops and tangent markets are hit (fewer stoves, washer/dryers, carpet and big screen TV’s being purchased) government officials step in and do things as drop core federal interest rates to the banks to encourage further lending and pass laws to stop predatory lending. Guess what, it worked in the 1980′s and it will work again.
Just make sure you are prepared to pick up some big bargains in the latter half of 2008 into 2009 before the rest of the population jumps on the bandwagon and causes prices to rise.
|
|
|
