The Media is Always Talking About Real Estate Markets Going Up and Down. Why?
Short answer: I would say that it”s because they need something “new” to talk about to make it “news” and because it creates a sense of drama. Painting a picture of the real estate market that makes it seem like a roller coaster ride that everyone needs to be constantly updated on works well for their business model. That’s my short answer, but saying only that wouldn’t be much of a blog post now would it?
Before we get to the long answer it is worth pointing out that I am not trying to say that the ups and downs don’t affect people. They certainly can and do and sometimes the effect can be dramatic. That said, I have long held the opinion that too much is made of the market ups and downs when applied to most people most of the time. I would also like to emphasize that a solid understanding of certain fundamental principles of real estate will go a long way to make that ride a lot smoother, more enjoyable and greatly reduce your likelihood of getting hurt. There is so much going on with regards to real estate in both our collective lives and our individual lives that this tunnel vision about ups and downs is really not healthy. There are other important things to consider as well! This blog is written with the philosophy of giving people the info that they should be getting rather than more of the kind of info that is being crammed down their throat every day. A counter culture to mainstream real estate media. A holistic approach to real estate? Well not quite, but it’s a start.
When reading or listening to the news, you hear talk about the ups and downs just about every day and quite often you’ll see reports published at the same time that are in apparent disagreement. That’s the problem with trying to oversimply things, not showing them in context and being described by people whose profession usually has little if anything to do with the esoteric world of real estate. If you are like most people (including the reporters) you do not work in the industry and are not in a position to see what is going on behind those numbers and even if you are, you will know that there are many reasonable ways to interpret those numbers and no one has a monopoly on knowing what’s going on. Yes, that’s right, even the experts often don’t see eye to eye on everything. Shocking, I know. Most of the reports you see have a way of making even the ordinary sound extraordinary simply by not explaining the context. They also make it sound like there is a solid conclusion to be drawn from them. But here’s my issue what taking those things at face value: Fully informed views don’t fit into ten second sound bytes or even well written full page articles. In order to be presented with clarity they would need to be reported by someone who is a seasoned professional in the industry. Also, the drama would need to be tuned down in order to have a level headed view. My guess is that if the media companies took the time to explain things clearly and fully they would go out of business due to costs associated with the extra hours staff would have to put in plus the fact that most people won’t pay attention long enough to get the full message. They need an audience that is captivated and still watching long enough to make it to the ads.
The major strategies in real estate are pretty timeless and even though such strategies are the sort of thing that would be most useful for people to know about, they are neither new or easy to hype so they don’t have the sizzle needed for a snappy headline/news item. You will still want the help of an active Realtor and related professionals to know how to get the very most out of applying these principles to your specific case but a simple grounding in the basics is likely to change your life for the better. I will try to fit a summary into this post but keep reading this blog in general for a broader view. I know that the topic is dry to most people but it is well worth familiarizing yourself with.
Here are a couple of these major principles that I don’t think get much if any airtime despite their importance to pretty much everyone:
The homeowner should buy when they can afford to put the downpayment down and keep up with monthly costs. No sooner no later. Then, they must be prepared to hold on for a few years at least. It other words, it is always a good time to buy real estate if you can afford to. Some times are a little better than others but your own financial situation will generally trump the other factors. This is especially true if it is your own home you are talking about. Once you are in, you have to be willing to be patient. By ‘patient’ I mean expect five to ten years but it may vary a little.
As I’ve previously stated in great detail, the short term ups and downs of property values don’t affect homeowners nearly as much as most people assume. Remember that although prices go up and down in the short term they do go up in the long term and they do so faster than inflation. This is why I generally recommend that when you buy a place that you are in a position to hold on to it for five to ten years. Yes, there are exceptions like flipping in an up market but even then you should be prepared to hold on to in for a bit just in case things change (yes the market is one of a myriad of other things that could affect this) before you have completed your reno. It costs money to sell your home (Realtor fees, Lawyers, fixing it up and mortgage penalties if you don’t plan it right) and it takes time for your equity to build enough to make all of that easy to deal with.
If you are a first time buyer or just don’t currently own the goal is to just own something. Don’t wait for the lowest point in the market because the only way to know you have found it is by looking back at it after it has passed. There are so many other factors that make the timing better or worse and your personal financial position is the biggest factor of all. Just own something modest that you can live in and pay for. Rent is basically just paying someone else’s mortgage for them and what you pay per month in rent for a place around these parts is pretty similar to what you would pay per month as an owner. The main difference is of course that you need to have the credit and downpayment available to get into that ownership situation.
It does bear mentioning that lives change suddenly sometimes. So when you are looking to buy, choosing a place where there is a renting option just in case you need it is a good plan. If you can swing a plan b as well then you will sleep better overall.
If you are and owner who is concerned because you bought a house a couple of years ago and prices haven’t really budged or maybe they’re slightly lower the question you should be asking yourself is “Do I need to sell?” If not, what’s the problem? Keep paying the mortgage and maintain the place and be patient, it’s just a matter of time before things go up again. Besides, you’re paying off equity bit by bit as you go anyway and at the interest rates we have lately paying things off is cheaper. In a few years you will probably look back and remember how cheap it was to pay your mortgage because rates will have almost certainly gone up again.
Paying attention to the details of price fluctuations is more the game of the investor who makes their living, in whole or in part, off of real estate revenue. A homeowner mainly needs to get in, hold on, maintain the property and keep paying that mortgage. If you need to move and the equity isn’t there to pay for it then renting part or all of the property out is hopefully an option. If you can’t afford to keep it, you can’t rent it in part or in whole and can’t afford to sell it and have equity left that’s when the tough decisions have to be made. Hopefully you can find some way to make ends meet but if you have to sell to avoid things falling apart then that’s what you have to do. It’s no fun and I totally empathize but you need to understand that the real estate market does not. If you are in this situation putting it on the market at the price you ‘need’ is folly unless that price also happens to be the market value otherwise you are on the slow road to foreclosure. The market is merciless and Buyers only care what the best deal is. The second best property for the price does not sell, only the number one property does. The worst thing you can do for yourself is putting up an overpriced listing that will sit for a long time. That’s just going to make your money troubles worse, in a slow and painful way.
So I have just clearly stated my position that most people’s perception of the importance of markets going up and going down is getting caught up in short term drama and not really that meaningful if you are thinking long term and don’t have some sudden major upset with your income. There are many other important factors to explore. One of which that affects us collectively is interest rates and as this post is already lengthy, I will continue with that in my next post.